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Palantir’s soaring but concerns remain (0:25). ARM, Oracle and AI bellwether earnings (2:00). Tariff threats and concessions (3:30). Microsoft and Google drop post-earnings; dealing with increased competition (6:00). Merck a real outlier to the downside (8:25). McDonald’s earnings next week work as economic indicator; RobinHood (HOOD) and Strategy (MSTR) (11:00). US Sovereign Wealth Fund and other thought experiments (14:20).
Transcript
Rena Sherbill: Brian Stewart, our fearless Director of News here at Seeking Alpha. Welcome back to Wall Street Breakfast. Always great to talk to you. Happy Friday.
Brian Stewart: Thank you, Rena. How are you doing?
RS: Doing well, doing well, doing well. Thank you for asking.
I did a podcast this week after Palantir’s (PLTR) earnings with Julian Lin on our Investing Experts Podcast. And he was going through the reasons why he is short the stock. We’ve seen a crazy run-up in the stock this week, but he was mentioning valuation as a concern. What are you looking at when it comes to Palantir and that side of the market?
BS: Yeah, just to set the stage, Palantir up 27% in the past week, most of that obviously coming in the post earnings glow. However, it has carried that post earnings rally forward. So there’s some lingering excitement even after that initial jump up. I think you’re right to point out valuation that’s what a lot of people are saying is sort of the concern now, especially after moving 27% in a week.
Also, just the competitive AI field makes a difficult environment to operate in. But people are giving praise to Palantir just for its – it’s got a pretty good moat in the sense that a large chunk of its business is government related. It develops software platforms for the intelligence community so that gives it kind of a bulwark against the sort of ins and outs of the commercial market.
Though one of the standout items in the earnings report was the strong growth it saw in the U.S. commercial market as well. So it’s got a broad-based business and it has that sort of government’s bulwark to lift it up.
RS: What else would you say in the AI world? Arm (ARM) is a stock that we’ve been talking to a couple weeks in a row. It’s had some volatility. It’s seen the nice end of that volatility right now. What are you looking at in terms of AI stocks specifically and maybe tech stocks in general that you can contextualize for investors?
BS: Arm is a good one to keep an eye on. We’ve talked about that the last couple of weeks. It was up after the Stargate news. It was one of the players involved in that. And then down after the DeepSeek came onto the playing field as sort of a counter to that the U.S. growth in the Stargate model.
And then its earnings came out and it’s down modestly on the earnings, but that’s only giving back some of the rebound effect it had after the DeepSeek news. So in general, the response to the earnings were those are fine, but we’ll see how the market kind of plays out over the next several months. So I think that’s an interesting stock just to keep an eye on as a bellwether for AI in general.
Oracle’s (ORCL) another one. It’s up 6% in the past week. It’s another one that was tied into the Stargate proposal. So that’s another one that can act as a way to take the temperature of the AI market.
RS: We referenced tariffs last week. There’s been some movement, maybe not as much as some thought, maybe too much as other people think.
What are we looking at in terms of tariffs and how that is affecting the market, how it may continue to affect the market, things we don’t know yet?
BS: Yeah, I think last week in terms of potential trade war, I think that was a little too close for comfort for most investors.
The initial announcement that the US was going to impose 25% tariffs on Canada and Mexico, which sparked retaliation from them, but then backing off of that, putting those on pause for a month after both Canada and Mexico gave some concessions.
I think this plays into something that you and I talked about late last year, where the tariff threats from Trump at that point was being an incoming president was one of the kind of major downside risks going into his new administration.
And you and I speculated at that time that there might be tough talk from Trump and then a much lower tariff imposed by Congress is sort of a compromised position. So far Congress hasn’t played a role in this, but it seems like the tactic is basically the same where Trump is going to talk tough and then use the high tariff rates as a bargaining chip to get other concessions.
I think we’re still in a market where we have to watch this play out, but it seems like the strategy is to use the threat of tariffs to get other, maybe more politically important to the Trump administration concessions. So I think that investors are breathing a sigh of relief that maybe we’ve moved past the worst of it.
But one of the concerns is just how volatile the early Trump in position has been the extent to which he’s willing to change the status quo and whatever your political beliefs, the changing of what’s expected is something that the market doesn’t take kindly to.
RS: Are you seeing stock reactions to this news, like movements in stocks that reflect this, or not quite yet?
BS: My reading of the vibes is people are still kind of wait and see. I think having been through the Trump administration the first time around, I think they’re kind of used to the fact that there’s going to be a lot of talk. And then it kind of comes down to action.
I think the brinksmanship on the tariff issue came as close to action as it has in the past. So we’ll see how that plays out. But I do think that there’s a willingness to accept the bluster and wait for the actual action to take place.
RS: Speaking of waiting for the actual action to take place, I think that lends itself nicely to getting back to the tech AI discussion because there were another couple of stocks that I wanted to ask you about.
On the declining side, we saw Microsoft (MSFT) go down, we saw Google (GOOG) (GOOGL) go down after their earnings. What are you sensing out of them or how is the market reflecting back to them, how they’re feeling about their guidance and news and numbers?
BS: I think both Microsoft and Alphabet are a continuation of what we saw with Nvidia (NVDA), which is that the early leaders in the AI ascension have to react to a more competitive market now.
And I think that’s what’s being priced into the stocks now is the realization that there might not be two or 3 winners in the next round. It might be 20 or 30 winners of different varieties. And so you can’t, if you’re betting on AI, you can’t just sort of pour all your money into Nvidia or Microsoft or Alphabet, you have to spread around a little bit more. And so I think that’s the underlying impetus for those stocks dropping after their earnings.
Google’s a great example. The earnings themselves were on target. The revenue was slightly below expectations, but in terms of growth rates, there was nothing sort of stand out, but the stock dropped 7% the day after the results. And I do think it’s mostly just competitive fear. And that comes in two varieties.
One is the idea that AI kind of blows open the search possibilities. So the monopoly basically that Google’s had on search might be at risk as AI-related competitors come out of the market. It’s such a disruptor that I think investors are starting to see a pathway for another competitor to come up, even though they might not be able to name what that competitor is, there’s just sort of the idea that maybe that’s a possibility at this point.
And then I think just the increased CapEx spending that’s necessary to keep up with a fast moving technological revolution is making it so these larger companies who could rely on a very settled market position now might have to spend money to defend it.
RS: Any other stocks worth highlighting or noting for investors to take a look at or pay attention to?
BS: So in terms of things that have happened already, I think Merck (MRK) is an interesting one just because it’s sort of outside the sort of big things we’ve been talking about.
If we did the kind of one word or two word descriptor of last week, I’d say tariffs one, AI earnings, two, on that list. And so Merck fits outside that as being an old fashioned pharmaceutical company. It was down 9% in the past week. It hit a 52 week low. It beat expectations for its latest quarter, but outlook missed projections. It seems that this was probably just a company specific situation.
Other major healthcare stocks like Amgen (AMGN), Novartis (NVS) are up over the past week. So it doesn’t seem to have had – it doesn’t seem to have poisoned the overall market for healthcare. But I think it’s just interesting to note that bubbling beneath the surface of some of the major themes that we always tend to focus on. The individual companies are still reporting earnings, and so you have to kind of keep an eye on those.
RS: And what were the main things that investors are concerned about or that the company guided for that investors reflected back to them that they’re disappointed in?
BS: Looking broadly, because again, the stock went to a 52-week low. And if you look at the overall market over the last 2 years, it’s up 20% in 2 consecutive years.
So it’s a real, in terms of major market cap type stocks, Merck is a real outlier to the downside over the last 2 years. I think we can blame the post COVID effects. A lot of the stocks in that space had a huge run up during COVID and in the immediate aftermath as they were producing those. And I think it’s kind of hard for those companies to get off that.
They spent a lot of money getting those COVID related products on the market. And now that that worry has subsided in the public imagination, I think they might be caught a little wrong-footed, especially Merck, in terms of getting sort of back to normal.
RS: Shades of Zoom Communications (ZM)?
BS: Yeah, it’s a good example. I mean, it’s not as dramatic, I think, as Zoom. But I do think that it’s the same kind of effect.
RS: What else do we have coming up in the coming week? What else are you focused on, or what are you focused on for the coming week?
BS: So one thing to note is that the earnings season it’s not slowing down in terms of pace of results coming out, but the kind of size of the impact of the individual stocks is starting to slow down a little bit. We’re kind of past the biggest names, and there’s still some big names to come.
But just in terms of the sheer volume of major names that have reported in the last couple of weeks, we’re starting to get to maybe the second and third tier companies. That said, there’s still a lot of interesting things to look at even outside the individual company.
So as an example, McDonald’s (MCD) is reporting next week, that gives a glimpse of the low end of the food market. So you can almost take that as an economic indicator seeing where people are spending their money, the company’s gotten some benefit from rolling out new value options in the face of inflation.
Meanwhile that has its downsides and the fact that it might be facing margin contraction. Also just as an after effect of the weight loss drug kind of revolution of the last couple of years, McDonald’s might be on the wrong end of that trends in the sense that people are going to be eating there less. So that’s another thing to look out for maybe if they have direct commentary about the effects of sort of new eating habits there.
And then the other stock that I think might be interesting to our listeners is, Robinhood (HOOD) is reporting. It’s up about 400% in the past 12 months. I think that’s kind of happened a little bit under the radar. Robinhood had a huge coming out party when it came public and I think we don’t really talk about it that much anymore, but kind of quietly it’s compounded a 400% increase over the course of a year.
I think from those results, I think people should look at the crypto revenue. It’s invested heavily in having kind of a crypto presence. That also gives a little hint of the retail interest in the crypto market. So if you’re interested in Bitcoin (BTC-USD) in general, HOOD’s earnings might have some value for you.
And then I think HOOD is a good AI potential commentary stock to keep an eye on, whether the management there rolls out or hints at any new kind of AI related trading software or something like that. It just seems like a company that’s very interested in those kinds of making a splash in that way. And so I think it might be a good bellwether to look for just in terms of how companies are using AI to improve user experiences.
RS: Referencing your point about Robinhood and their crypto connection, another stock that comes to mind is Strategy (MSTR) formerly known as MicroStrategy and they reported this week and they also have a crypto connection specifically Bitcoin.
Anything to mention there in terms of what you saw out of them or how investors are taking it or their connection to Bitcoin, et cetera.
BS: Yeah, I mean, the newly minted Strategy has always been a very interesting company.
Theoretically, it’s a software company, but it trades like a crypto company just because the company is spending as much money as it can get its hands on to build a crypto stockpile. So it’s always going to trade kind of in line with crypto stocks more than on its own results. And I think we saw that this past week, most of the headlines coming out of that besides the name change were related to its crypto stockpile.
How much it’s bought and how much it plans to buy, and regulatory issues related to how a company of that size can manage still an unusual asset to have on its books. So I think it presents challenges for investors just because it’s just a different way to think of a company of that size. But if you’re interested in crypto and you want kind of a one step removed way to kind of have exposure to that space, then Strategy is a good company to keep an eye on.
RS: Anything to say macro wise and speaking of macro, anything to say about the proposed US Sovereign Wealth Fund that has been bandied about lately?
BS: Yeah, I think that’s an interesting proposal. I think another thing that you and I had talked about is how Trump as a Republican president is significantly different than kind of your average Republican president if you look at somebody like a Mitt Romney or whatever. And that seems like an idea that could only come from Trump. I don’t know President JD Vance is making that that proposal.
I took it as just kind of a sign of how — I want to use the word unpredictable, but I don’t want to have a negative connotation. Just how unusual Trump is in terms of his political outlook. And so he’s willing to propose things that I think would be off the table for both Democrat and Republican presidents. And the value of any one of those suggestions, I suppose, is in the eye of the beholder. But it’s certainly something worth discussing.
And so I think it’s certainly interesting that he brought it up and I think it’s an interesting thing for people to consider.
RS: Certainly a lot of thought exercises being done in this administration, I would say for all of us, all of us are having new thought experiments.
BS: Yeah, that’s an interesting way to put it, like real life thought experiments in action.
RS: Yeah, we’re rethinking things, sometimes out of choice, sometimes out of necessity, but we are rethinking things for sure.
Anything else to say on the macro side of things?
BS: Just riffing off of what you were saying. I think also, you know, nobody’s really thought about tariffs in 20 years. Do you know what I mean? And so bringing this into the public discussion, whether or not those tariffs ever go into effects, or whether or not you think it’s a good idea or not, it’s worth talking about to try and weigh the relative because markets change, conditions change, and tariffs might have been awful 20 years ago and might make sense now or might still not make sense.
I’m kind of talking around because I don’t want to kind of lean in one political direction or another.
RS: Let’s get your thoughts on politics and religion Brian while we’re at it.
BS: Sure, I’ll just roll those out.
But no, I think one of the aspects of Trump as president that is sort of under discussed, this is willingness to quickly change course which you can see is a good thing or a bad thing.
But the upside is that when tariffs go into the public discussion he’s not going to if in general the market, and or congress, or just sort of the collective donor class in general, gives appropriate pushback, he seems perfectly willing to drop the subject and move on to something else which I think previous presidents have been unwilling to do.
There’s a lot of sort of stubbornness in policy that isn’t in evidence in this administration. So I think if you’re an investor who hates tariffs and thinks this is a stupid conversation, the one thing in your favor is Trump is perfectly willing to change the subject when it becomes clear that it’s a bad decision.
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