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The Rundown
Fed’s Favorite Inflation Gauge Comes in Hot, Snowflake Beats AI Doomsday Narrative
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Public.com presents the rundown, your daily market update in 10 minutes. My name is Zadad Mani and Today is Thursday, May 28th. In today's episode, we'll break down the latest inflation data and what it means for the Fed. We'll also tell you why Meta wants to start charging for extra features on Instagram, Facebook and WhatsApp. Then we break down earnings from Salesforce and Snowflake. Finally, stick around to the end of the show to find out an insane stat about the 10 largest companies in the S&P 500. We got a great show for you today. Let's go. Stocks inched higher on Wednesday. The S&P 500 was up just 0.02% while the NASDAQ was up.07%. So basically a flat day. But it was enough for another record close for both these indices. Oil prices in Iran were the dominant storylines yesterday. Oil prices have been falling all week, actually. In fact, prices hit a six week low because the market thought we were on the verge of a deal to end the war and reopen the Strait of Hormuz. But then overnight, the US Launched more strikes inside Iran. Then Iran retaliated by launching strikes on a US Air base. And just like that, oil is taking back up again. Brent crude is trading around $96 a barrel, while WTI is around $90 a barrel at the time of this recording. Now, to be fair, prices have come down from their wartime highs of over $120 a barrel. So the market is still betting on some kind of peace deal getting done. But oil is still more than 30% higher than it was before the war started. And that spike in energy prices is pushing up inflation. That brings us to today. The PCE inflation report just came out this morning, which is the Fed's preferred inflation gauge. And according to that report, inflation in April was up 3.8% year over year, which was right in line with. But it's still the hottest it's been since 2023. But even if you strip out energy and food prices, which are volatile, right, core pce was up 3.3% in April. So that means that the impact of higher energy prices are spreading to other parts of the economy and driving up prices. Now, there was one bright spot from this PCE report. The month to month numbers came in cooler than expected. So the price increases in April compared to March weren't as much as economists were expecting. And that could be a sign that the worst of the inflation surge due to the IR war could be behind us. We'll have to see how this plays out and how the Fed reacts to it. I still think the Fed is in a tough spot here. You know, with these inflation numbers, it's going to be hard for new Fed chair Kevin Ward to convince his fellow Fed governors to back a rate cut anytime soon. In fact, there seems to be a growing camp of Fed governors that might be pushing for a rate hike soon. The market is actually pricing in a 50 chance of a rate hike before the end of the year. I'm not quite sure if we'll get to a rate hike. We'll see what happens. The next Fed meeting is in mid June, and a lot can change between now and then. We're going to be staying on top of everything, so make sure you guys are locked into the podcast and tuning in every day to stay in the loop. Let's run through some headlines, starting with Meta. Meta is pushing more into paid subscriptions to diversify their business model. Meta announced yesterday plans to launch Instagram plus and and Facebook plus for 3.99amonth and WhatsApp plus for 2.99amonth. These subscriptions will unlock additional features for users, including extending your story from 24 to 48 hours. You'll also be able to use custom app icons and fancy animated reactions, and the ability to creep on someone's story without showing up. As a viewer. You know, I think there might be some people willing to pay four bucks a month for that last feature alone. These plus features will be rolling out globally over the next few weeks, and at the same time, Meta is also paid Plans for Meta AI See, up until now, Meta AI has been completely free to use, but now the company is testing two paid tiers, a basic plan called Meta One plus at 7.99amonth, and a premium plan at 1999amonth that gets you more computing power and more advanced features. Now there's still going to be a free version with usage limits. Personally, I don't really know anyone that uses Meta AI like that, so I don't know how popular these plans are going to be. Like who wants to pay 8 bucks a month to to use Meta AI? But Meta plans to start testing these plans next month in Singapore, Guatemala and Bolivia before rolling them out more broadly. Meta is also testing a subscription plan for creators and businesses that costs up to 50 bucks a month that includes things like clickable links and posts and reels and better human support. I think that feature could be a big hit, especially for businesses and creators. The big picture here is that Meta is Leaning more into subscriptions to kind of diversify away from just being an advertising company. Just to paint some context here, for last quarter, ads brought in over $55 billion, while everything else combined brought in just $1.3 billion. So ads make up, what, like, 97% of the company's revenue. So we'll see if these new subscription tiers will become a bigger part of the business revenue pie moving forward. I think what's going on here is that Meta is trying to squeeze as much revenue as they can right now because of all the AI spending that they're doing. CEO Mark Zuckerberg has committed to spending 600, $600 billion on AI infrastructure, and investors are starting to question when that spending will pay off. So I think Zuck is hoping that if he continues to grow revenue any way possible, investors will give him more time to figure out his AI strategy. Meta stock did jump 4% yesterday after announcing the subscription rollout. So investors like what they heard. Let's shift gears and talk about Salesforce, because they reported earnings last night and. And Wall street still can't decide whether Salesforce is going to be an AI winner or loser. Let's take a closer look at the numbers. The total revenue for the quarter came in at $11.1 billion, which was up 13% from a year ago. That was higher than expected. And adjusted earnings per share was at $3.88, beating estimates by $0.76. On top of that, Salesforce's AI platform, called Agent Force, hit $1.2 billion in annualized revenue, which is up from the $800 million in the previous quarter and up than 5% from a year ago. So, on paper, the earnings results sound good, but it wasn't enough for investors to jump in and get hyped about the company. See, there's still uncertainty about what AI means for Salesforce's legacy software business, which includes managing sales, customer service, marketing, and client relationships. And, you know, Salesforce's guidance for next quarter didn't exactly calm those nerves. They expect next quarter's revenues to come in at $11.3 billion, which was just below the average estimate of 11.4 billion. But, you know, Salesforce is doing everything they can to conv Wall street that they're going to survive the AI era. I mean, they even started live streaming their earnings call like it was a podcast, with a round table of executives talking into podcasting mics and pretty solid production quality. And while I'm sure the analysts listening to the earnings call appreciated the clear audio salesforce still has a lot of work to do to convince Wall street that it'll be an AI winner. Salesforce stock is up less than 1% today at the time of this recording, and shares have dropped 33% year to date. Let's talk about some stocks making moves today. Shares of Snowflake are absolutely ripping this morning after the company reported blowout earnings and raised its outlook for the year. Now, a quick refresher on Snowflake. They make software that helps companies store, organize, and analyze massive amounts of data in the cloud. And leading into the earnings report, Snowflake Stock was down 20% because investors were worried that AI tools would potentially make Snowflake obsolete. Well, these earnings show that AI isn't hurting Snowflake. It's actually giving the business a boost. Revenues for the quarter came in at $1.39 billion, which was up 33% year over year, beating estimates. On top of that, adjusted earnings came in at 39 cents a share, also ahead of expectations. You know, Snowflake has been able to integrate AI tools on top of their existing product, and there's been a huge surge in demand for that because the headline that got people really going was that Snowflake signed a deal with Amazon Web services to spend $6 billion over five years. This deal includes expanded use of Amazon's Graviton CPU chips and also cloud GPUs for AI workloads. So the market is taking the AWS deal as a signal that demand for Snowflake's AI product must be exploding, because why else would you spend so much money on AI computing power? So, yeah, Snowflake stock is booming today. I mean, it's not every day you see a $60 billion company pop nearly 40% in a single day. And to me, the big picture here is that I think the market is finally starting to realize that not every software company is going to get wrecked by AI. Now, sticking with AI, let's talk about Marvell. Their stock is actually trading lower today, even though the chip maker actually reported solid numbers on its earnings. Marvell designs custom chips and networking hardware used in data centers. So they've become part of the AI plumbing. And no surprise here, that business is booming right now. Revenues jumped 28% to $2.4 billion, which was in line with expectations. CEO Matt Murphy said the company is seeing exceptional AI related bookings. But, you know, despite it being a good quarter, it wasn't good enough for investors. The market is now used to seeing these AI companies way outperform their earnings. That didn't happen with Marvell, and that's why their stock is down around 3 to 5%. Let's wrap the show with a fun fact. The 10 biggest companies in the S&P 500 now make up almost 40% of the entire index. You know, the S&P 500 is market cap weighted, so the bigger the company is, the more of the index it makes up. And when you look at who these top 10 companies are, it just perfectly paints a picture of what our economy has become over the last couple years. At the top, you've got Nvidia at over $5 trillion. Then it's Google, Apple, Microsoft, Amazon, Broadcom, Tesla, Meta, Berkshire Hathaway, and then finally Micron, which recently joined the top 10. And after crossing a trillion dollar valuation outside of Berkshire Hathaway, every single one of these companies is part of the AI theme. Now the question that I have is how many of these companies are still going to be in the top 10 five, maybe 10 years from now? Personally, I feel like Google, Apple, Microsoft, Amazon, and maybe Metal feel like the safest bet to still be in the top 10. But I don't know. Let me know what you guys think in the comments. Well, all right guys, that's the rundown for today. Hope you guys enjoyed today's episode. If you did and you have like 5 extra second, consider giving us a 5 star rating on Apple, Spotify, YouTube, wherever you listen to your podcast. All that engagement really does help us out and it helps other people find the show. Thank you guys so much for listening, watching and commenting. Shout out to Mike for all the work behind the scenes and we'll see you guys back here tomorrow.