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Meta & Alphabet - tale of 2 stocks (0:20) Apple's CEO transition (3:20) Nasdaq moving higher; Fed's path forward (4:40) Intel up; Microsoft down (11:45) Robinhood earnings (15:35)

Transcript

Rena Sherbill: Brian Stewart, Seeking Alpha's Director of News. Welcome to May.

Talk to us. Where are we at? Big time tech earnings.

Brian Stewart: Yeah, I think we have got to start with the earnings. So we had five of the mag seven report this past week. We got Tesla (TSLA) already and we got Nvidia (NVDA) on the way.

I think the best way to kind of dive into these is to start with Meta (META) and Alphabet (GOOG) (GOOGL) and look at them in a tale of two stocks kind of way.

Both beat expectations, both announced that they were raising their capex spending target for this year. Meanwhile, Meta dropped about 9 % after it announced its results and Alphabet was up about 10%. So you see them going in opposite directions.

I think this largely has to do with investor confidence in what the spending is going to do. So you have Alphabet, which I think is perceived by the market to already be ahead of Meta in terms of AI build out. think Gemini is one of the three or four AI products that people think of when you ask them to name popular AI products.

Meanwhile, Meta's behind the curve a little bit on that. Meanwhile, Google can spend more with its raised CapEx. It's spending about $190 billion on the high end is what it expects for 2026. Meta is in the $145 billion range. So you have Alphabet ahead spending more.

And I think you also have, just in terms of investor sentiment, you have kind of a drag for Meta from the Metaverse expenditure. I just think people trust Alphabet to get more ROI out of its investment than Meta just because of the kind of past of the company.

Also the structure of the companies. Google has a clear path to profitability with AI through the cloud whereas Meta is more along the lines of improving customer experience, improving ad placement. So it's just a much less of a one-to-one kind of dropping to the bottom line on that front.

Another interesting aspect of just the two of them. So during the post earnings conference call, Mark Zuckerberg was talking about layoffs.

Meta had a round of layoffs recently. And he very explicitly said that the company has two basic cost centers within the company, the amount it spends on people and the amount it's spending on AI. And if you can, if you're going to spend more on AI, he was saying that's just less you have to spend on people.

So that was his justification for the layoffs. Meanwhile, you go over to Alphabet, which is spending more than Meta, but hasn't had the same kind of layoffs. There hasn't been an announced major layoff at Alphabet so far this year. And maybe that'll change. Maybe that'll come down the pike.

But in the moment, I think there's just a perception that Alphabet's handling its business a little better than Meta.

Rena Sherbill: Anything to say about the CEO news out of Apple (AAPL)? Anything to add to that point?

Brian Stewart: I think one thing that people like about the CEO transition is it's an internal candidate. It's happening in September. So there's a period of obviously, kind of mentorship and I'm sure that's been going on for a while now. So I just think there's a lot of stability. Stability is a good watchword for Apple just in general.

The stock of Apple also announced earnings stock was up about 5%. it's up about 11 % in the past month, but only up about 4 % year to date. So Apple has been really moving sideways so far this year. In the last earnings report, you saw iPhone revenue up 22%.

You see services revenue up 16%. So you see Apple executing on a really high level. I think that what's been holding the stock back is just whether or not it has the same AI upside as a company like Alphabet or even Meta. But.

I think there's a lot of confidence in Apple's ability to just put one foot in front of another and get iPhones into people's hands. And the question for the stock's sort of long-term upside is just whether it can bring new, interesting, exciting products to market.

Rena Sherbill: Apple was part of the catalyst that was pushing Nasdaq higher today. So fans of Nasdaq should be happy about that. I don't know if you have anything to say about the movement in the markets at vis-a-vis these tech stocks and how they're responding after the earnings news also happened to see not to conflate issues, but as long as we're talking about top tech stocks.

I also saw this headline today about Inking Deals, Google and Nvidia inking deals with the Pentagon for some AI use on classified work. I don't know if you have any thoughts on those or how they also conflate with the earnings news and the subsequent reaction.

Brian Stewart: Well, in terms of the market, obviously the market thought very highly of the latest round of tech, tech earnings, meta being an exception, but overall market is up S&P (SP500) setting new highs. This is all in the face of, and we haven't mentioned it yet.

I mean, it's kind of interesting that we've gotten this far in the podcast without talking about Iran and the ongoing situation there. Oil prices remain extremely high. But the market is really just pushing higher in the face of that, I think.

We also, we haven't talked about the Fed, a really contentious meeting. The Fed left interest rates unchanged, but it came with four dissenting votes, which is the highest number of dissents since 1992.

Meanwhile, even within that dissent, there was dissent. Three of the votes wanted to get rid of the easing bias that was in the Fed statement. And then one of the votes wanted a rate cut. So you have one vocal side of the Fed debate, wanting to cut rates, you have another vocal side of the Fed debate wanting to have a more balanced view moving ahead, meaning there might be a rate cut or rate hike might be the next step higher, not the rate cut that we'd all been expecting for a long time.

And meanwhile, the Fed looking ahead to next meeting, which is in June, where we're over 90 % chance as it stands for rates to remain the same again. So you have the Fed who's kind of long wanted to do another rate cut, at least in terms of the rhetoric that has been given, but inflation just hasn't allowed it to do so.

We also have jobs data coming next week. The job market has been real murky. So you have situations like the hiring rate is at, you know, a sustained level that hasn't been seen since, you know, 2008 kind of range. Meanwhile, you have initial jobless claims at multi-decade lows.

So you have a situation where overall in the economy, know, big tech companies aside, layoffs are pretty rare. But meanwhile, hiring is also kind of restrained. So I think you see employers doing kind of a wait and see approach on the on the overall economy.

And so despite all this, despite interest rate uncertainty despite economic uncertainty, despite the situation in the Middle East and oil prices being what they are. The stock market just keeps cranking up and it's all because of the hope for AI and tech generally.

Rena Sherbill: And because the anti normalcy is priced in like normalcy at this point, yes?

Brian Stewart: Yeah, I think that's true. I think there's a sense in which, you know, like, like too much chaos, just you just ignore it. You know what I mean? Like you can't respond to every headline. You can't respond to every sort of, you know, both in politics and in the economic sphere. I do think there's a sense in which, you know, just kind of put your head down and deal with.

Rena Sherbill: We're mere mortals, Brian, we're mere mortals. We can only deal with so much before we just get back to factory settings.

Brian Stewart: Well, also, think earnings is very concrete, right? And something that you can dig into a balance sheet. You can dig into these conference call transcripts and things like that. And that, I think, feels more real to investors than the geopolitical situation, which seems to change kind of day to day. And you don't quite know what to trust in that. And so I think you just sort of default, like you're saying, to factory settings.

Rena Sherbill: I'll take the promise of a new day for $200.

What would you say given that it was Powell's last meeting, we were discussing on Wall Street Breakfast podcast this week how a lot of eyes and ears were on the post-meeting commentary as opposed to the actual meeting commentary. Anything else to add there?

Brian Stewart: I'm sure there's going to be a lot of reviews of the Powell era. I think a lot of people feel that Powell is a little slow to respond, especially after COVID and as inflation started to creep up, I think that people think that he waited too long to take care of that.

And we might still just be dealing with that. And the Fed in general for 20 years now at least has had a a bias to keep rates sort of as low as possible, like keep the economy cranking. And I just don't think that like it was part of anyone's playbook to have to deal with inflation the way we had to deal with it after covid.

So I think Powell kind of goes out on like a mixed bag, I think generally respected, but might not have been kind of up to the challenge, the most vital thing.

But I do think that in terms of his legacy, think standing up for the Fed's independence, I think he was sort of unflustered in really unprecedented situations. I mean, I can't think of a situation where the president is actively working to push him out of a job to the extent where you're kind of holding a criminal investigation over his head as part of it.

But in terms of public performance, Powell never cracked, he sort of maintained the kind of quiet confidence that one expects of a Fed chair. So in a way, it's kind of a tough act to follow.

I think Warsh is coming in with a difficult situation in that, you know, all the political pressure to lower rates. But according to current trading patterns, it doesn't feel like the market thinks that that lower rates are in the cards for any foreseeable future.

So I don't know that he can come in and kind of be as dovish as he'd want to be.

Meanwhile, the situation with the Fed independence is still up in the air. That's still a fight that needs to be fought. And so I think that's going to be... coming in as Trump's nominee. It's kind of a double edged sword in the sense that he has - for Trump to then start pushing on Warsh the way he was pushing on Powell would look bad. You know, I nominated this guy, I got him approved and now I'm going to criticize him. So it might give him a little bit more leeway, kind of in the only Nixon can go to China kind of way.

But on the other hand, he might have to deal with the pressure that Powell has as well.

Rena Sherbill: We talked about Apple being part catalyst for this NASDAQ move upward.

Intel (INTC), another tech stock that was rising after earnings. Microsoft (MSFT), on the other hand, doing the opposite, declining down after earnings.

What would you contextualize about those two stocks as we're winding down this week's earnings conversation? Although also Robinhood (HOOD) is in that mix as well, not in the tech sector, but earnings-wise.

Brian Stewart: On Intel, we didn't get a chance to talk about it last week, but the stock popped 24 % after we reported earnings last Friday. It's up again this week. It was up 12 % on Wednesday. It was up about 5 % as we started recording here today, setting a new high with its earnings rally.

It jumped above its dotcom peak for the first time. So you're talking about, a legacy stock that finally topped a level that it saw 25 years ago.

Overall, the stock has more than doubled in the past month of 111 percent. It's up 168 percent year to date, up almost 400 percent in the past year. So Intel, which is like a real also ran in the overall kind of chip space. I think there's a lot of confidence that it's turned around what it was trying to do.

I think at this point, the concern is just whether or not it's already priced in whatever upside there is in the future. There's a split among the Seeking Alpha analyst community. You have 11 buys and strong buys. Meanwhile, you have six sells and strong sells and 15 holds. So you really have an across the board kind of opinion on what's next for Intel.

Looking at Microsoft down about 4 % after its earnings, like you said, apparently this is always the case. We had a headline recently that this was the 13th consecutive earnings day decline for Microsoft.

So it seems like Microsoft's shareholders just kind of a curmudgeonly group. thinking like Tony's mom from the Sopranos just always kind of like low key disappointed. It's got a real Livia vibe in the Microsoft shareholder base.

And meanwhile, the company beat expectations of earnings and revenue Azure revenues up 40%. Now I will say the stock is up 12 % for the month and so like some of that might just be kind of a sell on the news kind of situation, but Microsoft is also down 14 % year to date, so it's not participating in the same kind of upward momentum that we're seeing in a stock like Alphabet.

In other news, the company restructured its deal with OpenAI, so no more exclusivity as part of that deal.

Also, there's new financial terms. OpenAI had kind of a tough run of headlines lately, the latest being the Elon Musk lawsuit where Elon Musk said that he was a fool for investing in OpenAI, a nonprofit organization.

So maybe that relationship is kind of weighing on the stock a little bit.

I just think that Microsoft is just in a different place. I just think that it's a little less clear what the future holds in terms of how it's going to use this because for a while it seemed like it was in the kind of pole position just with its relationship with OpenAI, but now it feels like that's less of an asset than maybe it seemed six months ago.

And so I think you're seeing, especially with the giant amount of spending from the other companies trying to catch up in the AI space that may be least perceived by Microsoft shareholders, it might've lost some of the momentum that it once had.

Rena Sherbill: Robinhood, I did quasi promise that we discuss those earnings.

Brian Stewart: Robinhood is just kind of taking it outside the tech world a little bit. Down 13 % after its earnings, missed expectation. A large part of that was a drop in crypto trading. So that was down 47%. Offset a little bit by a modest increase in options revenue and then equities revenue was up sharply, but equities is a much smaller part of its business than crypto is. So I think you're just seeing that as

attention turns away from crypto, especially with younger investors. I just don't think that the action in Bitcoin, especially in the past year or so has been enough to hold the attention of that. also think that the rise of the trading markets and just sort of betting in general, I think that for a younger cohort of investors, they just view investing more in sort of speculative terms. So they see it more as similar to sports betting or similar to prediction markets. And so I think that a stock like Robinhood, which sort of pitched itself into bringing new people into the investing sphere, I think it might've just sort of fallen behind.

in terms of its ability to appeal to these more aggressive investors.

Rena Sherbill: What do we got next week?

Brian Stewart: So next week, like I said, jobs data, we also have more earnings coming in on the AI front. I think the two interesting ones are Palantir and AMD. Palantir is on the, there's concerns that AI competitors like Anthropic are going to start, you know, chipping into its business. The stock as well, if it's high, is down about 2 % over the past month. It's down about 19 % year to date. So you see a lot of skepticism.

going into these earnings. So I think it's a real kind of show me kind of quarter for Palantir. Meanwhile, AMD is kind of the opposite story up 69 % in the past month being buoyed by the enthusiasm that we've seen for all these AI infrastructure stocks. But the question becomes, you know, will the results be enough to justify the how far it's come already? So I think

Everyone kind of expects a blockbuster quarter for AMD, but is it to be blockbuster enough to kind of push it further.