Weekly Recap | March - W4

FOMC Review & Market's Reaction, Tesla Robotaxi licenses & BYD Super Chargers, Google To Acquire Wiz.

Finally some positivity in the market & this week might mark the short term local bottom.

Macro.

We’ll mostly stay in the United States today as we had the FOMC which gave tons of interesting - and bullish, data.

FOMC.

Rapid reminders. First, the market & the economy are two different things. Second, the market is hoping for rate cuts - which will only happen with stable inflation & growing pressure on the labour market, and the end or slowdown of Quantitative Tightening. In brief, bad labour data is good news.

Interest rates remained flat, as expected. Inflation is on track but the labour market is still too strong to cut rates & the FED assumes they can keep the pressure a bit longer - not too long though as we’ll see.

QT is finally slowing down, as I expected & shared months ago. This isn’t due to the FED’s double mandate or else, it is forced by the lowered liquidity available to the government & the debt ceiling. It had to happen.

"Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion."

This is bullish as it means a bigger buying pressure on the treasuries market - as the FED will now be a $20B bigger participant.

It means less liquidity necessary from other market participants to buy those products, hence more liquidity for other activities - assuming those actors deploy their liquidity, which is up to them. More important, the slowdown of QT is an announcement that it'll stop soon enough. The market is a machine to anticipate and the FED is giving them signs that their constraints on liquidity are easing.

This is more important than rates to me, although I have to point out that it doesn’t change my FY25 thesis nor my view on inflation & recession. It should be well received by the market but won’t change the economy’s state.

The dot plot is also positive as most members expect lower rates than they did in December, which means they expect more or bigger cuts. They now anticipate rates below 4% in 2025 while expectations were around 4.5% back in December - 50bps lower than three months ago.

This should please the market although once again, it is more psychological than real in my opinion, but it doesn't matter as long as stonks go up short term, which has been & still is my base case.

This revision is certainly due to their forecast which is more bearish than it was back in December.

GDP was revised lower, probably due to the trade deficit growth coming from tariffs as we talked about already with the Atlanta projections. No biggie in my opinion as it remains very unpredictable. We also start to see weakness in consumption, which is a bigger issue but again, part of my base case since months.

Unemployement expectations are higher than in December, nothing significant though.

PCE expectations are also slightly higher but core PCE is at the same projections as in December. Bottom line, food & energy might fluctuate like they did the last quarter but the rest will remain stable, which should be a good thing.

Bottom line, projections of a slightly higher unemployment & a flat Core PCE are probably the reasons which pushed the FED for more cuts than they expected a quarter ago. They have to start easing the conditions. It doesn’t mean the economy is better but it pleases the market which believes lower rates will change everything - when I don’t.

The end of QT is a great sign that the leash on monetary liquidity will ease up rapidly and give more opportunities for banks & other lenders to boost economic activity. This is to be combined with more rate cuts... Very positive.

Everything is bullish from the market point of view & it is exactly what I wantes to see to initiate the bounce I hoping for. But once more, the market & the economy are two very different things & I am not more confident on the latter than I was weeks or months ago.

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Watched Stocks & Portfolio.

Tesla Robotaxi & BYD’s Fast Chargers.

First, Tesla is moving rapidly in terms of regulation for its robotaxi in California as they received their first approval.

It isn’t enough to start their own ride-hailing service but is the first step.

“a CPUC spokesperson said the current permit "does not authorize them to provide rides" in autonomous vehicles, and does not allow Tesla to operate a ride-hailing service to the public.”

Second, BYD, Tesla’s competitor, released a claim this week that they developed EV chargers which can charge up to 470km in 5min - while Tesla's superchargers can do 320km in less than 15min. I’ve not seen any papers or videos on this so this is nothing but a “claim” so far. The company is planning to install around 4,000 chargers or so throughout China this year.

Many see this as bearish for Tesla but I tend to have a different opinion: it is bullish for the industry. There is much more to take into consideration than just the pace of charging; you need the technology first but you also need the infrastructure, the energy supply, etc. Those chargers will be implanted on a specific grid, something which cannot be done in Europe for example & I am not sure in the U.S. either.

Add to this that it is just a claim for now and we’ll need to see it in action before really drawing any conclusion. Then, it’ll be only in China & in small proportion at first.

There is more to this story than “oh those chargers are faster” is what I mean. And I don’t see any reasons why Tesla or any other third party wouldn’t have comparable technologies when infrastructures are available. And when that is the case, it is a net positive for the entire EV industry.

Google To Aquire Wiz.

This is the second or third time that Google is trying to acquire the small cybersecurity company, and both have apparently finally entered into agreement.

Rapid word about Wiz first before we talk about the deal itself. The company is selling multiple security functions for cloud infrastructures into a single packaged solution. Real-time monitoring, scans, regulation verifications, sensitive data management… Everything clients need.

We’re talking about a $32B acquisition all in cash - around 40% of Google’s net debt & 41% of their FY25 FCF acknowledging that FCF is impacted by $52B of CapEx. I’m sharing the numbers to argue why it isn’t as outrageous as many think.

In terms of fundamentals, there is no denying that Wiz is providing a very valuable service, necessary to any company working in the cloud - and that will be around all of them soon enough.

In terms of financials, Wiz generated $700M of ARR in December 2024, up 100% YoY and speculations are growth continued to accelerate Q1-25, putting the acquisition somewhere between 30x & 40x ARR - which can look expensive. But we need to factor that once natively integrated in Google Cloud, we’re talking about a big proportion of Google clients using their services hence growing this ARR massively as Google has a few clients, while adding a very valuable integrated service which could attract more clients in time.

There are a few arguments out there about why this is a bad idea. I personally disagree with most - if not all.

Too expensive of a deal. I can hear that, $32B is a lot of money even for Google but we need perspective. As I said above, we are talking about 41% of their FY24 FCF which means this acquisition will be refunded next year. Keeping in mind that management refused the first proposition at $23B.

We’re also talking about a $1B ARR today, without being integrated into Google’s clients yet. Revenues will grow much faster once integrated, with a very probable strong take rate, margin & retention as it is an indispensable tool.

It is money. Expensive? Not so sure.

Better to return value to shareholders. This is pretty ridiculous to me as you usually want to own assets which improve. If the companies you own spend all their cash in buybacks & dividends, you end up owning Apple which is late on innovation & will someday lose its premium as they fall behind.

Besides my personal preference for companies who continue to push forward, Google repurchased $62B of its own shares FY24. Do we really think a 40% reduction of their net debt will impact their buyback policy? I don’t. Sure, we can think it would be better to buy back $30B of shares in a day but companies do not buy back that way, so it isn’t a fair comparison.

This acquisition won’t change anything.

In brief, you probably understood I find this to be a good acquisition. It would have been better for less money but you don’t get anything for nothing so. It will help the company stay relevant & offer necessary services inside of their solutions & this will be valuable for all their customers. Revenues will certainly grow rapidly with high margins without impacting their policies of buyback.

Left to see how fast this portion will grow, but it sure will.

Weekly Planning.

Earning season is almost over with only Lululemon left to close its fiscal year Thursday. Detailed review coming on Friday & I have been working on new investment case that you guys will receive before the next earning season which starts mid-April - Nvidia & Adobe for sure, AST Mobile probably as well.

Markets are very exciting lately with tons of events coming so probably more content as well! Never bored.