Apple, Shopify and Car Chip Shortages: Investments in the Spotlight

Supercharged Tech

(Bloomberg) -- Apple Inc. had a second quarter that crushed analyst estimates, reporting sales of $89.6 billion, up 54% from the same period in 2020. The company increased its dividend by 7% and announced a $90 billion boost to its share buyback program.

The technology giant was one of many firms that benefited from the pandemic, as Americans stuck at home due to lockdowns bought millions of the company’s products for both remote work and entertainment. Shares have gained some 80% over the past year.

There’s a catch, however: The blockbuster sales come as a global chip shortage is starting to put pressure on the supply of iPads and Macs, two products that performed well during lockdowns. Chief Financial Officer Luca Maestri said the shortage will cost the company $3 billion to $4 billion in revenue during the third quarter.

What’s next? Despite the setback, many analysts are bullish on Apple’s outlook, arguing that Mac and iPad sales will continue to benefit from the shift to remote work. An aging base of devices also bodes well for the newest iteration of the iPhone. “We still think the Street underappreciates how Apple’s positioned to benefit from the 5G product cycle underway,” said Jefferies analyst Kyle McNealy.

Chip Crunch

It’s far from just Apple feeling the chip-shortage pinch.

This week, car giant Ford Motor Co. said the global shortage of semiconductors meant it would lose lose about 50% of its planned second-quarter production. Honda Motor said it was going to have to halt three plants in Japan for around six days next month while BMW AG also announced stoppages.

There are a few key reasons for the shortage. For one, lockdowns spurred stockpiling and sales for everything from laptops to home appliances, which rely on chips. Auto manufactures also cut back on orders early in the pandemic, underestimating how quickly car sales would rebound.

But that doesn’t mean there’s any short-term fix as the big chip manufacturers struggle to keep up with demand and users scramble for supplies.

What’s next? “There are too many uncertainties about when chip supplies will improve,” said Lee Han-joon, an analyst at KTB Investment & Securities Co. in Seoul. “For semiconductor makers, the auto industry isn’t really seen as one of their key customers and that’s putting the carmakers in a much tougher position in securing supplies.”

Home Shopping

Despite the fears of some analysts, there’s little sign that the pandemic-induced e-commerce boom is leveling off.

Amazon.com Inc. reported a big jump in first quarter sales that exceeded analyst expectations while Canada-based e-commerce platform Shopify Inc. reported first quarter gross merchandise volume that more than doubled from the same period last year.

Shopify shares, which had been flat for the year as investors speculated growth would slow as economies reopen, rose 11.4% on Wednesday, while Amazon shares rose about 2.4% in extended trading Thursday. The Seattle company has gained over 40% in the last 12 months. Even at this lofty price, 53 analysts rate it a buy, according to data compiled by Bloomberg. There are no sell ratings.

What’s next? Lockdowns or no lockdowns, analysts now expect growth to continue for the foreseeable future. “The pandemic has driven a sustained shift toward digital, and in this case online retail. Consumer preferences have structurally changed, a trend that we don’t see reversing,” said Canaccord Genuity analyst David Hynes Jr. “E-commerce penetration is still less than 30% of total retail, so there’s still a long way to go in this market.”

Loan Relief

The outlook is getting brighter for the world’s big banks. After putting aside huge sums for expected loan losses at the height of the pandemic, the speed of the economic recovery means some of these are starting to be wound back.

HSBC Holdings Plc, Lloyds Banking Group Plc and NatWest Group Plc were just some of the banks this week that released money set aside for sour loans.

Even while other banks hold pat as they wait for the recovery to strengthen, analysts are getting more optimistic about the sector’s outlook. In Europe, Credit Suisse’s bank analysts estimate that if loan loss provisions fall to the through-the-cycle rate, the continent’s banks could see an earnings upgrade of about 18% for 2021.

What’s next? Banks look cheap, and are the “most attractive hedge against the risk that inflation expectations end up rising more than expected,” said Credit Suisse strategists led by Andrew Garthwaite.

Cost Pressure

There’s been no let up in the blistering rise in food commodity prices. Overall, global food costs have surged for 10 straight months, the longest rally in more than a decade, according to a UN gauge.

Prices of staples like corn, wheat and soybeans are all higher due to rising demand and poor weather. The impact of La Nina, which causes water scarcity in some places and floods in others, has contributed to drought conditions in the U.S. that are already affecting wheat across the Great Plains.

Because of all the steps in the process involved in turning raw ingredients into consumer goods, it takes a while for cost inflation to flow into food prices in the West, though big manufacturers are already starting to warn they’ll need to increase prices.

What’s next? “Generally people see this inflation continuing,” said Tosin Jack, an analyst at Mintec, which monitors commodity prices. “The trend will continue for some time and it will translate into consumer goods.”