Alphabet’s $75B AI Investment Surpasses Expectations but Cloud Growth Disappoints

Local Market Commentary

South African equities posted solid gains, with the Top 40 index rising 1.12% to 78,342.4 points and the All Share index advancing 1.13% to 86,452.6 points. Meanwhile, the World Bank cautioned that a 2% GDP growth rate remains inadequate to address structural challenges such as poverty and unemployment, forecasting 1.8% growth in 2025, gradually increasing to 2% by 2027. Encouragingly, the automotive sector showed resilience, with January new vehicle sales up 10.4% year-on-year, reaching 46,398 units, as improving economic conditions bolstered consumer confidence. In the logistics sector, Transnet’s rail freight volumes are expected to reach 160–165 million tons by March, surpassing last year’s levels but falling short of its 170 million-ton target. In corporate developments, Sasol, Anglo American, and De Beers have partnered on a pilot project to produce renewable diesel from vegetable oil, signalling progress in sustainable energy initiatives.

European Market Commentary

European equities advanced on Tuesday as investors focused on corporate earnings, with the STOXX 600 closing 0.3% higher. Key reports from UBS, BNP Paribas, and Ferrari were in focus, though market sentiment remained cautious over potential U.S. tariffs. In the UK, grocery inflation eased slightly to 3.3% in January from 3.7%, supported by increased supermarket promotions, while retail sales grew 4.3% year-on-year. Spain’s jobless rate ticked up 1.51% in January, adding 38,725 unemployed, though at 2.60 million, the total remains at its lowest seasonal level in 17 years. Looking ahead, the Bank of England is widely expected to lower interest rates by 25 basis points on Thursday, coinciding with the release of Britain’s latest PMI data.

U.S. Market Commentary

Wall Street closed higher on Tuesday, driven by gains in energy stocks and optimism over U.S.-China trade relations after President Trump delayed tariffs on Canada and Mexico. However, new 10% U.S. tariffs on Chinese imports took effect, prompting retaliatory measures from China. Despite trade uncertainty, strong corporate earnings supported sentiment, with 76.8% of the 211 S&P 500 companies reporting better-than-expected Q4 results. U.S. job openings stood at 7.6 million in December, below the estimated 8 million. PepsiCo fell 4.5% after missing revenue estimates and issuing a weaker profit forecast. Market breadth was positive, with advancing issues outpacing decliners on both the NYSE and Nasdaq. Trading volume reached 13.39 billion shares, slightly below the 20-day average of 15.53 billion.

Asia Market Commentary

Asia-Pacific markets showed mixed performance this morning, following Wall Street’s overnight gains despite ongoing trade tensions between the U.S. and China. In China, services sector growth moderated in January, with the Caixin/S&P Global Services PMI declining to 51.0 from December’s 52.2, reflecting a slowdown in expansion and continued employment contraction. This aligns with official PMI data, which also pointed to a deceleration in non-manufacturing activity. The composite PMI, incorporating both manufacturing and services, edged lower to 51.1. Meanwhile, South Korea’s inflation exceeded expectations, with consumer prices rising 0.7% month-on-month and 2.2% year-on-year, surpassing the 1.97% forecast.

Currency Market Commentary

The South African rand strengthened on Tuesday as markets assessed shifting U.S. tariff policies, while the yuan weakened amid renewed U.S.-China trade tensions following the Lunar New Year break. Despite the People's Bank of China setting a stronger-than-expected midpoint rate, the yuan declined as China swiftly imposed retaliatory tariffs on U.S. imports. Meanwhile, the yen gained as expectations for further Bank of Japan rate hikes increased. President Trump indicated he is in no rush to engage with President Xi Jinping to ease the escalating trade conflict between the world’s two largest economies.

Commodity Market Commentary

Gold surged to a record high on Tuesday as investors sought safety following China’s retaliatory tariffs against the U.S. in response to President Trump’s trade measures. Oil prices remained steady after a volatile session, with markets downplaying the impact of China’s tariffs on U.S. energy imports, while expectations of tighter Iranian crude exports provided some support. Aluminium is projected to lead gains among London Metal Exchange (LME) base metals in 2025, with analysts anticipating a supply deficit. The Reuters January base metals poll also indicated higher average prices for zinc, copper, and tin compared to 2024. Nickel remains the weakest performer, with continued oversupply expected through 2026.

Boxer Retail Limited (BOX) +1.79%
Boxer has released its first trading update following its 28 November 2024 listing, reporting performance in line with pre-listing guidance. For the 45-week period ending 5 January 2025, total sales grew by 11.4%, with like-for-like sales increasing by 6.7%. Sales growth for the latest 19 weeks stood at 10.8% (5.5% like-for-like), reflecting a softening in momentum due to a high comparative base from H2 FY24. Internal food inflation was 6.1% but, when adjusted for mix changes, was effectively 0.0%, aligning with Boxer’s commitment to price competitiveness. The company maintained expected gross profit margins and remains on track with its FY25 Superstore rollout, including Pick n Pay conversions. However, liquor store openings have faced delays due to pending licence approvals. Looking ahead, Boxer is focused on executing its planned FY26 store pipeline to sustain growth.

Pick n Pay Stores Limited (PIK) +3.82%

Pick n Pay Group reported a 3.6% increase in total sales (3.3% like-for-like) for the 45-week period ending 5 January 2025, with Pick n Pay SA showing improving like-for-like sales growth and Boxer delivering another strong performance. Pick n Pay SA's like-for-like sales rose by 1.9%, with an improved momentum of 3.0% in the latter 19 weeks. The Store Estate Reset plan resulted in net closures of 32 supermarkets, including the conversion of five stores to franchise. Boxer continued its strong trajectory, achieving an 11.4% sales increase (6.7% like-for-like). Clothing sales in standalone stores grew 10.0%, while online sales surged by 42.5%, driven by Pick n Pay asap! and its partnership with Mr D. Pick n Pay SA’s internal selling price inflation dropped to 2.4%, down from 3.4% in H1 FY25 and significantly lower than the 8.2% reported for FY24. A key turnaround metric, like-for-like sales growth in Pick n Pay SA Supermarkets (excluding standalone clothing stores), showed steady improvement from -0.4% in H2 FY24 to 1.3% in H1 FY25 and 2.8% in the latest 19 weeks. Pick n Pay Company-owned Supermarkets, which account for the majority of segment sales, improved like-for-like growth from -0.5% in H2 FY24 to 4.1% for the latest 19 weeks. Encouraged by the positive sales trend, the Group remains focused on strengthening retail disciplines and franchise performance while sustaining Boxer’s growth momentum.

Sirius Real Estate Limited (SRE) 0.00%
Sirius Real Estate has notarised the acquisition of a business park in Reinsberg, Saxony, for €20.4 million. The asset, completed in 2014, spans 37,000 sqm, with 78.4% allocated to high-quality industrial production space. Currently 75% occupied, the property generates an annual rental income of €1.5 million, with the majority under a 10-year full repairing and insuring lease to the vendor. The remaining 25% vacancy presents a value-add opportunity through Sirius’ management platform. The purchase price reflects a 6% EPRA NIY after purchase costs. The park benefits from strong motorway connectivity and proximity to Sirius’ Klipphausen and Dresden assets, creating operational synergies. This acquisition follows Sirius’ €350 million bond issuance in January, reinforcing its strong pipeline and swift execution capabilities. CEO Andrew Coombs highlighted the deal as a strategic sale-and-leaseback transaction that enhances Sirius’ portfolio while providing liquidity solutions to asset owners.

Bowler Metcalf Limited (BCF) +1.61%
For the six months ended 31 December 2024, the Group reported a 6% increase in revenue to R459.4 million, compared to R434.0 million in 2023. Profit from operations rose by 22% to R69.1 million, while net profit before tax grew 17% to R80.8 million. Net profit after tax also increased by 17%, reaching R59.3 million. Earnings and headline earnings per share both grew by 17%, amounting to 86.25 cents per share. The net asset value increased by 9% to R833.0 million. An interim gross cash dividend of 25.00 cents per share (up 4% from the previous year’s 24.00 cents) has been declared, payable on 31 March 2025. The final date to trade will be 25 March 2025, with a 20% Dividend Withholding Tax applied, resulting in a net dividend of 20.00 cents per share for those liable for DWT.

Alphabet Inc. (GOOGL) +2.56%

Alphabet announced plans to invest $75 billion in AI infrastructure in 2025, significantly exceeding Wall Street’s expected $58 billion. The investment, primarily in data centres and servers, aligns with Alphabet’s AI-driven expansion across search and cloud services. However, disappointing cloud revenue growth of 30% (vs. 32.3% expected) led to investor concerns. Google’s advertising revenue remained strong, growing 10.6% to $72.46 billion, while YouTube ad revenue rose 13.8%, supported by U.S. election spending. Despite these figures, overall revenue of $96.47 billion narrowly missed expectations, and investors showed impatience over profitability.

Snap Inc. (SNAP) +3.85%

Snap exceeded expectations with Q4 adjusted earnings of 16 cents per share (vs. 14 cents expected), driven by improved ad platform performance. Daily active users increased 9% to 453 million, surpassing estimates. Revenue rose 14% to $1.56 billion, slightly ahead of projections. The company forecasts Q1 revenue of $1.33 billion to $1.36 billion, with an adjusted EBITDA outlook below expectations, ranging from $40 million to $75 million.

Advanced Micro Devices Inc. (AMD) +4.58

Advanced Micro Devices reported strong overall Q4 results but failed to impress investors eager for AI growth. Data centre revenue of $3.9 billion missed estimates of $4.15 billion, though AI chip revenue exceeded $5 billion for the year. CEO Lisa Su projected "tens of billions" in AI sales over the next few years but provided no specific near-term forecast. AMD expects Q1 revenue of approximately $7.1 billion, marginally ahead of estimates, with adjusted earnings per share of $1.09, slightly beating expectations.

PepsiCo Inc. (PEP) -4.51%

PepsiCo reported weaker-than-expected Q4 revenue, declining 0.2% to $27.78 billion (vs. $27.89 billion expected), as U.S. demand for snacks and beverages softened. The company forecasts a modest increase in 2025 core earnings per share, below analyst expectations. However, adjusted EPS of $1.96 narrowly exceeded forecasts of $1.94.

Pfizer (PFE) -1.26%

Pfizer posted a better-than-expected Q4 profit, supported by cost-cutting measures targeting $4.5 billion in savings by year-end. Revenue rose to $17.8 billion (vs. $17.4 billion expected), with COVID-19 vaccine sales of $3.38 billion surpassing estimates. The company is streamlining operations, expecting an additional $1.5 billion in savings by 2027.

PayPal Holdings (PYPL) -13.17%

PayPal saw shares decline nearly 10% following a slowdown in its unbranded card processing business, which grew just 2% compared to 29% a year earlier. Q4 adjusted operating margins contracted slightly to 18%, but full-year margins expanded. Adjusted EPS of $1.19 beat expectations of $1.12, while revenue grew 4% to $8.4 billion. The company forecasts full-year adjusted profit per share of $4.95 to $5.10, surpassing analyst estimates.

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