Scott Devitt (3:39)

Hey Ed, how are you doing?

Ed Elson (3:41)

Very well. We want to dig into these earnings here. Beat expectations. $400 billion in annual revenue. Just mind blowing at this point. Let's just start with your initial reactions to these earnings.

Scott Devitt (3:55)

The growth is very strong. Search was up 17%. So you know, the search business alone, that's almost $300 billion of revenue. And that business is accelerating. And so the infusion of AI overviews into the search results have definitely benefited the platform. In addition to that, you know, the cloud business is, grew almost 50% in the quarter. Expectations were over 38% growth. It did 48% growth. So that's on the positive side. And the growth is, is outstanding. With that, the company's going to be spending like crazy next year on Capex or this year I should say 175 to 185 billion of capex. You know that they effectively almost double capex in 25. They're almost doubling it again. So it's front footed growth. But you know, the market has to digest periods where companies are spending so aggressively ahead of revenue and operating profit. And I think you're seeing some digestion. You've seen it in Meta, you're seeing it in Alphabet, but these are the right investments to be made. And when we get to the other side of the spend, I think there's going to be quite nice returns for these companies.

Ed Elson (5:04)

The stock fell as much as 7% in after hours and then it quickly recovered. We'll see how it moves throughout the day. What do you make of, of the market's at least initial reactions? Was there anything in the earnings there that was concerning investors? Perhaps it is that Capex number.

Scott Devitt (5:23)

It's, it's the Capex number. I mean the market is very skittish right now around AI and you've seen software companies multiples collapse. And so we're just at a, I think a bit of a pause in the Cycle where investors are reevaluating how they should be thinking about the growth prospects and the offsetting spend. And so I think that this Alphabet kind of narrative feeds into that. So the initial knee work joke reaction off of that significant CapEx number, the 180 billion is relative to 120 billion was the consensus estimate for, for 2026. And so you get that knee jerk sell off and then I think investors go back and say, hold on a second, you know, this is, this is very positive for the long term prospects of the business. We have to digest this a little bit. But growth here is outstanding. I mean that 50 48% growth in the cloud business is, is pretty amazing.

Ed Elson (6:21)

Yeah, 48% sort of blew my mind too. I just would love to get your sense of what Wall Street's consensus is at this point on massive CapEx because, you know, throughout the year last year, these gigantic capex numbers seemed to be a real problem. Whenever you reported capex that was a lot higher than people thought that Wall street expected. It usually meant that there was some level of drawdown in the stock, at least initially. It seems that that's kind of flipped depending on who you are. I mean, Meta had a big capex announce. This one from Google is probably the largest we've seen of any of the hyperscalers, at least this quarter. What do investors think about these kinds of numbers at this point? Is this something that makes them feel excited about AI or is this like, oh, we're in bubble territory?

Scott Devitt (7:18)

Well, I'll tell you, for the infrastructure companies, it definitely validates the numbers that have been thrown around by companies like Nvidia and otherwise in terms of that the spend is real. That's one point. I think stock performance tends to be best in harvest mode. So on the back of an investment cycle, when an investor can see the returns and the associated growth that comes on the back of an investment cycle tends to be when stock performance is best. You have this 180 billion number by Alphabet, you have 125, I think by meta. Amazon's current estimate is 155 for 26. I wouldn't be surprised at all if it's closer to where Alphabet is. And so we're entering this period where, you know, 2023 was kind of the year of discipline and that continued in 24. You started to lose it in 25 and now we're getting back into investment mode again. And so with that, I think, you know, expectations have to be a little bit more tempered, that returns will still be decent. But you have to climb that hill and then you know, the hardest period on this spend is probably 27, 28. So you're looking at like a three year horizon on these stocks.

Ed Elson (8:23)

You mentioned earlier that what's happening in software, software stocks just getting absolutely killed right now. You know, everything from Salesforce to let's see, ServiceNow. I mean all of the enterprise SaaS companies, their multiples are kind of collapsing right now largely because of AI, but it's not totally clear what's happening. Can you just tell us what's happening in software right now and why these multiples are falling?

Scott Devitt (8:54)

So investors are concerned about a few things. One is that these software companies are predominantly seat licensed businesses. So to the extent that there's fewer seats because there's less labor required as companies incorporate AI, then that's not good for the business models. In addition to that though, it's that AI itself with some of the features that Claude, which is Anthropic's product, has been launching, displaced the software companies themselves. I think that, I think there's some justification to it, you know, for why the multiples have come down. But I think what you're going to find is, you know, this industry is changing, evolving. You're going to have some Macy's border circuit cities that get cleansed through the system because they weren't great businesses to begin with. And then you're going to have some software companies that incorporate AI features and functionality that validate their competitive position and do quite well. But again you're looking at probably a one to three year period of investors figuring that out. Right now the initial response is sell everything and then I think investors will parse through it and then you'll get winners and losers. So it's going to be a different software world in the future, but doesn't mean that they're all losers.

Ed Elson (10:11)

Yeah, the reaction from the market, at least from my perspective, has been kind of reactionary where it's like it does seem that there isn't a lot of clarity on which companies are which well positioned perhaps for an AI enabled world. They're basically saying as you say, sell everything. To me that spells potentially a buying opportunity. Just the level of dislocation that we're seeing. I was wondering if you would agree with that as well.

Scott Devitt (10:37)

Well, you know, the market hates uncertainty, so there's, it's been many years since we've had this level of uncertainty in so many of these companies in terms of what the future holds. We had a good 10, 15 years where all the same companies went up every single day and everybo knew who the winners were. And now we're trying to resort the landscape to determine that again. And so uncertainty leads to, I think, lower multiples for a period of time and buying opportunities to the extent that you find the right company. Sorting through the rubble in software companies, I think can lead to some success, but with patience, because it's going to take some time to figure it out.

Ed Elson (11:17)

All right, Scott Devitt, really appreciate your time. Thank you.

Scott Devitt (11:20)

Thanks again, Ed.

Ed Elson (11:29)

Earnings season just revealed a clear winner in the GLP1 battle. Eli Lilly's fourth quarter earnings blew past estimates, with revenue up 43% year over year. The company also raised its 2026 guidance to $80 billion, projecting 25% sales growth this year. The stock closed up 10% yesterday. Those results came in stark contrast to its rival, Novo Nordisk, which warned that 2026 sales and operating profit will both fall. Novo Nordisk cited its pricing deal with Trump to lower drug costs as the main reason for their decline. However, Eli Lilly signed the same deal, but they expect volume growth to offset the pricing pressure. Novo Nordisk stock closed down 18% following its earnings. Here to unpack these earnings, we're speaking with Jared Holtz, healthcare equity strategist at Mizuho. Jared, thank you for joining us on Profge Markets.

Jared Holtz (12:23)

Thanks so much for having me. Appreciate it.

Ed Elson (12:25)

So Eli Lilly and Novo Nordisk both report Eli Lilly closes up 10%. Novo Nordisk crashes down 18%. Take us through these earnings. Why is there such a difference here?

Jared Holtz (12:42)

You got one company growing very meaningfully in Eli Lilly and really seeming to not be losing any momentum. If anything, the business is getting stronger. And on the other hand, you've got Novo Nordisk that for so many reasons is seeing revenue degradation already in just the third year where these obesity treatments have been on the market and FDA approved. So I think they're just going down two very, very distinct different paths. One, you know, in a very positive way and the other not.

Ed Elson (13:18)

What is the reason behind this revenue degradation, as you put it at Novo Nordisk, like, what's the issue? They've got the hot product. Why aren't things working?

Jared Holtz (13:28)

I think the biggest piece that I can really identify is that on the injectable side, which is obviously the lion's share of this market until the orals really get going, is only about 30 to 40%, depending on the day. Right. So, like, already they're seeing their market share slip to about a third of the market. And then I think the unfortunate thing for them is that they've got two things going on. One, they've got this conversion to the oral therapy, which is very significant in terms of volume, but at a fraction of the price. Right. The introductory price for this market is only about $150 a month. That's down from, you know, 3, 4, 500. And then the second thing is that semaglutide is already on the IRA list. So they're seeing price degradation and they're seeing market share challenges. Both are going on simultaneously. I mean, it's just a recipe for a very challenging near term. You know, the hope here is that, you know, the pipeline and, and some of the things that they're doing strategically will, will get them to a better place, but it's going to take a while.

Ed Elson (14:28)

The weight loss pill seems to be an important part of the story here. My understanding is Novo Nordisk has the pill ready to go and they're selling it. They're selling those subscriptions. Eli Lilly is working on theirs, but they're still waiting for approval. As an observer, I'm looking at what's happening. I'm like, okay, Novo Nordisk is way ahead on the next generation of GLP1 drugs, but I guess the market isn't as excited about that. What do you make of what's happening in the oral race?

Jared Holtz (15:00)

Yeah, I mean, I think they're excited for sure. I mean, it's going extremely well. I mean, I think the company has already put 200,000 people on this oral pill and it just came out at the beginning of the year. So after four weeks or so, you've got, you know, a quarter, almost a quarter of a million people that have, that have either tried it or are on it. That's pretty amazing. Again, a lot of these patients are cash pay. We don't know how long they're going to stay on the medication for. They're working on, on higher doses or stronger doses to increase the weight loss. And then the pricing again is $150 a month, roughly. So I think on one hand you can say, okay, well, this is an incredible first step they've taken, but the financials behind it are not as impressive. And then for Lilly or for Glip, run, I believe, will come sometime in the second quarter. Maybe the pricing is a little bit better. I think the streets very enthusiastic and intrigued by what happens when Lilly enters the market, not only for them, but for the entire space. And so I think there's probably a faction in the market that sees Novo as the first mover but Lilly the winner eventually. That's pretty much exactly what's happened on the injectable side.

Ed Elson (16:17)

Something I found crazy. This Novo Nordisk is trading at $47 a share now. That's basically the same price that it was at in 2021 before the whole GLP1 craze, which seems kind of insane to me. My instinct is it's being a little bit over punished. I mean, it's down more than 40% the past year. Eli Lilly up more than 30% in the past year. Would you agree with that characterization?

Jared Holtz (16:45)

I agree. I think it's unbelievable what's happened to the company and to the stock to sit here four years, four or five years out and see the stock basically where it was trading, you know, five years ago and almost 10 years ago. I mean we're, we're almost at a decade low. Part of me feels like they would have been better off going in a different direction altogether and not even pursuing obesity if this is where we knew they would come out over the long term. Right, Right. And so yes, I, I, I share the same feeling. I think I, it's wild to kind of consider. And then on the other hand, you've got Eli Lilly that that's a trillion dollar market cap company gaining 90 or so, maybe even more than that 90 billion just today. It's fascinating, truly. So, yes, agree.

Ed Elson (17:33)

Okay. Jared Holtz, healthcare equity strategist at Mizuho. Jared, appreciate your time.

Jared Holtz (17:38)

Anytime. Thanks.

Ed Elson (17:40)

After the break, Netflix goes to Washington. And for even more markets insights, you can subscribe to my Weekly newsletter@edwardelson.substack.com.

Rohan Goswami (17:58)

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Morgan Stanley Announcer (18:30)

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Rohan Goswami (18:59)

Close your eyes. Exhale. Feel your body Relax and let go of whatever you're carrying today.

Ed Elson (19:07)

Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class.

Jared Holtz (19:11)

I got them delivered free from 1-800-contacts.

Ed Elson (19:14)

Oh, my gosh, they're so fast. And breathe.

Jared Holtz (19:16)

Oh, sorry. I almost couldn't breathe when I saw.

Ed Elson (19:19)

The discount they gave me on my first order.

Jared Holtz (19:21)

Oh, sorry.

Ed Elson (19:23)

Namaste. Visit 1-800-contacts.com today to save on your first order.

Scott Devitt (19:27)

1-800-Contacts.

Ed Elson (19:34)

We're back with Profg Markets. Tensions are high on Capitol Hill for Netflix and Warner Brothers discovery. On Tuesday, senators on the antitrust committee pressed Netflix and Warner Brothers executives on their planned mega merger. The lawmakers zeroed in on competition, jobs and consumer impact. But the hearing quickly veered away from antitrust, with some senators shifting the conversation toward political bias at Netflix. Senator Eric Schmidt accused Netflix of creating, quote, the wokest content in the history of the world. Netflix CEO Ted Sarandez pushed back and argued that the combined companies would, quote, give consumers more content for less. Netflix stock fell 3.5% on Tuesday and it failed to recover on Wednesday. Joining us to discuss this hearing, we're speaking with Rohan Goswami, business reporter at Semaphore. Rohan, welcome back.

Rohan Goswami (20:26)

Ed. Always good to be here.

Ed Elson (20:28)

So you were at the hearing.

Jared Holtz (20:31)

Yeah.

Ed Elson (20:33)

What did we learn? What was the vibe in the room? What were your takeaways?

Rohan Goswami (20:37)

Well, I wanna. Let's be clear. This was a chaotic day in D.C. so I actually ended up livestreaming from D.C. a very effective use of this reporter's time. But I spoke with a number of folks who were in the room in and around the hearing. And look, you had a bit of everything. You had some senators, some Republicans, unsurprisingly, talking about woke programming and the issues that they've historically had with Netflix and big tech generally. But then you also had a lot of fair and detailed analysis and scrutiny over, well, as we've talked about, two of the largest streaming platforms being combined. Right. It's not an everyday thing. And there was a lot of fair and I think righteous, almost interrogation of that. But by all accounts, and this is from staffers, from folks who are advising this, Ted Sarandos held himself out very well. Right. That was who Netflix sent their co CEO, Warner Brothers didn't think this was worth David Zaslav's time. Apparently, they sent their M and a guy who by all accounts is a great guy. Paramount, of course, was invited to attend and declined. They felt that since they didn't have a deal they shouldn't even show up. But also, this is kind of a sideshow, if we're being honest. These guys don't really have a lot of power to stop things. That's the doj and that's the Europeans. And that's where the fight gets interesting.

Jared Holtz (21:51)

Right?

Rohan Goswami (21:51)

Because you can bet your bottom dollar that these guys were not just sitting around on the Hill all day making nice with senators. No, they were out there. They were pressing flesh. They were talking with all sorts of folks in and around D.C. i would imagine they made the trek to the White House, the doj. They are making their case to everyone while they're in town here.

Ed Elson (22:08)

So it's an antitrust hearing. It's all about this big company buying another big company. When I read the headlines, it seems like this was sort of a trial on wokeness and woke culture. I mean, is that right? Did this sort of devolve into a slightly something that it wasn't supposed to be?

Rohan Goswami (22:31)

I guess it depends on what you thought it was supposed to be. If you thought that this group of senators, including Mike Lee, was ever, although Mike Lee actually did ask some great questions, was ever truly going to be focused on just the merits of the case. That's not true for Republicans or Democrats. These guys knew that a ton of reporters would be paying attention to this because there's nothing media likes to do more than cover other media. And they decided to take full advantage of it. Right. Some people stuck to their talking points. And look, you can fairly or unfairly criticize Netflix for its programming. You know, I think it's a sexy headline. I think it's what people like to talk about. But the real meetings were happening behind the scenes and around the actual hearing.

Jared Holtz (23:05)

Right.

Rohan Goswami (23:05)

These guys were here for a day. They were not just spending an hour or two in a stuffy Senate office building being grilled by these guys. You can bet that they knew this was the price of admission they had to pay to get the one on one meetings, to get in the rooms with staffers. To get in the rooms, I would presume, although I don't have sourcing on this. But they'd be stupid not to. To get in the room with antitrust officials and to lay out kind of what they said in their opening remarks.

Jared Holtz (23:29)

Right?

Rohan Goswami (23:29)

Which again, they're not competing with other streamers or other conventional legacy media platforms. They consider their competition. TikTok to a certain degree. Instagram, YouTube. Not necessarily TV, but we probably say YouTube shorts and YouTube itself. Not conventional streamers, not conventional studios. That's where things get a little weird here too. So beneath the wokeism and all the headlines, there was a lot of substance around that as well.

Ed Elson (23:53)

And how did lawmakers respond to that argument? Because we have heard that argument, which is, you know, Netflix might seem big in the world of streaming, but when you Compare it to YouTube and TikTok and Instagram and all these other platforms that are also competing for our eyeballs, it's not as big. So there's less of a concern. How did those on the committee, the policymakers, respond to that argument?

Rohan Goswami (24:16)

You know, I think there's real concern. Mike Lee went On the Record to express concerns about this. It's not really clear where those are coming from. Although he did make an excellent point. This was before the hearing, which I thought was a fair point, that the mere existence of this merger, right, actually has its own anti competitive effect. Just by going through this process and even trying to do this, it scares off the competition, which by the way, is Paramount's point. It's not easy to say that it was divided along party lines. This is hard for Democrats, this is hard for Republicans. Obviously folks like Elizabeth Warren are always going to be against something like this. They don't like consolidation generally, but it also, it's money. Right? Because on the one hand you have Republicans who are traditionally averse to big tech and averse to big tech getting bigger. Those guys have been the conventional boogeyman for them. But here you have a big tech company buying a legacy media company to compete, they say, with other big tech companies to be more competitive against them. So if you are anti big tech, weirdly, you might wanna be pro this deal. If you're anti media or anti legacy media, you still might be pro this deal because you're leaving behind a weaker, smaller CNN that gets eaten up by Apollo or maybe Paramount. We don't know. There are all sorts of muddy things here. And so that's what makes the ideological analysis a little bit harder. It's also hard to say what they actually feel and what they believe because again, they know that their opinion doesn't really matter. There's one guy whose opinion matters and he's big and he's orange and he's a White House.

Ed Elson (25:36)

Yeah. I think this leads me to my final question. I mean, what impact does this hearing actually have? If it's ultimately up to the doj or if it's up to Trump and whatever impact on the DOJ he may have then does this hearing move the needle at all?

Rohan Goswami (25:54)

The hearing itself, no. But it's an important sort of symbolic gesture. It lays out in the public record Ted Sarandos and for whatever we care about it, four or five years from now, Warner Brothers thinking on this deal. These kinds of things can sometimes become prescient where you look back 20 years later and you see, oh my gosh, Ted Sorenders was right all along. We are in fact watching all of our movies and TV in 30 second snippets on Instagram and TikTok. I don't know if that will come true or not, but they can serve as an important historical artifact. Whether it actually matters to the process, I don't really know. It's kind of the same arguments that Ted Saranos has been making privately, right. In his one on one meetings or in his team's one on one meetings. And publicly they're the same thing.

Ed Elson (26:33)

Yeah. Rohan Goswami, business reporter at Semaphore. Rohan, thank you very much indeed. Enjoy D.C. i'll try my hardest.

Rohan Goswami (26:41)

Ed, thanks so much.

Ed Elson (26:46)

So, as we discussed with Scott Devitt, software stocks are in free fall right now. In the past week alone, Workday has fallen 5%. ServiceNow has fallen 6%. Salesforce has fallen 8%. Cloudflare 11%. Intuit 13%. Datadog down 4, 14%. Atlassian down 16%. HubSpot down 19%. Shopify down 20%. All of them are getting crushed. As a whole, the software sector has fallen about 11% in the past week. And this has weighed down the rest of the market, which is why the S and p fell about 1% yesterday. In sum, software is getting clobbered. Why? Well, because of AI and more specifically, because of Anthropic. A few weeks ago, Anthropic launched Claude Cowork, which people got very excited about. And then this week they released a series of plugins for that tool. And these tools are designed to handle very specific domains, things like customer support and legal work and sales and finance, all the kinds of things that traditional enterprise software companies handle today. And so Wall street has decided as of this week that the software era is over. We had $300 billion in market value just erased overnight. Software is dead. And who killed it? AI. That's at least what Wall street is saying right now. But the crucial question is, is Wall street right? Is it actually true that software was killed by AI? Is it reasonable to assume that the business models on which these companies have operated for decades are now over? We're not so sure. And in fact, this moment is highly reminiscent of what happened just a couple of years ago when we witnessed the arrival of ChatGPT, which was also an exciting new tool and which more importantly also caused investors to believe that the business models of the most dominant tech companies, that those business models are now over. And they thought this most notably about Google. You might remember what happened to Google after ChatGPT. Everyone says search was dead. Google is over. ChatGPT is going to replace it. Most investors agreed on this point. And as a result, Google stock fell 40% in 2022. But then what happened after that? Google started to invest in AI. They started to integrate AI into the search product. Then they came out with their own AI product, Gemini, which is now rivaling ChatGPT. And since all of that happened, Google stock has risen 285%. Google now trades at 39 times earnings. It is the highest multiple in the MAG7. Outside of Nvidia and Tesla, it's now the third most valuable company in the world. So AI did not kill search as everyone thought it would. Actually AI enhanced search. And it was in fact the reason why Google was able to reach a $4 trillion valuation. Well, we see what's happening in software the same way, and that is investors are frightened by these new products. They aren't sure what they'll do. And so they're throwing their models out the window and they're deciding, as Scott said, sell everything, which is making for a highly dislocated market. This is a market of confusion, a market of panic, a market of concern. And as Warren Buffett always says, when others are fearful, you want to be greedy. These are the kinds of conditions where you want to start thinking about buying. And not just any old software company, but good software companies, companies that can demonstrate an ability to embrace and integrate AI like Google did and build it into their product stack. Last week we talked about Adobe. We think Adobe is one of those companies and there are certainly many others which we will be looking at over the next few weeks. Mark Mahaney has a great term for these stocks. He calls them DHQs, which means dislocated high quality companies. Companies with great businesses but whose prices have become dislocated by larger narrative forces that investors maybe don't fully understand, but they're just buying into it anyway. These are the kinds of companies that you want to be looking at. These are the kinds of companies you want to buy. And there are plenty of high quality companies out there. We all know that that's not rare. What is rare, however, is dislocation. Moments where the markets get spooked, where investors lose their heads. They lose their cool when they simply decide that the world has changed with very little evidence to back it up. And by the way, we will be digging into this evidence on our episode on Monday. But the point being, these moments do not happen often. They are rare. And yet today, on February 5, 2026, one thing is clear. That moment is happening right now. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson, and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Thank you for listening to Profg Markets from Profg Media. If you liked what you heard, give us a follow. I'm Ed Elson. And tune in tomorrow for our conversation with Neera Tandon.