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- 👉 Google Unveils Quantum Computing Chip, Willow
Happy Sunday, everyone.
Here’s an alarming chart for you — DR Horton’s (America’s largest homebuilder) completed homes that have gone unsold for more than 6 months has now hit a multi-year high.
This tells me people aren’t buying new homes because either 1) they’re too expensive, 2) interest rates are too high — pricing them out of an affordable monthly mortgage payments, or 3) BOTH.
If you’re a buyer right now, you have the upper hand. I’ve seen countless homes in the greater Nashville area experience six-figure price cuts to no avail.
If you’re trying to sell your home right now… good luck.
🎥 Finance + Thrills = 🎁 Free Movie Night!
Calling all Canadian GRIT Subscribers! The first 20 to reply with their favorite finance movie will snag 2 free tickets to BABYGIRL courtesy of Elevation Pictures — a steamy thriller starring Nicole Kidman as a high-powered CEO in a forbidden affair.
You can click here to watch the trailer on YouTube.
📅 It hits theaters across Canada on December 25th.
Don't wait — reply now and claim your free tickets! 🍿✨
Portfolio Updates (YTD Performance):
A few quick callouts:
I remain incredibly bullish on my Ethereum position (via ETHA). We’re officially half way through the month of December, and we’ve already hit $640M of net inflows into the ETF — a monthly record. We’ll see $1B of net inflows during the month of December, and even more in January, February, etc.
I remain equally as bullish on my Bitcoin position ($245K in value). I believe Bitcoin will make a strong push toward $120K over the coming weeks leading up to the Inauguration (January 20th). To remind everyone, I’ll begin selling my position around the $125K-140K range and plan to be entirely out if we go as high as $165-185K. I’m not trying to time the top, I’m trying to build wealth — and that only happens if you sell.
The last thing I wanted to mention was Quantum computers — specifically Google’s recent announcement of Willow. I have yet to do any substantial research into quantum computer stocks, but from the quick search I’ve done tells me these names are worth learning more about.
IonQ, Inc. (IONQ)
Rigetti Computing, Inc. (RGTI)
Quantum Computing, Inc. (QUBT)
D-Wave Quantum, Inc. (QBTS)
All of these names are incredibly small in market cap, and were considered penny stocks just a few weeks ago. Please don’t dive in head first without doing substantial research. You can count on more research from me as it relates to these names before the end of the year.
Week in Review — Too Long, Didn’t Read:
Oracle expected to spend 25% of total revenue on CapEx, Broadcom expecting $60-90B from three hyperscalers, Costco continues to grow e-commerce business, Google revealed their quantum computing moves, Apple looks to launch foldable devices, BlackRock officially introduces a 1-2% Bitcoin allocation to the masses, Wholesale Inflation came in a bit too hot last week, and Consumer Inflation has steadied enough to practically guarantee a rate cut this week.
Key Earnings Announcements:
Oracle expected to spend 25% of total revenue on CapEx, Broadcom expecting $60-90B from three hyperscalers, and Costco continues to grow e-commerce business.
Oracle (ORCL)
Key Metrics
Revenue: $14.1 billion, an increase of +9% YoY
Operating Income: $4.2 billion, an increase of +17% YoY
Profits: $3.2 billion, an increase of +26% YoY
Earnings Release Callout
“Record level AI demand drove Oracle Cloud Infrastructure revenue up 52% in Q2, a much higher growth rate than any of our hyperscale cloud infrastructure competitors. With our remaining performance obligation (RPO) up 50% to $97 billion, we believe our already impressive growth rates will continue to climb even higher. This fiscal year, total Oracle Cloud revenue should top $25 billion.”
My Takeaway
This quarter’s results suggested that some of the recent cloud momentum took a slight pause. Total cloud growth of +24% was “just” in-line with their guidance of 23-25% growth — within total cloud, OCI and SaaS experienced growth of +52%.
Leading indicators for continued growth were solid, though the outlook for an acceleration of OCI growth next quarter shared by management wasn’t exactly “believed” by Wall Street as the stock traded down -10% after the results were published.
Q3 margin of 43.4% was largely in-line with Wall Street’s 43.5% expectations. However, with operating expense efficiencies tapping out and gross margin pressure expected to continue — Wall Street is expecting low gross profits in 2025. Oracle is targeting annual EPS growth of +20% over the coming years — whereas Wall Street is more hesitant because the company’s CapEx spend is expected to double next year (lower free cash flow) and now represents 25% of next year’s total revenue.
Wall Street acknowledges the company is headed for revenue acceleration, but with a higher mix of more challenging times ahead (balancing EPS growth with CapEx spend + gross margin pressure) they’re neutral on the stock.
I don’t own this one, and I think the time to own it has passed (outsized gains in share price already happened).
Broadcom (AVGO)
Key Metrics
Revenue: $14.1 billion, an increase of +8% YoY
Operating Income: $4.6 billion, an increase of +22% YoY
Profits: $4.3 billion, compared to -$1.9 billion last year
Earnings Release Callout
“Semiconductor revenue was a record $30.1 billion driven by AI revenue of $12.2 billion. AI revenue which grew 220 percent year-on-year was driven by our leading AI XPUs and Ethernet networking portfolio.
In fiscal year 2024 adjusted EBITDA increased 37% year-over-year to a record $31.9 billion, and free cash flow excluding restructuring was strong at $21.9 billion. Based on increased cash flows in fiscal year 2024, we are increasing our quarterly common stock dividend by +11% to $0.59 per share for fiscal year 2025. The target fiscal year 2025 annual common stock dividend of $2.36 per share is a record, and the fourteenth consecutive increase in annual dividends since we initiated dividends in fiscal 2011."
My Takeaway
For those of you who have been subscribed to Rate of Return for a while now might remember analysis I had published at the start of 2023 that listed out a handful of companies who I believed would benefit most from AI — Broadcom was at the top of that list.
My average split-adjusted cost on Broadcom stock is $60 per share — which means I’m up +275% over the last ~2 years. Wonderful! Let’s dig into their recent quarterly earnings results…
The company posted revenue of $14B, in line with Wall Street’s expectations. During the quarter, AI-related revenue was $3.7B, up +20% quarter-over-quarter and up +146% YoY. For Q1 of next year, the company shared a forecast of $14.6B — $80M ahead of Wall Street’s expectations.
Additionally, Broadcom’s custom accelerate business doubled YoY as it continues to ramp up and sell to now three hyperscale customers (Microsoft, Meta, Google, etc.)
Broadcom’s management team believes the combination of just these three customers’ multi-year engagements now represent an estimated 2027 revenue potential of $60-90B across their networking and XPU design business segments alone.
To put it simply… their entire business right now is $60B… and they’re saying just two segments inside of their business will do $60-90B in revenue in 36-months time.
Add on top of that the $25B their infrastructure software business segment will do, and the $7B their wireless sales business segment will do… and the $15B from non-AI server storage, broadband, etc. business segments will do…
Y’all see what I’m getting at? If this forecast of $60-90B of incremental revenue is true, their stock could experience another 50-100% upside from here.
I remain a bullish investor!
Costco (COST)
Key Metrics
Revenue: $62.2 billion, an increase of +8% YoY
Operating Income: $2.2 billion, an increase of +11% YoY
Profits: $1.8 billion, an increase of +13% YoY
Earnings Release Callout
“Net income for the quarter was $1,798 million, $4.04 per diluted share, compared to $1,589 million, $3.58 per diluted share, last year.
This year’s results included a tax benefit of $100 million, $0.22 per diluted share, related to stock-based compensation. Last year’s results included a tax benefit of $44 million, $0.10 per diluted share, also related to stock-based compensation.”
My Takeaway
Costco remains one of the largest long-term winners inside of my portfolio.
During the quarter, comparable sales increased by +7.1% for the total company (ex-Gas) and +7.2% for the US (ex-Gas) — this was driven by increased traffic (+5.1% worldwide and +4.9% in the US). Average ticket size increased by +2.3% in the US as well.
Fresh food led core merchandise category growth up high-single digits, with meat sales up double digits YoY. Within ancillary goods, Pharmacy saw the strongest sales growth supported by new prescription inventory management software & delivery of prescriptions via Instacart.
E-commerce comparable sales increased by +13.2% YoY driven by big & bulky items — management remains bullish on their ability to maintain their e-commerce momentum into 2025 and beyond.
I remain a bullish investor as we turn the calendar year. The company’s membership-focused business model is sticky and should continue to deliver outsized value to their customers as we all continue to adjust to higher prices. There are now 77.4M members worldwide, with 90.4% worldwide renewal rates and 92.8% renewal rates in the US.
Investor Events / Global Affairs:
Google revealed their quantum computing moves, Apple looks to launch foldable devices, and BlackRock officially introduces a 1-2% Bitcoin allocation to the masses.
Google (GOOG) Rises from Quantum Computing Capabilities
Source: TechCrunch
Google has unveiled a quantum computer powered by the new Willow chip, capable of solving in five minutes a problem that would take the Frontier supercomputer 10 septillion years.
This breakthrough highlights quantum computing's exponential speed advancements, though the demonstrated algorithm lacks immediate practical use. Google aims to deliver a real-world application for its quantum technology within a year, a milestone currently deemed achievable. The Willow chip addresses key challenges like high error rates, enabling larger-scale quantum systems to be built and tested. Despite hurdles such as requiring near-absolute-zero temperatures, quantum computing continues to attract significant investment due to its potential for unmatched computational power in commercial and military applications.
There have been some worries around the crypto world that Google’s quantum computing power could “crack” the encryption of Bitcoin and other cryptocurrencies.
Google’s new Willow quantum chip cannot break modern cryptography and is far from achieving the capabilities needed to compromise encryption like RSA. Experts estimate breaking RSA would require at least 4 million qubits, while Willow currently has only 105, leaving the timeline for such advancements unchanged at over a decade.
Alphabet Inc. (GOOG) Stock Performance, 5-Year Chart, Seeking Alpha
“My colleagues sometimes ask me why I left the burgeoning field of AI to focus on quantum computing. My answer is that both will prove to be the most transformational technologies of our time, but advanced AI will significantly benefit from access to quantum computing. This is why I named our lab Quantum AI. Quantum algorithms have fundamental scaling laws on their side, as we’re seeing with RCS.
There are similar scaling advantages for many foundational computational tasks that are essential for AI. So quantum computation will be indispensable for collecting training data that’s inaccessible to classical machines, training and optimizing certain learning architectures, and modeling systems where quantum effects are important.”
Apple (AAPL) May Launch Foldable Phone to Rival Samsung & Boost Growth
Source: Tom’s Guide / #iOS Beta News / YouTube
Apple is reportedly working on an 18.8-inch foldable iPad with a nearly invisible crease, targeting a release around 2028. The device would function like two iPad Pros side-by-side and may incorporate elements of both iPadOS and macOS, potentially supporting macOS apps. Apple has also been exploring a smaller foldable iPad for 2026 or 2027, alongside OLED updates to its MacBook lineup.
While a foldable iPhone is also in development, it’s not expected until 2026 at the earliest. The foldable iPad could significantly expand functionality and justify its premium price by bridging features between iPads and Macs.
“The first foldable iPhone could be between 7.9 and 8.3 inches in size, and it may have a "clamshell" design like Samsung's Galaxy Z Flip. A clamshell iPhone would fold in half vertically rather than horizontally, allowing for a full-size iPhone when unfolded, and a smaller, pocketable device when folded.”
BlackRock (BLK) Suggests Bitcoin Portfolio Allocation
Source: Sygnum Bank
BlackRock now officially recommends a 1-2% Bitcoin allocation for investors — citing it as a reasonable range that balances portfolio risk without significantly increasing volatility.
It’s simply unbelievable that one of the most powerful companies in the world has shifted from completely hating crypto — to openly endorsing it to all of us. It’s a beautiful thing.
“So how can investors think about a bitcoin allocation? Bitcoin cannot be compared to traditional assets. But from a portfolio construction perspective, the “magnificent 7” group of mostly mega-cap tech stocks is a useful starting point.
Those stocks represent single portfolio holdings that account for a comparatively large share of portfolio risk, as with bitcoin. In a traditional portfolio with a mix of 60% stocks and 40% bonds, those seven stocks each account for, on average, about the same share of overall portfolio risk as a 1-2% allocation to bitcoin.”
“We’re really just at the tip of the iceberg with Bitcoin and especially Ethereum. Just a tiny fraction of our clients own ($IBIT and $ETHA) so that’s what we’re focused on (vs launching new alt coin ETFs).”
Major Economic Events:
Wholesale inflation came in a bit too hot last week, but consumer inflation has steadied enough to practically guarantee a rate cut this week.
Consumer Price Index (Inflation for Consumers)
The annual inflation rate rose to +2.7% in November, driven by a +0.3% monthly increase in the Consumer Price Index (CPI) — matching forecasts.
Core inflation (excluding food and energy) remained steady at +3.3% annually and +0.3% monthly. Shelter costs, accounting for 40% of the CPI increase, continue to be a key inflation driver despite signs of easing in housing-related inflation.
Markets now overwhelmingly expect the Federal Reserve to cut interest rates by 25 basis points at its December meeting — generally reflecting confidence in the disinflation process. While inflation has eased significantly from 2022 peaks, it remains well above the Fed's 2% target and we all must continue to pay close attention to the FOMC’s commentary.
“In-line core inflation clears the way for a rate cut at next week’s [Federal Open Market Committee] meeting. Following today’s data the Fed will depart for the holiday break still confident in the disinflation process and we think it remains on course for further gradual easing in the new year.”
Producer Price Index (Wholesale Inflation)
Wholesale prices, measured by the Producer Price Index (PPI), rose +0.4% in November — exceeding the expected +0.2%. A +3.0% annual increase marked the highest since February 2023.
Core PPI (which excludes food and energy) rose +0.2%, aligning with forecasts, while final-demand goods prices surged +0.7%. This was driven by a +3.1% increase in food costs, including a sharp +54.6% jump in egg prices.
First-time unemployment claims rose to 242,000, above expectations, suggesting possible labor market softening. Economists believe inflation remains on course to eventually meet the Fed’s 2% target barring external shocks, with the November PCE inflation rate projected at +2.6%.
"The Federal Reserve can feel largely pleased with the progress made on lowering high levels of inflation over the last couple years… But the bulk of this progress is behind us now and inflation may remain stubbornly sticky near current levels for a time."
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