Chief Investment Strategist
Summary: Revenue outlook from Adobe last night fails to paint a picture of explosive generative AI growth. Arm concludes a successful IPO with a 25% gain on the first day of trading. European luxury stocks are on the move today on encouraging Chinese macro figures.
Given the strong promises of growth from generative AI there was a lot of attention of Adobe earnings last night as Adobe, providing creative and content software, is a sweet spot for capitalizing on the generative AI hype. The FY23 Q4 (ending 30 November) outlook on revenue was in line with estimates suggesting minimal impact on growth rates from the new AI features. Adobe announced that it will hike prices across products on 1 November and with additional fees for using AI features. Our interpretation of the Adobe earnings is that the generative AI hype is creating a gold rush into Nvidia GPUs but that commercialization will take much longer than what is priced in financial markets.
Arm shares rose 25% yesterday on its first day of trading cementing the positive vibes around the IPO which was significantly oversubscribed. Due to the small offering translating into roughly a 10% float retail investor participation in the actual IPO offering has been small. This likely generated a lot of demand from retail investors on the first day of trading which we can confirm at Saxo as Arm shares were fifth most traded globally in yesterday’s session. Our take on Arm remains that its valuation is quite stretched and is predicated on strong expectations that generative AI will structurally lift future growth for Arm.
As we wrote in our European Quick Take this morning, China’s economy is showing temporarily stabilisation with better-than-expected industrial output and retail sales in August. On top of that, the PBoC cut the reserve requirement for banks lifting growth sentiment spilling into strong bids in oil and iron ore markets. The positive risk sentiment out of China is also spilling over into European luxury stocks in today’s trading session with some the largest luxury stocks such as Richemont, LVMH and Christian Dior sitting in the top 10.
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