Looking at Big Tech's 'Mixed' Results

A post-Fed meeting market... Trump replies to Powell... Mag Seven earnings get started... Looking at Microsoft, Tesla, and Meta Platforms... An opportunity from the panic... The macro data Wall Street liked today...

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Before we get to anything else today...

I (Corey McLaughlin) must acknowledge what appears to be a tragic accident in our nation's capital last night. As you've likely heard, a U.S. Army Black Hawk helicopter collided with an American Airlines passenger jet attempting to land at Washington, D.C.'s busy Reagan National Airport.

Our thoughts today are with the families and friends of the more than 60 people on board the commercial flight and the three soldiers in the helicopter, who all perished in the crash.

Of course, an event like this – the first deadly crash of a U.S. commercial passenger airliner since 2009 – raises questions about airline safety and national security, given the location.

Here's what we know as we write: New Secretary of Defense Pete Hegseth said this morning that the helicopter pilots were "fairly experienced" and were scheduled for a required, annual nighttime proficiency training flight. And, according to air-traffic control audio recordings, a controller at Reagan Airport asked if the helicopter saw the jet and then instructed it to fly behind its path.

Investigators are looking into why the helicopter collided with the jet, which took off in Wichita, Kansas. American Airlines CEO Robert Isom said today, "We don't know why the military aircraft came into the path of the PSA aircraft," referring to the name of the regional carrier subsidiary operating the flight under the brand name American Eagle.

Reagan Airport reopened late this morning.

From an economic view, it's hard to say what impacts the airline industry will see in the short or long term. On an average day, 45,000 flights take off and land in U.S. airspace. But we're sure travelers today are more concerned about flying than they were before the accident.

Onward, to a post-Fed meeting market...

A day after the Federal Reserve elected to keep its benchmark lending-rate range steady, all the major U.S. indexes were up. The benchmark S&P 500 Index closed 0.6% higher.

As we reported yesterday, during Fed Chair Jerome Powell's press conference, he also gave a hearty "no comment" response to questions about President Donald Trump's "demand that interest rates drop immediately" when oil prices go down.

Predictably, Trump made a reply of his own on social media, about an hour after Powell's press conference wrapped up. He said...

Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing...

Trump's post also suggested that if the Fed spent less time on progressive policies, inflation would never have been a problem. But interestingly, one thing the response didn't include was... a demand for lower interest rates.

We're getting deeper into earnings season...

As we noted on Monday, earnings season has kicked off. More than 100 of the S&P 500 companies report quarterly results this week, including four of the so-called Magnificent Seven.

Three of those companies – Microsoft (MSFT), Meta Platforms (META), and Tesla (TSLA) – released results yesterday after market close. And the market had very different reactions to each.

Let's start with Microsoft... On the surface, the software giant had a solid quarter. Earnings and revenue both came in ahead of Wall Street's estimates, and net income jumped more than 10% from the same quarter a year ago.

But investors seem to be focusing on the slightly slower growth in Microsoft's Azure cloud business, which came in at 31% versus 33% in the prior quarter. Microsoft's Chief Financial Officer Amy Hood also said the company expects 31% to 32% cloud-business growth in the current quarter, which indicates flat growth and is below Wall Street's expectation of 33.4%. Microsoft shares traded down 6% today as a result.

Moving on to Tesla... The electric-vehicle company missed on both sales and earnings. This comes after Tesla's report earlier this month that it saw its first-ever decline in annual vehicle deliveries in 2024.

But CEO Elon Musk's positive outlook on things like Tesla's "full self-driving" software – he said it will be coming to Austin, Texas in June – appears to have appeased investors. Shares of Tesla were up about 3% today.

As for Meta Platforms... Sales, earnings, and daily users all came in above estimates.

While the company didn't give a specific growth target for 2025, CFO Susan Li said that Meta expects strong revenue growth on top of 22% growth in 2024. And CEO Mark Zuckerberg said that he predicts Meta's artificial-intelligence ("AI") chatbot will reach 1 billion monthly active users in 2025, after hitting 700 million active users this month. Meta shares gained 1.5% today and closed at a new all-time high.

These three companies make up more than 11% of the market-cap-weighed U.S. benchmark S&P 500. So they can pull markets in one direction or another. But their results made for a wash today. Gains in Tesla and Meta offset Microsoft's drop.

Big Tech's first crack at answering the 'DeepSeek question'...

Yesterday's earnings announcements came just a couple of days after DeepSeek – a China-based AI model that's reportedly cheaper and more energy efficient than U.S. versions – kick-started a pullback in U.S.-based tech stocks.

Meta's Zuckerberg said that it's too early to tell the full implications of a cheaper AI model like DeepSeek. He said the company isn't making any changes to its spending, which it forecast as between $60 billion and $65 billion for 2025. And he said Meta will continue to spend heavily to build an advantage in AI.

Meanwhile, Microsoft still expects to spend another $30 billion in capital expenditures over the next two quarters as it adds AI to its products and services, and DeepSeek's AI model is even available on its Azure platform.

Outside of the Magnificent Seven, chipmaking equipment giant ASML (ASML) has its own take on DeepSeek. CEO Christophe Fouquet said that an AI model that lowers costs wouldn't be a bad thing for the company.

In fact, Fouquet said that making it cheaper to develop AI applications will result in more apps being built, requiring more chips. And as the leader in advanced chipmaking equipment, that's a positive sign for ASML.

An opportunity in the fallout...

In short, the early response from tech companies seems to be that they're not panicking from DeepSeek's emergence on the mainstream AI stage. On Monday, we called the dramatic sell-off in all "AI stocks" an overreaction.

If you agree that Monday's sell-off was overdone, it could be a good time to pick up some shares of quality companies.

That's what our colleague and Stansberry's Investment Advisory lead editor Whitney Tilson wrote about Meta in his free daily newsletter today. After sharing his review of Meta's quarterly report, Whitney offered this conclusion...

At a close of $676.49 yesterday, that meant [Meta] stock would be trading at 26.6 times the consensus EPS [earnings per share] estimate of $25.42 for this year (coming into the earnings report). But Meta blew past EPS estimates and gave solid guidance, so analysts are scrambling to revise their models.

In summary, the stock of one of the greatest businesses of all time, which is firing on all cylinders, is currently trading at a price-to-earnings multiple around that of the average large American business (i.e., the S&P 500 Index). That makes no sense, considering its phenomenal rate of growth and the sheer reach of its products across the globe.

With all this in mind, Meta's stock looks downright cheap at current levels.

You can read Whitney's full analysis, for free, here... and we'll keep an eye on the rest of Big Tech earnings this season.

Apple (AAPL) reports after the close today, and Alphabet (GOOGL) and Amazon (AMZN) are scheduled for next Tuesday and Thursday, respectively. And Nvidia (NVDA) will bring up the rear of the "Mag Seven" near the end of February.

One more 'macro' note...

Today, Uncle Sam published the first estimate of fourth-quarter GDP. The government reported 2.3% annualized growth for the quarter, which was lower than consensus economists' estimates and the 3.1% growth rate in the third quarter of 2024.

The market opened this morning a bit higher on the report.

I suspect that's because it suggests the U.S. economy isn't running "hot" and that the Fed could lower interest rates some more this year as the pace of inflation drifts lower. That's Wall Street's expectation, at least. But, as we know, surprises can and do happen.

New 52-week highs (as of 1/29/25): Agnico Eagle Mines (AEM), Alpha Architect 1-3 Month Box Fund (BOXX), Cencora (COR), Viant Technology (DSP), HealthEquity (HQY), Kinross Gold (KGC), Grand Canyon Education (LOPE), Meta Platforms (META), Plains All American Pipeline (PAA), Starbucks (SBUX), Sprouts Farmers Market (SFM), Spotify Technology (SPOT), Visa (V), and VeriSign (VRSN).

A quiet mailbag today, but one quick housekeeping note... Our annual Report Card is coming soon. As always, send your comments and questions to feedback@stansberryresearch.com.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
January 30, 2025