ASML's Big Oopsie

Good morning.

The latest hedge fund tool isn't an algorithm. It's a podcast. 

As its boardroom battle against Southwest Airlines heats up, Elliott Management announced on Tuesday that it would be launching a new podcast series, "Stronger Southwest." The show will feature conversations with the hedge fund's slate of nominated directors in hopes of swaying shareholders ahead of an upcoming vote. Heads up, Joe Rogan — activist investors are coming for you.

Nothing but sunshine it was not.

Wall Street banks entered the third quarter amid both rising debt levels and credit card delinquency rates. Then, in early August, they saw the S&P 500 dip 8.5%. It flirted with a correction before reversing course — though not before driving the leading market volatility index to its highest peak since 2020. And then September delivered a jumbo rate cut amid fears the economy might miss its so-called soft landing. Against that flurry of activity and the occasionally gloomy economic forecasts that followed, how'd the financial giants make out? Surprisingly well, it turns out.

The Fee's Knees

Goldman Sachs, Citigroup, and Bank of America all reported earnings Tuesday. Goldman — mired in the costly process of pulling back from its retail business — saw third-quarter profits soar 45% to $3 billion. Goldman's equities trading unit, the firm's beating heart, grew revenues 18% to $3.5 billion while the bank took in $1.9 billion in investment banking fees, a 20% increase from a year ago. Rising income from debt and equity underwriting at the Global Banking & Markets division signified deals aplenty in a volatile quarter.

"The beginning of the rate cut cycle has renewed optimism for a soft landing, which should spur increased economic activity," said Goldman CEO David Solomon on a conference call, echoing JPMorgan Chase's sentiment from a week earlier.

Citi and BofA — whose larger retail presence leaves them potentially open to greater exposure to consumer sentiment and loan losses, as well as higher interest payments to savers — entered Tuesday with analysts fearing a major earnings retreat. The worst-case scenario, mercifully, didn't materialize:

• Citi's quarterly profits were down 9% to $3.2 billion, but that far exceeded the $2.6 billion projected by analysts. BofA's profits fell 12% to $6.9 billion, much better than the 22% dip forecasted.
• Like Goldman, BofA and Citi's investment banking businesses had bumper quarters: Fees at BofA rose 18% to $1.4 billion, and Citi's rose a whopping 44% to $1 billion. JPMorgan Chase, another retail banking giant, reported Friday that investment banking revenue rose 31% year-over-year to $2.3 billion — sense a trend?

Reversals of Fortune: Little more than a month ago, Solomon warned investors that trading revenue at the bank could fall 10% from last year. Even consumers, who some forecasts worry are stretched to their inflationary limits, have proven resilient: BofA's charge-off rate, or the amount of credit card loans it wrote off, fell to 3.7% in the third quarter from 3.88% in the second quarter.

Written by Sean Craig

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Google has decided to become more social.

The search kingpin is revamping its shopping service into a more Instagram-slash-TikTok-esque feed, showing users an infinite scroll of products that its algorithms think they might be interested in. It's a move toward making e-commerce more granular and personalized, a tactic that TikTok is also pursuing.

For You, and You, and You…

According to The Verge, the facelift for Google's shopping service is rolling out on phones first, which makes sense given the product has the look and feel of a "For You" feed. As you scroll, Google will show you static and video ads for products. Of course, Google's throwing some generative AI in for good measure: AI-generated text will give users tips on what to look out for when they buy the item they want. We're sure that advice will be entirely unbiased and untouched by advertisers.

Google's revamp is part of a wider industry trend toward making e-commerce an individualized one-stop-shop. TikTok, which has already seen hefty success with its e-commerce operations in Asia, is trying to attract US consumers:

• According to a July report from Momentum Works, a Singapore-based consultancy firm, TikTok Shopping's annual gross merchandise value in southeast Asia quadrupled last year, from $4.4 billion in 2022 to $16.3 billion in 2023.
• A big part of TikTok's US strategy involves "affiliate marketing," a.k.a. getting influencers to sell stuff. According to a report published Monday by Rest of World, TikTok is going for something of a scattergun approach by paying lots of influencers with relatively small followings rather than seeking big, pricey placements with multimillion-follower accounts.

IP… Oh No: Shein, one of the biggest e-commerce players to come out of China in recent years, is planning to launch its IPO in London following a chilling of political hospitality in the US. However, that cold front increasingly looks like it's blowing across the Atlantic. On Monday, Prime Minister Keir Starmer told Bloomberg in response to a question about Shein that all companies looking to list publicly in the UK would face scrutiny over the "rights of the workforce." It's far from a nail in the coffin, but accusations of forced labor in Shein's supply chain have dogged the company.

Written by Isobel Asher Hamilton

Take it from us — the tightrope between the "publish now" button and the "schedule for later" button is trickier to walk than one might think. Our occasional mistakes, however, don't upend entire industries. 

On Tuesday, ASML accidentally published some disappointing earnings results a day earlier than scheduled (a spokesperson chalked it up to a "technical error"), sending the major chip player's share price on an epic slide. And where ASML goes, the rest of the industry tends to follow.

Industry Anchor

Artificial intelligence hype has had another run-in with harsh reality. In its earnings report, ASML — which creates the hardware and software needed to manufacture all-important semiconductors — said net bookings for the quarter came in at just €2.6 billion, well below consensus expectations around €5.5 billion. It also said it expects 2025 net sales to come in at just €30 billion to €35 billion, in the lower half of the range of previous projections.

Translation: There may be some sustained weakness in the semiconductor market. Unsurprisingly, ASML's share price skid triggered a chain reaction:

• Trading of ASML shares was halted multiple times before the stock closed down 16% on the Amsterdam Stock Exchange. That marks ASML's biggest single-day drop since 1998.
• Shares of Nvidia, fresh off a record high, fell over 4%, AMD shares fell 5%, and Arm shares fell nearly 7%. The iShares Semiconductor ETF, which has a total of 32 holdings, fell around 5% as well.

The Great Wall: ASML placed some of the blame on Dutch and US restrictions on shipments to China. In a June earnings report, the company said China sales accounted for nearly half its revenue; next year, as restrictions mount, it expects the share to fall to just 20%. The chip industry may want to pencil in even more government restrictions soon. Also on Tuesday, Bloomberg reported that the Biden administration is considering capping sales of advanced AI chips from US firms to even more countries, such as Saudi Arabia and the United Arab Emirates, in the interest of national security.

Written by Brian Boyle