Brian Stewart, director of news at Seeking Alpha. Welcome back to Wall Street Breakfast. Great to have you as always. Thank you. Great to be here. I suppose the obvious place to start is AI deep-seek. Yeah, I don't think you can get away from it. If you had to sum up the market in the last four or five days, I think deep-seek would be a great one-word way to do it. If you're going to do two words, I would say deep-seek and earnings, but otherwise deep-seek has dominated
The story in a nutshell is Chinese company DeepSeek launched a competitor basically to open AI and those kind of products. However, it uses less cost to produce the outcome. There's less infrastructure built in. So the worry is that the future of AI in terms of the build out of the infrastructure
for that computing might not be as heavy as people were betting on. So stocks like Nvidia was down 16% in the last week. Arm and Oracle, who we talked about last week as being part of that Stargate AI project, and we're up very much last week on that, gave that back.
In a good degree, this past week, ARMS down 18% and Oracle was down 12%. So there's just a worry that with a new competitor sort of changing the landscape for AI development, and that's changing the investment thesis for some of these bigger companies. Is it to be determined still? Do we have a sense of where this is really going to go? Or is it mostly speculative at this point?
Yeah, I think it's mostly speculative. There's some doubts about DeepSeek's claims as to the more nimble infrastructure that it uses. Elon Musk has a prominent figure came out and pushed back on the claims that DeepSeek was giving. So it's definitely kind of wait and see, but it threw up a red flag.
for a lot of these companies that have already run up a lot on AI speculation. And you and I have been talking about sort of the last few weeks that when you invest in AI, you have to think about it in the long term. And it's going to be an evolving process. So there's going to be an AI 2.0, an AI 3.0. And as we look over
say a 10 year time horizon, I think investors are going to have to be kind of nimble if they're going to be stock pickers and move around as the market changes. Or another strategy would just be try and stay diverse within the sector in making sure that you're making a lot of bets.
Yeah, I feel like our last episode was quite prescient in the sense that it ended on this note of where to look for the next kind of play in AI. And here comes this huge story the following week. And I think for me, one of the biggest takeaways is do not get your news off of somebody else's headlines.
be that a major media corporation or a Twitter person that you follow or an X person that you follow when you say that's a big takeaway because there are so many I would say uneducated prognostications based off of this news. Would you agree with that?
Yeah, I agree with that completely. And I think what you're saying is interesting, because DeepSeek, the sort of catalyst itself kind of came out of nowhere. It's not something that you or I predicted last week. But what we were able to predict is just things will change and things will be different. So, you know, sort of like an insurance company, you know, they can't predict whether you're going to have a car accident, but they can predict that a certain number of people will likely have a car accident.
among the clients. So I think that that's the way that investors have to think about it is instead of trying to sort of pinpoint exactly what's going to happen, you sort of think about it in probabilistic terms and just be aware that the landscape is going to change. And as you point out, when you're dealing with a
fast changing environments, there's gonna be fake news out there that you're gonna have to wade through as well. So I think there is sort of a credibility premium as investors look for information.
Absolutely. Information and understanding, which I think we're sorely lacking. I think there's such a tendency and a propensity, especially now, though, you know, at the risk of being a grumpy old person, but it does feel especially to this present moment that it is not in fashion to seek and go deep for a play on words in terms of thank you very much.
in terms of understanding something as ever developing and as fast developing as AI. So just I've seen so many things tossed about and most of them not correct or most of them half correct or in one moment in time correct but tomorrow won't be. So pay attention folks and stay educated.
The other thing that I wanted to mention that I picked up this past week and you mentioned Elon Musk and Tesla's been in the news this week and indeed they did report earnings. I wanted to get your thought before we dive into their earnings. I was talking to a Tesla owner this week and the whole notion of EV subsidies being taken away and the EV market probably going down under Trump's administration. And what does that mean for Tesla? And what does that mean for Musk?
But really, that probably means better things for Tesla because the people that are buying Teslas are going to continue to buy Teslas, whether or not there's EV grants or what have you. Interested to hear what you have to say about that point and Tesla in general.
Yeah, I should have if we're doing a three word description of last week, deep seek earnings in Trump as the three kind of figures. But I agree with what you're saying in broad terms, the brief sort of pause in federal spending and then having that lifted and that's still being sort of a controversial topic that's going to be debated going forward. Clearly,
government policy is going to have a thing to say about stocks and business and the economy in general. I think your point about Tesla specifically is a good one. I think if you were to look at Tesla, the long-term Tesla story, like going back to how it became sort of an American icon and how Elon Musk sort of shot up the ranks of world's richest people,
I think what he was able to do and what the company was able to do was turn Tesla into a brand instead of instead of selling electric cars as a concept, he was selling a particular vision of electric cars, sort of a premium model. And a lifestyle and like a tech forward vision. So it wasn't like I'm just going to drive the same old car that I always drive, but it's going to be electric instead.
They parallel park for you for God's sake. Which is better than the electric part, really. But of course, that comes with challenges. I mean, there's been complaints about how hard they are to maintain. It gets expensive. You can't just take it to your uncle. The mechanic can't just get under the hood.
and fix it. And when something goes wrong, there's reports of the car breaking and things like that. So there's pluses and minuses to the strategy that they've chosen, but I do think in the context that you're describing, one of the upsides is that they have
a pitch to consumers beyond just you're going to get help from a government to buy an EV. There's a value in the brand itself the same way any luxury brand like a Porsche, Lexus or whatever is going to bring a cache to people who buy it. So I do think that when you're looking at the EV market, I do think that it creates a moat for Tesla that other cars might not have.
And yet they were down in the past week. So what did they announce in earnings? How did the market respond? And what do you think contextually about what they announced? So Tesla going forward, I think is as an investor, you're kind of looking at the reality of the operations now versus sort of the promise of what it's working on.
in the future. So the company had EV revenue, below expectations, their operating profit declined. So in terms of just sort of the nuts and bolts of what's been going on, cars being made, cars being sold, it was a disappointing quarter. But the company in its earnings report is touting the projects that has been touting for a while now. Tesla talks to the market. They don't really talk about EVs much anymore. They talk about robot techs. They talk about AI. They talk about
the humanoid robot, they talk about self-driving cars, all those sort of future tech that they're working on. So when you're betting on Tesla, I don't know that you're betting on a car company as much as tech startup tied to a car company. And so as an investor, you're going to have to kind of judge where you're at in that spectrum, how much you're sort of buying into the promise and how much you're kind of looking at the fundamentals. And I think with this,
Earnings report, the fundamentals kind of took the front seat as it were and brought the stock down a little bit, but you also remember Tesla still up dramatically since November. So, you know, this is sort of a coming back to reality a little bit based on the sort of bats on the future.
So in terms of earnings in general, we talked about a slew of names last week. There's still more to come. What do you think are the names that are most important to highlight on either side, having reported already or still yet to report? Go crazy.
I mean, in terms of backward looking Starbucks had a big pop after its earnings is up 11% in the last week. That's basically a turnaround story. The company had hit a swamp, a bit of a morass. And so the earnings themselves weren't particularly impressive, but commentary kind of around the earnings is convincing analysts and investors that they're on the right path to sort of bringing that company back to growth. And so that was sort of the response there. And then meta was another big name.
that reported in the last couple of days. What's interesting about meta is it's only up kind of fractionally post earnings. The earnings was a little bit of a mixed bag. Guyus was a little light compared to what people were expecting, though the previous quarter was pretty stellar in terms of the actual numbers that they put out.
But the SOC was up eight days in a row headed into the earnings report. And so it's up 9% overall in the past week, even though the response to the earnings has been pretty muted. But it is also holding those gains. So investors had a lot of promise going into that report. And that seems to be played out in it. There's not really a disappointment coming in.
And then as we look to the slate next week, I think kind of riffing off of Tesla forward is reporting next week. So that's sort of the next big sort of EV.
data that we're going to get. We're going to learn. There's been a real tension in, I'd say, the past year or so between legacy automakers and their EV strategy and sort of the up-and-coming EV startups, especially out of China, and whether or not the legacy carriers are just not able to compete with the more nimble companies. And so I think Ford will give a
a good sense of what's going forward. And then otherwise Amazon is on the slate. AWS is going to be the main thing to look for there. That's kind of the driver of growth at the company. And so see whether it's holding market share versus competitors like Microsoft. And just whether the valuation has kind of outrun this, that's one knock.
on the company is valuation. And then we also have Alphabet, sorry, Alphabet is reporting next week. The positives there people are looking at is the AI progress that they're making plus YouTube is another growth driver there. The downsides are the monetization path for AI is kind of unclear still. So look for the company to give guidance in that direction. Maybe not guidance in terms of numbers, but guidance in terms of what their AI vision is.
I think coming out of Alphabet's earnings, probably going to be looking more for the commentary and the discussion of what's on tap rather than the actual numbers, assuming that the numbers come in within reason.
Kim Khan gave a robust breakdown of the Fed meeting this week, but I still feel like it would be remiss for us not to discuss in some way. There wasn't much surprise. There was no cut. What else would you highlight about the Fed meeting this week?
Yeah, it's kind of interesting. You and I've talked about earnings and deep seek and Trump's policies and things like that in a week where there was a Fed meeting. So the fact that the Fed is sort of dropping down. Yeah. But I think it is because that everyone expected no cut this time around. It was as close to 100% as I think it's ever going to get in the lead up to that.
The only sort of noteworthy thing coming out of the Fed announcement is if they drop from their statement, the commentary that was in the previous statement that we are making progress towards the 2%. Inflation target, the idea that the Fed no longer thinks we're making that progress is news itself and that kind of gave the market a little bit of a shudder.
In response to that, the chances of there not being another cut in the March meeting has jumped to 82%, so that's becoming sort of baked in to the market. Just to give some context, that was at 3%, the interest rates would be at levels they are now at the end of the March meeting. Back in October, that was at 3%, so we've seen over the course of
What is that like four or five months going from 3% to 82%. So that's just like a huge shift in the market's view of interest rates. If you look at 2025 as a whole, there's only a 10% chance that there's not going to be any cuts at all during the year that's down from 15% a week ago.
The odds that nothing is going to happen this year actually going down, even as the expectation of when those cuts are going to happen, it kind of pushed out. So basically, there's a consensus forming that sometime in sort of the May and June period, we're going to get one rate cut and then probably another rate cut again a little later in the year. So maybe in the October.
timeframe. But I think the thing to keep an eye on is just the expectation, again, that there's not going to be any cuts this year, I would watch that percentage and see if that moves around a lot. And then if ever there's an expectation of a rate hike, if ever that starts to peak into view, I think that would be a major shift in market opinion. For next week, one thing to keep in mind is the jobs data is going to be out on Friday. So that's the next sort of
as you're looking at Fed policy, the thing that could affect it. And then in terms of earnings, they're just some interesting, slightly under the radar, given the shadow of companies like Amazon and Alphabet. But there's going to be a few large pharma companies reporting. So Merck, Pfizer, Lily are all coming out next week.
That's something to keep an eye on. Insurance companies, Aflak and Allstate are coming out. So in that sector, we might get some commentary about the impact of the California wildfires. So that's something to keep an eye on. And then I think just in terms of like the general economy, I think PayPal's earnings might be interesting. They obviously, the payment volume that they see is useful.
as an indicator of sort of commerce in general. So even if you're not interested in PayPal as an investor in that particular company, I think that checking in on those numbers could be a useful economic indicator.