Investors want uncapped AI-powered profits

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Hello and happy Sunday! In today’s delayed edition of the Visual Brunch (blame it on the tech gremlins 😅), we’re diving into investment trends, tech upgrades, and shifting millionaire hotspots. Here’s what’s on the agenda:

• U.S. stock dominance: Analysts suggest diversifying as international stocks look more promising.

• Alphabet’s discount: Why it’s looking cheap compared to the S&P 500.

• Apple’s iPhone challenge: Most buyers upgrade due to phone issues, not new features.

• Millionaires on the move: The UAE is attracting wealth, while China and the UK are seeing an exodus.

• OpenAI’s funding twist: Investors want uncapped profits as the company eyes a $150 billion valuation.

This Can’t Continue Forever, Analysts Say

If you're only investing in U.S. stocks, you're probably missing out. Sure, U.S. equities make up 70% of the market cap in developed economies, but that dominance won’t last forever. In fact, international stocks are shaping up to be solid contenders for better future performance, even though they’ve been lagging behind for years.

Right now, U.S. companies only account for 55% of total net income across developed markets, so that 70% share of market cap feels a bit inflated. 🤨 And with all the hype around AI, there’s a chance the U.S. market could see a correction. Experts are suggesting you dial back your U.S. stock exposure to around 55% and start looking abroad. Whether it's snagging a piece of Vanguard’s FTSE Developed Markets ETF or grabbing individual stocks like Honda, Lululemon, or Volkswagen, diversifying outside the U.S. might be the move to stay ahead of the game.

Market Might Be Too Pessimistic

Alphabet is looking unusually cheap compared to the S&P 500, based on a popular valuation metric. 🕵️‍♂️ Its forward price-to-earnings ratio, which measures price against expected earnings over the next 12 months, is sitting at around 17.5x, while the S&P 500 is at about 20.8x. That gap—a more than three-point discount—is the largest in Alphabet’s history compared to the index, going back to 2005.

Now, part of Alphabet’s relative "bargain" status is due to how expensive some of the top stocks in the market have gotten. It’s still slightly pricier than the average stock, but this is a rare opportunity for a company that’s historically grown its earnings much faster than the S&P 500 overall. And earnings growth is key to long-term success in the stock market.

The Real Reason People Upgrade

Apple’s new iPhone 16 is about to hit pre-sale 📱, and they’re betting big on their AI integration, Apple Intelligence, to entice buyers. But here’s the thing: most people aren’t upgrading for the fancy new features. According to Consumer Intelligence Research Partners (CIRP), nearly 75% of iPhone buyers are replacing phones because they’ve either broken, been lost, or become too slow or outdated, not because they’re chasing the latest tech. Only 18% of people are upgrading just for the new features.

This could spell trouble for Apple, as iPhone sales, which make up more than half of the company's revenue, have slowed in recent years. But it’s not all bad—phones are lasting longer these days. CIRP found that 34% of iPhone buyers had a phone that was three years or older, compared to just 6% a decade ago. Sure, small upgrades like a better camera or slightly longer battery life might not convince people to rush out and upgrade, but if Apple’s AI integration proves genuinely useful, it could change the game.

Millionaires On The Move

The UAE is on track to be the ultimate hotspot for millionaires in 2024 🏅, while China and the UK are bracing for a mass millionaire exodus. 👋 According to the Henley Private Wealth Migration Report 2024, the UAE is expecting a net inflow of 6,700 high-net-worth individuals (HNWIs), thanks to its bold economic diversification, booming sectors like real estate and tech, and super appealing tax incentives. It’s the place to be for entrepreneurs looking to level up.

Meanwhile, China is set to lose a staggering 15,200 millionaires, the largest outflow globally, as economic uncertainties and geopolitical tensions push the wealthy to look elsewhere. The UK isn’t far behind, expecting to see 9,500 millionaires pack their bags—continuing a post-Brexit trend that’s turned a once top destination for the rich into a place they're fleeing. Quite the shift for a country that used to be a magnet for Europe’s elite.

Investors Demand Uncapped Profits

OpenAI is gearing up for a massive $6.5 billion funding round, but there’s a twist. To hit a potential $150 billion valuation, the company might need to overhaul its structure and remove the profit cap for investors. If that doesn’t happen, they could have to renegotiate at a lower valuation. 🤷

The funding has big interest from existing investors like Thrive Capital, Khosla Ventures, and Microsoft, plus new players like Nvidia and Apple. Sequoia Capital is also thinking about coming back. With OpenAI’s rapid revenue growth, this deal could be wrapped up soon.

The company’s also exploring a shift from its non-profit roots to a for-profit benefit corporation, similar to rivals like Anthropic. Despite all the changes, OpenAI says its mission to use AI for everyone’s benefit will stay at the core.