Generate's Investment Specialist Greg Smith was on ZB with Mike Hosking this morning, reviewing a knockout result from American Express, which provided some interesting takeaways on the world’s largest economy. He also discusses fears about a bubble in AI stocks, and why comparisons with the dot-com boom are unfair. Back home he considers whether we should be concerned if the September quarter CPI data has inflation back above 3%.
Listen here or read the transcript below:
From Generate Greg Smith, welcome to the week.
Morning, Mike.
Well, you got a gold or a platinum, you're in the Amex world. It seems to be all good news, doesn't?
That's right. Americans seem to have their plastic out for sure. So Amex, they posted a 16% increase in net income, $2.9 billion. Net revenue that was up 11%. That's a record 18.4 billion. Billed business, $421 billion. So yeah, younger members are actually driving things might say millennials and Gen Zs, they're around about 36% total card spending, actually on a par with us Gen Xs, and the Gen Zs are making 25% more transactions on average than older customers and along with millennials, they're at 75% of platinum and gold sign-ups there.
There is the wider premium premiumisation effect, which is happening in the US economy. So that coincides with this dramatic concentration of wealth. There was one analytics company that they found that the top 10% of US households account for nearly 50% of all consumer spending in the US. It was interesting, but premiumisation evident in the rollout for this this new card, they do lots of refreshes.
They're pretty well known for that. So they've got a new card out for platinum. They upped the fee by 200 bucks US year at 895. What happened? They got 500,000 requests in the first few weeks and signups doubled on pre refresh levels. They threw in some extra restaurant, travel, wellness and entertainment perks, so that went off pretty well. It was actually the most successful refresh on record. Also gave a bit of a positive sighter on the health of the US economy. They see people playing the paying the bills and they're in a good place. And they said, yeah, things looking pretty good there. They actually upped the outlook. They raised four-year revenue growth forecast from 9 to 10%. Investors, they like what they heard. Shares soared over 7% on Friday.
I like it. Now the shares didn't saw over 7% for Oracle. What happened there?
Going the other way, so the cloud software company, they outlined their ambitious five-year targets a few weeks ago. So they see 31% revenue growth to 225 billion by 2030.
They reckon cloud infrastructure is going to be about 144 billion of that. So but they released a bit more detail or they didn't. There was a bit of lack of detail, I suppose, and that was what investors reacted to. So yeah, the shares were down 7%. Just what's it going to cost in terms of investment and what's going to be the impact of margins? So they announced some big deals like Swift and Open AI. But yeah, what are these big AI deals going to mean for profitability? So the shares did fall but to be fair, they're up to 75% this year.
Just on that Mike. And obviously, there's been a few articles recently comments about the dot.com bubble and the comparisons of what's happening today probably is a bit unfair. Just sort of thinking about it, you think back to the late 90s, PE that meant price to eyeballs, anything with a dot.com in it, you know, soared. But if you look at these tech names today, this obviously we do have some excesses being built up to a certain extent, but they actually are delivering. So NVIDIA 30 times forward earnings, it's growing revenues and earnings at 50% through the next few years.
So there's demand for AI chips, the infrastructure that's being rolled out that could exceed $1 trillion. And you look at the largest AI search engines and they’re getting close to 20 billion in annual revenue. I thought was an interesting study or survey from McKinsey, they reckon the AI could add between 2.6 and 4.4 trillion to global GDP annually. You look at US businesses, 45% of them using AI tools, businesses founded after 2022, are growing at 4.5 times the right from those before. So maybe AI is a factor there.
And I guess they have a big difference, Mike, is that these companies are cash rich. You look at Alphabet, they've got nearly 100 billion in cash. So I think scepticism, it's healthy in moderation. But yeah, talk of a bubble might downplay the foundational shift of what's actually occurring.
You got a three or not?
Yeah, the inflation number, so don't be alarmed if we get a three today. So we're 2.7 at the June quarter. The RBNZ said, yes, we might actually get to the top of their 1.3% band. Might be above it. So they cut rates by half percent recently. They said it's going to be temporary.
I suppose but that might not be blind hope. You know, if we look at the exchange rate, that's going to drive up the cost of imported items. But yeah, food prices, they fell in September for first time since the start of the year. Rent growth, it's slow since 2011 and you know, obviously I think they're quite right to cut rates by half percent. We're in a bit of a slump need to get out of it.
And it's not going to really drive wages or prices higher, you know, on the whole with an economy like that. Spare capacity and the like. So the RBNZ said we’re going to get back to 2% by the first half of next year. But let's see what today brings with the CPI. Don't be alarmed if there's a three at the front of it.
Numbers please.
So the US markets were all up by half percent in terms of the main indices Dow, S&P, Nasdaq, and Trump made some positive comments around China. FTSE 100, down .9%. Nikkei down 1.4%, ASX 200 down .8%, NZX 50, down .8% 13 289. Gold that came back from record levels down 75 dollars, 4251 an ounce. Oil up 8 cents 57.54.
In the currencies, Kiwi flat against the US dollar 57.3, down slightly against the A dollar, 88.2. Also up slightly against the British pound 42.7, and up slightly against the Japanese yen 86.2. This week we probably are not going to get in the US data with the shut down, but we're going to get some Chinese GDP, retail sales, industrial production, inflation, Japan. On the results front, plenty going on Netflix, Coca Cola, Tesla, IBM, Intel.
Locally, AGM's Meridian, Fletchers, Auckland Airport and on the data front here we've got a bit card spending, dairy auction and will it have a three in front of it ? Yeah don't be alarmed. So we've got the CPI today.
Good one, mate, you go well, catch up soon. Greg Smith, Generate Wealth and Kiwi Saver specialists.