Top Stock Market Highlights of the Week: Tesla, Meta Platforms, China’s Interest Rate Policy and MAS’ REIT Policy
Welcome to this week’s edition of top stock market highlights.
Tesla (NASDAQ: TSLA)
Tesla released a mixed set of earnings for the second quarter of 2024 (2Q 2024).
Total revenue inched up 2% year on year to US$25.5 billion but gross margin continued to be under pressure, falling from 18.2% a year ago to 18%.
An increase in expenses caused operating profit to tumble by 33% year on year to US$1.6 billion.
Net profit came in at US$1.5 billion, down 45% from a year ago.
One bright spot was the generation of positive free cash flow of US$1.3 billion, 34% higher than the US$1 billion churned out in the prior year.
This positive free cash flow was also a welcome change from the negative free cash flow of US$2.5 billion in the previous quarter.
CEO Elon Musk has promised to unveil the company’s self-driving robotaxi called Cybercab on 10 October.
This robotaxi will be built at Tesla’s factory in Austin with Musk also promising to reveal other vehicles.
The electric vehicle company expects to manufacture more cars in the current quarter than it did in the previous one.
Its new Cybertruck is on track to become profitable by the end of 2024 with plans to launch a lower-cost vehicle by the first half of 2025.
These cheaper cars will be available next year and hopefully attract a wider customer base for Tesla to make up for the lower price that it will charge.
Meta Platforms (NASDAQ: META)
There is a keen race going on in the artificial intelligence (AI) world, and Meta Platforms has just delivered its latest salvo.
The social media behemoth announced the release of its Llama 3 AI model earlier this week.
This new model can converse in eight languages, write high-quality computer code, and solve more complex math problems compared with the previous iteration.
Llama 3 now boasts 405 billion parameters, defined as variables that the algorithm uses to generate responses to user queries.
However, this number is still lower than OpenAI’s GPT-4 model, which has one trillion parameters.
Amazon (NASDAQ: AMZN) is purportedly readying its own AI model with two trillion parameters.
Meta’s CEO Mark Zuckerberg believes that future Llama models will overtake its competitors by next year.
The company’s models are released largely free of charge for use by developers, a strategy that aims to shift users’ reliance on paid AI models towards Meta’s.
Should more users utilise Meta’s Llama, it would also help to undercut its rivals’ business models.
Investors should look forward to Meta’s next generative AI iteration to see what improvements are in store for its platform.
China’s interest rate policy
China has lowered the interest rate of its one-year policy loans by the most since April 2020.
This was an unexpected move that signals the Chinese government’s commitment to showing support for the slowing economy.
China’s central bank reduced the rate of its medium-term lending facility by 0.2 percentage points to 2.3%, the first such reduction in nearly a year.
This easing of monetary policy underscores the authorities’ urgency to support the country’s growth, which has sputtered in recent quarters as consumer spending remained weak.
This cut also came on the heels of China’s state banks lowering rates for some of their deposit products to ease pressure on profit margins.
With benchmark lending rates heading down, Chinese banks should see their net interest margins come under pressure.
MAS’ proposal for Singapore REITs
The Monetary Authority of Singapore (MAS) has published a consultation paper with a proposal for the Singapore REIT sector.
The proposal is for a minimum interest coverage ratio (ICR) of 1.5 times that will apply to all REITs.
Currently, there is a requirement of the ICR to b at least 2.5 times for REITs that intend to increase their aggregate leverage from 45% to 50%.
In addition, all REITs now have a single aggregate maximum leverage threshold of 50%.
This leverage limit of 50% should work together with the ICR requirement to ensure prudent borrowing practices by REITs.
To ensure that REITs provide sufficient information about how their credit profile may be impacted by changes in EBITDA (earnings before interest, taxes, depreciation, and amortisation) and interest rates, MAS has mandated that all REITs disclose a sensitivity analysis in their interim and annual reports.
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Disclosure: Royston Yang owns shares of Meta Platforms.
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