Why Louis Navellier is suddenly talking about deflation … the details of this morning’s retail sales report … has the AI trade gotten ahead of itself? … Eric Fry likes this unappreciated AI pick

 

Well, it’s time to use a bad word…

Deflation.

That comes from legendary investor Louis Navellier in his Special Market Podcast in Accelerated Profits earlier this week.

This might be a headscratcher since “inflation” has been the obvious, painful challenge for the global economy for over a year.

Let’s return to Louis for more details:

The Eurozone is in a recession, with Ireland and Germany leading the way.

Meanwhile, China had horrific trade data, with both their exports and imports declining. So, they’re probably teetering on a recession as well. The economic data out of China is not reliable, but they’re certainly under stress.

This why commodity prices are starting to be under pressure – especially crude oil. So, we have to watch this very, very carefully.

And what about here in the United States?

Louis points toward today’s retail sales report:

[The retail sales report] is a big report. That’s because manufacturing in America is in a recession. It has contracted for seven straight months.

The consumer is the only hope for economic growth in America. And our consumers in America have not been hitting on all cylinders.

They’re spending money, but it’s erratic, and it’s on things like bars and restaurants, not what we call “durable goods” – things like appliances.

Americans took on a lot of debt, a lot of credit card debt. That’s not healthy debt. We have to keep an eye on all this.

So, it will be fascinating to see where consumer spending is moving and how healthy it is.

On that note, let’s look into the details of this morning’s retail sales report – fortunately, the consumer is still spending.

U.S. retails climbed unexpectedly in May

Let’s go to CNN for the big-picture takeaway:

Spending at US retailers rose last month, in a sign that consumers are still fueling the economy.

Retail sales at stores, online and in restaurants grew 0.3% in May from April, the Commerce Department reported on Thursday. That’s above economists’ expectations of a 0.1% decline, according to Refinitiv.

And here are more details from The Wall Street Journal:

Consumers spent more at many of the types of retailers tracked by the report including grocery stores, furniture purveyors and electronics sellers.

They spent less at gasoline stores, which can reflect declining prices at the pump.

The figures are closely watched because consumer spending accounts for about two-thirds of economic output. If shoppers pull back, that would further slow the broader economy.

Overall retail spending, including restaurants, rose 1.6% in May from a year earlier, a slower gain than price increases. But when excluding gasoline stations, spending gains matched closely with inflation.

As Louis noted above, the consumer is the primary hope of the U.S. economy, so this unexpectedly strong spending is welcomed news. Let’s cross fingers it can continue in the face of today’s elevated interest rates which – if the Fed is true to its word – won’t be dropping anytime soon.

Switching gears, 2023’s stock market has been dominated by artificial intelligence (AI) stocks – if investors haven’t already taken their positions, is it too late?

As you’re likely aware, this year has brought a tale of two markets.

There’s been the explosive tech trade (spearheaded by AI stocks), and then there’s been just about everything else doing little to nothing.

To illustrate, below is the tech/AI-heavy Nasdaq 100 compared with the Dow Jones. The Nasdaq 100 is 10Xing the Dow’s returns, at 37% compared to 3%.

With these explosive tech gains in the rearview mirror, what exactly is the status of the AI trade today? And for investors who might not have been a part of this surge, is it too late?

Let’s jump to our macro expert Eric Fry, editor of The Speculator:

Artificial intelligence is the new-new thing on Wall Street…

The early beneficiaries of this “AI rush” are tech giants like Amazon, Alphabet, and Microsoft. On average, these three mega-cap tech stocks have soared a remarkable 41% year to date – or three times more than the S&P 500 Index!

Before we move on, a quick congratulations to Eric’s Speculator subscribers. Eric connected the dots between AI and Big Tech many months ago and positioned his subscribers in call options on Alphabet and Amazon. Both of those positions are now up more than 135%.

But that just reinforces our question – has the AI trade gotten ahead of itself?

Here’s Eric:

Now that these “obvious” AI plays have jumped so much already, we investors must search for the next tier of AI opportunities.

That process faces a few challenges.

– For starters, many of the “pure-play” AI companies are producing sizeable losses and offer a lot more hope than substance.

– Second, the AI initiatives at many established companies are so early in their development that they will not boost overall profit growth anytime soon.

These challenges do not mean that all hope is lost; they only mean that the job of finding cutting-edge AI plays that can become market-leading AI stocks is not easy. It is not the proverbial “shooting fish in a barrel” process; it is more like grabbing cobras from a basket.

One tech/AI stock that Eric likes today is overlooked and unappreciated on Wall Street

When you think of next-gen/AI semiconductor chips, which company comes to mind?

For most investors, the no-brainer answer is Nvidia.

Way, way down on the list – perhaps not on the list at all – would be the company on Eric’s radar right now…

Intel.

But investors who are overlooking this once-upon-a-time tech blue-chip should reconsider. Intel’s expensive and risky strategy to build next-generation semiconductor foundries here in the U.S. is misunderstood by Wall Street, but could have a huge payoff down the road.

Here’s Eric:

I applaud the [U.S.-based foundry] strategy as a cunning, long-term play on AI dominance. That’s right, Intel could be a deeply discounted AI play that’s hiding in plain sight…

Historically, Intel has only manufactured in-house chips of its own design. But the company is now building factories that will make chips for other “fabless” companies, including high-profile semiconductor designers like QUALCOMM, NVIDIA, and Apple.

Unfortunately, [Intel CEO] Gelsinger’s grand plans require an equally grand amount of investment capital – tens of billions of dollars’ worth…

Intel has doubled its annual capital expenditures during the last two years – from $14.4 billion to $27.7 billion. This sky-high level of expenditure will continue for another two or three years.

These astronomical costs appear to be what Wall Street is focusing on. That’s part of the reason why Intel’s stock price has trailed many of its competitors’ prices over the last 12 months.

But if Intel successfully pulls off its foundry-strategy, the payoff could be equally astronomical for wise investors who see what’s coming

Back to Eric:

Intel’s “era of innovation” is astronomically expensive because the company is building multibillion-dollar, state-of-the-art foundries that will “jump” five entire generations of chip-making technology.

No one has attempted a leap of this magnitude since Evel Knievel jumped his motorcycle over the fountain at Caser’s Palace in 1967. Evel came up a little short that day – breaking 40 bones in the process and lying in a coma for a month.

Intel’s giant leap could achieve a similar outcome, which is why many investors are steering clear of the stock. But I don’t anticipate any broken bones or comas for Intel, only a “surprising” success.

In Arizona, Intel has broken ground on two of its new foundries. When these $20 billion plants – dubbed Fab 52 and Fab 62 – begin production next year, they will deliver leading-edge 5nm AI-capable chips.

As NVIDIA CEO, Jensen Huang, recently remarked, “We’re open to manufacturing with Intel… [We] recently received the test chip results of their next-generation process, and the results look good.”

Put it all together, and here’s Eric’s take on Intel that the majority of investors are missing today:

…By the time Intel’s new foundries become operational in the 2024 to 2026 timeframe, it will become one of the very few companies that can produce next-generation AI chips.

Intel is a legendary semiconductor company with a rich history, but investors are treating it like an unproven upstart. 

To learn more about how Eric is playing AI today in The Speculator, click here.

If you’re looking for more ways to invest in AI, why not use AI itself to find the most explosive stocks?

Next Tuesday at 8 PM ET, Keith Kaplan, who is the CEO of our corporate partner TradeSmith, is revealing his team’s new, breakthrough A.I. forecasting system. It’s a part of a special event called The A.I. Prediction Project Event. Joining him will be “The King of Quants” himself, Louis Navellier.

Keith’s A.I. breakthrough centers on An-E (pronounced Annie), short for Analytical Engine. And it’s the brainchild of Keith’s team of leading computer programmers and data scientists.

An-E puts the incredible predictive power of A.I. in the hands of the everyday person. After scores of rigorous back-tests, Keith says its market predictions are so accurate, anyone who follows them could add huge sums to their account.

Next Tuesday at 8 PM, Keith and Louis will explain how An-E works, provide case-studies of its stock pricing predictions, and show how this cutting-edge AI tool could make a night-and-day difference in your portfolio.

It’s a free event, you just need to reserve your seat which you can do by clicking here.

This is going to be a big evening. We’ll bring you more details in the days to come.

Have a good evening,

Jeff Remsburg