Tag: Uber Technologies Inc

Friday’s S&P 500 and Nasdaq-100 rebalance may reflect concerns over concentration risk

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It’s arguably the biggest stock story of 2023: a small number of giant technology companies now make up a very large part of big indexes like the S&P 500 and the Nasdaq-100. 

Five companies (Apple, Microsoft, Amazon, Nvidia and Alphabet) make up about 25% of the S&P 500. Six companies (Apple, Microsoft, Amazon, Nvidia, Alphabet and Broadcom) make up about 40% of the Nasdaq-100. 

The S&P 500 and the Nasdaq are rebalancing their respective indexes this Friday. While this is a routine event, some of the changes may reflect the concerns over concentration risk. 

A ton of money is pegged to a few indexes 

Now that the CPI and the Fed meeting are out of the way, these rebalances are the last major “liquidity events” of the year, corresponding with another notable trading event: triple witching, or the quarterly expiration of stock options, index options and index futures. 

This is an opportunity for the trading community to move large blocks of stock for the last gasps of tax loss harvesting or to position for the new year. Trading volume will typically drop 30%-40% in the final two weeks of the year after triple witching, with only the final trading day showing significant volume.

All of this might appear of only academic interest, but the big move to passive index investing in the past 20 years has made these events more important to investors. 

When these indexes are adjusted, either because of additions or deletions, or because share counts change, or because the weightings are changed to reduce the influence of the largest companies, it means a lot of money moves in and out of mutual funds and ETFs that are directly or indirectly tied to the indexes. 

Standard & Poor’s estimates that nearly $13 trillion is directly or indirectly indexed to the S&P 500. The three largest ETFs (SPDR S&P 500 ETF Trust, iShares Core S&P 500 ETF, and Vanguard S&P 500 ETF) are all directly indexed to the S&P 500 and collectively have nearly $1.2 trillion in assets under management. 

Linked to the Nasdaq-100 — the 100 largest nonfinancial companies listed on Nasdaq — the Invesco QQQ Trust (QQQ) is the fifth-largest ETF, with roughly $220 billion in assets under management. 

S&P 500: Apple and others will be for sale. Uber going in 

For the S&P 500, Standard & Poor’s will adjust the weighting of each stock to account for changes in share count. Share counts typically change because many companies have large buyback programs that reduce share count. 

This quarter, Apple, Alphabet, Comcast, Exxon Mobil, Visa and Marathon Petroleum will all see their share counts reduced, so funds indexed to the S&P will have to reduce their weighting. 

S&P 500: Companies with share count reduction

(% of share count reduction)

  • Apple        0.5%
  • Alphabet   1.3%
  • Comcast    2.4%
  • Exxon Mobil  1.0%
  • Visa                0.8%
  • Marathon Petroleum  2.6%

Source: S&P Global

Other companies (Nasdaq, EQT, and Amazon among them) will see their share counts increased, so funds indexed to the S&P 500 will have to increase their weighting. 

In addition, three companies are being added to the S&P 500: Uber, Jabil, and Builders FirstSource.  I wrote about the effect that being added to the S&P was having on Uber‘s stock price last week.  

Three other companies are being deleted and will go from the S&P 500 to the S&P SmallCap 600 index: Sealed Air, Alaska Air and SolarEdge Technologies. 

Nasdaq-100 changes: DoorDash, MongoDB, Splunk are in 

The Nasdaq-100 is rebalanced four times a year; however, the annual reconstitution, where stocks are added or deleted, happens only in December. 

Last Friday, Nasdaq announced that six companies would be added to the Nasdaq-100: CDW Corporation (CDW), Coca-Cola Europacific Partners (CCEP), DoorDash (DASH), MongoDB (MDB), Roper Technologies (ROP), and Splunk (SPLK). 

Six others will be deleted: Align Technology (ALGN), eBay (EBAY), Enphase Energy (ENPH), JD.com (JD), Lucid Group (LCID), and Zoom Video Communications (ZM).

Concentration risk: The rules

Under federal law, a diversified investment fund (mutual funds, exchange-traded funds), even if it just mimics an index like the S&P 500, has to satisfy certain diversification requirements. This includes requirements that: 1) no single issuer can account for more than 25% of the total assets of the portfolio, and 2) securities that represent more than 5% of the total assets cannot exceed 50% of the total portfolio. 

Most of the major indexes have similar requirements in their rules. 

For example, there are 11 S&P sector indexes that are the underlying indexes for widely traded ETFs such as the Technology Select SPDR ETF (XLK). The rules for these sector indexes are similar to the rules on diversification requirements for investment funds discussed above. For example, the S&P sector indexes say that a single stock cannot exceed 24% of the float-adjusted market capitalization of that sector index and that the sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight. 

At the end of last week, three companies had weights greater than 4.8% in the Technology Select Sector (Microsoft at 23.5%, Apple at 22.8%, and Broadcom at 4.9%) and their combined market weight was 51.2%, so if those same prices hold at the close on Friday, there should be a small reduction in Apple and Microsoft in that index. 

S&P will announce if there are changes in the sector indexes after the close on Friday. 

The Nasdaq-100 also uses a “modified” market-capitalization weighting scheme, which can constrain the size of the weighting for any given stock to address overconcentration risk. This rebalancing may reduce the weighting in some of the largest stocks, including Apple, Microsoft, Amazon, Nvidia and Alphabet. 

The move up in these large tech stocks was so rapid in the first half of the year that Nasdaq took the unusual step of initiating a special rebalance in the Nasdaq-100 in July to address the overconcentration of the biggest names. As a result, Microsoft, Apple, Nvidia, Amazon and Tesla all saw their weightings reduced. 

Market concentration is nothing new

Whether the rules around market concentration should be tightened is open for debate, but the issue has been around for decades.

For example, Phil Mackintosh and Robert Jankiewicz from Nasdaq recently noted that the weight of the five largest companies in the S&P 500 was also around 25% back in the 1970s.

Disclosure: Comcast is the corporate parent of NBCUniversal and CNBC.

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

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My top 10 things to watch Tuesday, May 2

1. DuPont (DD) delivers a first-quarter earnings beat Tuesday, with adjusted earnings-per-share (EPS) of 84 cents, compared with analysts’ forecasts of 80 cents per share. But the materials giant cut its full-year revenue forecast, sending shares nearly 5% lower in premarket trading. DuPont also says it’s agreed to buy Spectrum Plastics Group from AEA Investors for $1.75 billion, in a deal that should be immediately accretive.

2. Club holding Morgan Stanley (MS) is planning to cut 3,000 jobs in the bank’s second round of layoffs in six months, Reuters reported Monday.

3. Tesla (TSLA) raises prices on some models of its electric vehicles in the U.S., China, Japan and Canada. The news come after several rounds of price cuts earlier this year.

4. Citi calls SoFi Technologies‘ (SOFI) post-earnings sell-off “unwarranted,” while reiterating a buy rating and $10-per-share price target. Meanwhile, Wedbush downgrades SOFI to neutral from outperform and lowers its price target to $5 per share, from $8.

5. TD Cowen raises its price target on health insurer Humana (HUM) to $616 per share, from $581, while reiterating an outperform rating. The Club holding last week delivered a first-quarter earnings beat and raised its guidance.

6. Uber Technologies (UBER) reports a first-quarter revenue beat of $8.82 billion, ahead of analysts’ forecasts for $8.72 billion, sending the stock soaring by nearly 10% in premarket trading. The company reports an EPS loss of 8 cents, compared with expectations for a 9 cent-per-share loss, while guiding for gross bookings of $33 billion to $34 billion in the second quarter.

7. BP reports stronger-than-expected first-quarter profits on Tuesday, with its underlying replacement cost profit coming in at $4.96 billion on the back of strong oil-and-gas trading. The British oil major expects to deliver share buybacks totaling $4 billion for the year, at the lower end of its capital expenditure range of $14 billion to $18 billion. Shares of BP were down roughly 5% in premarket trading.

8. Morgan Stanley raises its price target on Exxon Mobil (XOM) to $122 per share, from $118, while reiterating an overweight rating on the stock. The bank cites the U.S. oil major’s record first-quarter profit, which it reported last Friday.

9. Bank of America raises its price target on Brinker International (EAT) to $33 per share, from $29, reflecting a higher market multiple. But the firm maintains its underperform, or sell, rating on EAT stock.

10. The CEO of International Business Machines Corp. (IBM), Arvind Krishna, said the company plans to pause hiring for back-office roles that could be replaced by artificial intelligence (AI) in the coming years. “I could easily see 30% [roughly 7,800 jobs] of that getting replaced by AI and automation over a five-year period,” Krishna told Bloomberg.

(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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Zipline unveils P2 delivery drones that dock and recharge autonomously

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Logistics startup Zipline has flown more than 38 million miles with its autonomous electric delivery drones since the company was founded in 2014. Zipline put its first fleet to work in Rwanda, delivering blood and other health supplies to clinics and hospitals. Since then, the Silicon Valley startup has expanded its service in six other countries, with limited delivery service and distribution centers in three states.

On Wednesday, Zipline showed off its next-generation aircraft, which it hopes will make rapid aerial deliveries an everyday convenience for customers throughout the U.S., even in densely populated urban areas.

Zipline’s new drone, dubbed the Platform 2 or P2 Zip, is capable of carrying up to eight pounds worth of cargo within a ten-mile radius, and can land a package on a space as small as a table or doorstep.

“The reason that number is important,” says Zipline CEO and co-founder Keller Rinaudo Cliffton, “is that when you look at e-commerce in the US, a vast majority of packages weigh five pounds or less.”

Zipline cofounders, CEO Keller Rinaudo Cliffton and CTO Keenan Wryobek

Zipline

The P2 Zip can travel ten miles in ten minutes, and the company can make a delivery approximately seven times faster than any typical service you may order from today, the CEO said. Rapid deliveries by drone may put an end to “porch pirates,” Rinaudo Cliffton said, referring to the theft of packages left on a doorstep while the customer is away from home.

While Zipline’s original drone, the P1 Zip, features a fixed wing or glider-like design, the P2 employs both lift and cruise propellers and a fixed wing. These help it maneuver precisely and quietly, even in rainy or windy weather.

To deliver cargo to a customer’s door, the P2 Zip hovers around 300 feet above ground level and dispatches a kind of mini-aircraft and container called the “droid.” The droid descends on a long thin tether, and maneuvers quietly into place with fan-like thrusters before setting down for package retrieval.

Zipline’s original P1 drones will remain in production and in wide use, says Rinaudo Cliffton. The P1 Zip can fly a longer distance, delivering up to five pounds of cargo within a 60-mile radius, but it requires a larger space for take off, landings and “the drop.”

The P1 Zip lets cargo down with a parachute attached, so its payload lands within a space about the size of two car parking spots. After a P1 Zip returns to base, an employee needs to disassemble it, then set up a new one, dropping in a freshly charged battery for the next flight.

Zipline’s new P2 Zip can dock and power up autonomously at a charging station that looks something like a street lamp with an arm and a large disc attached to that arm:

A rendering of P2 Zips charging at a docking station.

Zipline

Zipline docks can be installed in a single parking spot or alongside a building depending on zoning and permits. Zipline envisions the docks set up by restaurants in a downtown shopping district, or alongside the outer wall of a hospital, where the droid can be inserted into a window or dumbwaiter, retrieved, and reloaded by healthcare workers indoors.

Setting up one of these docks takes about as much work as installing an electric vehicle charger, Rinaudo Cliffton said.

Before developing the P2 Zip, Zipline had established logistics networks in Cote d’Ivoire, Ghana, Japan, Kenya, Nigeria and Rwanda already. It is operating some drone delivery networks in the US, in North Carolina, Arkansas and Utah — but the P2 will help it expand that network.

Partners who plan to test deliveries via P2 Zip include the healthy fast-casual restaurant Sweetgreen, Intermountain Health in Salt Lake City, Michigan Medicine, Multicare Healthcare System in Tacoma, Wash., and the government of Rwanda.

Zipline is not alone in its ambitions. Zipline is part of a program with other startups like DroneUp and Flytrex to make deliveries for Walmart. Amazon, meanwhile, has been working on making drone deliveries a reality here for nearly a decade, although that business has struggled to overcome a thicket of regulation and low demand from test customers.

Quiet and green is the goal

Zipline head of engineering Jo Mardall told CNBC the company focused much of its engineering on making sure the drones were not just safe and energy-efficient, but also quiet enough that residents would embrace their use. 

“People are worried about noise, rightly. I’m worried about noise. I don’t want to live in a world where there’s a bunch of loud aircraft flying above my house,” he said. “Success for us looks like being in the background, being barely audible.” That means something closer to rustling leaves than a car driving by. 

The droid component of the P2 Zip is designed to enter distribution centers through a small portal, where it’s loaded up with goods for delivery.

Zipline

The P2 Zips have a unique propeller design that makes this possible, Mardall explained, adding, “The fact that the Zip delivers from from 300 feet up really helps a lot.”

Mardall and Rinaudo Cliffton emphasized that Zipline aims to have a net-beneficial impact on the environment while giving business a better way to move everything from hot meals to refrigerated vaccines just in time to customers. 

Unmanned aerial vehicles, they explained, avoid worsening traffic congestion by going overhead. And since Zipline’s drones are electric, they can be powered with renewable or clean energy, without the emissions from burning jet fuel, gasoline, or diesel.

But most importantly, the CEO said, Zipline’s drone delivery allows companies to “centralize more inventory,” and “dramatically reduce waste.”

A study published by Lancet found that hospitals using Zipline services were able to reduce their total annual blood supply waste rate by 67%, the CEO boasted.

“That is a mind-blowing statistic, and a really big deal. It saves health systems millions of dollars, by reducing inventory at the last mile and only sending it when it’s needed.”

Zipline is aiming to bring that efficiency to every corner of commerce, the CEO said. It’s also aiming to keep the cost of drone delivery competitive with existing services, like FedEx and UPS, or food delivery apps like Uber Eats and Instacart.

But first, the startup plans to conduct more than 10,000 test flights using about 100 new P2 Zips this year. With its existing P1 drones, Zipline is already on track to complete about 1 million deliveries by the end of 2023, and by 2025 it expects to operate more flights annually than most commercial airlines.

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