AMD Takes Aim at Nvidia

In this issue of the peel:

• Small businesses are feeling good, while consumers are feeling political. Since the economy is entering a transitionary phase, it’s only right we ran an official vibe check on all involved. Find out if they passed below.
• AMD shares surged as Lisa Su & Co put Nvidia’s data center business in their crosshairs. McDonald’s has some new fans, while Sweetgreen suffers from being too healthy. Lastly, Carl Icahn just paid a not-so-Icahnic fine to the SEC.?
• Private Equity funds look for alpha anywhere they can get it. Apparently unable to find it in their employees, they’re on the hunt for a brand new asset class. Get all the details below.

Market Snapshot

Banana Bits

• Labor market expectations are lower than my parent’s expectations for my career.
• Median housing payments are on the decline.
• GM just fired 1,000 salaried employees from software to service.
• George Santos, known for his colorful political career, pleads guilty to charges that got him kicked out of Congress.
• Trump says he’d name Elon Musk to a cabinet position but would also likely cut EV tax credits.

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Macro Monkey Says

Vibe Check

As politicians start to compete more and more with the sign-holders at your local intersection, the American vibes have taken a quirky turn.

Much like your alma mater, it looks like they’ve forgotten you’ve already made your contribution and are asking for more. But I digress.

As much as the “Your $5 goes a long way…” has killed the vibe in my YouTube ads, the country’s broader economic vibes haven’t been quite as harsh.

I wouldn’t know, as that requires touching grass. But, according to the latest sentiment data, an official vibe check is long overdue. Let’s get into it.

What Happened?

Last week was a good time for surveys, as both small businesses and consumers were grilled on their economic outlook.

According to the National Federation of Independent Businesses (NFIB), small businesses are much more optimistic.

Source

Like a graduate with a finance degree, U.S. small businesses haven’t been this hopeful since spring of 2022. The last time optimism was as high as it was in July was right before the Fed started raising rates in March 2022.

Generally, small businesses don’t get on a sugar high as we rush into a recession. July’s data—if it implies anything—is suggestive of a newly developing boom.

Small businesses account for ~44% of GDP and have been responsible for 2/3rds of labor market activity in the last 25 years.

Even if their optimism is unfounded, expectations create reality in macroeconomics. More optimism brings more eagerness to hire, give raises, and basically everything else we would need to buck the trends we tweaked about yesterday.

Source

The recent uptick in planned job openings is one strong piece of evidence that the Moms and Pops’ of America are ready to power the economy.

But, ironically, just as optimism spikes from planned employment growth, lower rate and inflation expectations, better credit conditions, and slightly higher capital expenditures, small businesses are also dealing with a bout of uncertainty.

Source

Along with the spike in “Don’t Know” and “Uncertain” answers highlighted above, expectations for higher sales and higher earnings are both in decline as well.

It’s almost as if small businesses are saying, “We’re chilling, but we’re not sure consumers are, so we don’t know if they’ll come buy out sh*t.”

So, let’s ask consumers.

Luckily, the University of Michigan already did for us, and according to their data, Consumer Sentiment improved slightly last month too.

Overall, Consumer Sentiment grew 2.1% for the month and fell 2.3% for the year, both barely worth paying attention to.

But, consumers have clearly soured on their assessment of current economic conditions, falling 19.3% for the year. Meanwhile, expectations for future conditions jumped 10.2% from a year ago.

We can attribute much of this to the heating-up election cycle here in the U.S.?

Source

It makes sense for Democrat voters to increase their expectations following the party’s shift toward Harris as their primary candidate.?

Meanwhile, it’s the exact opposite for Republicans, given that their assessment of the probability of their candidate winning in November declined in response to her nomination.

The Takeaway?

I’ll say it again—from an investing perspective, politics does not and should not matter:

Source

Because of this, we’re more inclined to bet that the increase in small business optimism is a better signal for future conditions than the whims of politically charged consumers responding to a survey in which they likely don’t fully understand most questions.

So, for now, the U.S. economy continues to pass the vibe check.

But, if our worries from yesterday come to fruition, we might have to call the bouncer over to eliminate any bad vibes.

What’s Ripe

Advanced Micro Devices (AMD) 4.52%

• “If you can’t beat ’em, buy ’em.” That’s what I always say (as long as I have access to my dad’s credit card), and it is exactly how AMD is competing with Nvidia.
• AMD can’t buy a firm that’s almost 13x their size, but they can buy the next best thing—a data center infrastructure maker called ZT Systems—for $4.9bn.
• The deal will be done in stock and cash and is the clearest indication so far of AMD CEO Lisa Su’s plans to take some of Nvidia’s margin for herself.

McDonald’s (MCD) 3.25%

• After my girlfriend said, “Take me somewhere expensive,” for our anniversary, I immediately put on my best tux and drove straight to those beautiful Golden Arches.
• I’m single now, but damn, those Big Macs were good. However, prices at McDonald’s aren’t the only thing going up following this upgrade from Evercore.
• The investment bank raised its price target from $300 to $320 as McDonald’s has increased market share and is expected to continue to do so through 2024.

What’s Rotten

Sweetgreen (SG) 6.82%

• On the other hand, Sweetgreen fell as charging higher prices for food that tastes worse might not be a great model… despite whatever the hell “eating healthy” is.
• Piper Sandler analysts agree as the firm downgraded shares from Overweight to Neutral, realizing that McDonald’s is where people go to add “a little extra weight.”
• Long-term, the firm remains bullish. But, after Sweetgreen’s latest earnings, the “risk/reward for the stock is now more balanced.”

Icahn Enterprises (IEP) 4.71%

• The only thing worse than the enemy trying to force us to eat healthy is getting fined by the SEC. Unfortunately for Carl Icahn, he learned that the hard way.
• The Icahnic 88-year-old investor might be going full Joe Biden as he apparently forgot to disclose up to $5bn worth of borrowing backed by IEP shares.
• Icahn, as the controlling owner of Icahn Enterprises, should’ve disclosed such activity in 13D filings. He and his firm agreed to pay $2mn as a settlement.

Thought Banana

PE-nalties On The Rise?

Next week, we can look forward to one of the most impactful meetings of macroeconomic bigwigs the world has ever seen.

No, not those nerds flying into the “middle of nowhere” Wyoming to yap about interest rates or something.?

Obviously, I’m talking about the NFL deciding whether or not they want to allow overpaid psychopaths, I mean private equity firms, to own teams.

Let’s dive in.

What’s Happening?

Everyone and their mother and their companies want to own a sports team.

And, based on the average returns seen below, it’s not hard to understand why. The average value of an NFL team exploded more than 10x from 2000 to 2023. Meanwhile, the S&P 500 has grown “only” ~282%.

Source

Since 2016 alone, the average value of an NFL team is up ~118%. Not so coincidentally, that’s also the exact same year the NFL began streaming… on Twitter… then moving to Amazon in 2017.

Given that the advent of streaming made sports leagues more popular than Pete Davidson at a singles cocktail night, it’s no surprise that PE firms are looking to get a slice for themselves.

According to Sportico, at least 7 PE firms have met with the NFL in recent weeks to discuss involvement. These include Apollo, Blackstone, CVC, Carlyle, Dynasty, Sixth Street, and Arctos.

The big dawgs—Blackstone, CVC, and Carlye, are allegedly wh*ring themselves; I mean pitching themselves as a consortium.

But, firms like Dynasty, Sixth Street, and Arctos are already well-known in the world of sports for related investments in the past.

The Takeaway?

NFL owners voting to allow PE firms to take ownership would be a huge step in commercializing the league.

But the question is whether commercializing the league is a good or a bad thing.

Private equity firms are great alchemists—squeezing every dollar they can and then some out of seemingly every human interaction.

Whether or not that’s the mindset we want in the world’s most valuable sports league is a tough call.?

After all, some pale-skinned PE bro probably would’ve advised Tampa Bay to stay away from a certain 43-year-old quarterback before the 2020 season…

The Big Question: Should PE firms be allowed NFL franchise ownership? What impact would this have on their returns and fan’s experience?

Banana Brain Teaser

Previous

What is the sum of the odd integers from 35 to 85, inclusive?

Answer: 1560

Today

What is the greatest number of blocks, 8cms by 6cms by 9cms, that will fit into a storage space that is 60cms by 72cms by 96cms?

Send your guesses to [email protected]

?

Don't confuse luck with skill when judging others, and especially when judging yourself.

Carl Icahn

How Would You Rate Today’s Peel?

?? All the bananas

?? Meh

?? Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick