AI could drive a natural gas boom as power companies face surging electricity demand

A chimney from the Linden Cogeneration Plant is seen in Linden New Jersey April 22, 2022. 

Kena Betancur | View Press | Corbis News | Getty Images

Natural gas producers are planning for a significant spike in demand over the next decade, as artificial intelligence drives a surge in electricity consumption that renewables may struggle to meet alone.

After a decade of flat power growth in the U.S., electricity demand is forecast to grow as much as 20% by 2030, according to a Wells Fargo analysis published in April. Power companies are moving to quickly secure energy as the rise of AI coincides with the expansion of domestic semiconductor and battery manufacturing as well as the electrification of the nation’s vehicle fleet.

AI data centers alone are expected to add about 323 terawatt hours of electricity demand in the U.S. by 2030, according to Wells Fargo. The forecast power demand from AI alone is seven times greater than New York City’s current annual electricity consumption of 48 terawatt hours. Goldman Sachs projects that data centers will represent 8% of total U.S. electricity consumption by the end of the decade.

The surge in power demand poses a challenge for Amazon, Google, Microsoft and Meta. The tech companies have committed to powering their data centers with renewables to slash carbon emissions. But solar and wind alone may be inadequate to meet the electricity load because they are dependent on variable weather, according to an April note from consulting firm Rystad Energy.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,”

Robert Blue

Dominion Energy, Chief Executive Officer

Surging electricity loads will require an energy source that can jump into the breach and meet spiking demand during conditions when renewables are not generating enough power, according to Rystad. The natural gas industry is betting gas will serve as the preferred choice.

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Natural gas prices year to date

“This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market,” Richard Kinder, executive chairman of pipeline operator Kinder Morgan, told analysts during the company’s first-quarter earnings in April.

“The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play,” Kinder said during the call. Kinder Morgan is the largest natural gas pipeline operator in the U.S. with 40% market share.

Natural gas is expected to supply 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%, according to Goldman Sachs’ report published in April.

Gas demand could increase by 10 billion cubic feet per day by 2030, according to Wells Fargo. This would represent a 28% increase over the 35 bcf/d that is currently consumed for electricity generation in the U.S, and a 10% increase over the nation’s total gas consumption of 100 bcf/d.

“That’s why people are getting more bullish on gas,” said Roger Read, an equity analyst and one of the authors of the Wells Fargo analysis, in an interview. “Those are some pretty high growth rates for a commodity.”

The demand forecasts, however, vary as analysts are just starting to piece together what data centers might mean for natural gas. Goldman expects a 3.3 bcf/d increase in gas demand, while Houston-based investment bank Tudor, Pickering, Holt & Co. sees a base case of 2.7 bcf/d and a high case of 8.5 bcf/d.

Powering the Southeast boom

Power companies will need energy that is reliable, affordable and can be deployed quickly to meet rising electricity demand, said Toby Rice, CEO of EQT Corp., the largest natural gas producer in the U.S.

“Speed to market matters,” Rice told CNBC’s “Money Movers” in late April. “This is going to be another differentiator for EQT and natural gas to take a very large amount of this market share.”

Natural gas market looks oversupplied right now, says EQT CEO Toby Rice

EQT is positioned to become a “key facilitator of the data center build-out” in the Southeast, Rice told analysts on the company’s earnings call in April.

The Southeast is the hottest data center market in the world with Northern Virginia in the thick of the boom, hosting more data centers than the next five largest markets in the U.S. combined. Some 70% of the world’s internet traffic passes through the region daily.

The power company Dominion Energy forecasts that demand from data centers in Northern Virginia will more than double from 3.3 gigawatts in 2023 to 7 gigawatts in 2030.

Further south, Georgia Power sees retail electricity sales growing 9% through 2028 with 80% of the demand coming from data centers, said Christopher Womack, CEO of Georgia Power’s parent Southern Company, during the utility’s fourt-quarter earnings call in February.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,” Dominion CEO Robert Blue said during the company’s March investor meeting.

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EQT shares over the past year.

The surging power demand in the Southeast lies at the doorstep of EQT’s asset base in the Appalachian Basin, Rice said during the earnings call. Coal plant retirements and data centers could result in 6 bcf/d of new natural gas demand in EQT’s backyard by 2030, the CEO said.

EQT recently purchased the owner of the Mountain Valley Pipeline, which connects prolific natural gas reserves that EQT is operating and developing in the Appalachian Basin to southern Virginia. EQT is the only producer that can access the growing data center market through the pipeline, said Jeremy Knop, the company’s chief financial officer.

“I think we are very uniquely positioned in that sense,” Knop said during the call. Rice said the Southeast will become an even more attractive gas market than the Gulf Coast later in the decade. EQT is planning to expand capacity on the Mountain Valley Pipeline from 2 bcf/d to 2.5 bcf/d. The pipeline is expected to become operational in June.

The level of electricity demand could help lift natural gas prices out of the doldrums.

Prices plunged as much more than 30% in the first quarter of 2024 on strong production, lower demand due to a mild winter and historic inventory levels in the U.S. By 2030, prices could average $3.50 per thousand cubic feet, a 46% increase over the 2024 average price of $2.39, according to Wells Fargo.

Grid reliability worries

Dominion laid out scenarios in its 2023 resource plan that would add anywhere from 0.9 to 9.3 gigawatts of new natural gas capacity over the next 25 years. The power company said gas turbines will be critical to fill gaps when production drops from renewable resources such as solar. The turbines would be dual use and able to take clean hydrogen at some point.

“We’re building a lot of renewables, which all of our customers are looking for, but we need to make sure that we can operate the system reliably,” Blue told analysts during Dominion’s earnings call Thursday.

Renewables will play a major role in meeting the demand but they face challenges that make gas look attractive through at least 2030, Read, the Wells Fargo analyst, told CNBC.

An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on.”

Lynn Good

Duke Energy, Chief Executive Officer

Many of the renewables will be installed in areas that are not immediately adjacent to data centers, he said. It will take time to build power lines to transport resources to areas of high demand, the analyst said.

Another constraint on renewables right now is the currently available battery technology is not efficient enough to power data centers 24 hours a day, said Zack Van Everen, director of research at investment Tudor, Pickering, Holt & Co.

Nuclear is a potential alternative to gas and has the advantage of providing carbon free energy, but new advanced technology that shortens typically long project timelines is likely a decade away from having a meaningful impact, according to Wells Fargo.

Richard Kinder, executive chairman of pipeline operator Kinder Morgan, said significant amounts new nuclear capacity will not come online for the foreseeable future, and building power lines to connect distant renewables to the grid will take years. This means natural gas has to play an important role for years to come, Kinder said during the company’s earnings call in April.

“I think acceptance of this hypothesis will become even clearer as power demand increases over the coming months and years and it will be one more significant driver of growth in the demand for natural gas that will benefit all of us in the midstream sector,” Kinder said.

Environmental impact

Any expansion of natural gas in meeting U.S energy demand is likely to be met with opposition from environmental groups who want fossil fuels to be phased out as soon as possible.

Goldman Sachs forecast carbon emissions from data centers could more than double by 2030 to about 220 million tons, or 0.6% of global energy emissions, assuming natural gas provides the bulk of the power.

Virginia has mandated that all carbon-emitting plants be phased out by 2045. Dominion warned in its resource plan that the phase out date potentially raises system reliability and energy independence issues, with the company relying on purchasing capacity across state lines to meet demand.

Duke Energy CEO Lynn Good said natural gas “can be a difficult topic,” but the fossil fuel is responsible for 45% of the power company’s emissions reductions since 2005 as dirtier coal plants have been replaced. Good said electricity demand in North Carolina is growing at a pace not seen since the 1980s or 1990s.

“As we look at the next many years trying to find a way to expand a system to approach this growth, I think natural gas has a role to play,” Good said at the Columbia Global Energy Summit in New York City in April. The CEO said natural gas is needed as a “bridge fuel” until more advanced technology comes online.

“An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on,” Good said.

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China’s automakers must adapt quickly or lose out on the EV boom in the face of regulatory scrutiny abroad and competition at home

Chinese new energy vehicle giant shows off the latest version of its Han electric sedan at the Beijing auto show on April 26, 2024.

CNBC | Evelyn Cheng

BEIJING — Chinese automakers, including state-owned auto giant GAC Group, can’t afford to take it easy in the country’s electric car boom if they want to survive.

Adoption of battery and hybrid-powered cars has surged in China, but an onslaught of new models has fueled a price war that’s forced Tesla to also cut its prices. While Chinese automakers also look overseas for growth, other countries are increasingly wary of the impact of the cars on domestic auto industries, requiring investment in local production. It’s now survival of the fittest in China’s already competitive EV market.

“The speed of elimination will only pick up,” Feng Xingya, president at GAC, told reporters on the sidelines of the Beijing auto show in late April. That’s according to a CNBC translation of his Mandarin-language remarks.

GAC slashed prices on its cars one week before the May 1 Labor Day holiday in China, Feng said, noting the price war contributed to its first-quarter sales slump. The automaker’s operating revenue fell year-on-year in the first quarter for the first time since 2020, according to Wind Information.

To stay competitive, Feng said GAC is partnering with tech companies such as Huawei, while working on in-house research and development. The automaker is the joint venture partner of Honda and Toyota in China, and has an electric car brand called Aion.

“In the short term, if your product isn’t good, then consumers won’t buy it,” Feng said. “You need to use the best tech and the best products to satisfy consumer needs. In the long term, you must have a core competitive edge.”

Expanding outside China

Factories go global

Part of GAC’s international strategy is to localize production, Wei said, noting the company is using a variety of approaches such as joint ventures and technology partnerships. He said GAC opened a factory in Malaysia in April and plans to open another in Thailand in June, with Egypt, Brazil and Turkey also under consideration.

GAC plans to establish eight subsidiaries this year, including in Amsterdam, Wei said. But the U.S. isn’t part of the company’s near-term overseas expansion plans, he said.

The difference today is that the overcapacity now has come together with vehicles that are very competitive

Stephen Dyer

AlixPartners, co-leader of the Greater China Business

U.S. and European officials have in recent months emphasized the need to address China’s “overcapacity,” which can be loosely defined as state-supported production of goods that exceeds demand. China has pushed back on such concerns and its Ministry of Commerce claimed that, from a global perspective, new energy faces a capacity shortage.

“There’s always been overcapacity in the Chinese auto industry,” said Stephen Dyer, co-leader of the Greater China business at consulting firm AlixPartners, and Asia leader for its automotive and industrials practice.

“The difference today is that the overcapacity now has come together with vehicles that are very competitive,” he told CNBC on the sidelines of the auto show. “So in our EV survey I was surprised to find that about 73% of U.S. consumers could recognize at least one Chinese EV brand. And Europe was close behind.”

Dyer expects that to drive overseas demand for Chinese electric cars. AlixPartners’ survey found that BYD had the highest brand recognition across the U.S. and major European countries, followed by Nio and Leap Motor.

BYD exported 242,000 cars last year and is also building factories overseas. The company’s sales are roughly split between hybrid and battery-powered vehicles. BYD no longer sells traditional fuel-powered passenger cars.

Tech competition

In addition to price, this year’s auto show in Beijing reflected how companies — Chinese and foreign — are competing on tech such as driver-assist software.

Chinese consumers placed almost twice as much importance on tech features compared with U.S. consumers, Dyer said, citing AlixPartners’ survey.

He noted how Chinese startups are so aggressive that a car may be sold with new tech, even if the software still has problems. “They know they can use over-the-air updates to rapidly fix bugs or add features as needed,” Dyer said.

Interest in tech doesn’t mean consumers are sold on battery-only cars. Dyer said that in the short term, consumers are still worried about driving range — meaning that hybrids are not only in demand, but often used without charging the battery.

Elon Musk meets with China's Premier Li Qiang to discuss Tesla, full-self driving and restrictions

Even Volkswagen is getting in on the “smart tech” race. The German auto giant revealed at the auto show its joint venture with Shanghai’s state-owned SAIC Motor teamed up with Chinese drone company DJI’s automotive unit to create a driver-assist system for the newly launched Tiguan L Pro.

The initial version of the SUV is fuel-powered, for which the company’s tagline is: “oil or electric, both are smart,” according to a CNBC translation of the Chinese.

Battery manufacturer CATL had a more prominent exhibition booth this year, likely in the hope of encouraging consumers to buy cars with its batteries, as competitors’ market share grows, said Zhong Shi, an analyst with the China Automobile Dealers Association.

Automotive chip companies Black Sesame and Horizon Robotics also had booths inside the main exhibition hall.

What customers want

Lotus Technology, a high-end U.K. car brand acquired by Geely, found in a survey of its customers their top requests were for automatic parking and battery charging, which would allow drivers to stay in the car.

That’s according to CFO Alexious Kuen Long Lee, who spoke with CNBC on the sidelines of the Beijing auto show. He noted the company now has robotic battery chargers in Shanghai.

Lotus and Nio last week also announced a strategic partnership on battery swapping and charging.

“I think there is a handing over of the baton where the Chinese brands are becoming much bigger and much stronger, and the foreign brands are still trying to decide what’s the best energy route,” said Lee, who’s worked in China since 1998. “Are they still deciding on the PHEV, are they still thinking about BEVs, are they still thinking about the internal combustion cars? The entire decision-making process becomes so complex, with so much resistance internally, that I think they’re just not being productive.”

But he thinks Lotus has found the right strategy by expanding its product line, and going straight to battery-powered cars. “Lotus today,” he said, “is similar to what international brands’ position [was] in China, probably back in 2000.”

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

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

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

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

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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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

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

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

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

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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