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Bold Earning Season Predictions
00:21:27
Get excited…today is the first day of earnings season!
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- [00:05]
inchacvaloo
Get excited. Today is the first day of earning season. Motley fool money starts now. I'm an inchacvaloo and I'm joined by two of my favorite fools, Emily Flippen and Jason hall, to kick off earnings season with some big banks giving us a feel for the economy. We'll also give you the skinny on crypto week and we'll have bold predictions on earnings season. Plus, we're bringing on a bonus fool also one of my favorites, semiconductor expert Jose Najaro, to talk about some hot Nvidia news. But first, we had a fresh inflation reading this morning. June's consumer price index ticked up to an annual rate of 2.7%, up from May's 2.4%. Emily, what were your takeaways?
- [01:00]
Emily Flippen
Well, if you thought you could have a peaceful Tuesday with no bad news, think again. Obviously, inflation is heating up here a little bit and I think we're just starting to see some of the impacts from tariffs as those price increases and core goods start to become more tangible as opposed to theoretical. We had this really big front loading of inventory that happened at the beginning of the year as businesses started stockpiled in anticipation of tariffs. And those are beginning to diminish, which I think is making it harder to protect products from rising costs. And we saw that in core goods inflation. Those includes things like basic necessities like apparel and household products that accelerated last month. But the good thing is, and the silver lining to our Tuesday here is that this is a gradual acceleration. You know, we're not talking about anything that's incredibly dramatic. Those numbers at 2.7%, that's an annualized rate. So we're not talking month over month here. No need to immediately panic. But I do think this could have some overarching implications for what we're likely to see in future earnings season, both coming up in the next couple of weeks as well as towards the end of the year. And it just makes me want to pay attention to what leadership's going to be commenting on because how this trickles down for consumer spending and how much prices are able to be passed along versus the impact to companies bottom lines. That's really going to have a wide reaching impact in the later half of 2025.
- [02:18]
Jason Hall
Yeah, I think wide reaching is a good way to put it. And just looking at what the markets are doing today, the s and P500, which, I mean, let's be honest, that's indexed to gigantic companies, is down about a quarter of a percent. But if you look at the Russell 2000 that's small caps, it's down like 1.3%. So you kind of see where investors are seeing the potential impact of inflation on the companies that are most directly affected by it and what they're looking forward to and seeing, if we're being honest, is really going to be driven by the tariff story. That's still the big story in the background. If we look at May, we saw a massive increase in imports as companies tried to pull a pull forward inventory as much as they could. Then a big back in April I should say, and then in May it came down quarter over quarter, but May imports were still well up from where they were year over year. So maybe some of the concerns about empty store shelves later in the year maybe aren't as likely to come to fruition as, as a lot of investors have been thinking because that would be a big thing that would certainly drive a lot of inflation. By the way, all the data hasn't been reported yet, but June traffic at the port of la, it was a record level for that month. So I think the market broadly is looking out and saying, hey, I don't really know if the, what we're seeing with the inflation that could be driven by the potential of the tariffs is going to be as bad as we think. But at the end of the day, what's the investor takeaway, guys? Peter lynch probably had it right when he said if you spend 13 minutes on economics in a year, you wasted 10 minutes. These things affect us in the real world. But as investors, I think our time is still just better spent looking for strong, durable businesses with those great long term tailwinds. We start focusing on macro. What happens? We're reacting based on what our own biases and inclinations are. If we give our our emotions control of our portfolios, that's never the right decision.
- [04:14]
inchacvaloo
If you do the math on Peter lynch, that's about. You spent three minutes on macro, that's about what we did, give or take. We'll be back with some news about Nvidia and China after the break.
- [04:27]
Jose Najaro
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- [05:38]
inchacvaloo
Jose, you've covered semiconductors before it was cool to cover semiconductors Today we've got some news on Nvidia and China. What's going on?
- [05:48]
Jose Najaro
Yeah, so pretty exciting news for the overall semiconductor industry today. The stocks in the semiconductor space are up roughly 3, 4, 5% depending on what stock you're looking at. But the CEO of Nvidia recently made a trip to Beijing and met with a few government and industry officials there. While he was there, he did provide update to customers, noting that Nvidia is going to be filing applications to sell the Nvidia H20 GPU again to that market. And they did assure Jensen assured that the US Government has assured Nvidia that the licenses will be granted and Nvidia hopes to start deliveries there pretty pretty soon. So just a quick kind of backlog of what happened on April 9th of 2025 during this was still part of Nvidia's quarter one earnings. The US government issued a new export restrictions on the H20, which is an AI chip meant for the Chinese market, and that they could no longer ship to that region for that one quarter. And those few weeks that the export restriction affected, the company lost roughly $2.5 billion in revenue. And then when they gave guidance of quarter two they mentioned due to these restrictions they were losing about 8 billion billion in revenue per quarter for a full quarter. So now that you have this new entrance of this market, you can at least potentially see at least $30 billion added on revenue, not seeing any growth rates per per year for the overall AI GPU space in China. So a lot of companies are excited. This also did trickle down to a little. Some other companies AMD also had similar export restrictions and they did respond to to similar comments that they will also be looking for these license approvals for their chips as well.
- [07:29]
Jason Hall
I mean this is not exactly the same thing as Richard Nixon going to China in 72, but Jensen Huang going there in person. It's a reminder of how important China is for the semiconductor industry writ large.
- [07:44]
Jose Najaro
Very important. And it also showcases how we want to have this AI Technology being run on American technology. We don't want it run on any other from, from other countries. It's coming from Nvidia, which is a US based company.
- [07:58]
inchacvaloo
So this is all very clearly positive news. Is the $4 trillion in market cap for Nvidia a buy, a sell or an index for you at this point, Jose? Index means you just stick with whatever allocations in a broad based index fund which with a $4 trillion market cap is pretty sizable at this point.
- [08:19]
Jose Najaro
Yeah, for me it's definitely more in that index position. I'm not looking to add any more to my portfolio. Obviously there's a lot of growth opportunities and that's why I'm willing to hold. But obviously you could see plenty and plenty of short term tailwinds that could create volatility. So for me it's a perfect index play as you mentioned. Pretty much just hold and ride this AI wave.
- [08:37]
inchacvaloo
It's a jam packed day. Let's move on to the story I thought we'd lead with. We had three of the major banks report earnings this morning. That's JP Morgan, Chase, Wells Fargo and Citigroup. As bank lending goes, so goes the economy. So Jason, what are the banks telling us about the economy? I know Jamie Dimon must have some thoughts.
- [08:58]
Jason Hall
He always has thoughts. The godfather of the US banking industry and a little bit of a perma bear at times. When things are going very well, he's very bearish. He does get a little more optimistic when things are a little bit questionable. But what I really saw this quarter was there's less of what management says and then there's what the businesses did and then what management is doing, thinking about the businesses. And overall, you know, again JP Morgan, Wells and Citi, the results were fine. Again, that's looking backwards though. The one thing that we can look at that gives us some indication of what management is acting on going forward is provisions for credit losses. Frankly, there were no major changes here for any of them. This is what they're doing on their books to bolster their balance sheets for expected future loan losses. And so Wells and Citi reported increased allowances, but they were both commensurate to things within the mix. So Wells had some changes in its portfolio mix. A little bit less asset backed stuff like mortgages and a little bit more credit cards. And cities went up mainly because its loan portfolio just got larger. So I don't think we really learned a lot broadly that we didn't already know. Now you look at these three. Well, stock is down. Call it 5% today, management lowered guidance for net interest income. That's the most important source of profit for Wells Fargo because it's a big Main street lender. So maybe there's a little bit of an indication there.
- [10:24]
Emily Flippen
You know, I found it really interesting that, you know, to your point, Jason Dimon is considered such a bear when things are good and such a bull when things are bad. But the JP Morgan CFO said during the call that the consumer seems to be fine. I mean, that is an exact quote which feels to me like a bit of a reach because to your point, a lot of the data that these banks are working off of is lagging. They're basing off theories about credit and consumer spending based off of their own consumer credit portfolios. And to their point, that is led by labor markets. And with unemployment at still less than 5%, I mean, it seems to be fine. But that lagging indicator, I worry, could just be something that snow sneaks up on these types of businesses because we've seen unemployment tick up continuously for over two years now. More than half of all American consumers say they. They expect to be worse off financially next year in comparison to this year. And consumer spending is declining. The Federal Reserve is looking to manage inflation, not unemployment. So with less rate cuts this year, I feel like that could further worsen unemployment rates. And that lag in between. I think what some of these banks are experiencing in terms of the quality of their credit portfolio versus what the average is experiencing right now is incredibly clear to me when I listen to these earnings calls.
- [11:44]
inchacvaloo
And no way our listeners want to hear the nitty gritty details on three different banks. They're probably zoning out already. Jason, we don't want to talk about.
- [11:52]
Jason Hall
Return on tangible common equity for all three of these. Come on, that's fun stuff.
- [11:58]
inchacvaloo
Hey, we'll get to the stress test, all that stuff, right? No, no, you get to talk about one and only one, Jason, of JPMorgan Chase, Wells Fargo and Citigroup, which had the most noteworthy earnings for stock pickers out there.
- [12:10]
Jason Hall
Honestly, I don't think we had really any outliers here. Just a couple of really quick points about each of them. I think it probably serves our listeners better. JP Morgan continues to be that gold standard. You look at their return metrics. Nobody fall asleep on me here. But they're extraordinarily high. Directionally, we're talking twice as good as a city which is struggling with years of issue. Morgan also had pretty decent loan growth. Jane Fraser is doing a really good job of dragging Citi forward but again they're, they're bragging about 8% return, return on equity versus like 17% over at JP Morgan. So that's the difference you see there. Now looking at wells, it may be the one that really signaled to the market that consumers to, to Emily's point, are feeling more of a pinch than anyone else. That again, looking at that bringing down their expected net interest income. This is the one of all of these that's most concentrated on like traditional Main Street USA banking and lending. So maybe that's the biggest takeaway for.
- [13:10]
inchacvaloo
Me is that and the million dollar question buy seller index on these banks.
- [13:16]
Jason Hall
Jason, you know how I do this? I can't give you any of those three. I'm going to say none of the above if I'm buying bank stocks today. Valuation really matters with these giant mature businesses. Yeah, there are some positive things. Less regulation, lower corporate taxes is compelling, but there's just much better values to be found if you look at some of the larger regional and a handful of more specialized banks out there. That's who I'm looking to hear from this week. Like Truist Financial, for example. It's really in the sweet spot of the demographics like the southeast migration trends. I won't steal Emily's thunder, but there's a big regional bank with national reach that just made a really interesting acquisition that has that one on my radar. But I'll let Emily talk about that one.
- [14:00]
Emily Flippen
Yeah, I completely agree here, Jason. You know, I think there's a fair point that a reduction in regulation across the board with the new administration could just be a boon for the industry. But that doesn't make me want to go out and be like I'm going to start indexing these banks if I'm index index a total market of which you get exposure to a lot of these high quality companies. But if you're going to want additional exposure in my book, pick the high quality ones. Right? The JP Morgans and to Jason's earlier point, a company that should be be on everybody's radar, which is Capital One Financial, they just closed their Discover merger and that makes a behemoth in this space. But skip the bad ones. And you know, I was going to say that I, I think quality is more important than price here and I think that is true. But I was thinking of that in the context of those small regional banks that can sometimes get really attractive on a price basis but you're losing out on quality. I think Jason's point about understanding the price you're Paying for even the larger banks is incredibly important because these are mature businesses and the market can have pretty stark reactions for factors outside of their control when it comes to the broader economy. So focus on quality here, but don't ignore price.
- [15:08]
inchacvaloo
Let's move on to crypto week. I've heard about Shark Week for years, but this is my first crypto week. I've seen bitcoin touch new highs at over 120,000 per bitcoin this week. What's going on, Jason?
- [15:22]
Jason Hall
Yeah, unlike Infrastructure week, which has been playing out for 20 years now, crypto week's actually kind of happening. So this, this week there are several pieces of legislation that it looks like Congress is going to be taking up that could really clarify the regulation, regulatory framework more in the US and that's, that's a big positive thing. There's more going on too, really, if this really started over a year ago when the Supreme Court basically forced this securities and Exchange Commission to actually regulate crypto and just instead of just suing crypto companies. And that's what led to the approval of bitcoin and Ethereum ETFs. And they've been around for about a year at this point. So there's a massive amount of institutional investment into crypto that's increased over the past year. But the things that are happening right now in the regulatory framework, they don't guarantee the future. This like the crypto future that bulls have predicted, but it should result in continued increase in investment into The DeFi and FinTech tools that are being built on blockchain. The other thing, too, recently, all of the things with stablecoin, there's been a massive amount of news. Companies like Shopify partnering with stablecoin, creators like Circle and Coinbase, which is in the middle of it, and Stripe as a payments processor to start building transactional mechanisms using stablecoin. The tide is definitely favorable right now for everything crypto one free.
- [16:45]
inchacvaloo
Bold prediction. I think we'll probably be talking about crypto on this show later this week again, but after this break, we'll have some bold predictions on individual companies this earnings season.
- [16:59]
Jason Hall
Hey, it's Ryan Reynolds here from Mint Mobile.
- [17:00]
Emily Flippen
Now, I was looking for fun ways to tell you that Mint's offer of unlimited Premium Wireless for $15 a month is back.
- [17:08]
Jason Hall
So I thought it would be fun.
- [17:10]
Emily Flippen
If we made $15 bills, but it turns out that's very illegal. So there goes my big idea for the commercial. Give it a try@mintmobile.com Switch upfront payment of $45 for three month plan equivalent to $15 per month required new customer offer for first three months only speed slow after 35 gigabytes of networks busy taxes and fees extra.
- [17:28]
inchacvaloo
See mintmobile.com Time for a segment we called Bold predictions this time with an earnings season flavor. Emily, start us off. What's your bold prediction on a company will surprise us this earnings season either on the good side or the bad side.
- [17:43]
Emily Flippen
Unfortunately for me it's going to be on the bad side and that is actually Etsy and this is a fine business that'd be very clear about that. They're cash flow positive and leadership has done a great job admittedly over the course of the past decade of growing this company, but they have made a lot of really questionable acquisitions and I worry that with the increasing narrative around around the type of purchaser that is coming to their platform, there is a disconnect between what management is seeing versus what their customer is seeing. And I see that right now around tariffs and the reason why I think they could surprise to the downside here for earnings season is because management has come out and said look, very, very little of our product is shipped from China. In fact, if anything, tariffs are going to be a boon for Etsy because we have all these wonderful handmade products right here from the United States. I think any of the consumers who have used Etsy listening to this show are probably aware of the fact a lot more Chinese made and foreign made goods on Etsy's platform than leadership is probably willing to admit. And many of those companies and people claiming to ship from the United States actually get their products and raw goods from foreign countries, including China. So I actually worry a bit here as we head into earnings season that the tariff picture for Etsy could be a lot worse than what management thinks. And the reason that could position investors poorly is because management has communicated the exact opposite. So I'll be really interested to see what they say here when they report earnings at the end of the month.
- [19:09]
Jason Hall
I've got an optimistic one. I've got a bullish one for us here anand a company called Confluent Ticker CFLT that I've followed really closely. I'm going to make a bold prediction that they beat their guidance company set an expectation that subscription revenue was going to grow about 19%. They report close to the end of July. Revenue was up about 26% in the prior quarter in the first quarter. And I think not that they're sandbagging, but I think they set a really conservative guidance. I think they're going to do better and they're going to surprise the market because more and more companies need to be able to take on these data streaming products, especially as AI and being able to make decisions with data in real time becomes more important. The AI tools demand real time data and I think Confluent is going to surprise everybody.
- [19:55]
inchacvaloo
I'm going with Warner Brothers Discovery myself. Last night I took my 8 year old to see Superman. I've got good news for comic book fans. They fixed the no spoilers. They fixed all the problems that are inherent in the Superman narratives and they've built the DC universe the Justice League for future films. I'll be very interested to hear the earnings call from Warner Bros. Discovery this quarter. Here at the Motley fool, we live on feedback and cinematic universes. To be part of that feedback or to ask a question, email us@podcastool.com as always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against don't buy or sell based solely on what you hear. All personal finance content follows Motley fool editorial standards is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show Notes Emily Flippin, Jason Hall, Jose Najaro and the entire Motley fool money team. I'm on and Chocolate Ballou. We'll see you tomorrow.