Breakfast News: Hyperscalers Defend AI Spend
January 30, 2025
| S&P 500 6,039 (-0.47%) |
|
| Nasdaq 19,632 (-0.51%) |
|
| Dow 44,714 (-0.31%) |
|
| Bitcoin $104,314 (+3.87%) |
|
Source: Image created by JesterAI.
1. Meta & Microsoft Ramp up AI Chat
Both Meta (META -0.22%) and Microsoft (MSFT -1.08%) talked up their AI strategies and ambitions following their earnings, with Mark Zuckerberg stating that large capex spending and infrastructure in AI will be a strategic advantage over time.
- "There's a number of novel things that they did that I think we're still digesting": Zuckerberg spoke about DeepSeek but flagged it only strengthens his conviction in the future of the sector. It comes as the business posted massive year-over-year revenue and earnings growth, easily topping quarterly expectations.
- More commoditized models allow broader use: Microsoft CEO Satya Nadella struck a similar tone, saying DeepSeek will help the AI industry rather than hurt it. Yet despite the company beating earnings expectations, the stock fell by as much as 5% in after-hours trading due to high costs and weaker Azure division numbers.
2. Musk Predicts Epic Growth Period
Tesla (TSLA -2.62%) CEO Elon Musk revealed more detailed plans about robotaxi operations alongside new model forecasts, as the stock rallied around 3% in pre-market trading despite missing earning forecasts.
- "This is not some far off mythical situation": First recommended in Rule Breakers in 2011 (beating the S&P 500 by 18,317% since), Tesla plans to launch the robotaxi service in Austin, Texas in June, with other cities following in the second half of the year. Musk believes the advancements in vehicle autonomy should lead to strong growth in the years ahead.
- Stock jump highlights investor sentiment: The modest 2% growth in revenue and 3% increase in earnings per share versus last year was clearly glossed over by investors, many of whom are focused on the long-term vision of both Musk and the company. Yet there are risks ahead, with the CFO stating the imposition of tariffs "will have an impact on our business and our profitability."
3. Powell: Fed Isn't in a Rush
The latest U.S. Federal Reserve meeting saw interest rates remain on hold as it seeks to make more progress on lowering inflation. With strong economic growth and a resilient labor market, the stock market didn't take the chatter in a significantly negative way.
- "We do not need to be in a hurry to adjust our policy stance": The latest core inflation data for December showed the first fall since June. But with the headline reading at 2.9%, Powell noted they want to keep some downward pressure on the economy to ensure it cools toward the 2% target.
- "The committee is very much in the mode of waiting to see what policies are enacted": The pause allows time to see the potentially inflationary impact of the new President's policies on immigration, tariffs, and taxes. Just last week, Trump called for lower interest rates, but Powell said he hadn't spoken to the President about those remarks.
4. Next Up: Apple Earnings
Longtime Stock Advisor rec Apple (AAPL -2.15%) will report earnings after the closing bell. Look out for signs of increased adoption of Apple Intelligence, alongside potential revenue opportunities from third-party integrations.
- Expanding digital content and payment options: Last quarter, revenue from the Services division hit an all-time high. Recent pushes in this area, including Major League Soccer streaming rights and hearing health features for AirPods, could ensure revenue stays elevated.
- Addressing issues in important markets: Investors will be hoping concerns around China are misplaced, after December data from the country showed iPhone shipments down 10-12%. A recent shift in moving some production to China to deal with supply chain issues could also be addressed.
5. Foolish Fun
The iPhone accounts for roughly half of Apple's revenue, with Services in second place (around 30%). Will Services one day overtake Devices as Apple's lead revenue generator, and why/why not? Debate with friends and family, or become a member to hear what your fellow Fools are saying!
