Chapter 1: What are the earnings season expectations for Q1 2026?
Q1 has ended, so where does the market go from here? Motley Fool Money starts now.
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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyum, joined today by Lou Whiteman and John Quast. And guys, believe it or not, the first quarter is over, but the bad news is the Iran war is back on, oil is up, the market's been volatile.
But now we're at least going into the phase where we get a little bit information about what's going on with companies. So what are you thinking going into earnings season starting next week, John? It's starting next week? I thought we just ended. It doesn't seem like it ever really ends. But especially with this, Q4 is a little bit delayed, because it's the end of the actual year.
So, it is just like a four-month earnings season for us.
Well, look, when it starts here, I'm definitely going to be looking at guidance. Guidance is always arguably better than the earnings results themselves. But here's the thing, what kind of a state are companies actually in to be issuing guidance Look, there's not a lot that the opponents and the supporters of the president agree on, but I think that they're going to agree with this statement.
President Trump, there's chaos that always follows him. I think that it's particularly chaotic right now, even by the president's standards. And we do have this conflict going on in the Middle East. The vice president has called the current truce fragile. We could be a tweet away from oil spiking 20% or dropping 20%. So are you brave enough to predict which one it's going to be?
No business is immune to dramatic swings in energy costs, and I think that's really going to weigh on guidance coming up.
Do you think there's a risk that some of these companies are going to pull guidance for the year because they do see so much uncertainty?
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Chapter 2: What is AI's most dangerous moment according to the hosts?
Are we still seeing any sign that we can start planning? What is the guidance going to say about we think the light is at the end of the tunnel? Will CEOs stick their necks out? For the last year or so, it has been outside of big tech and the hyperscalers, mostly just let's turtle and get through this and see what's going on. So I'm very interested in vibes.
Specific to industry, I think the SaaS apocalypse is really what we need to look at. We've been talking about how SaaS is going to destroy all of these software businesses. Kind of snarkily, I've been saying, let's wait and see it in the results. So here it is. It's time for results. So let's see if we actually see signs of gloom and
What would you be looking for if there is a SaaSpocalypse? It's probably not likely that we're going to see companies go, oh, you know what? Revenue dropped 40%. But that doesn't necessarily mean that stocks aren't going to get hit hard if revenue growth decelerates, or we see something like margin compression. Are those the two things to look at? Lou, what is the trajectory of revenue growth?
What do margins look like? And then what are the pricing of these companies? Because it does seem like some of these companies look like great values today, but how do you know if it's a value or a value trap?
Only in hindsight, right? That's the issue. But yeah, no, I think you're right. It's kind of, what is the trend? And again, everything we just talked about could speak to the trend wouldn't be doing great even without AI, right? There's just a lot of reasons for companies not to overinvest right now, say.
So, yeah, but I think we are looking for signs whether or not all of these software companies, whether there is still at least a glide path or if things are just heading downward. Margins is interesting, because if nothing else, if I use these products, I'd be trying to use the threat of Claude or the threat of OpenAI to get better pricing. I think the companies can survive this.
If that's the apocalypse, I think they'll sign up for it right now. But yeah, anything, commentary, results, trends, anything that we can get a feel for what actual companies are experiencing versus just us sitting in a studio saying, this could be bad for them.
Lou is talking about one of the weaker things going on in the economy right now with software. But if we look at one of the things that is holding up the economy, perhaps more than anything else right now, that is AI infrastructure spend. And that is something that I want to be looking at here in the upcoming earnings season. And I'll be listening in on the calls.
Look, take this source with a grain of salt, but Polymarket, the predictions market, it now says that half of the 2026 data centers are delayed or canceled due to power constraints. We cannot generate electricity fast enough to power up AI. And that is a really big thing. Odds are rising for a moratorium on new data centers in 2027. It's not particularly high right now, but it is up.
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Chapter 3: Is Meta back in the AI race and what does that mean?
I don't think that we've gotten those indications yet. But you're saying... The problem might be, hey, we want to spend 650 billion, but there's no point in building this data center and putting chips in it if we can't physically get power to it. And that's going to be the limiting factor.
Yeah, I think it really could be. Or at the very least, we are barreling forward at 100 miles an hour, and that is the first wall that we are going to hit. It's clearly not a demand issue at all. In fact, the demand, by all indications, continues to greatly outpace the supply. But yeah, can you actually generate enough electricity to turn it on? That is the first wall that we're going to hit.
It's not going to be chips. It's not going to be models.
Does that make utilities and these energy stocks potentially more attractive?
I think for some it does. Obviously, you want to treat every company uniquely. You want to look at the pros and cons and consider the business model. But yeah, I think that that does create opportunities here in the electricity space.
All right, Lou, final question for this outlook for earnings season. Buybacks was something we heard a lot about after Q4. It seemed like it was a lot of companies that had good balance sheets, good cash flow. You talked about the SaaS apocalypse. A lot of these companies where the stock's down 60%, 70%, 80%.
And management just going, hey, we want to give the market an indication that we're still bullish on the future, so we're going to announce a buyback. Is that something that should be on our radar again this quarter?
I'm going to steal from John because he had the great stat that through the first nine months of last year, a trillion in buybacks over the past 12 months. It has been an incredible market for it. Here's the thing about buybacks though. Again, I don't know if we're going to have a recession this year or not. I don't know what's going on.
But CEOs are probably going to be measured in what they say. What they do tends to tell you more. If you are getting worried about a recession, but you aren't really ready to be chicken little. What you might do is just pull back on the cash out the door in forms like buybacks. I'm very curious. I think the buybacks could be a big loser say, in a potential risk-off scenario.
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Chapter 4: Who are the home run CEOs that could impact their companies?
Yeah, that's probably right. So, look, let's break it down. Because, yes, we have definitely seen this movie before, multiple times, multiple companies. These guys announced something so super-duper amazing that the world just ain't ready for it. And I feel like we've been seeing that marketing strategy for 100 years.
If you want attention, say, I don't know, if you're a pre-IPO company or you're trying to raise a lot of money, it's a pretty good strategy. I think some cynical take is probably appropriate here. That said, these models are doing amazing things. Specifically, Anthropic is on a roll and has delivered a lot of what they have promised. I don't think we should be too cynical, too dismissive here.
It's probably somewhere in the middle. nothing is ever as good as the hype and what the company thinks it is. It's all sort of just somewhat south of that. But the evolution continues. The evolution is probably moving faster than our little human brains are capable of acknowledging it. And so some caution is probably to be commended or definitely to be advised here.
John, it seems like a lot of these technical advances are over my head, but some of the things that they've released or announced do sound a little bit scary.
For sure. And I mean, it's appropriate that we named the initiative Glasswing. It kind of sounds like a DC Comics smash up in some way. But look, it was interesting. So what are they scared about? What is so dangerous that we can't release it to the public? The Anthropic team asked Mythos to break containment and to let them know about it. And it did.
It was able to get around stuff it shouldn't have been able to get around. And then it sent them an email letting them know that it did it. Now, here's the thing.
So wait a second. It's supposed to be contained. Is this kind of like a Mission Impossible movie? It's supposed to be in that little glass container, but it's somehow got out?
Yeah. I mean, this is like Ultron, right, in the second Avengers movie. I mean, it's breaking out here. It's not supposed to do that. It has no strings on him anymore like Pinocchio. But here's the thing. The team obviously thought that it could do this. Otherwise, why would it even ask it to begin with? I think that there is, to Lou's point, a lot of marketing here.
And I think that that's even fair for them to do as a team. I mean, they are still a private company after all. Here's the part that got them a little bit scared, though, is that Mythosim went beyond the call of duty, beyond what it asked them to do. And it actually, from what I'm gathering, it went online and started bragging about how it broke out of the system.
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Chapter 5: What stocks are on the radar for the upcoming earnings season?
That just seems like a strange position to be in the software industry, John.
Incredibly strange. And then if you go with what many of them are talking about, many of these people who are up to their necks in the AI software movement, they're saying that even if you are out in front, you don't have much of a lead because of how fast AI is growing and iterating. So, yeah, I don't know, Travis.
It seems like even if you are a good guy out in front, the bad guys aren't far behind in resetting the starting line.
Let's talk about another company in AI that's getting a lot of attention this week. Meta is apparently back in the game, Lou. They released a new model yesterday. It's crushed a whole bunch of different benchmarks. Take that for what it's worth. But even the anecdotal information that I saw with people testing this is that they were like, hey, this is pretty darn good.
And they announced a $21 billion infrastructure deal with CoreWeave. Are they back in the AI race?
Maybe. Sorry, I was distracted there. I was dusting off my checkbook after listening to you and John talk. We may need to go back to those physical checks. Meta was never gone. This is mostly media narrative. They've been working a lot. But yeah, it's been a long time since we've actually seen results. They're definitely back in terms of in the conversation.
Not to be a downer, though, it's one thing to build a model. I don't want to be dismissive of that, I couldn't do it. But it's another thing to monetize the model. And that is still the big question, can they?
A lot of the focus is to monetize those 3 billion users they have on various social subscriptions, which to me seems unlikely, but also somehow make the ad business so much better, it justifies a quadrillion dollars. I'm skeptical about all of this. I still see them as relatively disadvantaged to Google and Microsoft, and maybe even Anthropic at this point in terms of monetization.
But yeah, they are still here swinging, and all that spending is resulting in something.
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Chapter 6: How could energy costs affect company guidance?
I can really see a strong tie-in here with what they're building.
I could see it being an Instagram influencer in your future, John. So keep an eye on what you got going on. When we come back, we're going to talk about potential home run swing CEOs.
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Chapter 7: What are the implications of AI advancements on cybersecurity?
My son just got a pair of Gushers Crocs. I don't know what sort of innovations you can have, but they actually look pretty cool. I got to say, one of those brands I hope eventually turns around. Let's move to another company that's trying to do a turnaround. But it tried to do that by hiring the COO who was overlooking the company when things kind of went south. That's Target.
Lou, who would be the potential home run swing to run Target?
So, it feels like we should give this new guy that doesn't seem like you're real high on a chance, right? So, I don't know, how do you say it, Fidoki? Fidoki, yeah. Yeah, maybe give Mike Fidoki a little time. But if you want someone, someone who might be available, how about Mary Dillon? Did a great job at Alta, went over to Foot Locker.
But Foot Locker is in the process of being sold, if not sold already, to Dick. So, free agent out there, really, really good at retail. Maybe knows the inside of a Target store because of Alta's partnership. I think that's a natural choice.
I like that. Who do you got, John? I'm having fun here today. Let's go with Ryan Cohen. CEO of GameStop. Look, he's already come on record saying that it's looking for a very, very, very big transformational acquisition. Definitely, this is a guy who likes retail, but likes transforming brick and mortar retail.
And look, if you want a big swing at something that's down and that needs a turnaround, I mean, Target is your target there. And so, I don't know, maybe Cohen can do something here.
Is the success of GameStop stock indicative of potentially turning around operations at Target?
I think that when you look at what GameStop has done, I mean, it isn't a terrible business right now under Cohen. I mean, it stopped the decline in some regards. I'm not saying that it was a home run business turnaround, but I think it's better under Cohen than before Cohen.
Maybe it would give you at least a little bit more optionality for the stock and for the company. All right, John, one of those companies I've always really struggled with, I want to like Snap. One of the challenges has always been the founder and CEO, Evan Spiegel, controls the company.
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Chapter 8: What trends are shaping the future of AI and robotics?
You go, oh, look at all these things that we can get into. They were going to be a media company. That was, you go back to 2015, 2016. That was the story with GoPro IPO'd. Would this be sort of, hey, you've got a hardware business. I almost like the reverse merger like you talked about with GameStop, where you've got a hardware business. Snap wants to be a camera company.
Now you add that software on top of it. Maybe more kids are walking around with GoPros or Spectacles. And this is the kind of thing that marries two worlds that wanted to be together more than 10 years ago.
Yeah, I think that in somebody's capable hands, you're definitely cooking with the right ingredients there.
All right, Lou, whose capable hands should be running Snap?
So my first thought was Mark Zuckerberg, just because there's only one person in human history that has ever cracked the code.
He's spent 15 years trying to destroy Snaps. Right.
Well, I know. And so, worst case, he just finishes the job there. But look, nobody does social like Zuck. That is Zuck's superpower. So, why not there? If not, kind of similar to John, kind of go ahead. And I always butcher the guy's name, but Tony Fadal created Nest and was the Apple designer at iPod.
I feel like someone who's got CEO cred and he's also got design cred with them looking at hardware, maybe that's somewhere to look?
Yeah, that would be a good one. All right, I want to go to speaking of Apple. It looks like Tim Cook is not going to be stepping down anytime soon, according to his statements or what we've heard from reporting. But Lou, when it is time for Tim Cook to step down,
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