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Sunday, December 10, 2023

Turnkey Tech Investing: August 2023

Are we navigating by the stars underneath cloudy skies? This 12 months’s fairness market buying and selling has actually been characterised by a lot trepidation because the market struggles to seek out its true north. But, for all of the psychological scar tissue round what may go unsuitable, it has been outstanding to see how a lot has gone proper. Not solely has financial development remained comparatively strong amidst inflation abating, however shopper spending and company margins have additionally sustained at wholesome ranges. Sure, it looks as if the skies have at instances been cloudy, however when will this market let go of the priority that each cloud could carry thunderous rain? 

For the month of August, U.S. equities completed decrease because the S&P 500 and Nasdaq-100 Indices posted their first month-to-month declines since February. The ROBO indices noticed comparable weak point with the Robotics & Automation Index (ROBO) declining -7.6%, the Healthcare Know-how & Innovation Index (HTEC) contracting -7.2% and the Synthetic Intelligence Index (THNQ) falling -4.9%. Whereas AI remains to be a serious development subject right here, the Nasdaq 100 (closely weighted within the tech house and thus the AI dialogue) declined 1.5% for the month but remains to be up over 42% YTD.

The upcoming lengthy weekend within the US actually gives a pleasant alternative to take a step again from markets and put together for the dash into year-end. As all of us sharpen our pencils, the query stays what grade will this market get subsequent semester? At dwelling, it feels just like the refrain of “smooth touchdown” has been rising louder as we proceed to get Goldilocks knowledge prints. In fact, the start of this week noticed some resurgence of the “unhealthy information is sweet information” narrative amidst smooth financial knowledge.

Traders have actually had quite a bit to mull over these previous couple of months as all of us proceed to evaluate the trajectory of monetary circumstances. However, what’s most encouraging is that inflation has been moderating with out hampering world development. The buyer stays sturdy – significantly within the US – and sarcastically it looks as if dangers to the upside have change into extra probably than a possible slowdown.

All eyes turned to Nvidia (NVDA) final week – the rising AI star that simply retains getting brighter. By the point the fiscal 12 months ends subsequent January, Nvidia ought to have introduced in north of $50 billion in income, practically double that of final fiscal 12 months and practically 5 instances its annual income in fiscal 2020. 

The surge is flowing by to Nvidia’s backside line. Its web revenue margin hit 46% within the quarter, in contrast with 10% within the year-earlier quarter. Simply as a comparability, Intel hasn’t reported a web margin larger than 31% prior to now 32 years.

Finest-in-class robotics & automation firms all over the world continued to ship superior income and earnings development in 2Q23. Nonetheless, after 4 consecutive quarters of optimistic earnings surprises, sturdy demand and record-high backlogs, the tone has modified as a number of bellwether firms warned of slowing orders and diminished full-year outlooks.

Slowing orders in manufacturing unit automation had been most obvious at:

  • Rockwell Automation, the US chief in manufacturing unit automation management programs, which had an exceptionally sturdy 1Q23, trimmed its year-end backlog and lowered the excessive finish of natural development steerage. Whereas administration stays upbeat across the massive variety of new manufacturing amenities launching within the US, Rockwell noticed elevated cancellations in China and with e-commerce clients and warned of slowing orders from machine builders
  • Fanuc, the world’s chief in industrial robotics, reported a stunning 35% decline in working revenue, and lowered full-year steerage by greater than 30% beneath consensus. Orders fell 24% YoY as buyer inventories normalized. Fanuc mentioned that with provide chains stabilized, stock changes throughout the trade will probably proceed by the rest of the 12 months.
  • Siemens, the European industrial automation powerhouse, lowered its 2023 gross sales outlook for Digital Industries after a -35% YoY hunch in 2Q orders, anticipating intensified destocking tendencies to proceed for the subsequent few quarters. 
  • ABB, the European chief in manufacturing unit robotics, additionally reported worse-than-expected declines in orders Robotics and Discrete Automation (-23% YoY)

Whereas industrial automation appears set to sluggish additional within the subsequent couple of quarters, general fundamentals for the ROBO index stay sturdy. 

87% of the 79 ROBO International Robotics & Automation Index members have now reported 2Q23 earnings, and the median income development stands at 9.5%, considerably above the 0.6% fee for the S&P500 in keeping with Factset. In the meantime, median EPS development accelerated to 12.1% YoY, up from 5.3% YoY within the prior quarter. This compares to a -5.2% EPS decline for the S&P500, the biggest earnings decline since 3Q20 in keeping with Factset.

These outcomes had been considerably higher than anticipated with a median EPS shock of +3%, however not as optimistic as in prior quarters. Actually, solely 54% of index members reported EPS beats in 2Q, in contrast with 70% in 1Q23 and 61% in 4Q22. 

Greater than half of the ROBO index members reported double-digit income development, led by enterprise course of automation (ServiceNow, PTC) in addition to logistics and warehouse automation, with Symbotic, Kardex, Cargotec, Manhattan Associates and Toyota Industries all reporting greater than 23% development. Symbotic introduced a flurry of latest contracts and a brand new JV with Softbank to create an automatic warehouse providers firm, which it expects to generate over $500m in annual recurring software program, components and providers income by 2030.

The Integration and Sensing subsectors additionally confirmed wholesome double-digit income development. In the meantime, income declines had been concentrated in 3D Printing and semiconductors, the place the downcycle began in 2022 continued to play out with Ambarella, Qualcomm, Teradyne and Fuji reporting declines of greater than 15%.

As of August 31, 2023, the ROBO index was up 18.3% YTD and is buying and selling on an mixture ahead PE of 25x, in contrast with the 24x common in the course of the practically 10 years since inception, and a excessive of 36x in February 2021.


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