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Tesla’s bad report (0:20). Google’s outstanding report (2:50). Chipotle down after earnings (4:40). Return of the meme stocks (6:30). Big 4 reporting next week (12:50). Fed commentary coming (16:45).
Transcript
Rena Sherbill: Brian Stewart, Seeking Alpha’s Director of news, welcome back to another week of Wall Street Roundup.
Brian Stewart: Great to be here. Thanks a lot.
RS: Our episode on Investing Experts yesterday was talking about waiting on tech earnings.
We’ve seen some of those come out, especially if you consider Tesla (NASDAQ:TSLA) a tech stock, company. Talk to us about what you’re seeing. Is that top of mind for you right now, the earnings rolling in?
BS: Definitely. This was the first week of really blockbuster type earnings, after a little bit of a lead up last week.
Tesla, like you point out, is one of the the biggest names. Got a bit of a rebuke from shareholders. It’s down about 9% after its earnings. Overall, bad report, but kind of expected that it would be bad.
Revenues down 12%. Unit sales down 14%. Net income down 23. The thing that I think is chipping away at the company’s stock price today is the commentary from Elon Musk. He warned of a few rough quarters ahead.
I think a lot of people had hoped that Tesla had already kind of bottomed in terms of the political backlash and in terms of just the general core automotive business that might be returning to an upswing.
There are some signs that might not be the case, that investors should get ready for some bumpy waters ahead. Talk of tariffs, margin pressures, higher costs, just general economic worries along with the the problems that Tesla’s faced so far this year.
On the other side of the spectrum, Musk aggressively popped up the longer term tech bets that they have, specifically robotaxis and the humanoid robots. He promised that autonomous ride hailing would be available to half of the US population by the end of this year.
I think that the fall in the stock price and some of the commentary afterwards suggests that there’s some skepticism about that. Musk is pretty famous for making aggressive predictions and then just ignoring the fact that they don’t come true.
So I think that there’s a sense that maybe the auto business has deteriorated faster than people had feared, and the longer term bets are further off on the horizon than they had hoped.
And so there’s going to be a period of time where there’s gonna have to be a catch up for that.
RS: What other stocks would you add to the post earnings conversation?
BS: The biggest other stock to look at is Google (NASDAQ:GOOG) (NASDAQ:GOOGL). As opposed to Tesla, had a a pretty outstanding report, beat expectations led by cloud growth. Cloud was up 32%, but there’s also 12% growth in search.
There have been worries that the new AI competitors are gonna cut into Google search revenue, and that didn’t happen. In fact, search was up pretty strongly. YouTube ads was also up 13%. That’s a critical part of the business now too.
So all in all, strong report, the stock only up marginally after earnings was up about two percent earlier and is now just sort of hovering just above the flat line.
It had been drifting higher going into the earnings report. In fact, going into Wednesday, when the earnings came out, it was up 10 sessions in a row. So there was pretty good sense on Wall Street that strong numbers were coming. Google fulfilled expectations in that regard and is holding steady.
Longer term worries about valuation in the stock has already come up pretty strongly in the last few months.
The existential potential existential threat from AI is still hovering for the first time really since Google became a public company. I think there’s a sign that its dominance in search might be at some point in the foreseeable future in doubt. And I think it’s changed some of the thought around Google.
So I think that’ll be a longer term conversation, obviously, but I think it’s gonna be baked into every earnings report from now on – where is search sitting versus its AI competitors and what other businesses is Google ramping up to to take the load off of search as the key driver for the company.
RS: Outside of tech, what are you seeing? What stocks are at the top of your list right now?
BS: I think Chipotle (CMG) is an interesting one, down 13% after its earnings. It missed revenue estimates. Comparable store sales were down, which is rare for Chipotle.
Transactions were down about 4.9%. Margins were actually down a little bit as well. The company’s seeing some inflation, but has offset a lot of that with higher prices and, efficiencies.
But I think that’s just a worry in general, a popular retail sock like Chipotle, one that’s very tied into the consumer, a little higher price in the overall fast food market, an upper scale fast food place.
So if you’re seeing a few cracks forming there, I think there’s concerns that that’s tip of the iceberg in terms of a consumer that’s starting to be more guarded about making expenditures.
RS: About their burrito choices.
BS: Exactly. Burrito budgets are shrinking.
RS: Inflation is hitting all components of the sectors.
T-Mobile (TMUS) saw some gains also. Are there other stocks that you would say had notable movements to add to that conversation? And what would you say about T Mobile’s move?
BS: I think T Mobile’s a good one to point out. Beat on new subscribers raises guidance. I think it’s interesting because it’s outside of the broader tech AI landscape.
It’s not a sexy company. It’s not one that growth investors might have on the radar, but it’s interesting that it’s just blocking and tackling getting new subscribers, churning higher.
Looking beyond the headline, it’s interesting to peek under the hood for a company like that.
RS: What else do you have to say about the markets these days? Some volatility, some positivity, some skepticism. Where are your thoughts right now, or what are you seeing out of the marketplace?
BS: So I think, return of the meme stocks this week has been an interesting one, I didn’t quite have that on my bingo card. They being the general market chatter has boiled down to the dork stocks.
So you have Krispy Kreme, (DNUT). You have Opendoor (OPEN), Rocket Mortgage (RKT), and Kohl’s (KSS), so that’s DORK.
But, honestly, it’s a broader group of stocks. There’s quite a few that are have seen surprising jumps higher. You have iRobot (IRBT), GoPro (GPRO), Red Robin (RRGB), Denny’s (DENN), and this is just a a relatively short list of some of the stocks that have seen it. And the factor that is similar for all of these is just that they were heavily shorted.
So you’re seeing short squeezes in these stocks that I would say have a name or are known by retail investors. The interpretations for this can be wide open.
Like why the meme stocks are back now. There could be an argument that’s frothing the market, and maybe it’s a negative sign, a bear sign that the market’s reaching a top.
It might be a sign that a certain segment of the retail investor class is getting bored for lack of a better term, that the mind share of AI and tech stocks is shrinking, and so they’re looking for other places for a pop.
If NVIDIA (NVDA) is not gonna pop 10% after earnings anymore, then there needs to be other ways to get that high. And so you might see that group of the investing segment looking for new ways to get those heavy one day jumps.
It might also be just one of those things, there’s a class of retail investors who are meme stock devotees, and it’s gonna come. It’s almost like living on a fault line or living near a volcano. Every once in a while, it’s gonna pop up. The only thing they really have in common is that they were heavily shorted.
RS: But why are they heavily shorted? Like, what catalyzed them into that group?
BS: It’s a diverse group. I mean, you have iRobot. You have GoPro. So those are those are consumer facing tech companies. But you also have very mundane companies like Red Robin, Denny’s, companies just going about their business.
And I think that the shorting aspect of it probably comes about because of worries about the consumer and worries that some of these stocks are either over leveraged, I mean, it’s hard to talk about them as a group because each of the decisions might be very specific to that stock.
But I think if you’re taking them as a whole, the idea that there were a lot of heavily shorted stocks to take advantage of in this light is probably a sign that there’s another class of investors.
The sort of anti meme investors who are beginning to get a little skeptical about some of the areas of the market where things like higher costs inflation, things like a more cautious consumer, places where there are companies that have put themselves in a precarious position if those are the factors that are gonna take hold as we move forward.
RS: And forgive my banal question, but how it works is basically this is done on a large scale over a few investing firms?
BS: Yeah. So you have a ringleader who’s able to identify these opportunities, and they will stir up a following online to buy these particular stocks that’ll spark a short squeeze.
So there’ll be programmatic trading at the firms that are shorting these stocks that if it gets above a certain level, it’s gonna automatically cover the short.
And so as the the meme stock traders are trying to trip those wires, the covering of the short is a process of buying the stock so that sends it further higher. So it becomes a self fulfilling prophecy. Like, once you hit those auto triggers, you can send it higher.
It’s sort of like a rock sitting on the edge of a cliff. If you can put enough sort of oomph into it, you can get it over the cliff, then gravity does the rest. The metaphor kind of breaks down because the stock’s moving up, so the gravity seems to be pointing the other direction.
RS: Right before it moves down.
BS: Right. Well, there’s that too. I mean, the key of any meme stock strategy is knowing when to sell. It can go up like we saw the first time that this was prevalent is it can go up a lot further than anyone could possibly guess.
Though in that first one, there were a lot of news reports of people who held on past ridiculous levels and ended up not making too much money off of a bet that should have made a ton.
So we’ll see. It complicates the trading landscape in the sense that none of the people who are doing these meme stock pops that are leading that charge, they’re not long term investors in the stock. They’re not there for the three, five year time horizon.
So if you’re an investor in Red Robin just to pick one at random or Krispy Kreme, it’s a roller coaster, and you have to decide whether or not this is a lottery ticket that you were gifted, and now you just cashed in.
You got this 30% jump on a day, so I might as well get out of the stock now. Or if you’re just gonna ride the ride because you’ve got a lot of hope in the company long term.
RS: That Investing Experts episode I mentioned where Jay Hatfield is talking about waiting on tech earnings. And by the way, he’s bearish on Tesla. He was talking about the notion of getting in and out of these stocks, not just meme stocks, but obviously certainly pertains to that, is the difference between gambling and investing.
So interesting to see where your risk level is, what your stress tolerance is. All of those things are important to suss out before entering that fray.
We started the conversation with earnings. We have a slew coming up next week. What would you say investors should be on the lookout for?
BS: The big four next week are Microsoft (MSFT), Meta (META), Apple (AAPL), and Amazon (AMZN). They all have a different story going on.
Just looking at Microsoft first, it’s just off its fifty two week highs now. Recently reached them and drifted off of them. It’s up 48% from its April lows. Positives going into the earnings report, Azure growth and partnership with OpenAI.
Its broader AI developments. So look for commentary about that coming out of the earnings. Concerns about Microsoft or valuation and just the spending that’s necessary on the AI infrastructure.
And that’s the theme that’s gonna come up a lot is the process of building out these new AI products is expensive because you have to buy the infrastructure to get them going.
So the spending comes now and then hopefully the revenue later. And so in a lot of these cases, the question investors are asking is just what does that time horizon look like, that gap between spending and and payoff?
And I think that’s the main theme from Meta. Meta’s also up sharply since April, up 49% since the post first tariff concern drop off in April.
The main question around Meta is will the AI revenue catch up with spending? It’s spending a lot to build that up. This is a habit with Meta.
Remember a few years ago when it went from Facebook to Meta, it was spending tons on the Metaverse, and the Metaverse as a popular topic has dropped off significantly since then, and there’s been a pivot at Meta as there has been with many companies.
This isn’t strictly a Meta thing towards an AI world. But that’s just more spending that Meta has to do. So this is just another example of a build out that Meta has to do. And so investors were wondering, can they they start to get those investments to pay off?
If you’re looking at Apple, it’s along with Tesla, which obviously has its own problems, is sort of the the sick man of the the Mag seven. It’s down 12% year to date.
Only Tesla among the Mag seven stocks is the only other one down, and Tesla’s down sharper. But like I said, Tesla’s facing the political ramifications of Elon Musk going to DOGE and then having a feud with the president and all these sorts of factors that are outside the business world, whereas Apple isn’t facing anything on that level, but it’s still down so far this year.
Positives have been continued growth of its services revenue so that’s something to watch as earnings come out. On the negatives, it’s had a very choppy AI rollout so investors will be looking for signs that that’s starting to get and, again, it’s a spending versus payoff situation.
Also, the valuation is high. And that’s a concern for a lot of these stocks. There’s been a pretty significant run. Apple, like I said, is kind of an exception.
But for your Microsofts of the world, there’s been a significant run up this year. And so the question is whether that can sustain.
If we turn to Amazon, which is the last of the big four reporting next week, AWS growth is gonna be in focus. That’s been a driver for a while now. So look for that unit and see how it’s doing.
Meanwhile, on its core retail business, Amazon is open to issues with tariffs and just general competition in that area. So look for how well the company is navigating those headwinds.
RS: A lot of recent bullishness on Amazon as long as we’re talking about it on investing experts. Three of the last four episodes, investors of all kinds are bullish on that stock. So if you’re interested, check those out.
What would you say macro wise coming up next week or any other stocks to mention in the earnings conversation even briefly?
BS: We should just circle the economic stuff next week just because it’s a pretty heavy week.
Earnings is obviously gonna be the main focus. We also have a Fed decision coming out. 97% chance currently baked in that there’s not gonna be a cut. So this particular meeting outcome is probably gonna be pretty pretty boring.
But looking ahead to September, there’s a 38% chance of a no cut, so about a two thirds chance that there’s gonna be lower interest rates by the end of the September meeting.
So that’s kind of being baked in to market expectations, the consensus of no cut this time. September, we’re gonna start to cut. And then there’s a better than 50% chance there’ll be two cuts before the end of the year.
So I think at this meeting, look for commentary from Powell and the Fed in general to see where their head is at in terms of future cuts.
Hanging over all of this is the Trump versus Powell situation. Later today, Trump is scheduled to take a trip to the Fed headquarters.
There’s been a lot of chatter about the cost of the refurbishment of the Fed, headquarters and whether or not some cost overruns there is gonna be used as an excuse to get rid of Powell.
Trump, of course, is looking for not just rate cuts, but extremely sharp rate cuts. He wants to drop it by three percentage points, which, we’re talking about in September, we might get a quarter percentage point cut, and Trump wants 3% cut, three percentage points.
So the vision between the current Fed decision making and Trump’s vision of what that should be couldn’t be further enough away, really. So look for further commentary next week as that comes out.
I’m sure if there’s a no cut decision, I’m sure Trump will have something to say about it. So I think that’s gonna hang over that.
And then just in terms of the economic news, we have PCE on Thursday, so that’s an inflation gauge. It’s the Fed’s preferred inflation gauge. That gives a good idea of where prices are at and then the jobs data Friday.
By the end of next week, we’ll have had a Fed meeting. We’ll have had an important inflation report, and we’ll have had the jobs data. So you’ll really be able to kind of triangulate what the economy is looking like and and what the Fed plans to do about it.
RS: By the way, file under the unprecedented happenings in 2025, that meeting that you mentioned with Trump going to the Fed headquarters, that’s the first time it’s happened in almost twenty years?
BS: The thing that it kinda reminded me – we’ll see what happens – maybe it’s not as many fireworks, but I don’t know why you would do it if you were Trump unless you were trying to start the conversation again. But I had in mind the Zelensky meeting and sort of the talking down to, I I don’t even know how to describe it. The calling to the principal’s office vibe of that meeting, and whether or not there’s gonna be a similar tone of Trump going to the Fed.
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