News and analysis

Fresh megacaps records are breath-taking as those flowers are just entering into full bloom. The AI-darling Nvidia has to rise to the challenges of Sino-American affairs' adapting to new technologies. However, its share price soared to new all-time peaks when closing the day at as high as $207.04 for the first time ever, up another 2.99% in one session. The stock even traded above $212 at some point before pulling back. Nvidia's rocket took off immediately when the U.S. president Donald Trump mentioned cutting-edge Blackwell chip shipment with Chinese leader Xi Jinping. This step up made Nvidia the first $5 trillion company in the world.

Along with a 7.5% jump on solid quarterly earnings in Google-parent Alphabet (GOOG), which is now a measly $5 shy of $300 per unit, these both improvements pushed the S&P 500 broad barometer to a new historic high of 2,922.13 points in Asian hours today. The Federal Reserve's 0.25% rate cut on Wednesday seems to have been lost amid those more important market drivers.

While Beijing is under-buying U.S. agricultural goods and hampering the expansion of U.S. social media, to say nothing of non-interfering with local businesses from copying know-hows, the Washington White House is responding in kind, refusing to share the latest technological developments of its flagships and setting trade levies. Mr Trump had previously signalled that he might consider allowing Nvidia to export a downgraded version of its latest AI processor. Trump described the Blackwell chip as “super duper” noting that Nvidia CEO Jensen Huang recently brought a version of the accelerator to the Oval Office. “We’ll be speaking about Blackwells,” he has told reporters.

Restrictions on U.S. chip exports to China is the main hurdle for the worldwide triumphal march of generative artificial intelligence, along with still limited capacity of AI consuming companies to turn the use of all these talking chatbots, viral images from neural networks, and business optimization systems into concrete profits. Jensen Huang projected Nvidia will generate $500 billion in GPU sales through 2026. Nvidia announced its work with Uber to develop self-driving vehicles and with Eli Lilly to accelerate drug discovery using 1,000 of its GPUs and tie-ups with Nokia to advance 6G technology. Other AI collaborations were made with Amazon, Foxconn, Caterpillar, Palantir, Oracle, Cisco and T-Mobile. According to Vivek Arya at the Bank of America, the next financial year of 2025/26 is backed by $0.5 trillion+ in orders at conservative price of $25 billion per gigawatt vs. potential for $30 billion+ content, he wrote when justifying his personal price target for Nvidia at $275 per share.

Nothing can stop Microsoft from its rally. The Windows-maker's price briefly hit $555 at the end of July and then the bubbling stream has been allowed to off-gas for a couple of months staying at over $500 per share while tariff storms raged. This was exactly what has allowed the stock to raise growing investment flows for a triumphant return above $550 as soon as a suitable fundamental opportunity presented itself. The last 4% was covered quickly, within a trading gap on Tuesday, thanks to a new agreement announced with ChatGPT developer OpenAI. According to the news, OpenAI is going to grant Microsoft a $135 billion stake. In exchange for this, OpenAI declared its commitment to purchasing an extra $250 billion in Microsoft's Azure cloud services, even though Microsoft will no longer have first refusal rights as OpenAI’s compute provider.

This partnership is on the verge of controlling power but it does not violate antitrust laws. It began in 2019, with Microsoft now holding 27% ownership in OpenAI. Now it has tremendously expanded after months of negotiations allowing both companies necessary flexibility. OpenAI can jointly develop cutting-edge software like Sora with any third parties, also providing API access to national security customers, regardless of cloud provider. Microsoft will have the right to work independently on AGI (artificial general intelligence) development, alone or with other partners. The software giant keeps extended intellectual property rights through 2032, including rights on models developed after AGI is achieved, with appropriate safety measures in place.

No one, including me, can foresee all the far-reaching consequences of this deal. Besides, it's funny to watch how those kind of deals between AI giants like OpenAI and NVIDIA, then NVIDIA and Oracle, now OpenAI and Microsoft etc. allow each other to enhance their market positioning against many smaller or non-AI businesses, with their actual revenue and profit growth is still nowhere near what each of those companies has projected. Anyway, a $10 to $15 share price pullback could not mislead mid-term investors like me about obvious plans of major financial houses to acquire even larger stakes in Microsoft. The behemoth company's incoming quarterly report could only further spur this investment process, increasing Microsoft's market cap targets by another double-digit percentage number. It seems they will consolidate their leadership in the competitive cloud environment, previously confirmed by phenomenal results in Q2. Perhaps $600 per share is the minimum threshold that I keep in my mind for the next wave's foam to touch it. Further growth to $625 or so may be delayed, as it similarly happened immediately after the summer's spontaneous jump well above $550, but extended rally well above $600 still looks inevitable.

My dear friends, earlier in mid-September I told you that taking profits in growing Tesla stock without much delay was the best possible decision after its rapid upsurge. Rising in prices by more than $70 per share in only 3 trading days looked excessive. So, in the main thing, I was right, even though the major wave of mass profit taking came above $470, i.e. some higher and two weeks later. But here and now the recent market moves have changed my point of view for Tesla stock. It happily blew off enough steam already so that the crowd became eager and ready to continue on the EV maker's upside rally, having bought yesterday immediately as soon as the price touched below $415 on quarterly earnings' initially volatile interpretation. From this bottom, with losses of up to 5.5% at the point, the stock just switched into a relentless upside momentum, turning the loss into a 2.28% daily gain. It was just 0.60 cents short of touching $450, which comprehensively demonstrates currently enthusiastic market sentiment. I suggest that buying any dips close to $425 or maybe $420 would be a generous gift, as it seems that retesting $480 and then climbing to at least $525 per Tesla share is only a matter of two or three months if not just weeks.

In addition to Tesla sales exceeding Q2 by almost $2 billion with a new record of $28.1 billion, a powerful jump in EPS (equity per share) came out, being one and a half times higher from $0.33 in Q2 to $0.50 in Q3. Only very strange people could have fallen for the idea that this is a small number compared to the average expert forecast of $0.54 to start selling on it. For me, that $0.54 expert stuff just fell from the sky to create some blur around the truth that Tesla numbers were as hard as diamonds. The volume of electric vehicle shipments increased by 7% to 497,098 units compared to the same period last year. This can be partially attributed, of course, to US extra demand before the expiration of the tax credit discount of $7,500 at the end of September, but sales statistics have grown globally more or less evenly. And then there are robotaxi service expansion, the humanoid robot industry and huge battery charging network. With all this, Tesla will be ahead of its rivals, even if we take into account its higher-than-it-was-expected prices for affordable cars. I never said Tesla had fundamental weaknesses. Nothing of the sort. I only warned about the asset being momentarily overbought. That's no longer the case.

Shares of Netflix tumbled by more than 10% this Wednesday. There you are, my Precious... So juicy sweet... Stupid fat tax laws... You ruins it... New and strange Brazil tax rules... They stole it from us... We are lost, lost... No business, no Precious, nothing... Only empty... Well, enough Gollum's emotional quasi quotes by J.R.R. Tolkien here. In substance, sales of Netflix's streaming products still remain strong and even become better after climbing another 17% YoY from $9.82 billion to $11.51 billion, including 3.8% QoQ vs $11.08 billion. Still very steep growth, good pace. Even US and UK engagement just hit record levels, up 15% and 22% respectively from late 2022, citing data from Nielsen and Barb, as Netflix itself has stopped providing subscriber numbers in its earnings report to attract more attention to financial indicators. Well, this is exactly what happened, but no shareholder is happy except future shareholders who sleep and see in their dream how to buy some stake in Netflix as cheap as possible.

Netflix has become much cheaper, sliding to around $1,115 so far, from their previous June peaks of nearly $1,350 just months ago, and could possibly even dive into the $1,000 area or even briefly dip below this mark - all due to an unexpected profit shortfall. In fact, profit numbers would have been more than needed to continue Netflix rising rally, as profit grew quarter after quarter through those points at $4.27 bln, $6.61 bln, $7.19 bln consecutively, but now it nominally fell sharply to just $5.87 bln instead of breaking new all-time records. This happened because Netflix CEOs decided to take into account fresh Brazilian tax payments, deeming that the further efforts on legal disputes could be unproductive. Thus, a painful $619 million tax expense is associated with a 10% tax on certain payments made by Brazilian entities to foreign counteragents. In this case, Netflix Brazil pays Netflix US for services that enable Netflix Brazil to offer subscriptions to its Brazilian customers. This had not previously been factored into the company's results and projections. But it became clear that the company has high chances to finally lose the litigation on the case. And this became a potential loss to knock the operating margin for Netflix‘ September quarter.

Providing more colour on what happened, CFO Spencer Neumann stressed “two really important takeaways" that he wanted to share. "The first is that … no other tax looks or behaves like this in any other major country in which we operate. And, secondly, absent this expense, we would have exceeded our Q3 ‘25, operating income and operating margin forecast. And we don’t expect this matter to have a material impact on our results going forward”. Without the Brazilian "culprit", Netflix's operation margin would have exceeded the company’s previous guidance of 31.5%. But they reported an operating margin of 28% after accounting the loss. This national tax on outbound payments is called the Contribution for Intervention in the Economic Domain (CIDE). It’s not a tax that’s specific to Netflix or streaming businesses. Other companies would probably be impacted as well, even though many of them believed that it may apply only to service payments that involve a transfer of technology. Netflix actually "received a favorable ruling from a lower court back in 2022" that concluded "we were not subject to this tax, which is why we believed we couldn’t accrue this”, according to Spencer Neumann. But in August, the Brazil Supreme Court decided against another unrelated company, ruling that “the tax applies to a wider range of transactions than we thought was legally permissible,” including service payments. “So given that court’s ruling, that’s caused us to revaluate the likelihood of prevailing, and we now deem the loss to be probable, and that’s why we recorded the expense in Q3”, he added.

I've gone into such detail because I thought the details were important. Netflix's business can't be harmed by a tax in one country for long, even if it were to be implemented. At worst, they'd simply raise subscription prices for Brazilians and blame their government for the measure. Netflix's other financial metrics are remarkably good. The company noted its record advertising sales. According to co-CEO Greg Peters, Netflix could more than double its advertising revenue YoY. Since Netflix introduced discounted ad-supported subscriptions not long ago, it has yet to provide the exact size of its advertising business. They didn't do it yet, creating an impression that its steady revenue growth is still primarily driven by standard subscriptions and leaving even more room for my dreams on future growth via a rather new channel of ad-supported subscriptions.

In short, I therefore see no reason not to add Netflix stocks at cheaper prices. Speaking of content, I've already written about Christmas time, coming sooner than you blink your eyes, and Christmas holidays always represent a profitable season. Key releases right now also include the final season of Stranger Things, new seasons of The Diplomat and Nobody Wants This, as well as Guillermo del Toro's Frankenstein and Rian Johnson's Wake Up Dead Man: A Knives Out Mystery. The latter movie is exactly what I am personally eager to see. And all of this will happily wake up Netflix stock, I believe, as it is far from being a dead asset.