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Oracle’s earnings confirmed combined outcomes, resulting in an 11% drop (0:15). Broadcom’s robust earnings overshadowed by warnings of margin pressures (2:30). AutoZone’s miss highlights broader financial challenges (3:25). Airline reduction rally following authorities shutdown (5:30). A streaming bidding warfare (7:05). Nike and FedEx earnings will present insights into client spending (8:45). Explaining market uniformity and fluctuations between pleasure for AI and considerations over prices (10:00). The Fed’s unsure coverage, with a number of dissents (15:25).
Transcript
Rena Sherbill: Brian Stewart, welcome again to a different week of Wall Avenue Roundup.
Brian Stewart: Nice to be right here.
Rena Sherbill: Discuss to us, what are you this week?
Brian Stewart: I believe the largest headliner is Oracle (ORCL) dropped about 11% after its earnings report. Blended outcomes, beat on earnings, missed on income. Had been up seven consecutive periods head into earnings. So to a sure extent, the 11% drop was simply giving again the heightening expectations going into the earnings report. However if you happen to pull again a bit bit and evaluate this to the final earnings report, you type of have a
A story of two quarters happening. So in September, the corporate popped 36 % following its quarterly report. Then the primary driver there was an enormous rise in remaining efficiency obligations. It is a measure of future contracted income. At that time, the RPO was up 359 % hitting $455 billion. On this quarter, RPO was up 438%.
Greater development and reached $523 billion, so a bigger general quantity. So conceivably, buyers must be fairly enthusiastic about this continuation of development. However final time, inventory was up 36%. This time it is down 11%. Additionally, it has been falling off because it popped in that September timeframe. It has been giving again loads of that.
It is now down 40 % since that submit earnings bounce again in September, largely worries about spending in debt. you dig into the outcomes a bit bit. Oracle’s cloud income was up 34 % in the newest earnings report software program income is down about 3%. However then if you happen to have a look at bills working bills for the cloud software program phase, we’re up 45%. So that you see a continuation of the theme we have been seeing the place there was loads of.
AI associated pleasure round loads of these corporations within the wake of saying new offers, getting the orders for the AI merchandise that they are offering, however then a realization amongst buyers of the prices related to constructing out that infrastructure.
So there’s loads of worries round Oracle that it is taking over an excessive amount of debt, its spending is rising sooner than its revenues. And I believe that is been holding the inventory again after the earnings not too long ago.
Rena Sherbill: We noticed some earnings from Broadcom if we stick with that sector. What did you see out of them?
Brian Stewart: Yeah, truly, Broadcom’s (AVGO) a really related story. It rose initially as earnings have been launched. It had fairly robust outcomes and a robust forecast.
Nevertheless, within the convention name following the earnings report, administration warned of margin pressures. It attributed this to a better mixture of AI income. And now as we began recording, the inventory is down about 10 % on Friday. So you might have one other scenario the place robust headline outcomes are being undercut by worries about prices.
So I believe that is going to be an ongoing theme as we see earnings come out, see whether or not or not these corporations can truly get income to to match the prices are being put into constructing out the infrastructure for this.
One factor I might to notice is that this is not utterly restricted to the tech area. One other earnings report that got here out this week was AutoZone (AZO). It fell 7 p.c after its earnings. It missed expectations, although Sandstorm gross sales have been up 4.8 p.c for the quarter that was under expectations after which margins have been harm by inflation, mainly larger prices slicing into it.
AutoZone’s an organization that whenever you see automobiles getting too costly, AutoZone’s an auto components retailer. Once you see automobiles getting dearer, you see folks making an attempt to maintain their automobiles on the street longer, keep away from shopping for new automobiles.
And so to a sure extent, you’d anticipate AutoZone to see a lift in murky financial occasions as folks attempt to get essentially the most out of, you understand, no matter they obtained within the driveway now.
However you are seeing them unable to kind of capitalize on that scenario as a result of their prices are going up. And so I believe it is a broad, even past AI, even behind tech, I believe you are seeing loads of corporations wrestle with the associated fee to income equation.
Rena Sherbill: After which if we stick to the transportation theme, we’re airways. We have got some shares there which were up for consecutive days, up fairly a pleasant quantity.
And everyone is aware of the flying trade has been going incredible. Everyone’s expertise in an airport, on an airline. I do know everyone can take part refrain that it has been actually one thing to imitate and imitate. So clearly these numbers are up, sarcasm included and hopefully acknowledged.
Brian, what would you say about Southwest (LUV), JetBlue (JBLU), United (UAL), all these shares which can be seeing some good positive aspects, Delta (DAL)?
Brian Stewart: A big chunk of it’s simply reduction rally after the federal government shutdown ended. You see the the Jets ETF, which covers the airline sector, is up 14 % because the finish of the shutdown. Mainly, these shares have been going into Thanksgiving with a shutdown taking place, the chance of getting to chop again flights dramatically.
That is the important thing time for lots of those airways to e-book some income through the Hollywood Hollywood, they through the vacation journey a part of the yr. And so having the ability to resolve that earlier than you hit the disaster level in the direction of the of the yr gave an enormous enhance to those. None greater than Southwest among the many bigger airways.
So it is 30 up 31 p.c because the authorities shut down, its at present up for at the moment, which might make its ninth straight day of positive aspects. If it does end larger at the moment, it may be up 13 out of much less 15 days. So that you see a normal meltup within the sector. Southwest, I believe, is getting a lift from its normal turnaround plans. I believe that is why it is being rewarded as certainly one of you understand, spots that within the sector that persons are placing cash.
Mainly Southwest turning into extra of a quote unquote regular airline. They’re altering their boarding sample. There was a narrative earlier this week that they are occupied with having top notch on a few of their flights. So the thought of Southwest is kind of, know, everyone simply type of grabs no matter seat they will is altering.
And such as you identified, the opposite airways are additionally seeing fairly notable development over the previous couple of weeks. So JetBlue up 13 % because the finish of the shutdown, United up 14%, American (AAL) up 15%, after which Delta is outpacing that little group by being up 22%.
So there are locations out there, you understand, with Oracle down, with the overall AI unload assume there’s a bit little bit of fear, type of gloom and doom, however there are pockets the place buyers are discovering locations to make
Rena Sherbill: And is now the time that we discuss Netflix (NFLX) and Warner Brothers (WBD) and Paramount (PSKY) and a bidding warfare. We’re in a bidding warfare.
Brian Stewart: I really feel like we will be speaking about this on and off for some time now.
Rena Sherbill: Fingers crossed, Brian, fingers crossed.
Brian Stewart: Indications are that is good. Indications are that is going to stretch into 2026. You have obtained the bidding warfare itself happening, whether or not Netflix goes to win or Paramount’s going to win. After which you might have the eventual. Antitrust discussions, whoever buys it, I believe.
The sensation now’s that the Paramount bit is a bit more regarding by way of antitrust, however then, you understand, there’s the sensation that the paramount is nearer to the administration. So possibly that offers them a bit simpler time. So these type of issues are going to play out over time. I believe by way of the trade typically, I believe it is a signal that the content material stays king.
And even there’s been a giant push for the streaming providers to get extra into dwell occasions. So that you see issues like boxing on Netflix and also you see, you understand, soccer on varied streamers and issues like that. I do assume that the need for these corporations to get the Warner Brothers property, the studio and the library, I believe it is a signal that there is nonetheless some room for extra conventional films, TV reveals, issues of that nature.
We additionally see Disney (DIS) up not too long ago. Disney had a cope with the OpenAI (OPENAI). So it is one other content material centered firm that is been getting some consideration recently. So I believe you are seeing a resurgence in curiosity within the extra conventional content material producer.
Rena Sherbill: And earnings sensible, theme sensible, what are you subsequent week, inventory sensible?
Brian Stewart: In order we head into the vacations, the tempo of earnings is beginning to flip right into a dribble. However there are additionally some fascinating stuff popping out. Nike (NKE) popping out subsequent week. That is going to present a superb indication of client spending habits. So search for the commentary there.
One other key one goes to be FedEx (FDX), particularly as we begin shifting into the vacation transport season, or greater than transfer into like we’re on the peak of it now. So that you’re to get some commentary from them about how issues look. In order that’s that is going to be an early vacation purchasing sign will probably be what FedEx has to say about that.
After which there’s a few homebuilders, Lennar (LEN) and KB House (KBH) reporting. In order that’s one other key a part of the economic system that I really feel has fallen by the wayside. I imply, a part of the entire affordability dialogue that is been happening is the excessive worth of houses and the truth that you need to be a 50 yr outdated software program engineer to afford a home nowadays.
I really feel like general the housing trade by way of the inventory market has been drastically overshadowed by tech. And so it’s going to be fascinating to type of see what is the circumstances of that market.
Rena Sherbill: And something to say about tech buying and selling so uniformly? Any extra perception to offer there? We have seen it a lot, any phrases to present to buyers about that?
Brian Stewart: Yeah, I really feel like a few of these swings may really feel little arbitrary to buyers as you are wanting on the market in additional informal means.
And I am particularly occupied with what we have been speaking in regards to the Oracle scenario the place kind of related outcomes obtained an enormous pop in September and a decline in December when the subsequent earnings come out.
This type of uniformity that you just’re seeing, I believe it is simply the best way buyers are metabolizing these outcomes. I am making an attempt to think about a pleasant phrase for group assume, however there’s type of a broad consensus that has been shifting between pleasure for the prospects for AI after which an understanding that there is, you need to type of purchase these, purchase that chance with the construct out of the infrastructure right here.
And I believe within the early levels of that, folks have been kind of excited in regards to the construct out as a result of it meant enormous development at locations like Nvidia. However then whenever you begin shifting down the road, someone’s obtained to pay for that. So that you see the Oracles, you see the Metas (META), you see loads of these corporations which can be footing the invoice for all these, the AI infrastructure that is being constructed out. And so I simply really feel like buyers typically bounce backwards and forwards between that pleasure and the considerations that possibly that development horizon is additional out than we anticipate.
Rena Sherbill: It appears similar to me to the hashish trade and likewise the human nature of constructing one thing up solely to later take it down, which features a fierce quantity of hope and construct as much as your level, which isn’t essentially, and I believe it appears to me now oftentimes not, predicated on loads of exhausting numbers, however largely loads of hypothesis and guarantees of anticipated development that doesn’t all the time come to cross.
Talking of hashish, as we’re this rescheduling announcement which may be coming from Trump subsequent week, which has been bandied about for therefore lengthy. So to your level about groupthink and what that brings to the markets, it appears a reasonably robust case of that.
Brian Stewart: I imply, the hashish comparability is fascinating. A little bit totally different in the truth that the hashish scenario is actually type of a regulatory concern, which in a means is much less rational. Yeah, then the market circumstances for AI, at the least these will be kind of predicted in a significant means.
Not that anybody ever will get them precisely proper, however nonetheless, you are coping with legal guidelines of economics fairly than simply no matter goes on in Congress behind closed doorways.
Rena Sherbill: But when I could, I’d additionally add although that tech, at this level particularly, is unquestionably influenced by regulatory pressures and issues of that nature. I imply, China and Nvidia (NVDA) and the chips and all of these various factors, I believe additionally a giant a part of issues and the way a lot jockeying tech is doing in authorities.
Brian Stewart: Yeah, that is a wonderful level, particularly the international commerce facet of it. I used to be occupied with extra by way of the scenario the place Nvidia does not have to fret that it could’t open a checking account in sure states, however yeah, I believe that is a wonderful level.
Rena Sherbill: For positive. There are variations, for positive.
Brian Stewart: That you’ve got these you might have an endpoint, an investor has an endpoint of their thoughts of the place they assume this this firm goes to finish up. However you get so centered on that far horizon that you do not see the obstacles in entrance of you. It’s important to crawl by means of a swamp or over a mountain to kind of get to that time far off within the horizon.
And so I believe there is a kind of a actuality that you just take that step within the swamp and, know, for the primary time your foot will get moist that you just begin to assume, wow, is that this definitely worth the journey? And so I believe that is kind of the complication that buyers are combating.
And that is why I believe you will see these waves of pleasure. And I believe a few of the such as you have been speaking in regards to the kind of group thinker, the consensus investing, I believe loads of it’s type of a FOMO when shares go up, you do not wish to be the particular person left behind when the AI practice actually hits excessive gear. However then you do not wish to be the final one holding the bag if there’s going to be a bubble popping.
So I believe that the actual fact that there is so many conceivable outcomes, at the least within the close to time period, you are speaking, you understand, 2026, 2027. Persons are speculating something from a brand new wave of development for AI is all of the infrastructure is laid and now we will lastly simply hit the fuel on bringing in these revenues to this bubble goes to burst. And your complete economic system goes to get sunk by the cash that is been wasted on AI.
And so whenever you’re coping with these two totally different prospects and every part in between, I believe it is sensible that buyers may bounce round a bit bit of their judgment.
Rena Sherbill: Hashtag human nature, hashtag market sentiment. Talking of group assume and dissenting from group assume, we have the Federal Reserve assembly, which we have talked a bunch about this week on this very podcast and elsewhere on Looking for Alpha.
What would you contextualize for the folks in terms of that assembly? Quite a bit was anticipated, however the dissension is rising.
Brian Stewart: Completely.
I believe this is without doubt one of the most unsure occasions by way of Fed coverage that I can keep in mind, besides throughout kind of an emergency scenario like COVID. However even in a scenario like COVID, you’ll be able to type of predict what the Fed’s going to do.
However on this scenario, we had three dissents for the vote that ultimately reduce charges. And of these dissents, two wished no reduce and one wished a 50 foundation level reduce. So even among the many dissents, there’s not a consensus of the place it is not like there’s two camps within the Fed variety preventing it out. have, you it is not even three, you you have a number of folks with a number of visions of what is going on to occur within the close to future.
You type of land on a consensus, however I believe it is papering over. And I believe it makes it tough for buyers to type of predict the place rates of interest are going to go. The overall consensus now’s that rates of interest will be comparatively secure in 2026, the dot plot that got here together with the the Fed announcement.
The consensus was for one reduce in 2026. That is roughly in keeping with what markets are saying. Markets are saying mainly a 32 p.c likelihood of two cuts in 2026, 24 p.c likelihood of 1 reduce. So mainly between 25 foundation factors and 75 foundation factors decrease sooner or later in 2026.
You additionally see inflation staying type of stubbornly above the two % goal in 2026 and possibly coming again to the place folks wish to be within the 2027, 2028 vary. So you are still wanting two years, possibly three years to type of win the inflation struggle that is taking place.
However you might have an financial scenario the place the notion appears to be throughout the Fed that the economic system’s too fragile to maintain charges excessive for any significant time period. So, you understand, you are simply going to need to win a warfare of attrition towards inflation, which is tough for shoppers who’re already apprehensive about affordability, who’re already beginning to put again their spending.
That is the circumstances which can be coming into play. After which subsequent week, we will begin getting the updated, extra present financial information. So we will lastly get the November jobs report in the course of the week subsequent week. And we will get the CPI report in the course of the week subsequent week.
So we will begin to begin to catch as much as the place we have been by way of incoming information earlier than the federal government shutdown. In order that’ll give a bit bit higher actual time info. I imply, it is all the time a bit backward wanting, however extra actual time than it has been.
As we go into the vacation season, you are gonna see quantity drop, you are gonna see possibly room for extra swing. Quiet on information, however possibly a bit jumpy by way of inventory motion.
