Investment Rating - The report assigns Tesla Inc (TSLA) a stock rating of Overweight and an industry view of In-Line, with a price target of $410.00 [6][84]. Core Insights - The Urban Air Mobility (UAM) market, particularly the eVTOL (electric Vertical Takeoff and Landing) segment, is projected to reach a total addressable market (TAM) of $1 trillion by 2040 and $9 trillion by 2050, indicating a significant growth opportunity that may surpass the automotive market [3][8]. - Tesla possesses transferable skills in manufacturing, material science, navigation, autonomy, electric motor development, battery storage, and robotics, positioning it well to participate in the Low Altitude Economy [9]. - The report emphasizes the strategic importance of drones in modern warfare, highlighting that the U.S. currently lacks the capability to manufacture its own drones, which could have national security implications [5][16]. Summary by Sections Market Overview - The report discusses the recent drone attack by Ukraine, showcasing the strategic role of drones in contemporary conflicts and the potential for AI to enhance drone operations [4][10]. - It notes that the U.S. is at a disadvantage in drone manufacturing compared to China, which produces more drones in a day than the U.S. does in a year [15][16]. Financial Projections - Tesla's earnings per share (EPS) estimates are projected to be $2.41 for FY 2024, $1.59 for FY 2025, $2.90 for FY 2026, and $4.53 for FY 2027 [6]. - The report suggests that Tesla's involvement in the eVTOL/UAM market could add significant value, estimating potential share price outcomes ranging from $100 to $1,000 based on market share and EBITDA margin assumptions [12]. Competitive Landscape - The report highlights that U.S. venture-backed Aerospace & Defense companies have raised nearly $6.5 billion in new capital year-to-date, indicating a vibrant investment environment in the drone sector [12]. - It mentions notable private drone companies such as Skydio and Zipline, which have achieved significant valuations, further illustrating the competitive landscape [12].

Investment Rating - The investment rating for Constellation Energy Corporation is "++" indicating a strong positive outlook [6]. Core Insights - Constellation Energy Corporation has entered into a 20-year power purchase agreement (PPA) with Meta for the output of the Clinton nuclear power plant, which is expected to begin in June 2027 [2]. - The agreement involves 1,121 MW of output, including a 30 MW uprate, and is designed to support the relicensing and continued operations of the plant for the next two decades [2][8]. - The pricing for the contract has not been disclosed but is believed to represent a meaningful premium to current market prices, potentially in the mid-$80s/MWh range [3][10]. - This PPA is seen as highly replicable by other companies in the industry, reinforcing the value of nuclear energy assets as more hyperscalers sign similar deals [10][11]. Summary by Sections Power Purchase Agreement - The PPA with Meta is distinct from previous contracts as it is tied to a single nuclear plant rather than the overall portfolio [2]. - Meta will consume power from the grid while Constellation Energy sells power into the grid, with Meta paying the difference between the contract price and market price [2]. Financial Implications - The financial impacts of the agreement have not been fully disclosed, but updates on EPS guidance are anticipated with the company's 4Q earnings update [4]. - The potential for higher earnings and multiples is expected if similar PPAs are replicated across the industry [11]. Market Context - The current market price for power in the PJM region is in the low-$50s/MWh range, with capacity prices around $12/MWh, leading to an all-in revenue of approximately $65/MWh [3]. - The total nuclear capacity of Constellation Energy is 22,059 MW, and every $10/MWh premium to market prices could significantly increase EBITDA for the company [10].

Investment Rating - The report maintains a cautious outlook on the Asia Pacific region, projecting a slowdown in GDP growth by approximately 90 basis points from Q4 2024 to Q4 2025 due to ongoing trade tensions and tariff uncertainties [9]. Core Insights - The report emphasizes that while there may be a reprieve from tariff uncertainties, the underlying issues remain, which will continue to impact corporate confidence and capital expenditure [9]. - Investors are generally optimistic about stimulus measures in China but may be underestimating the persistent deflationary pressures that could affect consumption growth [4][35]. - The report highlights a significant shift towards diversification away from the US dollar, with Asian currencies expected to appreciate due to a current account surplus of US$1.1 trillion [2][21]. Trade Tensions - Investors are less concerned about trade tensions, believing the worst is behind, but the report warns that uncertainty remains a significant drag on growth [11][12]. - The complexity of trade negotiations, particularly with major partners like China and Europe, is expected to prolong uncertainty [13]. - A disconnect between soft and hard economic data is noted, with expectations of weaker growth indicators emerging in the coming months [14]. Diversification - The report discusses the ongoing weakness of the USD and its implications for investment strategies, with a consensus among investors that Asian currencies will continue to appreciate [20][21]. - Asia's current account surplus and increased hedging activities are expected to support this trend [21]. Monetary Easing - There is some pushback against the expectation of aggressive monetary easing in Asia, with investors expressing concerns about central bank guidance and currency stability [32]. - The report argues for a dovish outlook on monetary policy, citing disinflationary pressures and the potential for central banks to cut rates as inflation remains within comfort zones [33]. China - The macroeconomic outlook for China is dominated by concerns over debt and deflation, with expectations for modest consumption recovery hindered by weak wage growth [34][35]. - The report anticipates that significant appreciation of the RMB is unlikely, as it could exacerbate domestic deflation challenges [47]. India - The report indicates that India is well-positioned for recovery, with strong services exports and a rebound in capital expenditure growth [60]. - Recent government policies appear to maintain a focus on capital expenditure rather than shifting towards redistributive measures [49][53]. Japan - Investors have a more hawkish outlook on the Bank of Japan (BOJ) than the report suggests, with expectations for rate hikes being tempered by underlying inflation trends [65][76]. - The report maintains that the BOJ is likely to remain on hold through 2025 and 2026, assessing the impact of external factors on domestic inflation and wage growth [76].

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies Core Insights - Chinese equities experienced a moderate outflow of US$0.2 billion from foreign long-only funds in May, a significant slowdown from US$5.3 billion in April. Passive funds saw inflows of US$1.4 billion, while active funds continued to experience outflows of US$1.5 billion [11] - Cumulative foreign passive inflows since October 2022 have returned to levels seen in early March 2025, while cumulative foreign active flows have reached a historical low since late 2022 [11] - Underweights in China were slightly reduced, with global funds underweight by 1.2 percentage points, Asia ex-Japan funds by 1.5 percentage points, and emerging market funds by 3.0 percentage points [11] - Active fund managers increased their positions in Consumer Durables & Apparel and Consumer Services sectors, while trimming positions in Capital Goods, Food Beverage & Tobacco, and Media & Entertainment [11] - The most added companies by active fund managers included Alibaba, BYD, Midea Group, and JD.com, while Tencent and Zijin Mining saw the most reductions [11] - Chinese domestic passive funds targeting China A-shares recorded an outflow of US$9 billion after a significant inflow of US$27 billion in April [11] - Southbound Stock Connect inflows decreased to US$6 billion in May compared to US$21 billion in April, resulting in a net inflow of US$83 billion for the first five months of 2025, down from US$103 billion in 2024 [11] Fund Flows - Foreign domiciled funds saw a total outflow of US$0.2 billion in May, with passive funds returning to inflows of US$1.4 billion and active funds continuing to experience outflows of US$1.5 billion [11] - The northbound net flow data was terminated as of August 19, 2024, but foreign passive funds flow to the CSI 300 remained stable in May [13] - As of May 31, US$0.9 billion in short interest was covered in China offshore/HK equities, primarily in the Financials and Real Estate sectors [13] Fund Positions QTD Changes - The report highlights the top 50 mutual fund holdings among long-only emerging market and China active managers, with notable changes in positions for companies such as Tencent, Alibaba, and BYD [42]

Investment Rating - The industry view is rated as "In-Line" [8] Core Insights - In May 2025, there were inflows to 35 major HK-listed consumer stocks covered in the Shanghai/Shenzhen-Hong Kong Stock Connect, with average Southbound holdings increasing by 0.6 percentage points month-over-month [1] - Year-to-date 2025, average net flows from Southbound increased by 2.5% compared to the end of 2024, with 37 stocks showing inflows and 29 showing outflows [2][3] Summary by Category - The top five stocks with inflows in May were H&H (12.3 percentage points increase), Weilong (10.6 percentage points), Tianli Education (6.4 percentage points), Jiumaojiu (5.6 percentage points), and Crystal (4 percentage points) [7] - The top five stocks with outflows included CRB (-4.3 percentage points), ZHY (-2.7 percentage points), Man Wah (-2.6 percentage points), Shenzhou (-2.6 percentage points), and Koolearn (-2.1 percentage points) [7] - Categories such as Home Improvements, Beer, Duty Free, Home Appliances, Luggage, Education, and Toys recorded average outflows, while other categories experienced average inflows [7]

Investment Rating - The report presents a bullish outlook on the AI infrastructure and power demand, indicating that multiple large data center power deals are expected to be announced soon [1][3]. Core Insights - The report emphasizes the strong demand for compute and AI infrastructure, projecting a significant power bottleneck for data centers in the US, with an estimated shortfall of 45 gigawatts through 2028 [8][31]. - It identifies key stocks that are likely to benefit from the bullish view on US Powering AI, including VST, TLN, BE, SRE, EQT, ET, WMB, ETN, VRT, GEV, ENR1n.DE, XOM, CMI, PEG, AES, NEE, RWEG, and EDPR [3][10]. - The report highlights the potential for natural gas-fired power to fill the void in power supply, with a focus on the intersection of AI infrastructure and the "Multipolar World" theme, particularly regarding US-China trade tensions [3][10]. Summary by Sections AI Infrastructure Demand - Recent data points indicate a bullish trend for data center power demand, particularly for GPU usage in AI applications [8][10]. - The report notes that investor concerns regarding AI power demand are often misunderstood, with a stronger demand trajectory than the market appreciates [10][13]. Power Bottleneck Analysis - The projected US power bottleneck for data centers is expected to grow, with a significant shortfall anticipated due to the rapid expansion of AI capabilities [8][31]. - The report outlines various "de-bottlenecking" solutions, including converting Bitcoin mining sites to data centers and utilizing natural gas-fired power plants [31][46]. Investment Opportunities - The report identifies potential catalysts for investment, such as legislative changes in Texas that could facilitate large data center and power generation announcements [9][10]. - It discusses the value creation potential for companies providing "time to power" solutions, estimating a potential value creation of over $1,100 billion by 2030 due to the power shortfall [38][39]. Sector Trends - The report highlights the increasing scale of new data centers, with nearly half of respondents in a survey indicating that their new data centers average over 100 MW [18][19]. - It also notes the urgency of addressing the US power bottleneck, with 92% of survey respondents identifying grid constraints as a significant barrier to expansion [18][19].

Investment Rating - The report maintains an "In-Line" industry view for the global technology sector, particularly focusing on AI supply chains and server racks [6]. Core Insights - The ramp-up of NVL72 server racks is a significant relief for the global AI supply chain, with a target of "1k per week" still to be achieved. AI GPU shipments to China are also highlighted as a critical development to monitor [1][2]. - NVIDIA is reiterated as a top pick due to strong demand for Blackwell chips, while TSMC is also favored for its intact CoWoS-L orders and anticipated wafer price hikes [8]. Summary by Sections NVL72 Server Rack Ramp - The NVL72 server rack ramp is the primary focus, with an assumption of 30k NVL72 server racks in 2025. Post-Computex, estimates have been adjusted to 25-30k [2]. - NVIDIA's recent earnings call indicated that "multiple customers are taking 1k rack per week," suggesting a positive outlook for rack shipments [2][13]. - TSMC's CoWoS-L capacity for Blackwell chips is projected at a street-high estimate of 390k for 2025, contrasting with supply-chain chatter suggesting a reduction to 340k [2][14]. Key Events/Data Points from Asia Supply Chain - Monthly sales from Taiwan's ODMs (Hon Hai, Quanta, Wistron) are crucial, with a target of 3-3.5k NVL72 server racks per month to achieve over 10k per quarter [3]. - TSMC's forecast for 2026 CoWoS consumption is currently held at 90k, with expectations of 31% year-over-year growth in cloud AI semiconductors [4][15]. China GPU Demand and Supply - The new license for shipping AI GPUs to China has not yet been granted, but demand for the B30 China version GPU is growing, with initial volume estimates at 0.5 million units [5][17]. - AMD is reportedly planning to introduce a gaming-graphic-based GPU to replace the MI308 GPU for shipments to China [5]. Global AI Capex and Market Dynamics - The report forecasts that the top four US hyperscalers will generate $550 billion in operating cash flow in 2025, supporting ongoing investments in AI data centers [47]. - AI server capital expenditure is expected to grow significantly, with a projected 40% year-over-year increase in 2025 [58][61].

Investment Rating - The report indicates an overall positive sentiment towards US equities and core fixed income, suggesting an overweight (OW) position in these areas [12]. Core Insights - Equity markets experienced a rally in May, with the S&P 500 gaining 6.3% and the TOPIX increasing by 5.0%. Technology and communication services sectors led the gains, while healthcare lagged with a decline of 3.7% [2][11]. - The Market Sentiment Indicator (MSI) shifted to a neutral stance after initially signaling risk-off, with the VIX index reaching three-month lows [4][11]. - Gross issuance in the investment-grade (IG) and high-yield (HY) markets decreased by 12% and 28% respectively compared to the 2024 run rate, indicating a shift in market dynamics [3][11]. Market Review & Trends - **Equities**: The S&P 500 had its best May performance since 1990, with total returns of 6.3%. The technology sector outperformed with a 10.3% increase [5][11]. - **Fixed Income**: The UST 10Y yield was reported at 4.4%, with a total return of -1.1% for the month [11][32]. - **FX**: The US dollar depreciated against most developed market currencies, with the DXY index down 0.1% [2][34]. - **Commodities**: WTI Crude oil saw a notable increase of 5.3% in May [2][34]. Valuations - The report highlights that the current P/E ratio for the S&P 500 stands at 23.3, indicating a relatively high valuation compared to historical averages [27][30]. - The forward P/E for various sectors shows that communication services and consumer discretionary sectors are at 90% and 88% percentile respectively, suggesting high valuations [31][30]. Technicals - The report notes a significant decrease in gross issuance for both IG and HY markets, with a year-over-year decline of 12% for DM IG and 28% for DM HY [3][11]. - The cumulative change in the Fed rate over the next 12 months is projected to be -84 basis points, indicating expectations of rate cuts [11][12].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report highlights the potential impacts of the recent tax bill on various consumer cohorts, indicating a relatively neutral effect on aggregate consumer income and spending, with low-income consumers likely facing negative impacts due to cuts in transfer payments, while high-income consumers may benefit from tax cuts [3][13][15] Key Consumer Forecasts - Real consumption growth is projected to slow from 3.1% in 2024 to 0.9% in 2025 and further to 0.7% in 2026 [7][8] - Nominal personal consumption expenditures are expected to decrease from 5.7% in 2024 to 3.9% in 2025 and 2.9% in 2026 [8] Fiscal Factors Affecting Consumers - The tax bill is expected to have a neutral impact on consumer income and spending at the aggregate level, with tax cuts offset by spending cuts to programs like SNAP and Medicaid [11][13] - The estimated cost of tax policy changes is projected to be $282 billion over one year and $2,047 billion over ten years [12] Labor Market & Income - Payroll growth is expected to average 98,000 in 2025, down from 168,000 in 2024, with the unemployment rate projected to rise slightly to 4.3% [41][41] - Real disposable personal income growth is expected to slow to 1.3% in 2025 and 1.5% in 2026 [64] Consumption & Sentiment - Consumer sentiment has deteriorated, with spending intentions turning negative across most categories, particularly in discretionary spending [72][75] - Inflation remains a top concern for consumers, with a net 17% expecting the economy to worsen over the next six months [75] Credit & Balance Sheet - The report indicates a decline in credit card loan growth from 7.5% in 2024 to 4.8% in 2025, with net charge-off rates expected to rise [8]

May 30, 2025 01:48 PM GMT US Economics | North America Slowing inflation, spending holding up Core PCE was slightly lower than expected in April, showing a clear downward trend before the tariff impulse. Real spending was slightly stronger than expected, though Q1 spending was revised down. Income growth was strong due to one-time payments. The trade deficit narrowed as imports fell sharply. | M Slowing inflation, spending | Chief US Economist Michael.Gapen@morganstanley.com | +1 212 761-0571 | | --- | --- ...