The promise of a clear AI strategy on the back of an exclusive tie-in with Open AI’s ChatGPT has ensured the latest Protean-surge in Apple shares continued in New York overnight.

Wednesday was another big day for Apple in New York as investors delighted in the shiny new AI features and operating systems which Apple fans will hope trigger a wave of snazzy new iPhone and Siri-isms.

Helping the AI-tech frenzy, the US Federal Reserve then held rates steady at its meeting despite trimming its forecast for the number of rate cuts this year down to one, from  two in March and three last December.

US inflation fell to 3.3% in May, down from 3.4% in April. Month-on-month, the CPI was steady in April, whereas the forecast was for a rise of 0.1%.

Monthly and yearly core CPI readings (which exclude the volatile prices associated with energy and food) were also lower than expected – slightly better than the reports for April and March.

The Fed on hold means the cost of cash stays at a 23-year high of 5.25% – 5.5%.

US inflation fell to 3.3% in May, down from 3.4% in April. Month-on-month, the CPI was steady in April, whereas the forecast was for a rise of 0.1%.

Monthly and yearly core CPI readings (which exclude the volatile prices associated with energy and food) were also lower than expected – slightly better than the reports for April and March.


Elon Watch

SpaceX engineers who got their asses fired from Our Entrepreneur Elon’s space rocket plaything have filed a big lawsuit against Mr Musk alleging some pretty musky allegations.

Sexual harassment is one and something called Retaliation is another – both with the California state court.

The move overnight is an escalation on what is a multi-pronged pitch legal battle with everyone’s least fave billionaire.

“Musk knowingly and purposefully created an unwelcome hostile work environment based upon his conduct of interjecting into the workplace vile sexual photographs, memes and commentary that demeaned women and/or the LGBTQ+ community,” the eight ex-SpaceX staff said in a court filing.

Elon seemed pretty stressed about it all:

Over on X, the days of checking if your old girlfriend liked your latest vacuous Tweet/X post are over.

X, formerly Twitter, will hide who liked a post, according to an in-app alert and updates from Our X boss Elon.

The move, X says, is to better protect users’ privacy on the app.

When you post, X will show you metrics such as the like count in your notifications, but you won’t be able to see who tapped the little heart.

Seems a bit mean, and follows a tsunami of changes Elon’s made since he bought the platform for a ridonkulous $US47bn in 2022.

Most notably, he intro’d a paid tier that gives subscribers access to more direct messages and Elon’s exalted blue-check thingy.

If you want the blue-check thingy, you usually have to pay, unless you’re even more spesh.

Last week, parents should also note, X officially allowed for porn to plaster the app, following years of lingering around the issue with a” laissez-faire” approach to such adult content.


Apple eats into NVDA’s pie

Far more excitingly, after about 570 days and nights to ponder the impact of OpenAI’s generative AI launch via ChatGPT, the big Apple finally did something we haven’t seen much of – make a move to suck some money out of Nvidia and into a competing AI option.

In fact, overnight, Apple’s market value briefly topped Microsoft’s for a while during trading, handing back the crown as the world’s most valuable company for a fresh fitting.

On Monday at the Worldwide Developers Conference Apple laid out a multi-pronged AI strategy, which rang all the bells.

The new Apple Intelligence which uses ChatGPT will be available on iPhone 15 Pro and Pro Max smart phones, which by some estimates is just 5% of the current iPhone installed base.

That’s a reflection of the silicon requirements for the on-board AI features. The other key question is whether the new capabilities will spur current customers to buy expensive new phones out of fear of missing out.

For now, though, the hesitation around Monday’s AI announcement has been replaced by giddy certainty that the move to quickly integrate out-sourced, top-notch AI across its tech and devices is the right one – and why not, when Apple’s products are already in the hands of some 2 billion people worldwide.

Apple’s combined gain on Tuesday and Wednesday is now up over 10%.

This saw its market value vault to $3.34trn – the highest ever recorded for a listed company – before the shares faded in the final hour of the Wall Street session, closing 3% stronger and ending the display with a market value of $3.27trn, just behind MSFT.

Microsoft rose nearly 2% on Wednesday, lifting its value to $3.28 trillion.

Shares in Nvidia were up 3.5%, with the market value topping $3.08 trillion.

Apple’s surge dragged the S&P 500 above the 5,400-point level for the first time ever.

The S&P500 and the Nasdaq clocked new, new highs after Apple shares first took off at pace on Tuesday – another new record high, jumping over rising 7% to some $207 a share.

On Tuesday, Nvidia ended about 0.7% lower as Apple ate into its fanbase.


NVDA still the monster to watch: Evercore

Nvidia won’t miss it.

Following NVDA’s yearlong 200% surge, the AI darling’s market value has popped into the $3 trillion stratosphere.

According to FactSet, Nvidia’s current weighting in the S&P 500 has grown to 6.6%.

Microsoft is tops with a 7% weighting, while is looking good for a comeback at around 6.5%.

Meantime, NVDA could one day dominate the benchmark S&P500 by a magnitude that has never been seen before, more than doubling the influence of past leaders like Apple and Nokia, along with current leader Microsoft – that’s according to Evercore chip analyst Mark Lipacis.

“History suggests NVDA could become 10-15% of S&P 500,” Lipacis reckoned in a note last week. “We have observed that at each successive computing era, the ecosystem players represent a larger weighting of the S&P500.”

UBS pretty much agrees.

In a note that highlights some characteristics of the US market’s current seven-month rally, UBS reckons that sans NVDA, the benchmark index would be around 350bps lower.

Here’s the prime wagyu in bullets

  • There’ve been two distinct phases: multiple expansion in late 2023, while earnings growth has contributed most of the 2024 upside.
  • Surprisingly, since October 23, Small Caps and Large Caps have rallied almost identically. Unsurprisingly, Magnificent 7 stocks have significantly outperformed the rest of the S&P500.
  • Value outperformed in the early stages of the rally, but EPS growth has been much stronger for the Growth index since. EPS momentum and price momentum have been the strongest factors.
  • Nvidia accounts for 30% of the S&P500 return in 2024. S&P500 returns drop from 11.3% to 7.8% ex-Nvidia.


Wall Street’s got more innit: UBS

Even more interestingly, UBS thinks the current multi-record highs for the S&P500 are deceptive – and the index is not as expensive as it looks.

The S&P 500 has advanced 50% since October 2022. Over this time, the Price to Earnings ratio (P/E ) of the index has increased from 15.2x to 20.6x.

This compares to an average of 16.8x over the past 30 years.

Not surprisingly, many (bearish) investors point to elevated valuations as a reason for caution, however, UBS believe these concerns are misplaced.

Here’s the thinking:

  • In 1994, Tech-related companies made up 8% of the index.
  • Today, they constitute 42%, skewing valuations higher. Focusing on the median multiple removes this distortion. Today the median is 17.1x, 3.5x points below the cap-weighted S&P 500.

While P/Es are the industry standard valuation metric, Price / Free Cash Flow and Price / Return of Capital (dividends and buybacks) better reflect true value.

Today, UBS calculates the US benchmark P/E is 1.3 standard deviations above normal, vs. 0.1 above for P / FCF and P / ROC.

This gap is the result of:

  1. a larger weight in high Free Cash Flow TECH+ companies, and
  2. improvement in Free Cash Flows (less capital intensity) more broadly.

UBS (and Citi previously) believe this should result in persistently higher P/Es.



Another important distinction made by UBS is that although Treasury Yields are above their Long-Term average, investors too often use Treasury yields as a proxy for long-term discount rates, excluding the impact of credit spreads or equity risk premia (which are very tight).

Furthermore, UBS analysis suggests that the business cycle is the primary driver of medium-term changes in valuations, with P/Es collapsing around recessions, expanding in recoveries, and drifting higher mid-cycle.

The recent jump in multiples is best explained by falling tail risks – with recession fears just about evaporated, UBS see P/Es drifting higher from their current levels.

The rally has legs.