In this issue of the peel:

• Sam Altman’s pursuit of Supreme God Emperor of the world hit a stumbling block as giving people free cash isn’t the gold mine it's cracked up to be. Check out the results of the OpenResearch UBI study below

• One airline has figured out how to defend itself from the race to the bottom in ticket fares, while CrowdStrike shares are getting bullied again

• Brittle valuations in the tech market are coming into focus as Microsoft shares tumble after hours. Find out why below

Market Snapshot

Banana Bits

• The hipster recession continues as Starbucks misses estimates and sells off

• Boeing’s only competitor, Airbus, saw its profits fall almost as fast as Boeing’s planes

• AMD’s earnings come in at a very nice $0.69/sh as data center sales more than doubled

• Novo Nordisk may have accidentally started on a cure for Alzheimer’s

• Bill Ackman’s next venture (surprisingly not a Tweet thread authoring program) decreased its target AUM

Macro Monkey Says

Let Them Eat Cash

How does free money sound?

No, this isn’t an options trading strategy in some scam artist's Discord. In fact, it’s not even a Nigerian Prince or Warren Buffett giving away free BTC on Twitter.

Running the world’s most innovative company and controlling the world’s most powerful technology wasn’t enough for future global Supreme God Emperor Sam Altman. 

Lately, he’s been paying the luckiest Americans $1,000/week to do a whole lotta nothin’. Now that the results are in, let’s get into it.

What Happened?

For the past three years, OpenAI’s research arm and CEO Sam Altman have been giving away a tax-free, no-strings-attached $1,000/month to 1,000 low-income Americans. Meanwhile, a control group of 2,000 participants were given $50/month.

The participants averaged an income of $29k/yr, meaning they were essentially given a 50% annual raise for no additional work. Now, if only I could convince Patrick to do the same for me, but…

Altman & team tracked the impact of this free cash on participants’ health, spending, employment, use of time, and more over the 3yrs from Oct 2020 - Nov 2023.

The study's purpose was to assess the effects of a Universal Basic Income (UBI) now that we’re even more worried about our jobs being taken than the people of South Park.

Three years and a few months later, the results are in. Let’s see what happens when you give people free money.

The main findings were “large but short-lived improvements in stress and food security, greater use of hospital and emergency department care, and increased medical spending of about $20 per month in the treatment relative to the control group.”

Even more depressingly, researchers also found:

• “No effect of the transfer across several measures of physical health as captured by multiple well-validated survey measures and biomarkers derived from blood draws”

• “The transfer did not improve mental health after the first year, and by year 2, we can again reject very small improvements”

• “We also find precise null effects on self-reported access to health care, physical activity, sleep, and several other measures related to preventive care and health behaviors”

One thing we do know is that these 1,000 people like to party, with the single greatest increase in “food” spending measured by standard deviation was found in the alcoholic beverage category. 

As the above quotes indicate, the changes observed were primarily positive but fleeting.

In OpenResearch’s public-facing presentation (the above link), as opposed to the actual study (linked below the two prior images), the findings are presented in a much more positive light, but statistically, most findings remain negligible.

For instance, on the employment side, researchers noted little difference in hours worked, total earnings, and job searching, as laid out above.

The additional cash actually led to a decrease in average hours worked of 1.3hrs/week. While very slight, this likely fed into the 5% decrease in average household income observed simultaneously.

The Takeaway?

We kinda already knew a lot of this…

With stimmy checks from the pandemic primarily going to pursuing degenerate gambling in $GME or developing a drinking problem, it’s clear that cash transfers have positive effects, but they simply don’t last.

As other studies of people, such as lottery winners or amputees, suggest, humans tend to revert to a baseline level of life satisfaction.

Plus, none of this has even mentioned how this would be funded. At $1,000/month to 330mn Americans, you’re talking about $3.96tn/yr. That would encompass more than half the proposed 2024 budget, and we already have an inflation problem, so…

If the AI overlords are ready to take our jobs, it seems that we’re gonna have a lot of people revert to their behavior from junior year of college: a lot of drinking, way too much gambling, and most of all, even more nothin.’

What's Ripe

JetBlue (JBLU) 12.3%

• Despite a turbulent year, JetBlue shares cruised to a smooth landing in Q2, leading shares to take off on Tuesday. A bold strategy is underway

• The U.S.’s 8th largest airline delivered a surprise $0.08/sh profit vs estimates for a $0.10/sh loss on revenue of $2.43bn, beating estimates by a slight 1.25%

• Bold for any airline, JetBlue plans to focus on core routes and to have flights actually take off on time, leading to upbeat guidance that fueled shares even more

PayPal (PYPL) 8.6%

• We know they can move money, but it’s been a struggle for PayPal to make money in recent years. But, in Q2, the firm is back to its old mafia ways

• The firm returned to growth in its non-Venmo peer-to-peer (P2P) business line, contributing to 8% top-line growth in Q2 against guidance for just 6.5%

• PayPal beat bottom-line estimates by 24%, and the same is true for revenue, only by a much smaller 1%

What's Rotten

CrowdStrike (CRWD) 9.7%

• Like if my high school bully started shoving me into lockers again, CrowdStrike shares continue to tumble due to nearly breaking the world a few weeks ago

• Yesterday’s tumble came as Delta Airlines may seek damages for the outage. The airline canceled 7k flights and is dealing with 176k refund requests

• I guess it's time to sue McDonald’s for their perpetually broken ice cream machines too. This one’s gonna take a while to play out, so stay tuned

Nvidia (NVDA) 7.0%

• Nvidia’s quest to prove Einstein and Newton wrong by using its share price to deny that gravity exists is coming to a big test soon — earnings szn

• The chip-and-millionaire-maker won’t report Q2 figures for another month. But, markets are already betting against Big Tech this earnings szn

• Yesterday’s decline comes as part of the rotation away from Big Tech into smaller cap, more diverse plays. 

Thought Banana

Earnings Spotlight: Microsoft Corp. (MSFT, 0.89%)

Microsoft’s a little bit ahead of the rest of us.

Not just because of their investment and abilities in AI technologies but because they’re apparently at the end of 2024 already.

Counting is hard, especially when you get to the double-digits. But, apparently, Microsoft just finished its fiscal year 2024, and we have to talk about the results.

Let’s dive in.

The Numbers

The world’s second most valuable company just barely eked out a beat in the fourth quarter, delivering earnings of $2.95/sh on $64.7bn in revenue against estimates for $2.93/sh on $64.4bn.

But, the beats registered on the top and bottom line were quickly overshadowed by “weakness” in the firm’s largest business line, Intelligent Cloud:

As shown above, Intelligent Cloud grew 19% on a GAAP basis and contributed $28.52bn to the firm’s total revenue, just a hair below the $28.68bn estimate.

Azure revenue grew 29% while the Street was looking for 31%. Of that 29%, however, Microsoft disclosed that 8% was attributable to Copilot and other AI advancements.

Within the firm’s Productivity and Business Processes Segment, Office 365 products were the primary contributor to the firm’s 12% increase in gross margins. Revenue and operating incomes improved most dramatically here.

Global cringe levels were up 10% for the year due to LinkedIn revenue, more personal computing grew 14%, and share buybacks totaled $8.4bn for fiscal year 2024.

Total sales grew 15% for the year, while net income was up 10%. And… shares plummeted after hours.

The Takeaway?

Tech valuations have created high expectations this earnings szn.

Cloud growth for the hyperscalers like Microsoft, Google, and Amazon has been in focus and, given Microsoft’s miss, took shares down bigtime in the after-hours session yesterday.

We’ll see if Mr. Market can keep the same energy tomorrow. Earnings szn is rolling on, so stay tuned.

The Big Question: Can Microsoft sustain its growth in the cloud segment and meet high market expectations amidst increasing competition and market volatility?

Banana Brain Teaser

Previous

Working at a constant rate, a copy machine makes 20 copies of a one-page document per minute. If the machine works at this constant rate, how many hours does it take to make 4,800 copies of a one-page document?

Answer: 4 hours

Today

Becky rented a power tool from a rental shop. The rent for the tool was $12 for the first hour and $3 for each additional hour. If Becky paid a total of $27, excluding sales tax, to rent the tool, for how many hours did she rent it?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper & Patrick

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