Markets
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Luke Kawa

Retail traders are forcing institutional investors into their favorite stocks

JPMorgan’s note on retail trading activity is so nice, I have to write about it twice.

In addition to leaving a big mark on how stocks trade on earnings releases, strategists led by Arun Jain also flagged how in meme stock land and beyond, retail traders are basically forcing institutions to play a game of follow-the-leader.

“As an interesting pattern within ‘Meme’ stocks (e.g. Opendoor Technologies), retail buying in prior months is followed by non-retails joining the trade more recently,” they wrote. “This is in line with our reading on the broader market — retail investors benefitted from ‘buying-the-dip’ as we entered the sharp V-shaped recovery post-Liberation Day, while the High Beta rally (which also included Meme stocks) was fueled by non-retail investors catching up via higher beta exposure.”

OPEN retail and non-retail activity

I would also be remiss not to say that retail buying outstrips non-retail buying by a substantial margin, further underscoring the notion that “buyer’s binges” are a more important part of so-called “short squeezes” than investors who bet against the stock actually closing their positions.

However, Jain and co. caution that “as a result, High Beta Crowding is at all-time highs and is likely to experience snapbacks as sentiment sours with policy uncertainty or weak economic data.”

Along these lines, Goldman Sachs strategist John Marshall is telling clients to buy large-cap meme stocks including Palantir Technologies and Advanced Micro Devices(?!?).

In the case of the latter, we’re really stretching the definition of what “meme stock” means. AMD, while trading at about a 40% premium to the Philadelphia Semiconductor Index as a whole, isn’t outrageously valued and has a fairly well-established and successful business model. However, per Goldman, it is a name with elevated retail activity.

The phenomenon of “herding behavior” is well known in nature. It’s just a little surprising to see retail traders being portrayed as the shepherds and professionals as the sheep!

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Luke Kawa

GE Vernova jumps after company secures first wind repower upgrade contract outside the US with Taiwan Power

GE Vernova is soaring as its onshore wind repower business goes international.

The company signed a deal to supply 25 repower upgrade kits to Taiwan Power Company, which will modernize its existing fleet to extend its lifespan, along with a five-year operations and maintenance services agreement.

“The milestone international contract builds on GE Vernova’s track record of repowering over 6,000 wind turbines in the United States, extending that expertise to support Taiwan’s decarbonization goals,” per the press release.

GE Vernova boasts 57,000 turbines installed worldwide. Turning past customers into a recurring revenue stream via these upgrade contracts is certainly a tidy piece of higher-margin business for the firm.

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Luke Kawa

A potential Netflix purchase of Warner Bros. streaming and studio assets is causing headaches for investors, per Morgan Stanley

On the surface, it’s easy to see why Netflix would be interested in bidding for Warner Bros. Discovery’s studio and streaming assets: the opportunity to add iconic franchises like DC Comics, “Harry Potter,” and “The Lord of the Rings,” as well as legions of HBO original shows that have stood the test of time.

However, the introduction of all this content, much of which has traditionally generated revenue in ways that Netflix does not, might be adding too many tentacles for even the creator of “Squid Games” to effectively manage, per Morgan Stanley, which also notes that it’s questionable if regulators would agree to such a tie-up.

“While Netflix is the largest of the reported bidders by a factor, it may have the smallest synergy opportunity and perhaps the toughest regulatory path,” analyst Benjamin Swinburne wrote. “NFLX shares have been under pressure over concerns that a WB acquisition, if announced, would complicate the investment thesis, distract management, and/or dilute EPS.”

The other interested parties are Paramount Skydance and Comcast, per reports.

In short, a successful Netflix acquisition may see the streaming giant need to be able to raise prices and/or subscribers to make enough money from the acquired properties under its distribution umbrella as it veers away from how these assets have made bank, oftentimes through theaters and third-party distribution.

This introduces many “strategic questions,” as Swinburne wrote:

“If acquired, Netflix could choose to shift all theatrical distribution at Warner Bros. to direct release on Netflix, believing that it can generate more value by keeping these films exclusive to Netflix rather than monetizing in other windows — including theatrical. Over time, it could similarly exit the third-party licensing business and distribute all TV series produced by Warner Bros. studios on its own platform.

Such a transition would take time, as TV distribution is built on run-of-series agreements and multi-year licensing deals and talent relationships would likely require some in-production films to still see theatrical distribution. Long-term, however, this kind of business model pivot would put downward pressure on the earnings power of the acquired businesses, which would need to be recouped through faster growth at core Netflix to justify the acquisition price, if a deal were to be announced.

If Netflix were to announce a bid for WB, HBO could bring some similar strategic questions for Netflix. For example, Netflix could shut the service down and shift all content, both originals and licensed, onto Netflix. That would be walking away from nearly $2bn of adj. EBITDA, but Netflix may feel the content can be better monetized on core Netflix.”

Congressman Darrell Issa has written to the attorney general expressing antitrust concerns over the potential for Netflix to purchase Warner Bros. studio and streaming properties, writing that it “currently wields unequaled market power,” adding that these assets would “further enhance this position” to a level “traditionally viewed as presumptively problematic under antitrust law.”

markets
J. Edward Moreno

OpenAI launching Target app in ChatGPT

OpenAI has announced a partnership to integrate Target’s app into ChatGPT and enable a “curated, conversational shopping experience,” according to the press release. The sprinkle of AI fairy dust helped the retail giant to regain most of the losses it saw in premarket trading Wednesday after a disappointing earnings report earlier in the morning.

OpenAI previously announced similar partnerships with Walmart, Shopify, and Etsy.

But per a YouGov survey published this summer, Americans still have reservations about using AI to help them shop.

Target drops after trimming its profit outlook as demand softens

OpenAI previously announced similar partnerships with Walmart, Shopify, and Etsy.

But per a YouGov survey published this summer, Americans still have reservations about using AI to help them shop.

markets
Luke Kawa

Oklo surges after signing contract with Siemens Energy to accelerate progress of its advanced fission power plant

Oklo is soaring in early trading after the nuclear energy company signed a binding contract with Siemens Energy for steam turbine and generator systems to advance its nuclear power plant.

As part of the agreement, Siemens Energy will “begin engineering and design work to expedite procurement of long-lead components and initiate the manufacturing process for the power conversion system” for the Aurora powerhouse, a brand of advanced fission power plant under construction at the Idaho National Laboratory.

Building and getting power plants up and running is a necessary prerequisite for Oklo to shed its label as a “zero revenues” company as it aims to meet the growing need for power spurred by the AI boom.

Per the press release, “This contract with Siemens Energy for the power conversion system helps to de-risk supply chain and production timeline challenges and demonstrates concrete execution capability.”

Shares of Oklo lost nearly half their value from mid-October through mid-November as part of a broad downturn in speculative stocks.

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