No competition, no progress. This week we discuss why 1Q earnings should beat expectations, the unstoppable duo of A.I. & Software, the price it takes to bring home gold (and copper) and a global athletic brand ready to compete.
The U.S. Equity Strategy team expects S&P earnings to beat expectations for 1Q.
We look for 7% growth, well above the 3% consensus number and roughly in line with 4Q23 growth. Encouragingly, our 1-month earnings revision ratio was positive in March, the first time that’s happened since August 2023. The bears will point out the Street has cut numbers heading into reporting season, but it’s only by 2% (led by Energy and Materials) versus the typical 4% cut. We continue to look for $250 in S&P earnings this year, up 13% YOY, and commentary from our analysts is consistent with our expectations for better 2H growth. We believe the next leg of the earnings upcycle will be led by volume, with operating leverage driving margins higher. But given the importance of demand, the moderation in leading indicators such as Korea exports and new orders/inventories is worth monitoring.
“The Big Picture on A.I. & Software” includes > 100 exhibits to illustrate the fastest growing subsector in Tech.
U.S. Software Analyst Alkesh Shah expects software spending to accelerate as A.I. and the shift to Cloud drive demand. 4Q results were somewhat disappointing, owing to high A.I. expectations and cyclical challenges. While Alkesh remains balanced on the sector in 1H24, he expects outperformance to resume in the second half, and not just for the Magnificent 7. The software market for A.I. is expected to grow to $944bn by 2027. Efficiencies driven by A.I. could appear in the next 3-5 years, while past disruptive technologies have taken 15-30 years to reach mainstream adoption.
A.I. is not just driving software demand – Metals Strategist Michael Widmer thinks rising investment in data centers and A.I. will boost demand for copper.
Broader electrification efforts should translate to higher use of the red metal as electric vehicle (EVs) require more copper than traditional cars and electricity networks rely on copper for power generation. Mine supply is also tight, which should help lift copper prices to $12,000/t by 2026 (+30% from today).
