Loading summary
Transcript1 lines
- [00:00]
A
Public.com presents the rundown. Your daily market update in 10 minutes. My name is Zaidadmani and today is Thursday, July 30th. In today's episode, we'll break down yesterday's Fed meeting and tell you why the market is already questioning Kevin Warsh's credibility. We'll also recap earnings from Meta and Microsoft and explain why investors are rewarding one company's AI spending while punishing the other. Then stick around to the end of the show to find out why your burrito delivery could soon arrive via drone. We got a great show for you today. Let's go. Well, guys, yesterday was an ugly one for the market. Stocks got hit hard on Wednesday with the S&P 500 falling 1.5%. The NASDAQ dropped 1.7%, and even the Dow got smoked, falling 2.2%. Now, what's weird here is that stocks initially rallied after the Fed announced that it was leaving interest rates unchanged. Right after that announcement, the S, P and NASDAQ brief turned positive. And then Fed chair Kevin Warsh got up on that podium and started speaking at the press conference and the entire rally disappeared. So let's talk about what happened at the Fed meeting and in the press conference. The headline, like I just said, was that the Fed held interest rates steady at 3.5 to 3.75%. But that vote was divided. There were three Fed officials that wanted to raise rates because inflation is still above the Fed's 2% target. So we have a divided Fed right now, which is pretty rare and something the markets don't love to see. And then Kevin Warsh's press conference didn't help things either. It was a very weird press conference. You know, on one hand, Kevin Warsh continues to talk tough on inflation, saying the Fed will get inflation back to its 2% target. But then on the other hand, he didn't give much clarity on what it would take for the Fed to hike rates in the future. There was just an overall lack of clarity in his answers. And the markets hated that, especially the bond market. The 30 year treasury yield surged above 5.2% yesterday, hitting its highest level since 2007. And. And the 10 year treasury yield climbed to 4.7%. So in plain English, the bond market is indicating that it is worried that inflation will stay elevated for longer. Basically, the market thinks that Warsh will wait too long to hike rates and then he might be forced to hike rates aggressively later in the year. And overall, I think Kevin Warsh might have a credibility problem. Now, you know one of the Fed Chair's biggest superpower is providing credibility and clarity and a guidance for the market. But Warsh is going in the other direction by saying less and that isn't helping. You know, I was watching the press conference yesterday and the answers were all dry and I just feel like Kevin Warsh has no aura right now and that's what led to the big sell off in the stock market following the press conference. Now it's possible that might just be a one time blip because DIP buyers are stepping in this morning. I'm recording this in the pre market and all three indices are in the green so we'll see if that holds for the rest of the day. But long term yields are still near multi decade highs and that's going to have an impact on borrowing costs and a ripple effect across the economy. So we're going to continue to keep an eye on the bond market and see if wars decides to pivot his strategy. We're also going to keep an eye on earnings as well because Apple and Amazon report after the close to today. We'll recap those on tomorrow's episode. So definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop. Let's run through some headlines and we're starting with Meta. Meta reported earnings after the bell yesterday and the stock is getting hammered. Now here's the thing. The core business is doing fine. It's doing great actually. Revenues jumped 28 to 60.8 billion billion. The problem though was the profit and also the guidance. Earnings came in at $6.18 per share versus the $7.22 that Wall street was expecting. Now the miss was partly because Meta took a $2.4 billion charge related to legal proceedings. They also spent another $1.2 billion on severance. But beyond the miss on earnings, the outlook also came in a little light. Meta now expects between 61 billion and $64 billion in revenue this quarter, which is slightly below what Wall street was hoping to see. I think the biggest concern coming from the earnings was cash flow. Meta generated just $784 million in free cash flow last quarter, which is down from the $8.6 billion they did a year ago. So that means that all the cash that Metta generates from its core business like Facebook and Instagram ads is being spent on AI infrastructure like data centers and chips. And Meta has no plans to slow down spending on AI either. They actually raise their full year Capex Forec now expect to spend between 130 billion and $145 billion this year. And here's what makes the problem worse. CEO Mark Zuckerberg didn't offer much clarity on the earnings call on how all this AI capex will lead to more revenue. You know, unlike Google, Microsoft and Amazon, Meta doesn't have a cloud business. Now, Zuck did float the idea of becoming an AI cloud provider and selling their excess compute, but he didn't provide much detail on if they had any customers yet or any contracts or even a timeline. So all of that is fre. Freaking out the market. Meta stock is down around 10 this morning. the time of this recording. I gotta say, Zuck is doing a really bad job of showing investors on how all this Capex spending is going to pay off. Like, I'm sure that AI is making their ads better, which is probably one reason why revenue continues to grow. 28 the problem for Meta, though, is that their AI spending is so enormous now that improving the existing advertising business isn't good enough for the market. I think investors want to see an entirely new AI revenue stream, and Zuck hasn't been able to show investors what what that will be. Zuck is essentially telling the market to trust him and that he'll figure out what to do. And, you know, Zuck does have a track record of turning things around, but this is also the same guy who spent $80 billion on the metaverse with not much to show for it. So unless Meta can provide clarity on how all this AI capex will improve their bottom line, I think the market might start running out of patience with Zuck. Let's shift gears and talk about Microsoft. Microsoft also reported earnings after the bell yesterday, and investors like what they heard. The numbers were solid. Revenues jumped $1890 billion, beating Wall street estimates, and net income jumped 31% to nearly $36 billion. The star of the report was Azure, which is Microsoft's cloud business that grew 43% year over year, which was well ahead of the roughly 40% growth that Wall street was expecting. In fact, Azure saw the fastest growth since 2022, and Microsoft expects growth to accelerate. The company is projecting a roughly 45% growth next quarter. So I gotta say that was very encouraging. You know, Azure has now crossed $100 billion in annual revenue for the first time. So that is a massive business and it's still growing at more than 40% a year. And then on top of that, Microsoft says that businesses are starting to use their AI products too. Microsoft's 365 copilot now has more than 30 million paid users, which is up from the 20 million just three months ago. I mean, I was going to make a joke about how nobody uses copilot, but 30 million paying customers and a 50% growth rate to speaks for itself. So yeah, this is one of the clearest signs yet that Microsoft's massive AI spending is starting to pay off. And it's a stark contrast from what Meta just reported. Microsoft says that customer demand is still exceeding the computing capacity they have available. So Microsoft still needs to build more data centers and that's why they're spending so much on CapEx. The company spent $41 billion on CapEx last quarter, which was up 70% from a year ago. And CFO Amy Hood said that Microsoft's 2026 CapEx will be around $175 billion, which is right in line with their previous forecast. And I think that's a key point there. It might be a big reason why the stock is popping this morning. It's up around 10% at the time of this recording. I think investors like the fact that Microsoft isn't raising capex like both Google and Metta raised their capex forecast in their earnings report and the stock fell. Not only did Microsoft hold the line, they also showed that their cloud growth is accelerating to justify the spending and then not to mention the 50% increase in copilot users too. So I think that's giving investors a reason to be optimistic and ju jump back into the stock. Remember, Microsoft was the second worst performing Max 7 stock this year, down nearly 20 as of yesterday. So this is a much needed bounce back and maybe the start of a turnaround for the company. Let's talk about some stocks making moves today. Starbucks is getting a nice boost this morning after the coffee company reported better than expected earnings and raised their outlook for the year. Adjusted earnings came in at 85 cents per share, well above the 66 cents that Wall street was expecting. And revenue was up to $9.32 billion, also ahead of estimates. I think the most important number though was same store sales that jumped 7.9%. And in North America, sales were up 8.1% and customer traffic increased by 4.5%. So this isn't just Starbucks charging more for coffee. More and more people are actually coming back into the stores. So I got to say this earnings report is a major win for CEO Brian Niccol. Remember he took over the company two years ago and the company is really starting to turn things around and start Starbucks has really pushed for a simplified menu. They've added more workers, they've reduced wait times, and they've renovated their stores to make them feel like coffee shops again instead of like a mobile order distribution center. So investors like what they heard. And shares of Starbucks are up more than 5% this morning at the time of this recording. And if you zoom out, the stock is up more than 23% heading into today. Now, on the flip side, Carvana stock has taken a hit despite posting a monster quarter. The online car retailer sold more than197,000 vehicles last quarter, up 38% from a year ago. Overall revenues jumped to $7.38 billion, easily beating expectations. And adjusted EBITDA hit a record $769 million. But despite the strong numbers, the stock is still down today because of the company's guidance, Carvana projects their full year earnings to come in at 2.7 to $3 billion, which was a disappointment. Some analysts on Wall street like Morgan Stanley, were expecting earnings north of 4, $4 billion. So this outlook from Carvana implies that the second half of the year could be relatively flat compared to the first half. And because of that, Carvana Stock is down 10% this morning at the time of this recording. You know, it's been a tough year for the stock. Shares were already down 20% heading into the earnings report. And unfortunately for investors, things aren't getting any better. Let's wrap the show with a fun fact. DoorDash is hoping to start delivering food via drones in the near future. The company just announced they received FA certification to do commercial drone deliveries, and they announced a new program called DoorDash Air. Now, DoorDash had already offered drone deliveries in a few US markets through partnerships with Alphabet's Wing and also Flytrex, which I had no idea they were doing. If anyone listening has ever received a burrito via drone, let me know in the comments. But the problem with those partnerships was they only got them so far. DoorDash says the hard part of drone delivery isn't the drone, but the whole system around it. So in order for them to scale up, they thought it was easier to build everything themselves, like the aircraft, the ground infrastructure, the software, you name it. And, you know, the business case here makes sense. For DoorDash, most food orders are relatively small and lightweight and could be carried by a drone. And, you know, drones could be a faster and cheaper option of delivery than a human driver. And for DoorDash, I mean, having to pay a human driver is their biggest cause. So you can see why they're going big on this now. There's still no timeline on when DoorDash will actually start flying these drones. They still have to work through a lot of problems, like building up the drone delivery infrastructure. Like, I'm curious how it's all going to work. Like, is every restaurant going to have a dedicated drone landing spot? Not to mention, there's also concerns about noise, weather, privacy, and, you know, making sure my Chipotle bowl doesn't get dropped into someone else's swimming pool. But who knows? Maybe in a few years, it's going to be very normal for us to get our deliveries via drone. I know that Amazon's going big on this as well. There's an Amazon distribution center very close to my house, and I see drones flying over my neighborhood all the time now. Let me know in the comments on what you guys think. Are you bullish on drone deliveries? But DoorDash does start delivering food via drones. I might have to create a dedicated drone landing spot in my backyard for the amount of times I get DoorDash. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. Thank you guys so much for listening, watching, and commenting. Shout out to V and Kevin for all the work behind the scenes, and we'll see you guys back here tomorrow.