May 4th Update

Star Wars Day – May 4th be with you.  And tomorrow is Cinco De Mayo. 

Start the week at all-time highs. 

What’s going on?  Oil prices higher, gasoline prices, cultural division, anger and violence.

AI investment is driving the economy

Here are important points from Goldman Sachs (Ben Snider, May 1, 2024)

Mega-cap tech continues to deliver exceptional earnings growth, but investors continue to focus on revenues as an indicator of return on AI investment spending. AMZN, GOOGL, META, and MSFT reported collective revenue growth of 20% and earnings growth of 61% this quarter, although "other income" driven by private equity investments contributed a record 1/3 of those total profits. Within the group, share price performance following reports continued to mirror revenue results and guidance.

The AI capex boom shows no sign of slowing. Analyst estimates for 2026 AI hyperscaler capex spending now total $751 billion, $80 billion above estimates at the start of the earnings season and 83% above spending in 2025. The surge in spending estimates is driving a similar rise in earnings estimates for AI infrastructure companies, helping lift the earnings outlook for the broad market and skewing risks to our S&P 500 EPS estimates to the upside.

Management commentary and consensus margin revisions are reflecting pressure from commodity input costs. Analysts have trimmed margin estimates for most sectors but continue to show index and median constituent profit margins jumping by more than 120 bp this year. We expect those estimates will decline further in coming months.