Huge returns in less than a year … it’s just the beginning … how AI Wars will drive a tsunami of investment wealth … watch February 1st … the trade Eric is doubling down on today

The big news this morning was the cooler than expected core personal consumption expenditures (PCE) price index reading.

In December, the Federal Reserve’s favorite inflation gauge came in at just 2.9% on the year, softer than the forecast of 3.0%. Month-to-month, core PCE rose 0.2%, matching expectations.

For a Fed that’s data dependent, this is great news. It strengthens the case that the Fed is successfully engineering a soft landing.

Now, we do need to watch the personal savings rate. It showed that consumers are increasingly dipping into savings. In November, the personal savings rate came in at 4.1%. Last month, it dropped to 3.7%.

As regular Digest readers know, the health of the U.S. consumer is critical for a soft landing that supports stock market gains. So, we’re keeping a close eye on this.

But overall, this is a solid PCE report. The path to 2% is in sight.

Yesterday, IBM surged as high as 13% after topping earnings expectations

Behind the surprise outperformance from this once-upon-a-time blue-chip is one thing…

Artificial Intelligence.

For many quarters now, IBM has been moving away from some of its antiquated products and services, shifting the focus to AI software.

Readers of our macro expert Eric Fry are well-aware of this transition.

From Eric, as reported here in the Digest last November:

IBM has been reinventing itself as a hybrid cloud and artificial intelligence company. To accelerate this transformation, the company has been pursuing an out-with-old-in-with-the-new growth strategy.

Since 2019, IBM has divested 17 legacy businesses, while also making more than 30 acquisitions.

One of the most impactful acquisitions during its shopping spree was Red Hat, which IBM acquired in 2019 for $34 billion. Although the price tag seemed a bit rich at the time, this acquisition brought a market-leading hybrid cloud platform into the IBM family.

A quick “congratulations” are in order. Eric’s early recognition of IBM’s transformation resulted in a handful of IBM trades opened about a year ago in Eric’s Speculator trading service.

On Tuesday, subscribers closed out a portion of one of those IBM trade for nearly 300% gains. And yesterday, they took profits on a second IBM trade for 450% gains.

Both trades have been live for less than one year. Congrats to all the Speculator subscribers on these fantastic wins.

While we’re thrilled to spotlight this outperformance, there’s a more exciting point here…

We’re at the beginning of an avalanche of similar triple- and even quadruple-digit gains thanks to an explosion of demand for artificial intelligence.

What we saw last year is just the beginning. AI demand in 2023 reflected the corporate early adopters who were spearheading the charge into this transformative technology.

What’s on the way is the overwhelming majority of cultural/corporate AI adoption that will drive trillions of dollars of economic activity and investment wealth over the coming years.

So, you missed Eric’s 300% or 450% winners?

Irrelevant. There are countless more such winners on the way. You just need to be looking in the right place. And on Tuesday, Eric held a live event spotlighting “the right place” to find some of these AI winners…

The semiconductor sector.

The “war” that will drive AI profits

In Tuesday’s Digest, we highlighted the growing tension between the U.S. and China. It’s a war for technological supremacy that has the potential to spiral into a physical war.

Here’s how Eric describes it:

What I’m calling the “AI Wars of 2024” marks a new era of technological competition among leading nations.

And this war focuses on developing advanced AI capabilities to achieve technological superiority. I believe those who harness AI’s power will lead the world for the foreseeable future.

Now, to “harness AI’s power,” as Eric puts it, there’s one critical component…

Semiconductors.

To make sure we’re all on the same page, semiconductor chips are the “brains” behind your favorite tech gadgets and all things “AI.” Without these chips, your phone, computer, and smartwatch are just paper weights.

So, to win the AI Wars, Washington D.C. and Beijing are battling for semiconductor superiority.

Here’s Eric with more:

In 2014, China’s Central People’s Government quietly set up a state-led fund to invest in semiconductor manufacturing.

The China Integrated Circuit Industry Investment Fund (now known as “The Big Fund”) would eventually raise $45 billion and distribute the proceeds into everything from wafer fabrication to chip design.

The results have been jarring.

Late last year, Chinese state-owned Huawei quietly launched the Mate 60 Pro, a 5G phone that stunned analysts.

The Western-sanctioned firm had acquired advanced 7-nanometer chips that only Netherlands-based ASML and its customers were thought to produce.

What has Washington D.C. been doing in response? And where does this dovetail into investment profits for you and me?

That brings us to Federal Law 117-167.

The impending date that could be the next catalyst for leading semiconductor stocks

Federal Law 117-167 – otherwise known as The CHIPS And Science Act Of 2022 – focuses on federal aid to encourage the construction of microprocessor manufacturing facilities in the United States.

Here’s the National Governor’s Association with more details:

The objective is to reduce U.S. reliance on overseas chip supply chains, and increased authorizations to boost the nation’s science and technology base.

Additionally, the law provides subsidies to manufacture semiconductors in the U.S., boost science and technology research and address China’s anti-competitive trade practices.

The CHIPS act is going to pour $53 billion into local chip manufacturing. And Eric is urging investors to get into the right stocks ahead of this tsunami of capital.

But this means moving fast. The CHIPS act has a deadline of February 1st for companies hoping to be beneficiaries of billions of dollars from the government. Eric’s presentation on Tuesday provides more details on this.

A glimpse behind the curtain for how Eric is playing this

Eric has given me permission to share a recommendation with you – Intel (which is in the headlines this morning – we’ll detail why momentarily).

This is a live trade in Eric’s Speculator portfolio. And even though subscribers are already up triple digits in their position, earlier this week, Eric recommended opening a second Intel trade thanks to the CHIPS Act.

From Eric:

[Our current trade on Intel] has produced excellent results so far.

I have recommended closing out half the trade for strong double-digit gains, and the remaining one-half-position is showing a gain of 290%.

That plump profit could grow even larger during the next 12 months. So, I’m recommending that you “double down” on Intel.

My rationale for recommending a second trade is simple; I expect the Intel trade to gain momentum throughout 2024 and into 2025. So, I’d like to position readers to continue profiting from Intel’s renaissance.

Furthermore, the stock could spike any day now, if news crosses the wires that the company has received major funding from the CHIPS Act.

Now, if you’re new to Intel, you have great timing. The chip giant is down 11% as I write Friday morning based on Q1 guidance that disappointed Wall Street.

But as Eric has pointed out for months, Intel is rebuilding itself, becoming a next-gen chip powerhouse. As such, we should expect some “two steps forward, one step back” performance. So, for a longer-term investor, this pullback is little more than a discounted entry price.

Now, moving beyond Intel, Eric isn’t only recommending semiconductor companies to play the AI boom. I’ve seen his recent recommendations, and they represent a diversified basket of AI plays.

But for our purposes today, let’s end with a focus on semiconductors to illustrate the enormity of the potential investment gains headed our way.

Looking to the past to contextualize our future

Think about the proliferation of tech products and services over the last 10 years.

Smartphones, tablets, computers, smartwatches, smart TVs, earbuds, electric vehicles… We could do this for days.  

Remembering that semiconductor chips are the brains behind all things “tech,” and factoring in how AI is now here and is just beginning its adoption curve, do you think demand for semiconductor chips will grow or decline over the next 10 years?

I’m not sure how anyone could answer “decline.” In fact, I’m not sure how anyone could answer anything other than “grow substantially.”

So, how did semiconductor stocks do over the last 10 years (with just one year of AI on the scene)?

For context, the S&P climbed 166% over this period.

And for additional context, let’s include the SPDR Technology Select Sector ETF XLK. Its top 10 holdings include the biggest, best names in tech today: Microsoft, Apple, Broadcom, Nvidia, and Adobe, to name a few.

Over the last 10 years, XLK rose 555%, more than double the S&P’s healthy gain.

This pales in comparison to semiconductor returns

As you can see below, over the last 10 years, the VanEck Vectors Semiconductor ETF SMH has exploded 928%, almost doubling XLK’s performance.

If our working assumption is that we’re entering a decade when demand for chips will “grow substantially” more than the last 10 years, why would long-term investors not be stampeding into top-tier semiconductor stocks today?

Well, they are. And they have been. Just look at Eric.

Bottom line: The AI Wars are just getting started, and the ensuing wealth-creation potential is mindboggling.

Yes, there will be volatility (look at Intel this morning). And I can’t tell you where chip stocks will be next month, quarter, or even year. But history – and the introduction of AI – suggest they’re going to be dramatically higher a decade from now.

We’ve just scratched the surface on these AI Wars in today’s Digest. To watch Eric’s full presentation on from earlier this week, just click here.

In any case, don’t ignore this opportunity today. Have a good evening,

Jeff Remsburg