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China Profit Slump Spooks Markets

šŸ‰ Chinaā€™s profit slump sparks global jitters as industrial margins shrink amid weak demand and tighter credit.

Author

Ankit Sinha
June 27, 2025

Silver banana goes toā€¦




In this issue of the peel:

  • šŸ“ˆ AeroVironment takes flight as stocks soar after a strong earnings beat driven by surging global drone demand.

  • šŸ‰ Chinaā€™s profit slump sparks global jitters as industrial margins shrink amid weak demand and tighter credit.

  • šŸ’» Tech stocks rally pushes the S&P 500 and Nasdaq near record highs, as AI optimism keeps the momentum alive.

Market Snapshot

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A+ Equity Research Report šŸ“Š

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One of our WSO Academy students, Colin Baird-Taylor, put together an impressive deep dive on MercadoLibre, covering valuation, catalysts, and key risks with the kind of insight that turns good pitches into great ones. Check out the report here.

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Macro Monkey Says

Chinaā€™s Profit Slump Spooks Markets

Chinaā€™s industrial profits took a sharp downturn in May, plunging 9.1% year-over-year. This decline is attributed to sluggish demand, rising raw material costs, and tightening credit conditionsā€”factors that have squeezed margins across key sectors, including manufacturing and mining. 

The downturn has raised concerns about the resilience of China's economic recovery, especially as it faces challenges in boosting domestic consumption and investment.

The ripple effects of this decline are being felt globally. China, as a major manufacturing hub and consumer market, plays a pivotal role in the global supply chain. A slowdown in industrial profits could lead to reduced production capacity and lower demand for raw materials, impacting economies that are closely tied to China's growth. 

Additionally, the tightening of credit conditions may hinder the ability of Chinese firms to invest in new projects or expand operations, potentially affecting global markets that rely on Chinese goods and services. 

This development serves as a cautionary tale for investors and policymakers worldwide. While China's economic challenges are multifaceted, the significant decline in industrial profits underscores the need for careful monitoring of economic indicators and proactive measures to address underlying issues. 

The global economy's interconnectedness means that economic slowdowns in major economies like China can have far-reaching implications.

The Takeaway?

China's industrial profits plummeted 9.1% in May, the steepest drop since early 2023, due to weak demand, rising raw material costs, and tighter credit conditions. This downturn raises concerns about the sustainability of China's economic recovery and its impact on global markets. 

The interconnectedness of the global economy means that economic slowdowns in major economies, such as China, can have far-reaching implications, underscoring the need for careful monitoring and proactive measures. 

Career Corner

Question

How long are these calls even supposed to be? My first few were all like 25-30min and felt pretty dragged out, just had one that was 15 min on the nose and felt way more natural.

Answer

It depends on the person. Did it feel rushed? It doesnā€™t seem so; so, think you are okay. No need to overthink it. That person is likely busy - Mondays can be easily distracting for people as they are all coming back from the weekend.

Head Mentor, WSO Academy

What's Ripe

AeroVironment (AVAV) 15.9% 

  • AeroVironment shares soared 15.9% on Thursday, after the defense technology firm reported a significant earnings beat for its fiscal fourth quarter. The company reported adjusted earnings per share of $1.61, surpassing analysts' expectations of $1.39, and revenue of $275.1 million, which exceeded the projected $241.6 million.

  • This performance was driven by strong global demand for its unmanned military drone systems amid heightened geopolitical tensions.

Hims & Hers Health (HIMS) 11.8% 

  • Hims & Hers Health shares plummeted 11.8% on Thursday, following Novo Nordisk's termination of their partnership over concerns about Hims & Hers' promotion and sale of unapproved, compounded versions of the weight-loss drug Wegovy. 

  • Novo Nordisk accused the telehealth company of engaging in deceptive marketing practices that allegedly endangered patient safety. 

  • In response, Hims & Hers refuted the claims, alleging that Novo Nordisk attempted to coerce the company into prescribing Wegovy regardless of clinical need, thus infringing on provider autonomy and patient choice. 

What's Rotten

Equinix (EQIX) 9.6%

  • Equinix shares declined 9.6% on Thursday, following the company's announcement of a subdued growth outlook and plans for substantial capital expenditures. 

  • At its annual analyst day, Equinix projected annual revenue growth of 7% to 10% through 2029 and adjusted funds from operations (AFFO) per share growth of 5% to 9%, figures that fell short of investor expectations.

  • Additionally, the company unveiled plans to increase annual capital spending to $4ā€“$5 billion from 2026 to 2029, up from $3.3 billion in 2025, to expand its AI-ready data centers. This aggressive investment strategy raised concerns among investors about near-term profitability and led to analyst downgrades from firms like BMO Capital Markets and Raymond James. 

Xpeng Inc. (XPEV) 6.5%

  • XPeng shares declined 6.5% on Thursday, despite the company reporting robust first-quarter results in May that exceeded analyst expectations. The company achieved a record 94,008 vehicle deliveries in Q1 2025, marking a 331% year-over-year increase, and reported revenue of $2.18 billion, more than double that of the previous year.

  • Despite these positive financial indicators, investor sentiment remains cautious. Adding to the competitive pressure, Tesla recently launched its robotaxi service in Austin, Texas, deploying a limited fleet of autonomous vehicles equipped with Full Self-Driving software. 

  • This move underscores Tesla's aggressive push into autonomous transportation, potentially intensifying competition in the global EV and autonomous vehicle markets.

Thought Banana

DGX Cloud Heats Up AI Arms Race

Nvidia is shaking up the cloud computing sector with its DGX Cloud service, an ambitious play aiming to compete head-on with tech giants like Amazon, Microsoft, and Google. Launched just two years ago, DGX Cloud leverages Nvidiaā€™s leading-edge AI chips and deep expertise in artificial intelligence, providing enterprises with powerful, AI-optimized computing resources on demand.

Whatā€™s intriguing is Nvidiaā€™s unique business model. Instead of building its own cloud infrastructure, Nvidia leases its advanced hardware to major cloud providers who then offer DGX Cloud capabilities to their customers. 

This symbiotic relationship means Nvidia is both a partner and a competitor to these cloud giants. UBS analysts project DGX Cloud could become a $10 billion annual revenue business, underscoring the enormous market opportunity as demand for AI-powered computing skyrockets.

This move positions Nvidia not just as a chipmaker but as a major player in cloud services, blurring the lines between hardware and cloud computing sectors. Meanwhile, established cloud providers are ramping up their own AI capabilities to keep pace, intensifying competition. Nvidiaā€™s bold expansion highlights how AI is transforming the tech infrastructure sector and how the old guard may soon face new challengers.

The Takeaway?

Nvidiaā€™s DGX Cloud service is rapidly growing, projected to reach $10 billion in annual revenue by offering AI-optimized cloud computing through partnerships with major cloud providers. This strategy transforms Nvidia from a chipmaker into a cloud competitor, intensifying competition in the sector as AI continues to reshape tech infrastructure.

The Big Question: Can a chipmaker-turned-cloud-provider outmuscle Amazon, Microsoft, and Google in their own backyard?

Banana Brain Teaser

Previous

What is the difference between the sixth and the fifth term of the sequence 2, 4 ,7, ā€¦ whose nth term is n + (2^(n-1))?

Answer: 17

Today

There are 8 teams in a certain league and each team plays each of the other teams exactly once. If each game is played by 2 teams, what is the total number of games played?

Send your guesses to [email protected]

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Happy Investing,
Chris, Vyom, Ankit, Mithun, Colin & Patrick