Banananomics: Meta, Microsoft, And Nvidia

Following Microsoft, Meta debuts a new AI chip to decrease reliance on Nvidia.

Inputs that matter: Gary Marcus, an AI expert who spoke at the US Senate AI Oversight Subcommittee, reports Sequoia discovered that the AI industry spent $50 billion on Nvidia chips to train AI models last year but only generated $3 billion in revenue.

• According to SDXCentral, Nvidia's revenue increased 224% in 2023 and is projected to grow double-digits in 2024.

• CNBC reports, "Nvidia is valued at more than $2.2 trillion, powered partially by the tech industry's artificial intelligence boom and high demand for its computer chips."

• The Motley Fool says, "Hans Mosesmann of Rosenblatt Securities recently placed a $1,400 price target on Nvidia stock -- implying nearly 60% upside."

The opportunity: Last year, the company launched its Meta Training and Inference Accelerator (MTIA), its first-generation AI inference accelerator, designed in-house with Meta's AI workloads in mind.

• "These chips are part of our growing investment in our AI infrastructure and will enable us to deliver new and better experiences across our apps and technologies," the company said in the post.

• Microsoft and OpenAI are working on a massive data center to house an AI-focused $115 billion supercomputer featuring millions of non-Nvidia GPUs.

Zoom in: TechCrunch says Meta spends more on hardware than AI talent.

• The company is set to spend an estimated $18 billion by the end of 2024 on GPUs for training and running generative AI models.

Between the lines: Nvidia's latest creation, the B200, delivers four times the training performance, 30 times the inference performance, and 25 times greater energy efficiency.

• As electricity prices continue to rise, energy efficiency will play an increasingly important role in AI.

Follow the money: Companies buying chips for AI applications will face similar challenges as airlines buying planes, balancing efficiency with performance and massive capital investment.

• While losing out on crucial Big Tech customers, Nvidia sees massive growth from the non-tech sectors of the enterprise, driving the need for infrastructure in both public cloud and private data centers.

• Bloomberg reports, "Amazon.com Inc. plans to spend almost $150 billion in the coming 15 years on data centers, giving the cloud-computing giant the firepower to handle an expected explosion in demand for artificial intelligence applications and other digital services."

In the U.S., electricity per kilowatt-hour is at an all-time high, and the Energy Information Association (EIA) expects a 4% rise in summer demand.

Inputs that matter: OilPrice.com reports, "Uncertainty about the pace of renewable energy growth with the U.S. presidential election approaching has pushed investors to withdraw money from funds invested in renewables stocks—so much that these funds booked the biggest quarterly withdrawal ever in the first quarter of the year."

• According to LSEG Lipper data cited by Reuters, exchange-traded funds that invest in stocks of renewable energy firms saw a combined outflow of $4.8 billion during the first quarter.

• In addition to policy uncertainty in the U.S. energy sector caused by the November election, high interest rates are also curbing renewable growth and inflows into renewable energy funds.

• The S&P Global Clean Energy Index (INDEXSP: SPGTCLEN), which tracks the performance of wind and solar power firms, has been down by almost 10% year to date.

• This compares to a 16% jump in the S&P 500 Energy Index, which has risen amid a rally in oil and gas stocks so far this year.

The opportunity: According to Colorado Politics, "The Biden administration and dozens of other countries have pledged to triple the capacity of nuclear power worldwide in their battle against climate change, and some are adopting policy changes to lessen Russia's influence over the supply chain."

• Energy Fuels, which is starting production near the Grand Canyon and prepping two more mines in Colorado and Wyoming, was awarded a contract in 2022 to sell $18.5 million in uranium concentrates to the U.S. government to help establish the nation's strategic reserve for when supplies might be disrupted.

Zoom in: The Daily Mail explains, "Native Americans in Utah are in an uproar after a uranium mine near a sacred site discovered a massive reserve of the radioactive material."

• Increased Uranium prices have returned workers to the La Sal Complex, situated 32 miles outside of Moab, after the facility opened and closed and opened again over the years.

Between the lines: Newsweek details, "Capital expenditures have surged to a record-breaking nearly $171 billion in 2023 for the most significant electric and gas utilities, according to Deloitte, indicating a trend that may not reverse soon."

• "The Federal Reserve's warning of a 'higher for longer' interest rate environment aimed at curbing inflation resonates within the energy sector."

Follow the money: These higher borrowing costs come at a time when utilities are investing heavily to modernize and transition towards more sustainable energy sources.

• "Much of the increase over time is due to inflation and has often lagged inflation," Jim Thomson, U.S. Power, Utilities & Renewables leader at Deloitte Consulting, explained to Newsweek.

Russian oil exceeds the G7 price cap designed to deprive Moscow of revenue.

Inputs that matter: OilPrice.com reports, "The cap requires that any Western company involved in transporting Russian oil receives a so-called attestation, a document vouching that the cargo cost $60 a barrel or less."

• "The country's flagship Urals grade is fetching about $75 a barrel when it leaves ports in the Baltic Sea and Black Sea."

• The U.S. plans to continue the enforcement of the cap by sanctioning vessels operating in the shadow fleet but will not do so in response to any specific market moves.

• A European Commission spokesperson said the bloc is aware of the risk of the price cap being dodged and is committed to steps that deprive Russia of revenue while simultaneously "supporting global energy market stability."

The opportunity: "We think oil into the summer months will kind of top out at around $95+ a barrel," Bank of America head of global commodities Francisco Blanch told Yahoo Finance on Wednesday.

• "Crude prices have pushed higher in recent months amid production cuts by oil alliance OPEC+, attacks on Russian refineries, and escalating tensions in the Middle East, including cargo interruptions along the Red Sea region."

• Blanch and other analysts believe OPEC will step in with spare capacity if prices get too high to prevent the loss of market share.

Zoom in: Brazilian oil giant Petrobras has discovered oil in the deep waters of the Potiguar basin, which is located in the country's environmentally sensitive northern equatorial margin.

• A significant breakthrough occurred in Namibia's energy sector in early 2022 with Shell Plc. (NYSE:SHEL) and TotalEnergies (NYSE:TTE) finding oil in the Graff and Venus blocks. This oilfield has the potential to become the largest-ever discovery in Sub-Saharan Africa.

Between the lines: Reuters reports, "Oil prices settled up $1 on Wednesday after three sons of a Hamas leader were killed in an Israeli airstrike in the Gaza Strip, feeding worries that ceasefire talks might stall."

• "The oil market has been and continues to be very reactive to news out of Gaza," said John Kilduff, partner at Again Capital LLC in New York.

Follow the money: Analysts at S&P Global Commodity Insights have predicted that global crude demand will increase by 1.4 mb/d in the current year.

• Former White House advisor Bob McNally believes $100 oil is "entirely real."

• MarketWatch reports, "Oil appears to play a major role in this week's rise of the benchmark 10-year Treasury yield."

• Federal Reserve Bank Chair Jerome Powell expressed concern about inflation with the rising oil price and is expected to forgo the June rate cuts.

• Seeking Alpha explains that renewable energy is capital intensive, and as interest rates soar, those funding these projects look for alternatives with faster return on investment.