Welcome to today’s briefing, where we delve into the world of AI and its impact on the market. Please note that we are using Microsoft Corp (NASDAQ:MSFT) as an illustration to discuss the broader picture.
Last year, The Arora Report was among the pioneers emphasizing the significance of new generative AI technology. We were ahead of the curve in highlighting that AI is not just a buzzword but a true opportunity to amass fortunes over the next seven years. While others later joined the AI bandwagon, our initial call has proven accurate.
It’s important to highlight the contrast between The Arora Report and momentum-driven gurus. Some of these gurus were slow to recognize the potential of AI and pushed the narrative of quick riches. In contrast, our approach has been grounded, advocating the potential for steady wealth accumulation over time.
Recent earnings reports from Microsoft and Alphabet Inc Class C (NASDAQ:GOOG) provide valuable insights into the reality of AI. These reports suggest that the monetization of AI will be a gradual process, with substantial investments required now and returns expected in the distant future.
The chart showcasing MSFT stock displays a significant jump when the price of AI Copilot was introduced. Interestingly, this surge exceeded the actual value of AI Copilot, indicating the behavior of momentum-driven traders who may not have performed a thorough analysis.
However, the chart also reflects a drop in MSFT stock during the earnings conference call, revealing investors’ realization that AI monetization would be a slower process than initially anticipated.
While Microsoft holds a strong position in the ZYX Buy Model Portfolio with substantial unrealized gains, it is essential for all investors to grasp the three AI revenue streams for the company. Understanding these streams will be crucial to benefit from Microsoft’s position in the AI market.
Turning to Alphabet Inc, it’s worth noting that the company leads in AI engineers and has been a significant spender in AI research. Despite this, Google, an Alphabet subsidiary, allowed Microsoft to take the lead in AI. Investors should be aware of the potential disruption AI poses to Alphabet and its stock. For a deeper understanding of the AI landscape and challenges facing Google, refer to the podcasts titled “Full Frontal Assault: ChatGPT vs. Bard” and “ChatGPT: Potentially The Most Important Breakthrough Since The iPhone” in Arora Ambassador Club.
Microsoft and Alphabet are part of the “magnificent seven” stocks that have led the recent market rally. Most of these stocks have been in the ZYX Buy Model Portfolio, with one yielding a profitable trade. The magnificent seven stocks include Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C, Meta Platforms Inc (NASDAQ:META), Microsoft Corp, NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).
The market’s attention now shifts to the Federal Reserve’s decision, with expectations of a 25 basis point hike. As we analyze the Fed’s actions, it is essential for investors to maintain a balanced approach, considering various factors that may impact the market.
AI Garbage: Sorting Fact from Fiction
While AI technology has come a long way, it still falls short of providing the comprehensive market analysis that investors expect from The Arora Report. Beware of the recent influx of AI-based investment advice and sales pitches, as not all of it may be reliable.
Market Trends: Momo Crowd vs. Smart Money
In the early trade, the momo crowd is actively buying stocks and gold. On the other hand, smart money is prudently reducing risk by lightening their positions.
Market Indicators
Bitcoin (CRYPTO: BTC) continues to trade below $30,000, while oil prices fluctuate due to API crude oil inventory data.
Protection Band and Strategy
As an investor, it is crucial to look ahead and strike a balance between risk and reward. Consider holding long-term positions while keeping some cash or treasury bills for short-term tactical trades and hedges. Ensure your investment approach aligns with your risk tolerance and goals.
Traditional 60/40 Portfolio
With inflation-adjusted probability-based risk-reward analysis, long-term strategic bond allocation may not be the best option currently. For those maintaining a traditional 60% stocks and 40% bonds allocation, consider focusing on high-quality bonds with a shorter duration.
Keep in mind that AI technology is not a magic bullet, and it’s essential to discern reliable sources of investment advice. A balanced and informed approach to investing will help navigate the market’s complexities and identify potential opportunities.