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Netflix’s post earnings pop (0:45). Next week looms large in earnings (2:00) Contextualizing recent AI news (4:00). Upcoming Fed meeting will be a snooze (5:30). Pace of activity under Trump will be interesting to watch (12:50).
Transcript
Rena Sherbill: Brian Stewart, our Director of News here at Seeking Alpha. Welcome back to the podcast. Great to have you as always.
Brian Stewart: Thank you. Great to be back.
RS: So end of January, one more week I guess, for this podcast in January. We’re in the thick of earnings season, I would say. I think that might be a good place to start in terms of dissecting recent earnings.
What would you say there? Who would you call out as the winners and who would you call out as the maybe second tier or losers for lack of a better term?
BS: Yeah, we don’t want to think of anybody as a loser.
RS: No, we don’t. No, we don’t.
BS: So, I think Netflix (NFLX) is the place to start when talking about recent earnings announcements. It’s really the biggest non-financial name to announce so far. It’s up about 12% in the past week, largely due to a post earnings pop.
The company beat expectations, both on revenue and earnings. And then that headline, the major headline was really that they added 18.9 million net subscribers, which was doubling expectations, which is a huge win for them. They were helped by live events, the Tyson versus Paul fight, and then the NFL games they showed on Christmas, also Squid Games, the new season came in.
So really nice content slate. I think if you were bearish on that stock, especially after the post-earnings pop, the argument would be that it might not be repeatable. You’re not going to add 19 million subscribers every quarter from here on out. So it might be baked in.
I think the interesting thing to look at with Netflix is whether or not it’s going to be more of a content play, whether it’s fundamentally becoming a movie studio, in a sense, the way Disney (DIS) lives and dies on its Marvel franchise and Star Wars and things like that.
Maybe Netflix is getting to the point where you have to look at its schedule and take its cues from there.
RS: And what else would you say in terms of earnings?
BS: I think next week looms really large in earnings. There’s a lot of big tech companies.
Some interesting action ahead of those in terms of signs of disappointment maybe, or looming worry in some investors. So Apple (AAPL) is down about 6% in the past week. It’s reporting earnings next week. It’s down about 12% in the past month and only up about 15% in the past 12 months.
So I mean, 15% might seem all right, but that’s underperforming the major averages and certainly a lot of its tech peers.
I think Apple’s becoming a show me stock. I think there’s a lot of worries about whether iPhone sales are going to keep up. There’s a declining market share there. And so the question for Apple becomes whether or not it can ramp up some of its other products, services, wearables, the other non-iPhone franchises that it has. So, I think investors are in a wait and see mode for that company.
And then Tesla (TSLA) had an interesting quiet week. It’s down about 3% in the past week, giving back a little bit more of the post Trump election jump that it had. It’s still up 65% in the past 6 months and has doubled in the past year, but I think there’s worry growing that it might have stretched valuations too far.
It’s a company where there’s a lot of bets on the future and a lot of bets on things other than EV growth. So, you’re looking at RoboTaxis and general solar power, AI in general. So, it’s another company where it’s going to have to be now kind of proving what the promise has been. So both of those companies are reporting next week and I think those are going to be the highlights of the week.
RS: So talking about kind of envisioning the future, we’ve seen a bit of a return to this AI trade, something that’s been discussed in Wall Street Breakfast this week.
We discussed AI and the vision and the future for that and the viability of the Alpha in that part of the tech sector on Investing Experts this week. What would you say about the news surrounding AI this week and how would you contextualize it for investors?
BS: Yeah, if we pull way back and look at the last couple of years, the stock market in general has had a blockbuster two years. And a lot of that has come from fervent AI investors, just people pouring money into the tech sector on the bet that this is going to be a transformative technology.
And so the question that becomes for 2025 is whether or not the actual reality of the progress of AI is going to sort of match the expectations. Kind of the same argument that I was talking about for Apple and Tesla.
This week, Stargate was the biggest news item. Trump announced that there’d be a $500 billion Stargate project. It’s OpenAI, SoftBank (OTCPK:SFTBY) and Oracle (ORCL).
And so if we can boil that down to 1 stock, Oracle is up 17% in the past week. Just on the excitement around this, there’s already been some pushback. Elon Musk himself has said that the financing might take a while or not even be there. So it’s a thing where the announcement gets a big pop and then we have to kind of see if reality can catch up.
Another stock to watch, and that is Arm (ARM), is up 22% in the past week. They have a relationship with SoftBank. So they’re seen as a possible winner as they build out just providing chips for the Stargate’s data centers as they get built. So that’s another stock to watch as sort of a proxy for that trade.
RS: And what would you say on the macro level? We have a Fed meeting coming up. What are you sensing is going to come and what are you sensing is the reaction that’s going to be.
BS: So in terms of the actual Fed policy, next week is going to be pretty much of a snooze.
The market is currently pricing in a 99.5% chance that they’ll leave rates alone. So there’s not really much dissent in the market about what the Fed’s going to do.
A lot of attention is going to turn then to the projections for the future, the assessment of the economy and whether or not the Fed is likely to start cutting rates again anytime in the near future. If we just look at trading recently, there’s a roughly 74% chance of the Fed holding steady again in March. That’s up from 67% last week.
And that probability was at about 56% a month ago. So that’s been edging up. So we’re now looking at sort of the May or June timeframe for the next cuts.
In terms of 2025 as a whole, the market’s pricing in a 16% chance that there’ll be no cuts this year. That’s up a little bit from last week. So in general, people are pushing off their bets on when the Fed will cut rates, but not really changing their opinion of 2025 as a whole, just sort of shifting things maybe towards the end of the year.
And it’s noteworthy that right now, there’s still a 0% chance of the Fed’s next move being a rate hike. So the market still sees cuts coming. Just the question becomes when, and next week’s meeting, the news coming out of the headlines coming out of it will be more about projections for the future and figuring out when the next move might happen.
RS: And getting back for a second to or for a couple minutes perhaps, you were mentioning the EV space a little bit. And last week we talked about the oil majors. What are you seeing from those players in that part of the sector?
BS: One interesting thing about the oil majors, another major market theme of the past week has been the inauguration. So Trump came into office and so a lot of the promise, the pro-business bet that people made post-election now is sort of coming to fruition.
There was a flurry of activities and a lot of that, especially in the energy space, seemed to favor the traditional fossil fuel type companies. However, those stocks were down over the past week.
Mildly, it’s the ExxonMobil (XOM) is down 2%, ConocoPhillips (COP) is down about 2%. So it’s not like there was a huge reaction, but I think that the market is going to let fundamentals sort of drive that. So I think that the betting on what Trump’s going to do has died down and now people are going to wait for the actual activity to take place.
RS: And what else would you say is worth paying attention to these days?
BS: Well, we already talked about Apple and Tesla next week reporting earnings, but as you mentioned at the start, earnings season really sort of hitting its stride next week, so there’s a lot of major companies.
We got Microsoft (MSFT) and Meta (META) are also announcing. Meta’s going to be interesting. You want to look at their spending. One of the worries about Meta is they’re just going to spend too much. That was the beef with them during the Metaverse phase of their development is that they kind of took too big a bet on the consumer picking that up.
And now that AI is where they’re moving, the question becomes, are they going to be more targeted about that investment?
And then Microsoft has been quietly chugging along. I think that it stands outside of the spotlight compared to companies like Tesla or Nvidia (NVDA) or even Apple.
So it’ll be kind of interesting to see if it can take the reins of some of it. I mean, it’s an investor in OpenAI, so it’s right in the middle of the AI crunch. So it’ll be interesting if they have any commentary on the future of AI.
RS: Yeah, it’s definitely going to be interesting to see how it all plays out on the AI side of things. Although I suppose, would you say that there’s a cycle, or timeline for AI?
BS: I think part of the problem for investors is that the timeline is so long. I mean, honestly, it’s going to be here forever, right? And it’s going to be impacting our lives in varying degrees and probably in an increasing amount over the next years and even decades.
So you can look at it as sort of like the Internet revolution. When it started, there was a big rush to invest in anything that was a dot-com company. But then we moved into situations where we were talking about, you know, NET 2.0 and it went through various stages.
And the winners didn’t really kind of catalyze until later in the game. I mean, Amazon (AMZN) seems obvious in retrospect, but at the time it was just one of many companies, you know, it was a bookseller. So it wasn’t too much different than you know, PetSmart or anything else.
And so I think that’s going to be the challenge for investors is you’re going to have to be patient and there’s going to be corrections and you’re probably going to want to diversify, make strategic bets on the sector in general and not get overly invested in one company or another.
Talking about what next phases would be, the AI hype, especially in the stock market has been largely focused on large companies, the Nvidias, the Microsofts of the world.
I think there will be a wave of IPOs at some point, smaller companies with very much AI focus and that’ll have sort of a blessing and a curse where there’s going to be more pure AI plays for investors to sort through. So if you have a thesis where you’re looking longer term at AI, you’ll have more opportunities to play that directly. The problem is that those are going to be more win and lose.
A company like Nvidia, even if it corrects, it’s not going to correct to 0 in any time in the near future. But a startup might. So it becomes a lot riskier, but there’s a lot more upside possibly in those kind of companies as well.
So if I were an investor, I’d kind of be scoping the IPO market, maybe sketching out where some of those opportunities would be. There’s a lot of talk about AI and healthcare.
I think that’s an interesting next stage. So I would be looking for it to move out of just helping you write your homework process and moving into things like engineering and healthcare and programming and other aspects of what’s traditionally been white collar work.
I think AI is going to do a lot to both make that more productive, but also maybe change the labor market in those kind of places. So I think we’re just seeing the tip of the iceberg now, and it’s going to be a long haul metabolizing the changing AI.
RS: Yeah, we had Kirk Spano on Investing Experts, and he was talking about Pfizer (PFE) being the big AI play that he sees coming, to your point about healthcare and AI. Certainly nothing if not interesting to look at that part of the sector, and honestly so many, as we watch them develop in real time and change the way we live.
Last question for the week, I was going to ask if there’s any other takeaways you have. Almost one week post inauguration, we talked about how there wasn’t going to be much we learned in the day after the inauguration. What about almost a week later, anything else that you’re picking up that you want to share with investors?
BS: So I think the pace of activity is going to be interesting to watch. I don’t have any data on this, but my memory of Trump’s first term is there was a lot of, a flurry of activity early on. And then as there was resistance to certain policies that things got bogged down a little bit and then pretty soon it’s the midterms and nothing’s going to happen until after that.
So, when that wall happens, when things die out and the executive orders stop flying from the Oval Office, I think that’ll be interesting to watch. I do think that there’ll be a time when things quiet down and there’ll be less of an aggressive Trump putting his fingers on the scales of various industries or the administration in general.
So I would look for when that might happen. And then I would look for things where there might be under the radar where that resistance that we’re talking about to the policies might not be as fervent. So that might be drilling, that might be crypto, that might be AI, just sort of areas where the focus of the early days can keep its momentum even if the administration itself starts to run into opposition.
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