Can America Win this War?

Briton Ryle

Written By Briton Ryle

Posted April 16, 2024

Abu Dahbi is the capital of the United Arab Emirates. Its 1.5 million population makes it the second largest city in the UAE, after Dubai (population 3.6 million). Like Dubai, Abu Dahbi is very wealthy – its oil reserves account for 92 billion of the UAE’s 111 billion barrels of oil.

Abu Dahbi’s sovereign wealth fund is the third largest in the world, with over $1 trillion under management.

Alcohol is basically legal in Abu Dahbi, which would’ve made a better host for the last World Cup than Qatar, who, at the last minute, banned alcohol sales at the matches. I’m sure the heat in Abu Dhabi would still kill you, but at least you could have a beer while you roasted…

Abu Dahbi is also home to an artificial intelligence company called G42.

This morning news broke that the Biden administration helped broker a quasi-partnership deal between Microsoft (NASDAQ: MSFT) and G42. Microsoft will invest $1.5 billion into G42. It gets a seat on the G42 board of directors, and G42 will host its Arabic language AI applications on Microsoft’s Azure data center and also offer Microsoft AI products to its own customers.

Oh, and G42 also agreed to remove all of Huawei’s chips from its own computers. China’s Huawei is Chip Enemy #1 for the U.S.

Yep, the AI race between China and the U.S. has moved to the Middle East.

Why this Matters

If you’re sick of hearing about AI, well, it’s understandable. So don’t worry, I’m not gonna talk (much) about AI itself. This move is all about geopolitics anyway.

The U.S. needs a win on the tech front. Because losses to China with EVs, solar panels, lithium, rare earths etc. is starting to bite. Lose the tech/chip/AI race to China and there’s not much left.

Even though this Microsoft/G42 deal is pretty small, it makes sense for the government to get involved, for a couple reasons…

There’s money. 

I don’t know about the whole “sports washing” thing, that Saudi Arabia and other petrostates are trying to rehabilitate their negative profiles by buying into sports leagues and franchises. I’d say it’s more like they’ve got a ton of money, and sports are awesome (though I’m still mad at golf’s turncoat LIV players for abandoning the PGA and playing overseas).

Still, they’re throwing money around, might as well have some of it coming towards U.S. firms instead of Chinese. 

Then there’s the geopolitical angle. 

Russia, Iran and China have all aligned to try and take America down a peg or two. They have each other’s backs: China and Iran supply Russia’s war in Ukraine, Russia and Iran supply oil to China, and I’m sure they all enjoy a chuckle as war in Ukraine and Gaza tests U.S. policy and drives more wedges into U.S. politics. 

Quite frankly, if the U.S. doesn’t bring other countries into its sphere of influence or cooperation or whatever you want to call it, China and Russia will. And that could have significant economic impact, not to mention militarily.

Who Loses

We’ve had a few fairly nasty days for stocks over the last week. Yesterday, the S&P 500 dropped below its 50-day moving average (MA), suggesting that the medium-term trend has changed from higher or lower. 

But look around the market today and see which stocks are rallying. It’s Big Tech like Microsoft, Google (NASDAQ: GOOG), NetFlix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN) and chip stocks like AMD (NYSE: AMD), Nvidia (NASDAQ: NVDA), Micron (NYSE: MU) and Taiwan Semi (NYSE: TSM). 

It may not be obvious at first glance, because there hasn’t been much reason to notice lately, but both Apple (NASDAQ: APPL) and Tesla (NASDAQ: TSLA) did not have a good day.

Fact is these two former bull market standards haven’t a good 2024. They both peaked in early January and are still selling off…

Coincidence? I don’t think so. 

Both Apple and Tesla have significant exposure to China. And both companies are losing market share in China. 

I’d say there’s an inverse relationship here. The more wins America notches against China, the riskier Tesla and, to a lesser extent, Apple become. 

Briton Ryle
Chief Investment Strategist
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