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Intel stock falls and hurts US indices

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Last Week’s Highlights

Intel stays behind in AI race and shares fall

Intel’s stock slumped over 12% after a bleak Q1 revenue outlook and the company’s struggle to catch up in the AI race. While AI is driving growth in the chip sector, Intel seems to be an exception, with analysts pointing to another transitional year for the company. The news weighed on the rest of the sector, with semiconductor makers that make chips for the heavy data needs for generative AI among the biggest winners in the stock market in 2023. While Intel’s central processing units (CPUs) are often used in conjunction with Nvidia’s AI chips, the company is not yet competitive in the AI-specific chip market. 

Tesla tumbled on low sales forecast

Tesla’s stock fell by over 12% after CEO Elon Musk warned of a slowdown in sales growth despite price cuts that have hurt margins. Musk said that growth would be “notably lower” as Tesla focuses on a cheaper, next-generation electric vehicle to be made at its Texas factory in the second half of 2025. The EV industry has been struggling with a slowdown in demand for over a year, and the price cuts by Tesla will likely worsen the pressure on the startups and automakers such as Ford. At least nine brokerages downgraded the stock, while seven raised their ratings. Tesla short sellers have made $3.45 billion so far this year. 

Coming Up This Week

American Express forecasts higher 2024 profit

American Express has reported record revenue for 2023, exceeding many analysts’ expectations and has forecasted a better-than-expected profit for 2024. The forecast is based on the hopes that its affluent customers will be resilient with their spending, even amid elevated interest rates. American Express has been able to navigate a tricky financial landscape more smoothly compared to some of its peers, helped by its affluent customer base, who are less sensitive to inflation and the surge in borrowing costs. The company is planning to increase its dividend by 17% starting in the first quarter of 2024. However, some caution prevailed, with AmEx raising its loan loss provisions in the fourth quarter. 

Reddit gets ready for its IPO

Reddit is planning to launch its Initial Public Offering (IPO) by March 2024, according to reports. However, its targeted valuation reflects a significant decrease from its earlier funding rounds, as per a Bloomberg report. The company’s advisors are reportedly aiming at a valuation in the mid-single-digit billions, around $5 billion. It’s worth noting that Reddit had secured funds with a valuation of $10 billion in 2021. It’s possible that Reddit’s IPO strategy could be influenced by investors’ dwindling confidence in IPOs, which could be attributed to challenging economic conditions such as persistently high interest rates. Despite the reduced valuation, Reddit’s IPO timing seems appropriate, as investors’ risk appetite has increased amid diminishing concerns about a potential recession. 

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Market News

Last Friday, the S&P 500 ended its five-session streak of reaching record highs, largely due to Intel’s bleak revenue forecast. However, the US economic data showed inflation moderating, bringing some positive news.

Despite ending the session lower, all three major indexes, including the S&P 500 and Nasdaq, recorded their third straight weekly gain and their 12th weekly advance out of 13. For the week, the S&P 500 added 1.06%, the Dow gained 0.65%, and the Nasdaq advanced 0.94%.

The recent return of the S&P 500 to record highs for the first time in two years has been driven by optimism about the economy and lower interest rates, as well as bets on artificial intelligence.

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