Can the market rally without Apple? Apple has been the largest company in the world and at one-point last year even accounted for over 7% of the entire S&P 500. Just as the question has been asked, though, the market has answered. Over the last 200 trading days, the S&P 500 is up 21%, and during that time, shares of AAPL have dropped over 6%. The 27.2 percentage point performance gap between the two ranks as the widest since October 2013. Looking over even a shorter time frame, over the last 100 trading days, the S&P 500 is up over 24% while AAPL is down fractionally. In the entire period since the iPod was first launched in late 2001, this current period is the first time that the S&P 500 has been up 20% or more over a 100-trading day period while AAPL was down. Apple faces several well-known headwinds. All the legal problems. Limited growth as revenue is expected to only increase by just over 1% in fiscal 2024, marked by a similar increase in iPhone sales. But the biggest issue may be the lack of strategy around Artificial intelligence. Apple has not indicated much progress with AI. Rumors are circulating that Apple is talking to Google about licensing Gemini. This has sparked more rumors about potential partnerships with OpenAI and Anthropic for example. No company can be the best at everything. Ultimately Apple is a product company. Despite the services narrative, everything revolves around products. Whatever happens next with Apple, we’re likely to know this summer. Apple’s developer conference (WWDC) seems like the perfect moment to unveil a bunch of AI features. It will host its annual Worldwide Developers Conference (WWDC) from June 10 through 14, 2024. In the meantime, we are holding our position in Apple. The quote at the bottom might apply to our position in Apple. “Never give up, for that is just the place and time that the tide will turn.” – Harriet Beecher Stowe

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Amazon (AMZN-US) made its largest venture investment yet. The tech giant has committed another $2.75 billion to back AI startup Anthropic, bringing its total investment to $4 billion. The deal took place at the AI startup’s last valuation ($18.40 billion), with Amazon maintaining a minority stake but not receiving a board seat. Anthropic has closed five different funding deals worth $7.30 billion over the past year as the generative AI race rages on. Owned in Core, ESG+, US and Opportunity Portfolios.

(sold) CGI Inc. (GIB.A) The latest RBC Elements data paints a mixed picture for IT services companies as job postings in the U.S. continue to rebound, up 15%Q/Q (although slower from +21% Q/Q growth last quarter), but overall global postings were up only 1% Q/Q. For GIB.A specifically, job posting was essentially flat sequentially (+2% Q/Q), indicating that organic growth may continue to remain soft in this quarter. While the company can offset slower organic growth via M&A, valuation at 12.0x NTM EV/EBITDA is at the high end of 5-year range, and above IT services peer group average of 9.7x. As such, we think it’s prudent to exit the name in the search for better opportunities. Owned in ESG+ Portfolio.

(+) Ferrari (RACE-US) The success of new launches of vehicles like the Roma and the Purosangue should enable Ferrari to penetrate new demographics and the substantial Chinese luxury auto market. Finally, Ferrari is likely to dramatically expand its production. It has the capacity to make 15,000 vehicles but currently makes only 13,000. Ferrari is a luxury stock. Ferrari’s EBITDA margins, stock price movements, and customer base are more like those of luxury stocks than auto OEMs. More than 40% of Ferrari owners already have at least one Ferrari and customers are largely in the growing ultra-high net worth and millionaire segment, like high-end luxury products. Furthermore, like some luxury brands, Ferrari has pricing power and loyalty, especially given the aura of exclusivity that it has garnered among its customers. Demand for Ferrari’s PHEV (Plug-in Hybrid Electric Vehicle) products is strong, and the company can price its EVs higher. Moreover, we expect the company to leverage EV technology to enhance the product—acceleration, handling etc. Finally, Ferrari is open to using partners instead of going it solo on EVs. As such, we expect capital allocation to be prudent. Owned in Opportunity Portfolio.

(+) Home Depot (HD-US) said it is acquiring SRS Distribution in a $18.25 billion deal. SRS Distribution sells supplies to professionals in the landscaping, pool and roofing businesses. The McKinney, Texas-based company has approximately 11,000 employees and 760 branches across 47 states. It also has a fleet of 4,000 delivery trucks and a dedicated sales force that caters to the home pros. It’s the company’s latest and biggest push to win sales from home professionals like contractors who tackle major projects. The acquisition is the largest in Home Depot’s history. Owned in Core, ESG+, Cash Flow and US Portfolios

(sold) Linde (LIN-US) We exited the position for valuation reasons and to free up some cash for ideas with more potential upside. The stock trades at roughly 30x forward earnings. That’s around historic highs for the company so we have decided to take our profits. We bought our initial position in November of 2020 at $251.46 and sold at $462.36 for an 85% gain. Was owned in the Opportunity Portfolio.

(+) McDonald's (MCD-US) Krispy Kreme shares surged after the company said it will sell its donuts in McDonald’s restaurants nationwide by the end of 2026, with the rollout beginning in the second half of this year. Krispy Kreme began testing sales at some McDonald’s locations in 2022, and their partnership expansion would double the donut maker’s current distribution. Owned in Cash Flow and US Portfolios.

(sold) Reddit (RDDT-US) Last week, Reddit went public, and we decided to take advantage of investor enthusiasm. and the stock has performed very well. Last year, Reddit had revenue of $804 million and operating income of negative $140 million. In other words, the company is running at an operating loss. Add in $50 million in other income and Reddit lost about $90 million for the year. That works out to negative 57 cents per share. Despite running a loss, shares of Reddit were priced at $34. Once trading started, the shares took off. Earlier this week, the stock came close to $75 per share. That means the business is trading for more than 130 times its loss from the year. I understand that one shouldn’t value nontraditional companies with traditional metrics - but this extreme. We bought in two tranches - first at $50.64 and then more at $46.97 and sold the shares at $69.11 for an approximate gain of over 40%. Was owned in Opportunity Portfolio.

(+) Spotify Technology (SPOT-US) shares rose after HSBC started coverage with a Buy rating, noting that the company screens well against peers given its strong growth outlook. The firm has set a $310 price target on the shares or 20% higher. Spotify has established itself as the music streaming market leader and with an active user base of 602 million listeners. The analysts added that the cross-sell from music to podcasts/audiobooks looks like a strategy built on firm ground. This opportunity does not end here as Spotify is now experimenting with education courses, and other verticals are yet to be announced. The analysts also see the potential opportunity from other revenue streams such as merchandising and ticket sales. Owned in Opportunity Portfolio.

(+) Taiwan Semiconductor (TSM-US) Key Nvidia Corp supplier Taiwan Semiconductor Manufacturing is witnessing a surge in orders from significant clients, Apple, Intel and Advanced Micro Devices for its cutting-edge 3nm chips. Apple was initially the sole customer for these chips, as TSMC gradually increased its production capacity through late 2022 and into the fourth quarter of 2023. Now, the contribution of 3nm chips to TSMC’s revenue will likely exceed 20% this year, Technode reports. TSMC has captured over 90% of the global AI chip foundry orders. The high demand for AI chips and the utilization of advanced processes will likely significantly enhance TSMC’s performance, potentially increasing its revenue by 24% to 26% year-on-year in 2024. The iPhone 16 series will incorporate the A18 series processor, and the new Mac will use the M4 series processor, which are 3nm chips set to begin production by TSMC in the second quarter of this year. Owned in Cash Flow and Opportunity Portfolios.

(+) Tesla (TSLA-US) Betting on Elon Musk, particularly in the age of artificial intelligence, where he is building market leading models, is a “no brainer,” said Bradley Gerstner, CEO of Altimeter Capital. The hedge fund manager said he recently bought Tesla stock because “it has the best product engineer CEO on the planet,” who has led the company to become a market leader. “When everybody else is negative about Tesla like that, that's where we start getting excited, particularly when they're run by a founder who is as extraordinary a product leader as Elon Musk,” said Gerstner. He also cited that the launch of Full Self-Driving Beta v12 as a catalyst. “When I took a test drive in it, it was kind of a ChatGPT moment, they totally scrapped their prior deterministic models and moved to an imitation learning model that really, for the first time, unlike Waymo -- which is still a deterministic model -- feels like a human driving the car.” Owned in ESG+ Portfolio.

(+) Viking Therapeutics (VKTX-US) Analysts welcomed positive data from the company’s early trial of an oral weight-loss treatment — the latest bullish announcement from the biotech. The data showed the company’s VK2735 oral therapy achieved a 3.3% placebo-adjusted weight loss at day 28 based on a 40 mg dose and proved safe and well tolerated, raising hopes that higher doses will prove even more effective. Viking is viewed as a cheaper entry to the weight-loss mania than market leaders Eli Lilly and Denmark’s Novo Nordisk, even after its more than 334% gain in the year to date. Analysts expect a pill version of the treatment will be a game-changer as it would be far more easily administered than the current injectable versions. All 11 analysts offering coverage on FactSet have a buy rating or equivalent on the stock. Not surprisingly, the issue of scaling up manufacturing has led to speculation that Viking may become a takeover target. Owned in Opportunity Portfolio.

Weekend Reading

Daniel Kahneman, Who Plumbed the Psychology of Economics, Dies at 90 He helped pioneer a branch of the field that exposed hard-wired mental biases in people’s economic behavior. The work led to a Nobel. Perhaps Kahneman’s biggest insight is that humans often don’t behave rationally. We base decisions on instinct, small samples of history, and tend to be more fearful of losses than greedy for gains. NYT

Investing in a New Era of Global Tensions Vitaliy Katsenelson on building a portfolio, aiming for resilience. Whether we own defense stocks or not, in the future, Europe and the US will likely spend a lot more money on defense, and our portfolio may as well benefit from this spending. KATSENELSON

Searching Each year Scott Galloway picks a Big Tech stock he thinks will outperform its peers. In November 2022 he picked Meta as his stock of 2023. For 2024 his pick is Alphabet. He believes Alphabet has been over-punished for its flaccid response to AI. Alphabet is in a strikingly similar situation as Kodak 30 years ago — its supremacy is under threat from a technology it developed but has failed to capitalize on. GALLOWAY

Holding through apocalypse Investing in high-flying growth stocks is a lot of fun... until it isn't. “If only I had invested in Amazon back in the ‘90s,” you may have uttered at one point or another. Let’s play a game. Let’s pretend you did. LOW RISK RULES

The Most Beautiful Shots In Movie History As film lovers, it's always a joy to see a collection of great moments spliced together. YOUTUBE

Larry Fink’s 2024 Annual Chairman’s Letter to Investors Time to rethink retirement. BLACKROCK

The World’s Biggest Oil Producers in 2023 Despite efforts to decarbonize the global economy, oil still remains one of the world’s most important resources. It’s also produced by a fairly limited group of countries, which can be a source of economic and political leverage. This graphic illustrates global crude oil production in 2023, measured in million barrels per day, sourced from the U.S. Energy Information Administration (EIA). VISUAL CAPITALIST