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Defense contractors. With an increasing military budget, there's increased scrutiny. We march through this week's earnings from the biggest names on our radar. Metta commits to its AI spend. Tesla is switching gears. We look at what's driving swings in the tech sector. And Starbucks, it's frothy and not just the milk and its cappuccinos. I give you my full report from a morning spent at the coffee chains Investor day. But Thursday, January 29th, it's Brew Markets daily. Diamond Berry Foreign. Details to come. But first quote, reclaim the third place quote, be the world's greatest customer service company. Well, a green aproned lady handed me a steaming cup so I could sip on 1971 roast as I listened to all this. The next sound bite, if you walk in and it's a soulless place or it's empty, you don't feel good about your cup of coffee. That was Brian Niccol speaking and it's right. Absolutely, a correct statement on that front. The question is, do Starbucks shareholders feel good about their stock? Well, CEO Nicol is certainly working hard to persuade them that they should feel good about it. Since his arrival in September 2024, he's been busy pushing a turnaround strategy for the then sluggish Queen of Seattle. In the playbook dubbed Back to Starbucks, Nicol brought in as his chief brand officer Tressi Lieberman and his chief operating officer Mike Gr Grams. Now both had worked with Nickel at Taco Bell where he was credited with rejuvenating the fast food brand. And together Liebenman and Grams are critical for executing on Starbucks's sustained return to growth. Well, about a year after getting the band back together today Nickel and his team headlined in the Coffee Makers Investor Day in Manhattan, unveiling the future look and feel of Starbucks to a hall full of Wall street analysts and journalists and well, me, well I was on location at the glasshouse space and the team over there gets top marks for production value. I mean it looked really good. It was incredibly well organized. And at 7am fueled by a custom hot Starbucks beverage, I joined with a bevy of journalists as we were unleashed into the Starbucks Experience hall which was literally a mock up of installations of chic smaller square footage coffee houses decked out with Crate and Barrel furniture and also limited edition merch, including some that's co branded with a Stranger Things and a Harrod Potter and other entertainment franchises. Now there were gleaming Milan inspired Mastrina coffee machines that accelerate espresso shop production, showing that efficiency can be beautiful. There were point of sale systems infused with smart logic to help predict a customer's order. There were AI powered tablets that are currently in store helping teams with instructions if for example they ask it how to clean a piece of equipment. And that will soon provide inventory and operational data as well. Now all of this is on delivering to partners. That's what they call the store associates and as a result to customers an elevated experience. And the reason that this is top of mind for the Starbucks team is that 60% of Starbucks customers actually still go into its stores. There's a lot of fanfare if we think about it about drive thru, that gets a lot of buzz. But 60% of Starbucks customers still go into the physical space and that even excludes mobile order which you then go and pick up. Well, the company really wants these folks to return more often. And that's because 60% of 2025 revenue was attached to members of the Starbucks reward program. Just showing the power of loyalty. And as a result, Starbucks is unveiling a new loyalty program with a bunch of different tiers launching in March to keep folks coming on in. Well, as I said, it all looked absolutely fantastic. It was very jazzy, it was very well orchestrated, the presentation sounded great, I was really, really impressed. But as I my focus on trying everything out and trying the beverages and walking through the cool custom mock up spaces and listening to the team speak, I of course was keeping one eye on the Starbucks share price and I just kept watching it tick down as the morning of content and experience continued. Now this sort of mirrors the overall lukewarm market reaction to earnings that came about yesterday. And that's when Starbucks reported on the one hand a miss versus expectations on earnings per share. But on the other it did clock up 4% in global same store sales growth for the most recent quarter, which was actually good news, the second period of solid revenue news given how sluggish things have been historically. And so what we saw in the back of that was an initial share price pop, but actually Starbucks stock closing down ever so slightly for the day. So here, and this is just one person's views, my opinion is the issue. The beautiful design outlook and the investment in customer experience is expensive and I mean very expensive. About two and a half $3 billion of investments last year alone in that capex spend probably going to go up. And all of this is to target CEO Nicol's fiscal year 2028 framework which is about a 5% total annual revenue growth target and about 150 basis points of operating margin expansion. So more profitability, which means that if you look at where the stock is trading now, it looks pretty fully valued at around 20 times EBITDA. That's a measure of profit and a more than 30, 35 times price to earnings ratio which is pretty middling growth for a stock that has really shot up there in terms of its share price performance. So again, just one person's view. The green shoots may be gleaming again. They were beautiful. They were gleaming today. But the market really does need the roots to take hold and be visible for the share price to have another catalyst we're to keep on watching. Still to come, orders are up and now the pressure is on for defense contractors to deliver. We jet through earnings results from some of the biggest players. But first a word from our sponsor, iherb. So John, do you take supplements?
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Do you count gummy vitamins?
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They do. And do you know where they come from?
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Well, I know they don't grow on trees, but beyond that, I have no clue.
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Well, that's why IHERB buys direct from manufacturers and trusted distributors to ensure authenticity. No third party resellers allowed. You can find nearly 2000 brands and tens of thousands of products to choose from on iherb.com what you won't find hidden membership fees. They make wellness accessible globally, shipping to over 180 countries while accepting 80 plus currencies and more than 40 payment methods.
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Plus their eye tested products are continuously tested for purity and quality standards. Go to iherb.com that's iherb.com defense stocks.
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We are going there. Do not let your eyes glaze over. I know it's tempting. There's tons of jargon and quite frankly, frankly some people just find the whole, the whole topic to be uncomfortable. But it is an incredibly important sector for the following reasons. It's employing hundreds of thousands of folks, so a lot of jobs attached to this sector. It's supported by our tax dollars. Don't forget the US Government is the major client for this sector and that is funded by the taxpayer. And the other thing I would just say is if you actually look back over time, if you look over history and you see where technological innovation has come from, quite a lot of it has come to support defense sector and ultimately has translated into applications to other industries like healthcare. Just to pick another example. Well, about those tax dollars. Earlier this month, President Trump announced plans to raise the fiscal year 2027 defense budget to a record $1.5 trillion. That's a roughly 50% increase from the about $900 billion proposed for 2026. Well, four of the biggest defense contractors announced their earnings this week. So John and I, we're going to whiz through their highlights with a little bit of role play. We're each going to take turns representing one of the major players. And if you've got a visual, we're going to talk through it. Talk it through. You're not going to miss out if you don't have a visual. But if you do, we have got the tickers of these names on stickers and we're going to hold them up so you can keep track of it all. So John, start us off right now. You are Lockheed Martin.
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Hello, I'm Lockheed Martin and my ticker LMT is on my sticker. I'm on the New York Stock Exchange market cap of on $147 billion. Stock is up 39% over the last year and adjusted earnings came in $5.80 per share in line with estimates revenue of $20 billion beat estimates. And a little bit about myself. I produce many products across defense, but for today I'll focus on aeronautics business. Think tactical aircraft like the F35 missiles and radar. And I'll start with the good news. And we gave guidance that sees a small expected growth in revenue this year propelled in part by a new missile deal with the Defense Department. Lockheed is slated to quadruple our production of terminal high altitude area defense inceptors from 96 to 400 per year. We're talking about missiles that can operate in the upper atmosphere. Now missiles are an area to keep an eye on in general. One of my Fellow Defense Contractors, L3Harris just announced that it's going to spin off its missile business with with $1 billion in backing from the Pentagon. And the idea here is that the separating missile units out could accelerate production and increase agility as Lockheed. I'm paying attention. Now we have to talk about the risk in our F35 program which accounts for 25% of our overall business. With a growing push towards lower cost drones, the future of manned fighters is up for debate, at least among investors. So it's one of the reasons the majority of analysts have a hold on my stock.
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That being said, Lockhee Martin, congratulations, you closed out up towards 620 bucks while we're waiting for the close. But you're up there towards 620 bucks, which would mean 25 bucks up on your share price today. We'll see how you end up closing out. All right, it's my turn. Producer JOHN I am going to be General Dynamics here is My ticker on my sticker ticket GD on the New York Stock Exchange market cap $95 billion. Stock up 40% over the past year. Now, my earnings came out yesterday, just beat estimates on an earnings per share basis at 4 bucks 17 per share. On the revenue side, I blew past estimates, beating estimates by over $500 million with revenue of $14.4 billion. So who am I as General Dynamics? I'm a defense contractor with a focus on shipbuilding. Think nuclear submarines. And I've often actually this night I am speaking, I've actually taken the train through Connecticut and sort of seen where quite a lot of this happens because our executives at General Dynam Dynamics talk quite a lot about our shipyards.
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Right?
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And we've actually been reporting greater productivity of those, especially at electric Boat, which has been operating out of Connecticut for over 100 years. The highlight of my quarter was that revenue from the marine systems segment jumped 22%. Very attractive growth. While the past few years we've increased investment in submarine output. Clearly it's paying off with submarine tonnage up 13% year over year. And just looking back in 2025, we've been very busy with Virginia class subs, including the USS Idaho and the USS Iowa. I got to get that right. My partner's from Iowa. He's going to make sure that I'm saying that correctly. We've got plenty of Navy contracts ahead ending 2025 with a whopping backlog of just under $180 billion, up 24% year over year. Majority of the analysts saying that I' some still waiting to see a couple more quarters of executed growth to be able to bump out of that hold rating.
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All right. And an I am rtx, formerly Raytheon ticker RTX on the New York Stock Exchange. I have a market cap of $269 billion. The stock is up 60% over the last year. And earnings that came out on Tuesday were $1.55 per share, which beat estimates and revenue of two $24 billion. Beat expectations by $1.5 billion. Really blew out expectations there. I make the names that, you know, the Sidewinder, the Javelin, and that's in partnership with Lockheed Martin and the Tomahawk cruise missiles. All these things from Tom Cruise movies. I'm highlight one part, which is Pratt and Whitney. That's where we specialize in advanced propulsion systems for airplanes and helicopters. Even selling to lockheed for the F35. And in the last quarter, sales were up around 25%. Operating profit up 53%. There's strong demand for engines and aftermarket service for them and General Dynamics. I heard about your backlog. I ended 2025 with a backlog of $268 billion with 107 billion coming from defense contracts. But here's the important part. On the earnings call, our CEO Chris Calio emphasized investments in capacity and capabilities to execute on that backlog because we are under fire from the president. Just two weeks ago, Trump signed an executive order that could restrict defense contractors ability to pay dividends and conduct share buybacks if we don't deliver on time and on budget. Specifically, he criticized me, rtx, for being, quote, the least responsive to Pentagon needs. So I've been known in the past as a huge repurchaser of shares, especially over the last five years, a serial buyback company. But not this time. In this past quarter, we announced that we are not doing any buybacks.
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So before we go on to the last one, just a quick comment on that executive order that could restrict defense contractors ability to pay dividends. One of the other pieces there that President Trump, you may remember, Producer John, or maybe I call you RTX, was that the Trump called out defense company CEOs pay packages. Do you remember this? And so there was a lot of consternation that not only would there from a shareholder perspective be restrictions placed on returning cash to shareholders through buybacks and through dividends, but perhaps also there could be a move on talent in the industry if indeed there were going to be pay package restrictions. All right, the last one coming up. I am now Northrop Grumman. Here is my ticker on my sticker, that is ticker NOC on the New York Stock Exchange market cap $98 billion stock up 44% over the past year. I had a good day today. I touched my intraday 52 week high this morning and that is continuing the moment that I saw on Tuesday. I beat estimates $0.25 above estimates on an earnings per share basis coming in at 7.23. It's a pretty decent beat on the revenue side. Came in at 100 million more than expected. So not as big of a beat as some of my peers and some of my competitors. But I did hit revenue of just under $12 billion. My focus areas are aerospace, so that's stealth and sensor systems and rtx. You do not get all of the brand name products. I, Northrop Grum, famously manufactured the B2 stealth bomber and the F35 that we keep talking about. And my sensors and systems help these aircraft see and communicate. Operating profit guidance has been solid. We expect to make about $4.9 billion this year. And key to that guidance is the accelerated production of our B21 strategic bombers. Now, a large part of the budget package that was approved by Congress in July last year included $4.5 billion allocated specific specifically to expand production capacity for the B21 program. Well, on the earnings call this week, our CEO Kathy Warden emphasized that we continue to work closely with the United States Air Force to increase production rates, and we finished 2025 with a record backlog of over $95 billion, rather like everyone else. And so we're trying to up our delivery rates full year. Outlook, though, landed a little bit short of Wall Street's consensus, expecting sales to jump 5%. Analysts were expecting a little bit more. So rol, we had points where we were kind of flattish overall in our share price. Well, that was our quick whiz through the defense sector. It's interesting when we get folks writing into us asking which stocks to cover and to get some answers out to people, we don't see a lot of people asking about defense stocks. So we wanted to shine a bit of a light on it because just given the policy directions coming from the White House, the sector is going to get a lot more coverage and be in the headlines a lot more in coming weeks and months. We know that the one that we didn't touch because the earnings aren't out yet are with respect to Palantir. So is that a defense company? Is it a software company? It's doing a lot in commercial enterprises as well as continuing to grow with defense contracts. We're going to be watching out for that one for sure and reporting and Palantir when its earnings are out. Well, when we come back, a spin through the headlines that move the market today. Public.com just launched generated Assets, which helps you turn any idea into an investable index. With AI. Start with any prompt, say renewable energy companies with high free cash flow or semiconductor suppliers growing revenue over 20% year over year and it'll get to work.
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Just head to public.com brewmarkets to see it in action. That's public.com brewmarkets paid for by Public Investing.
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Full Disclosure in Podcast Description this episode.
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Is brought to you by State Farm. Listening to this podcast Smart move. Being financially savvy smart move. Another smart move, having State Farm help you create a competitive price when you choose to bundle home and auto bundling. Just another way to save with a personal price plan like a good neighbor, State Farm is there. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings and eligibility vary by State.
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It's 4pm on the east Coast. The market's finally wrapping up for the day. There's the closing bell. We don't have a ticker tape, so we'll throw it over to our human ticker John.
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The S&P 500 finished down a tenth of a percent, the Dow was up a tenth of a percent and the NASDAQ finished down 7.10of a percent. Some market headlines let's start it off with Microsoft ticker MSFT. Shares of the technology giant fell nearly 12% this afternoon after the company reported mixed fourth quarter earnings. Business services and intelligent cloud revenue beat but personal computing missed.
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Well, the big disappointment and quite frankly what spooked the market today is with respect to Microsoft's Azure, slightly lower revenue than the prior quarter. But what really got folks is that that decline in revenue growth was off the back of huge capital spending, as we all know, by Microsoft. That was fact number one. One. Fact number two that got the market's attention is that open AI. Don't forget Microsoft had been an investor in open AI at scale and there were questions around is Microsoft too closely attached to open AI when it comes to the whole generative play? Turns out that OpenAI now represents about 45% of RPO. That's a measure of the company's revenue backlog. Too high a percentage for some part of the market's liking. We're going to keep on watching Microsoft. That was a big mover that moved the market with it today. Today, Tesla let's talk about Tesla. We haven't talked about Elon Musk for a while. The company did beat Q4 earnings expectations, but the share price did tick on down 3% today because car sales were lower. Elon Musk announced it will end the Model S and Model X vehicle programs and instead it looks as though Tesla is continuing its shift towards other business lines. Investment in growth is going to focus on Tesla's Cyber Cab driverless vehicle and strikingly, the Optimus humanoid robot. Well, Tesla plans to spend roughly $20 billion to build out its AI ambitions in 2026. And just to put that in context, that is much, much more than its typical annual capex of under $10 billion and Wall street had projected 2026 capital spending of about $11 billion. About half of what has been announced is actually going to be the case. That was before last night's report. Tesla incidentally also agreeing to invest about in Elon Musk's ex AI startup. We called it on the show. We said here we think there's going to be a convergence in investment in the many different businesses that Elon Musk touches. I suspect that's not going to be the last we hear of that particular storyline.
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And a big result today. The market seems to be getting behind Meta's AI spend. The stock was up over 10% today at points despite providing 2026 capex guidance of between 115 billion and 135 billion. That's up from the 72 billion Meta spent in 2025.
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So very interesting. Now we are really seeing the market start to vote with its money. So just to break down and summarize a little bit what we just covered that is Meta getting a voter confidence. The market saying your share price is going up even though your AI spend is going up because fundamentally the market's saying we believe you can deliver on it. Microsoft not getting the benefit of the doubt folks saying your concentration with OpenAI a little bit too scary for us and we need to see growth in Azure to pick up if you are going to be spend spending this much on AI infrastructure. So we're going to keep seeing this, we're going to keep on watching. Well, just as a final thought, I'm very excited about this. This morning Nasdaq, which you may recall is a publicly traded company, released its Q4 earnings reporting at just under a dollar per share in earnings and $1.4 billion in revenue, beating expectations, sending its stock up nearly half a percent. And that is a reminder that that the stock exchange that we know Nasdaq to be is a publicly traded company. So we wanted to flag those results. But also it's really timely because I'm thrilled that tomorrow on this show I'm actually going to be at the Nasdaq in Times Square sitting down with its vice chairman Bob McCooey. We're going to discuss his view of the IPO pipeline for 2026. Why in a virtual world, Nasdaq has decided to open a new physical location in Dallas, Texas. I'm also going to pick his brains on Walmart. Why did it move away from the New York St. Exchange to Nasdaq? What's going on with retail investors and so much more. That's Bob McCooey on tomorrow's show. That's it for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry and produced by John Coteau, Tarka Delatif and Emily Millarn. Our technical director is Lonnie Fiskus and the president of Morning Brew Inc. Is Devin Emery. If you have any feedback or a company you'd like us to COVID leave a comment or send an email to BrewMarketShoworning Bukom.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.