Tag: Breaking News: Technology

February was a great month for Wall Street. These were our 5 best-performing stocks

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 23, 2024. 

Brendan McDermid | Reuters

February was a strong month for stocks and the Club’s portfolio.

The advance came as investors parsed through fourth-quarter earnings results and fresh economic data, searching for clues about when the Federal Reserve will finally cut interest rates. The Nasdaq Composite led the march higher in February, gaining 6.1% and finishing the month at its first record close since November 2021. Meanwhile, the Dow Jones Industrial Average and S&P 500 both hit a series of all-time highs throughout the month, climbing 2.2% and 5.2%, respectively.

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GPT and other AI models can’t analyze an SEC filing, researchers find

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Patronus AI co-founders Anand Kannappan and Rebecca Qian

Patronus AI

Large language models, similar to the one at the heart of ChatGPT, frequently fail to answer questions derived from Securities and Exchange Commission filings, researchers from a startup called Patronus AI found.

Even the best-performing artificial intelligence model configuration they tested, OpenAI’s GPT-4-Turbo, when armed with the ability to read nearly an entire filing alongside the question, only got 79% of answers right on Patronus AI’s new test, the company’s founders told CNBC.

Oftentimes, the so-called large language models would refuse to answer, or would “hallucinate” figures and facts that weren’t in the SEC filings.

“That type of performance rate is just absolutely unacceptable,” Patronus AI co-founder Anand Kannappan said. “It has to be much much higher for it to really work in an automated and production-ready way.”

The findings highlight some of the challenges facing AI models as big companies, especially in regulated industries like finance, seek to incorporate cutting-edge technology into their operations, whether for customer service or research.

The ability to extract important numbers quickly and perform analysis on financial narratives has been seen as one of the most promising applications for chatbots since ChatGPT was released late last year. SEC filings are filled with important data, and if a bot could accurately summarize them or quickly answer questions about what’s in them, it could give the user a leg up in the competitive financial industry.

In the past year, Bloomberg LP developed its own AI model for financial data, business school professors researched whether ChatGPT can parse financial headlines, and JPMorgan is working on an AI-powered automated investing tool, CNBC previously reported. Generative AI could boost the banking industry by trillions of dollars per year, a recent McKinsey forecast said.

But GPT’s entry into the industry hasn’t been smooth. When Microsoft first launched its Bing Chat using OpenAI’s GPT, one of its primary examples was using the chatbot to quickly summarize an earnings press release. Observers quickly realized that the numbers in Microsoft’s example were off, and some numbers were entirely made up.

‘Vibe checks’

Part of the challenge when incorporating LLMs into actual products, say the Patronus AI co-founders, is that LLMs are nondeterministic — they’re not guaranteed to produce the same output every time for the same input. That means that companies will need to do more rigorous testing to make sure they’re operating correctly, not going off-topic, and providing reliable results.

The founders met at Facebook parent company Meta, where they worked on AI problems related to understanding how models come up with their answers and making them more “responsible.” They founded Patronus AI, which has received seed funding from Lightspeed Venture Partners, to automate LLM testing with software, so companies can feel comfortable that their AI bots won’t surprise customers or workers with off-topic or wrong answers.

“Right now evaluation is largely manual. It feels like just testing by inspection,” Patronus AI co-founder Rebecca Qian said. “One company told us it was ‘vibe checks.'”

Patronus AI worked to write a set of more than 10,000 questions and answers drawn from SEC filings from major publicly traded companies, which it calls FinanceBench. The dataset includes the correct answers, and also where exactly in any given filing to find them. Not all of the answers can be pulled directly from the text, and some questions require light math or reasoning.

Qian and Kannappan say it’s a test that gives a “minimum performance standard” for language AI in the financial sector.

Here’s some examples of questions in the dataset, provided by Patronus AI:

  • Has CVS Health paid dividends to common shareholders in Q2 of FY2022?
  • Did AMD report customer concentration in FY22?
  • What is Coca Cola’s FY2021 COGS % margin? Calculate what was asked by utilizing the line items clearly shown in the income statement.

How the AI models did on the test

Patronus AI tested four language models: OpenAI’s GPT-4 and GPT-4-Turbo, Anthropic’s Claude 2 and Meta’s Llama 2, using a subset of 150 of the questions it had produced.

It also tested different configurations and prompts, such as one setting where the OpenAI models were given the exact relevant source text in the question, which it called “Oracle” mode. In other tests, the models were told where the underlying SEC documents would be stored, or given “long context,” which meant including nearly an entire SEC filing alongside the question in the prompt.

GPT-4-Turbo failed at the startup’s “closed book” test, where it wasn’t given access to any SEC source document. It failed to answer 88% of the 150 questions it was asked, and only produced a correct answer 14 times.

It was able to improve significantly when given access to the underlying filings. In “Oracle” mode, where it was pointed to the exact text for the answer, GPT-4-Turbo answered the question correctly 85% of the time, but still produced an incorrect answer 15% of the time.

But that’s an unrealistic test because it requires human input to find the exact pertinent place in the filing — the exact task that many hope that language models can address.

Llama 2, an open-source AI model developed by Meta, had some of the worst “hallucinations,” producing wrong answers as much as 70% of the time, and correct answers only 19% of the time, when given access to an array of underlying documents.

Anthropic’s Claude 2 performed well when given “long context,” where nearly the entire relevant SEC filing was included along with the question. It could answer 75% of the questions it was posed, gave the wrong answer for 21%, and failed to answer only 3%. GPT-4-Turbo also did well with long context, answering 79% of the questions correctly, and giving the wrong answer for 17% of them.

After running the tests, the co-founders were surprised about how poorly the models did — even when they were pointed to where the answers were.

“One surprising thing was just how often models refused to answer,” said Qian. “The refusal rate is really high, even when the answer is within the context and a human would be able to answer it.”

Even when the models performed well, though, they just weren’t good enough, Patronus AI found.

“There just is no margin for error that’s acceptable, because, especially in regulated industries, even if the model gets the answer wrong 1 out of 20 times, that’s still not high enough accuracy,” Qian said.

But the Patronus AI co-founders believe there’s huge potential for language models like GPT to help people in the finance industry — whether that’s analysts, or investors — if AI continues to improve.

“We definitely think that the results can be pretty promising,” said Kannappan. “Models will continue to get better over time. We’re very hopeful that in the long term, a lot of this can be automated. But today, you will definitely need to have at least a human in the loop to help support and guide whatever workflow you have.”

An OpenAI representative pointed to the company’s usage guidelines, which prohibit offering tailored financial advice using an OpenAI model without a qualified person reviewing the information, and require anyone using an OpenAI model in the financial industry to provide a disclaimer informing them that AI is being used and its limitations. OpenAI’s usage policies also say that OpenAI’s models are not fine-tuned to provide financial advice.

Meta did not immediately return a request for comment, and Anthropic didn’t immediately have a comment.

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Jim Cramer’s top 10 things to watch in the stock market Friday

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My top 10 things to watch Friday, Dec. 8

1. U.S. stocks are lower in midmorning trading, with S&P 500 futures down 0.3% and on track to break a five-week winning streak. But the Nasdaq Composite, down 0.55% in early trading, looks set to post a sixth-consecutive week of gains. Bond yields tick up slightly, with that of the 10-year Treasury hovering just below 4.2%.

2. Oil prices pare some of their recent losses, climbing by more than 2% Thursday morning. West Texas Intermediate crude, the U.S. oil benchmark, is now back above $70 a barrel but is still down for seven-straight weeks.

3. Club holding Honeywell International reaches a deal to buy Carrier Global‘s security business for $4.95 billion. Carrier will reportedly use the money from Honeywell to accelerate its debt paydown. The companies expect the all-cash transaction to close before the end of the third quarter of 2024.

4. Club holding Broadcom reports mixed fiscal fourth-quarter results, missing on revenue but delivering strong profits. And tailwinds from artificial intelligence and the company’s acquisition of VMware should keep profits growing and more than offset some of the cyclical parts of the semiconductor business.

5. Mizuho raises its price target on Broadcom to $1,000 a share, up from $960, while maintaining a buy rating on the stock. The firm cites the semiconductor firm’s strong guidance, along with its industry-leading margins and free cash flow.

6. India’s Tata Group plans to build one of the country’s biggest iPhone assembly plants, with roughly 20 assembly lines and 50,000 workers, Bloomberg reports. The new factory would help Club holding Apple in its efforts to diversify its supply chain and expand its presence in India.

7. Morgan Stanley raises its price target on Apple to $220 a share, up from $210, while reiterating an overweight rating on the stock. The firm says the macroeconomic backdrop is still a challenge for Apple, but argues that excitement around Edge AI, services, and gross margin strength “reignites the bull case.”

8. Bernstein calls Tesla a “best idea,” outlining the short case for the electric-vehicle maker in 2024. “In our view, Tesla’s key challenge is that it has a demand problem due to its narrow (and expensive) product family of essentially two vehicles,” Bernstein analysts write. The firm has an underperform rating on Tesla stock, with a price target on $150 a share.

9. Mizuho raises its price target on DoorDash to $120 a share, up from $105, while reiterating a buy rating on the stock. The firm expects continued margin expansion, as the food-delivery platform continues to gain market share.

10. Lululemon Athletica delivers strong third-quarter results, while reporting a positive start to the holiday shopping season. The athletic-apparel retailer receives a slew of price-target raises Friday from Wall Street firms — including Barclays, which goes to $530 a share, up from $480, with a buy rating on the stock.

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What Investing Club members are reading right now

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Jim Cramer’s top 10 things to watch in the stock market Friday

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My top 10 things to watch Friday, Nov. 3

1. U.S. stocks climb higher in premarket trading Friday, with S&P 500 futures up 0.46% after rising nearly 5% over the previous four sessions. Equities remain on track for their biggest weekly gain of the year. Government bonds also continue to rally this week, with the yield on the 10-year Treasury pulling back to around 4.5%. Oil prices tick up 0.78%, bringing West Texas Intermediate crude to just above $83 a barrel.

2. U.S. employment growth slows in October, with the economy adding just 150,000 jobs, according to the Labor Department’s monthly nonfarm payrolls report. That compares with September’s revised gain of 297,000 jobs and a Dow Jones estimate for October of 170,000 jobs. The news could take further pressure off the Federal Reserve in its ongoing battle to bring down inflation through higher interest rates.

3. Club holding Apple (AAPL) delivers an uneven fiscal fourth-quarter, with shares falling on lower-than-expected guidance for the current quarter. Analysts are using the results to reset expectations and lower price targets. Apple stock is down 1.7% in premarket trading, at $174.57 a share.

4. Semiconductor firm Skyworks Solutions (SWKS) reports a weak quarter as a result of Apple’s slowdown, prompting a slate of price-target reductions Friday. Barclays lowers its price target on the stock to $90 a share, down from $115, while maintaining an overweight rating on shares.

5. The takeaway from Club holding Starbucks‘ (SBUX) fiscal fourth-quarter beat is that the coffee maker needs so many more stores both in the U.S. and in China, while it’s barely begun to tackle India. Baird on Friday raises its price target on Starbucks to $110 a share, up from $100, while reiterating a neutral rating.

6. Barclays on Friday raises its price target on Club name Eli Lilly (LLY) to $630 a share, up from $590, while maintaining an overweight rating on the stock. The call seems like a good idea after Eli Lilly delivered solid quarterly results on the back of its blockbuster drug Mounjaro.

7. Shares of cybersecurity firm Fortinet (FTNT) plunge nearly 20% in early trading after its third-quarter results miss on analyst expectations, while providing a weak outlook for the current quarter. Multiple Wall Street firms downgrade Fortinet Friday on the weak quarter and signs secure networking is seeing slower growth.

8. Barclays lowers it price target on Clorox (CLX) to $115 a share, down from $118, while maintaining an underweight rating on the stock — and that seems harsh. The firm calls Clorox’s reduced outlook “prudent given the uncertainty ahead.” Clorox warned last month that an August cyber attack had significantly weighed on sales and profits.

9. KeyBanc upgrades Uber Technologies (UBER) to overweight from a neutral-equivalent rating, with a $60-per-share price target. The firm says Uber’s expense discipline should continue to drive earnings and free cash flow, while advertising “provides a lever to keep prices low to drive volumes.” Uber is set to report third-quarter results on Nov. 7.

10. Gordon Haskett upgrades Ross Stores (ROST) to buy from accumulate, with a $135-per-share price target. The firm says its third-quarter proprietary store manager survey “paints a positive picture” for both Ross and Club name TJX Companies (TJX).

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What Investing Club members are reading right now

(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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These 10 portfolio names outperformed the stock market amid the October decline

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 26, 2023. 

Brendan Mcdermid | Reuters

Despite a downbeat month for stocks and mounting macroeconomic uncertainty, several Club names outperformed the market in October — and landed in the green.  

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Jim Cramer’s top 10 things to watch in the stock market Tuesday

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My top 10 things to watch Tuesday, Oct. 31

1. U.S. stocks edge up in premarket trading Tuesday, with S&P 500 futures rising 0.15%. The move comes after equities rallied Monday, with the S&P rising to its highest level in two months. Meanwhile, the yield on the 10-year Treasury was hovering around 4.8%. Oil prices are up around 0.6%, with West Texas Intermediate crude trading at $82.80 a barrel. Broadly, we’re seeing end-of-the-month shenanigans in a still oversold market.

2. Club holding Caterpillar (CAT) delivers a third-quarter earnings beat Tuesday, even as the stock tumbles roughly 4% on lackluster guidance. Nothing matters except the operating margin going lower in the fourth quarter.

3. Club name GE HealthCare Technologies (GEHC) outpaces earnings estimates Tuesday, bolstered by a recovery in demand for surgical procedures. The company also raises the low end of its full-year guidance. The stock is having a muted reaction, with shares up slightly, at around $63 apiece.

4. A Wall Street Journal analysis Tuesday argues Club holding Apple (AAPL) will face continued headwinds from China, while its “lucrative” relationship with Club name Alphabet (GOOGL) could also be at risk. It’s a classic negative piece on the company that crystalizes the ‘hate Apple trade’ that’s been going on.

5. MoffettNathanson downgrades Lyft (LYFT) to sell from neutral, while lowering its price target on the stock to $7 a share, down from $10. The firm expects margin compression at the rideshare company, and any long-term guidance to “likely disappoint.” Lyft is set to report third-quarter results on Nov. 8.

6. Baird upgrades one of our favorite technology defense players, L3Harris Technologies (LHX), to outperform from neutral, citing increased funding for defense globally. The firm also raises its price target on the stock to $216 a share, up from $198.

7. Oil giant BP PLC (BP) reports a sharp drop in profits year-over-year for the third quarter, sending shares roughly 4% lower in early trading Tuesday. Must they do a deal, too? There are only so many choices.

8. MoffettNathanson upgrades Roku Inc. (ROKU) to neutral from sell, citing the streaming-device maker’s focus on profitability and free cash flow. In short, the company got its act together and is becoming more dominant.

9. Shares of VF Corporation (VFC), the maker of Vans sneakers, are down nearly 9% in premarket trading after the company withdrew its full-year revenue and profit forecasts Monday. There are so many things wrong, but I think that CEO Bracken Darrell can pull it off. He turned around Logitech International (LOGI) and tripled the S&P over the decade in which he was in the top job.

10. DA Davidson adds Ulta Beauty (ULTA) to its “Best-of-Breed Bison” list. The firm reiterates a buy rating on the stock and a $495-a-share price target.

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As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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As U.S.-China tensions rumble on, fintech unicorn Airwallex pushes into Latin America with Mexico deal

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The deal, which is subject to regulatory approvals, marks a major push from Airwallex into Latin America.

Airwallex

Global fintech giant Airwallex on Thursday said it has agreed to acquire MexPago, a rival payments company based out of Mexico, for an undisclosed sum to help the firm expand its Latin America footprint.

The company, which competes with the likes of PayPal, Stripe, and Block, sells cross-border payment services to mainly small and medium-sized enterprises. Airwallex makes money by pocketing a fee each time a transaction is made.

The deal, which is subject to regulatory approvals and customary closing conditions, marks a major push from Airwallex into Latin America, a market that has become more attractive for fintech firms thanks to a primarily younger population and increasing online penetration.

Jack Zhang, Airwallex’s CEO, said the company was looking at Mexico as something as a hedge as it deals with geopolitical and economic uncertainty going on between the U.S. and China.

“U.S. people export to Mexico to sell to the consumer there,” Zhang told CNBC. “Because of the supply chain, you can also export out of Mexico to other countries like the United States.”

“You get both the inflow and outflow of money,” he added. “That’s really what we like the most. We can take a global company to Mexico and also help the global companies making payments to the supply chain.”

U.S.-China trade tensions have escalated in recent years, as Washington seeks to address what it sees as China’s race to the bottom on trade.

The U.S. alleges China has been deliberately devaluing its currency by buying lots of U.S. dollars, thereby making Chinese exports cheaper and U.S. exports more expensive, and worsening the U.S. trade deficit with China.

China has sought to address these concerns, agreeing to “substantially reduce” the U.S. trade deficit by committing to “significantly increases” its purchases of American goods, although it’s struggled to make good on those commitments.

“Mexico is one of the largest populations in Latin America,” Zhang added. “As the trade war intensifies in China and the US, a lot is shifting from Asia to Mexico.”

“[Mexico] is very close to the U.S. Labour is cheaper compared to the U.S. domestically. A lot of the supply chain is shipping there. There’s a lot of opportunity from e-commerce as well.”

A maturing fintech

Airwallex operates around the world in markets including the U.S., Canada, China, the U.K., Australia, and Singapore. The Australia-founded company is the second-most valuable unicorn there, after design and presentations software startup Canva, which was last valued at $40 billion.

The company, whose customers include Papaya Global, Zip, Shein and Navan, processes more than $50 billion in a single year. It has also partnered with the likes of American Express, Shopify and Brex, to help it expand its services internationally.

It has been a tough environment for fintech companies to operate in lately, given how interest rates have risen sharply. That has made it more costly for startup firms to raise capital from investors.

For its part, Airwallex has raised more than $900 million in venture capital to date from investors including Salesforce Ventures, Sequoia, Tencent and Lone Pine Capital. The company was last valued at $5.6 billion.

At this stage we are still expanding against our mission, which is to enable those smaller businesses to operate anywhere in the world and keep building software on top.

Zhang said that the company is at a stage where it has reached enough maturity to consider an initial public offering — the company says it now processes more than $50 billion in annualized transactions. However, Airwallex won’t embark on the IPO route until it gets to a certain amount of annual revenue, Zhang added.

Zhang is targeting $100 million of annual recurring revenue (ARR) for its software the business within the next year or two. Once Airwallex reaches this point, he says, it will then look at a public listing.

“At this stage we are still expanding against our mission, which is to enable those smaller businesses to operate anywhere in the world and keep building software on top … to protect our margins [and] grow our margins from a cost point of view, not just infrastructure,” Zhang said.

MexPago offers much of the same services as Airwallex — multi-currency accounts for small and medium-sized businesses, foreign exchange services, and payment processing — but there are a few more payment methods it has on offer which Airwallex doesn’t currently provide.

Why Latin America?

A big selling point of the MexPago deal, Zhang said, is the ability to obtain a regulatory license in Mexico without having to embark on a long process of applying with the central bank. The company has secured an Institution of Electronic Payment Funds (IFPE) license from MexPago.

Why Americans are relocating to Mexico City for a better life

That will allow Airwallex’s customers, both in Mexico and around the world, to gain access to local payment methods such as SPEI, Mexico’s interbank electronic payment system, and OXXO, a voucher-based payment method that lets shoppers order things online, get a voucher, and then fulfill their order with cash.

“The ability to access the license for the native infrastructure over there will give us a significant advantage with our global proposition,” Zhang told CNBC.

Airwallex has seen huge levels of growth in the Americas in the past year — the company reported a 460% jump in revenues there year-over-year.

Airwallex isn’t the only company seeing the potential in Latin America.

SumUp, the British payments company, has been active in Latin America since 2013, opening an office in Brazil back in 2013. The firm’s CFO Hermione McKee told CNBC in June at the Money 20/20 conference that it plans to ramp up its expansion in the region.

“We’ve had very strong success in Latin America, in particular, Chile recently,” McKee told CNBC in an interview.

“We are looking at launching new countries over the coming months.”

More than 156 million people in Latin America and the Caribbean are between the ages of 15 and 29, accounting for over a fourth of its population. These consumers tend to be more digital-native and mistrusting of established banks.

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Here are all the portfolio moves the Club made in this week’s oversold market

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People walk by the New York Stock Exchange (NYSE) on February 14, 2023 in New York City.

Spencer Platt | Getty Images News | Getty Images

With the stock market deeply oversold this week, we put cash to work by picking stocks across a range of sectors including energy, technology and materials. We also added a former Club chipmaker to our Bullpen and upgraded a premium beer name to a buy rating. Finally, Friday’s market reversal helped us make good on a pledge to trim a once-downtrodden health-care stock.

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Jim Cramer’s top 10 things to watch in the stock market Monday

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My top 10 things to watch Monday, July 24

1. Chevron (CVX) on Sunday announced excellent preliminary second-quarter results, while extending the contract of CEO Mike Wirth. The United States’ second-largest oil firm in May announced an agreement to expand its shale operations by acquiring PDC Energy (PDCE) in a deal valued at $7.6 billion, including debt. Chevron is set to release its full second-quarter report on Friday.

2. Truist on Monday lowered its price target on Club oil name Pioneer Natural Resources (PXD) to $196 a share, from $220, while maintaining a hold rating on the stock. The firm said it expects free cash flow for most exploration-and-production firms like Pioneer to be down over 50% given lower commodity prices.

3. Piper Sandler on Monday downgraded Club name Estee Lauder (EL) to neutral, from a buy-equivalent rating. The firm also lowered its price target on the cosmetics firm to $195 a share, down from $265. This is the result of of the downfall of the Chinese consumer, which seems endless.

4. Deutsche Bank on Monday raised its price target on Club holding Apple (AAPL) to $210 a share, up from $180, citing upside to the tech giant’s iPhone, Mac and services revenues. Apple is set to report fiscal third-quarter results on Aug. 3.

5. UBS on Monday downgraded electric-vehicle maker Tesla (TSLA) to hold, from buy, noting “very limited” upside to the company’s share price going forward. Still, the firm raised its price target on Tesla to $270 a share, up from $220.

6. Mizuho on Monday raised its price target on Club holding Nvidia (NVDA) to $530 a share, up from $400, while maintaining a buy rating on the stock. The analysts cited accelerating demand for generative artificial intelligence.

7. KeyBanc on Monday, in a call I love, raised its price target on Airbnb (ABNB) to $160 a share, from $135, on the back of reaccelerating travel spending. The firm reiterated an overweight, or buy, rating on Airbnb stock.

8. Mizuho on Monday raised its price target on Intel (INTC) to $33 a share, from $30, arguing semiconductor group multiples have improved. The firm maintained a neutral rating on the stock.

9. Raymond James on Monday upgraded home-construction company DR Horton (DHI) to outperform, or buy, from market perform on the back its “outstanding” fiscal third-quarter results. The firm, which has a price target of $160 on DHI shares, noted an “impressive rebound” in homebuilding margins.

10. Wells Fargo on Monday downgraded its rating on Interpublic Group (IPG) to equal weight, or neutral, from overweight, ahead of a late-cycle downturn. The firm lowered its price target on IPG to $33 a share, from $43.

(See here for a full list of the stocks in Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Space Force raises the stakes as rocket companies compete for lucrative military missions

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A Falcon Heavy rocket launches the USSF-67 mission on January 15, 2023 from NASA’s Kennedy Space Center in Florida.

SpaceX

The U.S. military is raising the stakes — and widening the field — on a high-profile competition for Space Force mission contracts.

The Space Force plans to buy even more rocket launches from companies in the coming years than previously expected, granting more companies a chance at securing billions in potential contracts.

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“This is a huge deal,” Col. Doug Pentecost, the deputy program executive officer of the U.S. Space Force’s Space Systems Command, told reporters during a briefing this week.

Earlier this year the Space Force kicked off the process to buy five years’ worth of launches, under a lucrative program known as National Security Space Launch (NSSL) Phase 3. Now it’s boosting the scale.

The U.S. sees a rising impetus to improve its military capabilities in space, spurring the need to almost triple the number of launches in Phase 3 that it bought in Phase 2 in 2020.

“That just blows my mind,” Pentecost said. “We had only estimated 36 missions in Phase 2. For Phase 3, we’re estimating 90 missions.”

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In February, Space Force outlined a “mutual fund” strategy to buying launches from companies. It split NSSL Phase 3 into two groups. Lane 1 is the new approach, with lower requirements and a more flexible bidding process that allows companies to compete as rockets debut over the coming years. Lane 2 represents the existing approach, with the Space Force planning to select a set number of companies for missions that meet the most demanding requirements.

Pentecost said Space Force hosted an industry day in February to go over the program’s details and had 22 companies show up. Since then, Space Force made a number of adjustments to Phase 3. It has added more missions, introduced a price cap, expanded Lane 2, and has set an annual schedule for mission assignments.

The government weighs bids by a company’s “Total Evaluated Price” per launch. That’s split into “Launch Service,” meaning how much it costs to build and launch a rocket, and the “Launch Service Support,” which covers special requirements the military may have for launch. The Launch Service Support amount is capped at $100 million per year per company.

“We implemented some cost-constraining tools so that we don’t balloon. We don’t want [a situation where] everybody gets a mission — you get a mission, you get a mission, you get a mission — because then there’s no real competition,” Pentecost said.

“We do think that all of our industry partners want to be the number one guy, so we think that will provide competitive pricing to keep our costs down,” Pentecost added.

Widening Lane 2

While Lane 1 is expected to draw the largest number of bids and award 30 missions, Lane 2 is the big show.

With Lane 2, Space Force gives out the most valuable contracts to launch national security satellites with the highest stakes. 

“These are the ones that are a $1 billion [satellite] payload going to unique orbits,” Pentecost said.

Not only has Lane 2 seen an increase in how many missions are up for grabs — currently estimated at 58 launches, up from 39 in February — but Space Force also made the decision to expand the available slots for eventual awards to three companies, instead of limiting it to two.

Elon Musk’s SpaceX and United Launch Alliance, the joint venture of Boeing and Lockheed Martin, were assumed to be the two leading contenders for Lane 2, but now there’s a door open for another company like Jeff Bezos’ Blue Origin.

Space Force will assign 60% and 40% of 51 missions to the top two bidders, respectively, and the remaining seven launches will go to the third-place bidder. 

Regardless of where a company ranks, it must demonstrate that it can meet all the Lane 2 requirements, which include having launch sites on both the east coast and west coast, and the ability to hit nine “reference” orbits with high accuracy several of which are much further from Earth than the low Earth orbit requirement of Lane 1.

Asked by CNBC how many companies are developing rockets that can meet those requirements by the deadline for launches, a Space Force spokesperson declined to specify, saying the military is “tracking several” that are “expanding their launch capabilities into most of these orbits.”

“We’re hoping that it’s not just ULA, SpaceX and Blue Origin competing for that, as there are others who have messaged interest in the past,” Col. Chad Melone, the chief of Space Systems Command’s Launch Procurement and Integration division, said during the briefing.

Securing supply

Space Force is introducing an annual Oct. 1 deadline for assigning missions to companies that have won a contract.

Pentecost explained the first assignments are up for grabs in October 2025, but noted contracts don’t guarantee assignments, which protects Space Force from delays companies may have in developing and flying rockets.

“You could actually have won the contract, that you’ve got this great plan on how you’re going to be flying by [fiscal year] 2027. But since you’re not flying yet, and I have a satellite that needs to fly in two years, we will not give you that mission — we will move it to the other guy,” Pentecost said.

Space Force aims to finalize its request for bidders by September and then have all the proposals in by December, to then award the contracts in October 2024.

Space Force officials said a big driver of that push is to “guarantee capacity,” as there are “a ton of other companies” trying to buy launches for satellites and Space Force needs to lock down its orders.

“We wanted to make sure that we essentially hedged against the launch scarcity that could happen because, if there’s a very large demand for launch and everyone is [buying], prices could be very high,” Melone said.

But despite that fear, Pentecost said 2026 “seems to be the sweet spot” when a number of companies’ rockets will be done with development and ready to fly. And companies that stay on track will have the upper hand in NSSL Phase 3.

“If you’re flying before that, or if your schedule is showing that you’re going to be flying before that, you will get significant strengths, which will put you in a better position to win the best provider or second best in this competition,” Pentecost said.

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