📈 Google's $75B AI Long Game

Good morning.

⚡ The Fast Five → China targets U.S. coal, gas, and Google, Nissan and Honda to call off merger talks, Snap shares soar, AMD tumbles after disappointing outlook, Google shares drop on revenue miss

🔎 Market Trends → Wall Street rises on US-China trade optimism, energy boost; US Futures Drop After Disappointing Alphabet Earnings

And now…

⏱️ Your 5-minute briefing for Wednesday, February 5, 2025:

MARKET BRIEF
Before the Open

Pre-Market

Fear & Greed

Markets in Review

Markets Climb as Investors Brush Off Tariff Worries

The Nasdaq gained 1.4% to 19,654, while the S&P 500 advanced 0.7% to 6,037.9. The Dow rose 0.3% to 44,556, with energy leading gains and utilities lagging. Investors shrugged off new Chinese tariffs, focusing instead on corporate earnings.

The Big Picture:

China responded to US tariffs with new duties on American coal, LNG, crude oil, and machinery, adding another layer to the ongoing trade battle. Despite the tension, markets remained resilient.

Meanwhile, Trump temporarily paused tariffs on Mexico and Canada, a move seen as a negotiating tactic. Stifel analysts noted that while tariffs pressure global trade, they also serve as leverage for securing favorable terms.

Bond yields dipped as investors weighed the impact of trade tensions. The 10-year Treasury yield fell 2.2 basis points to 4.52%, while the 2-year dropped 4.5 basis points to 4.22%. West Texas Intermediate crude slipped 0.8% to $72.59 per barrel.

Market Movers:

• Palantir Technologies (PLTR) surged nearly 24%, leading the S&P 500 and Nasdaq, as demand for its AI-driven analytics fueled stronger-than-expected earnings.

• Spotify (SPOT) jumped 13%, buoyed by an upbeat revenue outlook and its first full year of profitability.

• PayPal (PYPL) tumbled 13%, despite an earnings beat, as its first-quarter revenue guidance signaled slowing growth.

• PepsiCo (PEP) slid 4.5%, after posting an unexpected revenue decline, with North American sales weakness offsetting a solid earnings beat.

What They’re Saying:

"Tariffs are not without costs, and most of the price increases will land on the end user," said Stifel analysts, warning that while trade restrictions serve as a bargaining tool, they could also weigh on consumer spending.

WHAT WE’RE WATCHING
Events

• Today: Automatic Data Processing, Inc. - ADP Non-Farm Employment Change - 8:15am

• Why You Should Care: Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.

• Today: Institute for Supply Management -Non-Manufacturing PMI - 10:00am

• Why You Should Care: It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.

Earnings Reports

• Today: Novo Nordisk, The Walt Disney Company, Alibaba Group, Aflac, MetLife, O'Reilly Auto Parts, Uber, QUALCOMM

• Tomorrow: Amazon, Philip Morris, Hilton Worldwide, Roblox, Kenvue, Eli Lilly and Company, AstraZeneca, Cloudflare

MARKET BRIEF
Leading News

Google's AI Spending Spree: A $75B Bet on the Future That Spooked Wall Street

Why it matters:

While Alphabet's (GOOGL) ambitious AI investments rattled short-term traders, this represents the kind of bold capital allocation that historically creates lasting shareholder value. Think Amazon's AWS buildout circa 2010 – short-term pain, long-term gain.

Zoom Out:

The market's knee-jerk 9% drop reflects our old friend Mr. Market's tendency to prioritize quarterly numbers over decade-defining strategic moves. Alphabet's $75 billion AI infrastructure commitment signals a company transforming itself for the next computing paradigm.

Consider this: While revenue grew "only" 12% to $96.47 billion, the company's cloud division saw a 30% year-over-year surge – even while constrained by capacity limitations. That's like a restaurant with a line out the door deciding to build a bigger kitchen.

Key Insights:

• Follow the money: The $75B capex plan, while eye-popping, represents rational aggression in an AI arms race. History suggests tech giants who invest heavily during paradigm shifts (think Microsoft in cloud) tend to emerge stronger.

• Cloud momentum: Google Cloud's supply-demand imbalance is actually bullish – it indicates strong enterprise appetite for AI solutions that exceeds current capacity.

• Core business resilience: Despite macro headwinds, search and YouTube showed steady growth, providing stable cash flows to fund AI ambitions.

Market Pulse:

"We exited the year with more demand than we had available capacity" - CFO Anat Ashkenazi, highlighting the growth runway ahead.

Bull’s Take:

Smart investors should view this as a rare opportunity to buy into Google's AI transformation at a discount. While the market frets about near-term spending, Alphabet is positioning itself to be a dominant force in the next computing era. For long-term investors, this could be the kind of pivotal moment that separates great companies from good ones. The market rewards patience, but punishes hesitation. This looks like a classic case of the former.

Headlines

• China targets U.S. coal, gas, Google as Trump tariffs take effect (link)

• Nissan and Honda may call off merger talks, media report says (link)

• Tempur Sealy Cleared to Close Purchase of Mattress Firm (link)

• Snap shares soar on better-than-expected profit and revenue (link)

• AMD Tumbles After Giving Disappointing Outlook for AI Growth (link)

• UBS warns $3bn buyback plan is hostage to Swiss capital overhaul (link)

CRYPTO
Fear & Greed

Headlines

• Sol Strategies boosts Solana holdings with latest 190,000 SOL purchase (link)

• Trump’s ‘crypto czar’ floats bitcoin reserve as White House pushes sovereign wealth fund (link)

• US Ethereum ETFs post record $1.5 billion daily trading volume amid Trump tariff turmoil (link)

DAILY SHARE
On the Socials