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Oracle’s earnings showed mixed results, leading to an 11% drop (0:15). Broadcom’s strong earnings overshadowed by warnings of margin pressures (2:30). AutoZone’s miss highlights broader economic challenges (3:25). Airline relief rally following government shutdown (5:30). A streaming bidding war (7:05). Nike and FedEx earnings will provide insights into consumer spending (8:45). Explaining market uniformity and fluctuations between excitement for AI and concerns over costs (10:00). The Fed’s uncertain policy, with multiple dissents (15:25).
Transcript
Rena Sherbill: Brian Stewart, welcome back to another week of Wall Street Roundup.
Brian Stewart: Great to be here.
Rena Sherbill: Talk to us, what are you looking at this week?
Brian Stewart: I think the biggest headliner is Oracle (ORCL) dropped about 11% after its earnings report. Mixed results, beat on earnings, missed on revenue. Had been up seven consecutive sessions head into earnings. So to a certain extent, the 11% drop was just giving back the heightening expectations going into the earnings report. But if you pull back a little bit and compare this to the last earnings report, you kind of have a
A tale of two quarters going on. So in September, the company popped 36 % following its quarterly report. Then the main driver there was a huge rise in remaining performance obligations. This is a measure of future contracted revenue. At that point, the RPO was up 359 % hitting $455 billion. In this quarter, RPO was up 438%.
Bigger growth and reached $523 billion, so a larger overall number. So conceivably, investors should be pretty excited about this continuation of growth. But last time, stock was up 36%. This time it’s down 11%. Also, it’s been falling off since it popped in that September timeframe. It’s been giving back a lot of that.
It’s now down 40 % since that post earnings jump back in September, mostly worries about spending in debt. you dig into the results a little bit. looking at Oracle’s cloud revenue was up 34 % in the most recent earnings report software revenue is down about 3%. But then if you look at expenses operating expenses for the cloud software segment, we’re up 45%. So you see a continuation of the theme we’ve been seeing where there was a lot of.
AI related excitement around a lot of these companies in the wake of announcing new deals, getting the orders for the AI products that they’re providing, but then a realization among investors of the costs associated with building out that infrastructure.
So there’s a lot of worries around Oracle that it’s taking on too much debt, its spending is rising faster than its revenues. And I think that’s been holding the stock back after the earnings recently.
Rena Sherbill: We saw some earnings from Broadcom if we keep on with that sector. What did you see out of them?
Brian Stewart: Yeah, actually, Broadcom’s (AVGO) a very similar story. It rose initially as earnings were released. It had pretty strong results and a strong forecast.
However, in the conference call following the earnings report, management warned of margin pressures. It attributed this to a higher mix of AI revenue. And now as we started recording, the stock is down about 10 % on Friday. So you have another situation where strong headline results are being undercut by worries about costs.
So I think this is going to be an ongoing theme as we see earnings come out, see whether or not these companies can actually get revenue to to match the costs are being put into building out the infrastructure for this.
One thing I’d to note is this isn’t completely limited to the tech space. Another earnings report that came out this week was AutoZone (AZO). It fell 7 percent after its earnings. It missed expectations, even though Sandstorm sales were up 4.8 percent for the quarter that was below expectations and then margins were hurt by inflation, basically higher costs cutting into it.
AutoZone’s a company that when you see cars getting too expensive, AutoZone’s an auto parts retailer. When you see cars getting more expensive, you see people trying to keep their cars on the road longer, avoid buying new cars.
And so to a certain extent, you’d expect AutoZone to see a boost in murky economic times as people try to get the most out of, you know, whatever they got in the driveway now.
But you’re seeing them unable to sort of capitalize on that situation because their costs are going up. And so I think this is a broad, even beyond AI, even behind tech, I think you’re seeing a lot of companies struggle with the cost to revenue equation.
Rena Sherbill: And then if we stick with the transportation theme, we’re looking at airlines. We’ve got some stocks there that have been up for consecutive days, up quite a nice amount.
And everybody knows the flying industry has been going fantastic. Everybody’s experience in an airport, on an airline. I know everybody can join in chorus that it’s been really something to mimic and imitate. So obviously those numbers are up, sarcasm included and hopefully acknowledged.
Brian, what would you say about Southwest (LUV), JetBlue (JBLU), United (UAL), all those stocks that are seeing some nice gains, Delta (DAL)?
Brian Stewart: A large chunk of it is just relief rally after the government shutdown ended. You see the the Jets ETF, which covers the airline sector, is up 14 % since the end of the shutdown. Basically, these stocks were going into Thanksgiving with a shutdown happening, the likelihood of having to cut back flights dramatically.
This is the key time for a lot of these airlines to book some revenue during the Hollywood Hollywood, they during the holiday travel part of the year. And so being able to resolve that before you hit the crisis point towards the of the year gave a huge boost to these. None more than Southwest among the larger airlines.
So it’s 30 up 31 percent since the government shut down, its currently up for today, which would make its ninth straight day of gains. If it does finish higher today, it’s going to be up 13 out of less 15 days. So you see a general meltup in the sector. Southwest, I think, is getting a boost from its general turnaround plans. I think that’s why it’s being rewarded as one of you know, spots that in the sector that people are putting money.
Basically Southwest becoming more of a quote unquote normal airline. They’re changing their boarding pattern. There was a story earlier this week that they’re thinking about having first class on some of their flights. So the idea of Southwest is sort of, know, everybody just kind of grabs whatever seat they can is changing.
And like you pointed out, the other airlines are also seeing pretty notable growth over the last few weeks. So JetBlue up 13 % since the end of the shutdown, United up 14%, American (AAL) up 15%, and then Delta is outpacing that little group by being up 22%.
So there are places in the market, you know, with Oracle down, with the general AI sell off think there’s a little bit of worry, kind of gloom and doom, but there are pockets where investors are finding places to make
Rena Sherbill: And is now the time that we talk about Netflix (NFLX) and Warner Brothers (WBD) and Paramount (PSKY) and a bidding war. We’re in a bidding war.
Brian Stewart: I feel like we’re going to be talking about this on and off for a while now.
Rena Sherbill: Fingers crossed, Brian, fingers crossed.
Brian Stewart: Indications are this is good. Indications are this is going to stretch into 2026. You’ve got the bidding war itself going on, whether Netflix is going to win or Paramount’s going to win. And then you have the eventual. Antitrust discussions, whoever buys it, I think.
The feeling now is that the Paramount bit is a little more concerning in terms of antitrust, but then, you know, there’s the feeling that the paramount is closer to the administration. So maybe that gives them a little easier time. So those kind of considerations are going to play out over time. I think in terms of the industry in general, I think this is a sign that the content remains king.
And even there’s been a big push for the streaming services to get more into live events. So you see things like boxing on Netflix and you see, you know, football on various streamers and things like that. I do think that the desire for these companies to get the Warner Brothers assets, the studio and the library, I think it’s a sign that there’s still some room for more traditional movies, TV shows, things of that nature.
We also see Disney (DIS) up recently. Disney had a deal with the OpenAI (OPENAI). So it’s another content focused company that’s been getting some attention lately. So I think you’re seeing a resurgence in interest in the more traditional content producer.
Rena Sherbill: And earnings wise, theme wise, what are you looking at next week, stock wise?
Brian Stewart: So as we head into the holidays, the pace of earnings is starting to turn into a dribble. But there are also some interesting stuff coming out. Nike (NKE) coming out next week. That’s going to give a good indication of consumer spending habits. So look for the commentary there.
Another key one is going to be FedEx (FDX), especially as we start moving into the holiday shipping season, or more than move into like we’re at the height of it now. So you’re to get some commentary from them about how things look. So that’s that’s going to be an early holiday shopping signal will be what FedEx has to say about that.
And then there’s a couple of homebuilders, Lennar (LEN) and KB Home (KBH) reporting. So that’s another key part of the economy that I feel has fallen by the wayside. I mean, part of the whole affordability discussion that’s been going on is the high price of homes and the fact that you have to be a 50 year old software engineer to afford a house these days.
I feel like overall the housing industry in terms of the stock market has been greatly overshadowed by tech. And so it’ll be interesting to kind of see what’s the conditions of that market.
Rena Sherbill: And anything to say about tech trading so uniformly? Any more insight to provide there? We’ve seen it so much, any words to give to investors about that?
Brian Stewart: Yeah, I feel like some of these swings might feel little arbitrary to investors as you’re looking at the market in more casual way.
And I’m especially thinking about what we were talking about the Oracle situation where sort of similar results got a huge pop in September and a decline in December when the next earnings come out.
This kind of uniformity that you’re seeing, I think it’s just the way investors are metabolizing these results. I’m trying to think of a nice word for group think, but there’s kind of a broad consensus that has been shifting between excitement for the prospects for AI and then an understanding that there’s, you have to kind of buy those, buy that opportunity with the build out of the infrastructure here.
And I think in the early stages of that, people were sort of excited about the build out because it meant huge growth at places like Nvidia. But then when you start moving down the line, somebody’s got to pay for that. So you see the Oracles, you see the Metas (META), you see a lot of these companies that are footing the bill for all these, the AI infrastructure that’s being built out. And so I just feel like investors sometimes bounce back and forth between that excitement and the concerns that maybe that growth horizon is further out than we expect.
Rena Sherbill: It seems very similar to me to the cannabis industry and also the human nature of building something up only to later take it down, which includes a fierce amount of hope and build up to your point, which is not necessarily, and I think it seems to me now oftentimes not, predicated on a lot of hard numbers, but mostly a lot of speculation and promises of expected growth that does not always come to pass.
Speaking of cannabis, as we’re looking at this rescheduling announcement that may be coming from Trump next week, which has been bandied about for so long. So to your point about groupthink and what that brings to the markets, it seems a pretty strong case of that.
Brian Stewart: I mean, the cannabis comparison is interesting. A little different in the fact that the cannabis situation is really kind of a regulatory concern, which in a way is less rational. Yeah, then the market conditions for AI, at least those can be sort of predicted in a meaningful way.
Not that anyone ever gets them exactly right, but still, you’re dealing with laws of economics rather than just whatever goes on in Congress behind closed doors.
Rena Sherbill: But if I may, I would also add though that tech, at this point especially, is definitely influenced by regulatory pressures and things of that nature. I mean, China and Nvidia (NVDA) and the chips and all of those different factors, I think also a big part of things and how much jockeying tech is doing in government.
Brian Stewart: Yeah, that’s an excellent point, especially the foreign trade aspect of it. I was thinking about more in terms of the situation where Nvidia doesn’t have to worry that it can’t open a bank account in certain states, but yeah, I think that’s an excellent point.
Rena Sherbill: For sure. There are differences, for sure.
Brian Stewart: That you have these you have an endpoint, an investor has an endpoint in their mind of where they think this this company is going to end up. But you get so focused on that far horizon that you don’t see the obstacles in front of you. You have to crawl through a swamp or over a mountain to sort of get to that point far off in the horizon.
And so I think there’s a sort of a reality that you take that step in the swamp and, know, for the first time your foot gets wet that you start to think, wow, is this worth the journey? And so I think that’s sort of the complication that investors are struggling with.
And that’s why I think you’ll see these waves of excitement. And I think some of the like you were talking about the sort of group thinker, the consensus investing, I think a lot of it is kind of a FOMO when stocks go up, you don’t want to be the person left behind when the AI train really hits high gear. But then you don’t want to be the last one holding the bag if there’s going to be a bubble popping.
So I think that the very fact that there’s so many conceivable outcomes, at least in the near term, you’re talking, you know, 2026, 2027. People are speculating anything from a new wave of growth for AI is all the infrastructure is laid and now we can finally just hit the gas on bringing in these revenues to this bubble is going to burst. And the entire economy is going to get sunk by the money that’s been wasted on AI.
And so when you’re dealing with those two different possibilities and everything in between, I think it makes sense that investors might bounce around a little bit in their judgment.
Rena Sherbill: Hashtag human nature, hashtag market sentiment. Speaking of group think and dissenting from group think, we’ve got the Federal Reserve meeting, which we’ve talked a bunch about this week on this very podcast and elsewhere on Seeking Alpha.
What would you contextualize for the people when it comes to that meeting? A lot was expected, but the dissension is growing.
Brian Stewart: Absolutely.
I think this is one of the most uncertain times in terms of Fed policy that I can remember, except during sort of an emergency situation like COVID. But even in a situation like COVID, you can kind of predict what the Fed’s going to do.
But in this situation, we had three dissents for the vote that eventually cut rates. And of those dissents, two wanted no cut and one wanted a 50 basis point cut. So even among the dissents, there’s not a consensus of where it’s not like there’s two camps in the Fed kind fighting it out. have, you it’s not even three, you you’ve multiple people with multiple visions of what’s going to happen in the near future.
You kind of land on a consensus, but I think it’s papering over. And I think it makes it difficult for investors to kind of predict where interest rates are going to go. The general consensus now is that interest rates can be relatively stable in 2026, the dot plot that came along with the the Fed announcement.
The consensus was for one cut in 2026. That’s roughly in line with what markets are saying. Markets are saying basically a 32 percent chance of two cuts in 2026, 24 percent chance of one cut. So basically between 25 basis points and 75 basis points lower at some point in 2026.
You also see inflation staying kind of stubbornly above the 2 % target in 2026 and maybe coming back to where people want to be in the 2027, 2028 range. So you’re still looking two years, maybe three years to kind of win the inflation fight that’s happening.
But you have an economic situation where the perception seems to be within the Fed that the economy’s too fragile to keep rates high for any meaningful period of time. So, you know, you’re just going to have to win a war of attrition against inflation, which is difficult for consumers who are already worried about affordability, who are already starting to put back their spending.
That’s the conditions that are coming into play. And then next week, we’re going to start getting the up to date, more current economic data. So we’re going to finally get the November jobs report in the middle of the week next week. And we’re going to get the CPI report in the middle of the week next week.
So we’re going to start to start to catch up to where we were in terms of incoming data before the government shutdown. So that’ll give a little bit better real time information. I mean, it’s always a little backward looking, but more real time than it has been.
As we go into the holiday season, you’re gonna see volume drop, you’re gonna see maybe room for more swing. Quiet on news, but maybe a little jumpy in terms of stock movement.
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