Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.

From June 16 to August 15, the Nasdaq staged a 22.8% rally, rising from the 11,100 level to 13,600. Similarly, the S&P rose from 3,600 to 4,300, a 17.4% gain, and the Dow Jones rose 19%, from 29,900 to 34,100. So far this year, the Federal Reserve has raised rates by 50 basis points in March and May, and following elevated CPI readings for May and June, increased the magnitude of their rate hikes to 75 basis points in June and July, bringing the upper-bound of the Fed Funds target range to 2.5%—significantly higher than the 0.25% level that prevailed for the two years since the onset of the pandemic—all in an effort to stem inflation.

The market believed the Fed was front-loading interest rate hikes to address inflation quickly and would then be quick to pivot if the economy fell into a recession. This thinking, in addition to lower commodities prices and strong labor data (e.g., unemployment fell from 3.6% to 3.5%), is mainly what was behind the aforementioned market rally.

However, all eyes were on the Federal Reserve’s Jackson Hole Economic Symposium this week, a gathering of central bankers, academics and economic thinkers and policymakers, in which Chairman Powell was due to deliver a speech on the central bank’s latest thinking on monetary policy. And indeed, Mr. Powell reiterated the Fed’s commitment to achieving a 2.0% inflation rate (details of the speech are covered in full by Founder Minyoung Sohn in this week’s Blue Room Newsletter).

All three major indices sold off following the speech as market participants processed the remarks—the Dow, S&P and Nasdaq closed down on the day 3.03%, 3.37% and 4.1%, respectively.

Elsewhere in markets this week, it was announced that Amazon and UnitedHealth are vying to purchase Signify Health, a platform that leverages analytics, technology and nationwide healthcare provider networks to create and power value-based payment programs. On the earnings front, chip maker Nvidia reduced its revenue guidance while Peloton similarly fell short of analysts’ revenue expectations. Learn about all of this and more in this week’s Blue Room Newsletter.

Thank you Blue Room Leader OMAR GUZMAN

The Federal Open Market Committee's (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.

Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

The U.S. economy is clearly slowing from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession. While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum. The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 percent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.

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Analyst Takeaways:

Sales and profit aligned with expectations due to the August 8th announcement. Revenue details included:

Lower top-line for Nvidia was mostly due to weaker Gaming revenue. Data Center came short of market and company expectations, based on the May earnings call, but satisfied long-term strategy concerns for the most part.

In gaming, the shortfall in revenue was attributable to inventory re-costing in the balance sheet which has negative GM implications for the quarter. Lower sell-in of gaming products came as a result of OEMs seeking to reduce channel inventory to adjust for macro headwinds. As we stated in our last earnings call review, consumer demand was likely to be much weaker this Summer. The longer-term trend of gaming should remain strong with end markets like streaming, bloggers and other interactive ways to engage with video games gaining traction. The company estimates $5 billion in gaming sell-through between 2Q23 & 3Q23. Our Concerns lay less in the direct crypto impact (this has a slight influence on the sale of higher ASP GPUs) but rather in the demand environment for the 40 series GPUs which could be diluted by the secondary market from scalpers and crypto miners over the past two years. We are more conservative than the market with our gaming segment model going into the back half of Nvidia’s fiscal year.

The largest focus of the report today was on Data Center, which is a more opaque business segment relative to Gaming. Hyperscaler revenue in N.A. doubled y/y which, for us, highlights the secular trend towards exponentially increasing data output, processing and storage. These increases in N.A. were “more than offset” by lower sales to China hyperscale customers that were impacted by the macro. This raises concerns for us and its implications on the North American regions, given that the East Asian region has a substantial market opportunity for connected Hyperscale users far greater than the current N.A. opportunity. (70-75% of China has access to the internet vs. 94% of Americans) We remain excited for NLP, recommender models (highlight Pinterest as a customer benefitting from switch to Nvidia architecture), AV fleet data processing and training and cloud graphics. The concern is the sequential slowdown in DC which is highlighted by the mention that the $1.22 billion inventory charge was related to both Data Center and Gaming. Enterprise customer spend could be weaker than hyperscale customer spend, but a significant majority of our long-term NVDA thesis is dependent on DC growth.

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Key Metrics and Business Highlights

Customers with ACV equal to or greater than $100,000 were 745, up from 694 as of July 31, 2021.
Dollar-based retention rate was 111%, compared to 108% as of July 31, 2021.
Our ARR was $337.6 million compared to $280.2 million as of July 31, 2021, representing ARR growth of 20% compared to 18% as of July 31, 2021.
Customer usage of Zuora solutions grew, with $21.0 billion in transaction volume through Zuora’s billing platform during our second quarter, an increase of 16% year-over-year and 18% on a constant currency basis.
Zuora entered into a Share Purchase Agreement to acquire Zephr Inc Limited, a leading subscription experience platform used by global digital publishing and media companies.
Launched Zuora Secure Data Share for Snowflake, which will combine the power of Zuora and Snowflake by analyzing data from multiple sources into meaningful metrics, helping to accelerate recurring revenue.
BNP Paribas Leasing Solutions, which is part of one of the world’s 10 largest banks and provides financing services for professional equipment across 20 countries around the world, has selected Zuora to enable its industrial partners to nurture and monetize ongoing customer relationships with usage-based offerings.
MGI Research Ranked Zuora Revenue No. 1 for Automated Revenue Management in Product and Strategy.

New customer logos and go-lives included BNP Paribas, Santander, Olo, Pipedrive and Sodexo.

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Corporate Profile

At Deere, we’ve always believed in conducting business conducive to life. Paving or planting, we shape the spaces that sustain us. We turn raw materials into machines that advance a chain of livelihoods — from supplier to dealer, from our customers to their consumers, from ourselves to our communities. We innovate on behalf of productivity, profitability, and planet — not with solutions in search of a problem, but with revolutions that elevate all lives in one world we know.

We rely on more than 180 years of experience and terabytes of precision data to know our customers and their businesses better than anyone else. Our easy-to-use technology helps deliver results they see in the field, on the job site, and on the balance sheet. We ensure seamless access to parts, services, and performance upgrades from take-home to trade-in by providing world-class support throughout the lifecycle of their equipment, with productivity and sustainability in mind.

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U.S. natural gas prices eclipsed their June highs this week – rising more than 70% from the lows experienced in July – as concerns are mounting that robust domestic and overseas demand will deplete reserves that otherwise would be stowed for the coming winter.

In the United states, supplies are more than 10% below their normal levels as Americans continue to blast their air conditioning units to combat intense August heat.

What's more, Freeport LNG – the second-largest U.S. LNG exporter that supplies around 20% of U.S. LNG exports – is set to resume some operations in October following an explosion and fire on June 8. This explosion ended the bull market in U.S. natural gas prices as it provided a massive shock to domestic supply.

However, as the prospect of increasing our export capacity increases with as we approach the expected reopening of the Freeport LNG facility, the comfort of extra supply is no longer present. Indeed, with European buyers willing to pay almost seven times the U.S. price, competition for spare supplies remains fierce, and will likely only get fiercer.

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Corporate Profile:

Lilly was founded in 1876 by Colonel Eli Lilly, a man committed to creating high-quality medicines that met real needs in an era of unreliable elixirs peddled by questionable characters. His charge to the generations of employees who have followed was this:

“Take what you find here and make it better and better.”

More than 145 years later, we remain committed to his vision through every aspect of our business and the people we serve starting with those who take our medicines and extending to health care professionals, employees, and the communities in which we live.

Lilly’s Purpose: Lilly unites caring with discovery to create medicines that make life better for people around the world.

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The SOXX, Semiconductor ETF, finished -1.48% lower after another volatile trading week for semiconductor stocks broadly. The ICE index tracking exchange-traded fund would have finished positive +4.44% if markets had stopped trading on Thursday at close, but the tides quickly shifted Friday morning after Federal Reserve Chair Jerome Powell issued a statement at the Jackson Hole symposium. In brief, Powell said that the Fed has not seen enough in the economic data to justify a pause in rate increases, and certainly not yet a reversal. He reiterated that the Fed’s main roles are price stability and maximum employment. The more hawkish tone definitely shook the semiconductor markets this week.

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Corporate Profile:

THE PELOTON DIFFERENCE

Peloton is the largest interactive fitness platform in the world, with a loyal community of more than 6.2 million members. We pioneered connected, technology-enabled fitness and the streaming of immersive, instructor-led boutique classes to our members anytime, anywhere. Peloton makes fitness entertaining, approachable, effective, and convenient, while fostering social connections that encourage our members to be the best versions of themselves. Our world-class instructors teach classes across a variety of fitness and wellness disciplines, including indoor cycling, indoor/outdoor running and walking, bootcamp, yoga, strength training, stretching, and meditation.

Unlimited motivation, delivered daily:

Whether you use the Bike, Tread or App, a Peloton Membership is your pass to classes that range in length and intensity level. You'll ride, run, flex and tone, and keep coming back for more.

SWEAT WITH THE BEST — Our diverse team of instructors guide every step of your workout, making each class challenging and fun.
BETTER EVERY DAY — We keep things fresh with frequent updates to our classes and software features. You can choose something new to sweat to every time.
SURPASS YOUR GOALS — Track your progress with in-depth metrics, climb the live leaderboard and push to new bests together.

MOVE TO THE MUSIC — From hip hop to classic rock, our instructor-curated playlists will keep you motivated and engaged.

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— SUMMER 2022 —

INTERN INVESTMENT PRESENTATIONS

Friday
August 5, 2022
9:30 AM
__________ __________

Nutrien Ltd. by Alex Kechriotis.

Monday
August 8, 2022
9:30 AM
__________ __________

Kroger by Jackson Blaufeld

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These materials do not purport to be all-inclusive or to contain all the information that a prospective investor may desire in considering an investment. These materials are intended merely for preliminary discussion only and may not be relied upon for making any investment decision. Any discussion or information contained in this presentation does not serve as a receipt of, or as a substitute for, personalized investment advice from Blueroom or your advisor.

This publication does not constitute an offer to sell or a solicitation to buy any securities in any fund, market sector, strategy or any other product. Investing is speculative and involves substantial risks (including, the risk of loss of the investor’s entire investment). Past performance is not indicative of future results, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable.

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Weekend Update #89

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Weekend Update #90

Weekend Update #88

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