Here is what we are watching this week:
The Earnings Slate: Tech Giants and Consumer Bellwethers
This week brings a fascinating mix of earnings reports. Many of these tech names have been hard-hit recently, with Meta standing out as the potential exception for year-to-date performance.
Meta: The focus here remains firmly on the AI narrative and the massive capital expenditure required to fund it. Investors will be scrutinizing the return on this heavy investment.
Tesla: Always a highly anticipated event, a Tesla earnings call is an experience in and of itself. Expect volatility and closely watch the forward-looking guidance.
Netflix: Netflix currently holds a dominant position, but the stock has a habit of coming off its highs. The core question is innovation: are they losing ground to creator-led platforms like YouTube and TikTok? We will be watching to see if management introduces new features to revitalize the narrative. For instance, while social platforms allow users to clip and share music, Netflix could theoretically introduce a feature allowing users to legally clip and share iconic TV and movie moments.
Spotify: A recent community poll confirmed what we already knew, Spotify remains the dominant audio platform.
However, possessing a great product and running a highly profitable business are two different things. Investors are demanding to see more in terms of margin expansion and financial payback.
Nestlé: Moving away from tech, Nestlé will serve as a crucial bellwether for the global consumer. This report will provide a direct read into consumer inflation resistance, pricing power, and the current state of global supply chains.
The Macro Picture: Inflation Beyond the US
Remember, the US is not the only game in town - a principle we frequently emphasize at BREAKINGWATERS. This week, we are looking past the Federal Reserve to gauge the global inflationary environment.
We will see fresh inflation figures coming out of Canada, the UK, and Japan. Collectively, these reports will paint a broader picture of global monetary health, dictating how international central banks might pivot and, ultimately, how we should be allocating capital.
BREAKINGWATERS Updates
Global Small Cap Strategies: Join us this Friday at 11:00 AM for a live conversation with William Lough of Otis Capital. We will be diving into the mechanics of global small-cap investing - www.bit.ly/TomorrowsMegacaps
High Conviction Investing: Keep an eye out for our newly uploaded conversation with Andrew Hollingworth, where we discuss his worldview and the framework behind high-conviction investing.
Book Club: We are currently reading Buffett’s Early Investments by Brett Gardner. There is still time to grab a copy and get caught up before our live Q&A with Brett on November 6th. www.bit.ly/BuffettsEarly
Have a great week!
Glossary of Terms
Capital Expenditure (CapEx): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment (highly relevant to Meta’s AI investments).
Consumer Inflation: The rate at which the prices of goods and services bought for everyday life increase over time.
Earnings Call: A teleconference or webcast in which a public company’s management discusses the financial results of the most recent quarter with analysts and investors.
High Conviction Investing: An investment strategy where a portfolio manager places large bets on a smaller number of carefully researched stocks they strongly believe will outperform, rather than heavily diversifying.
Macroeconomics (Macro): The branch of economics that studies the behavior and performance of an economy as a whole, focusing on trends like inflation, unemployment, and gross domestic product (GDP).
Pricing Power: The ability of a company (like Nestlé) to raise prices without reducing demand for its products.
Small Cap Strategies: Investment approaches focused on companies with a relatively small market capitalization (typically between $250 million and $2 billion), which often offer higher growth potential but come with increased volatility.
