Chapter 1: What are the current risk-off concerns affecting the market?
Brian Stewart, Seeking Alpha's Director of News. Welcome back to another week of Wall Street Roundup.
Great to be here.
It's great to have you. Talk to us. We've got Bitcoin. We've got AI. We've got earnings. What's top of mind for you?
Yeah, I think everything can kind of fall under the blanket of risk-off concerns about maybe... Valuations getting too stretched, money being kind of over allocated in certain areas. Taking it in chunks, we can look at Bitcoin first. Basically, the leading edge of a risk off move down 13% so far this week. And this is after a bounce back today of about 8% the last time I checked.
It's down about 27% in a month. Yesterday, during the kind of sharpest part of the sell-off, got below 63,000. Its high is above 126,000, so essentially lost about half its value from peak to trough. Like I said, and like you and I have talked about previously, As much as Bitcoin bulls want to think of it as the currency of the future, it isn't really embedded in the economy in that way.
It's more treated like a risk asset within portfolios, even as institutions have picked up on it more, which has been
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Chapter 2: How has the recent Bitcoin sell-off impacted investor sentiment?
contributing to the increase that we saw in 2025. I think that when kind of push comes to shove, when it's time to reallocate portfolios, I think Bitcoin's the first thing out the door. And then this selling spree was spurred further by kind of a self-fulfilling prophecy in the sense that people who are leveraged in the Bitcoin realm were forced to liquidate
Meanwhile, looking at stocks, we saw a huge drop among software stocks. Here, AI was the main driver. We had a succession of new AI tools that were announced this week. So Anthropic announced some new upgrades, including a legal plugin. CloudX is a startup, and they announced an AI-powered advertising infrastructure platform.
And Google announced what it called its Project Genie, which is an AI-powered virtual world builder, taken together. So the Project Genie spurred a decline in... Video game stocks, you saw CloudX sending advertising software companies lower.
The anthropic news just sort of fed into this, the idea that all these very specific software companies, I mean, when you think about it, like, you know, I'm slowly kind of working my way through my taxes. I think we're all using tax software to do it. There might be a future where you can just drop your W-2 into a chat GPT type
program, point it towards the US tax code and just spits out your tax return. So if you have a product like TurboTax or something like that, and you can imagine this across different sectors, legal, and just to give an example of the damage that was done. So
Among the bigger players in the software space, we had Microsoft down 7%, we had Adobe down 10%, we had Salesforce down 12%, Oracle down 16%, ServiceNow down 14%. And then you had some even sharper declines. So Unity Software down 21%, Applovin down 23%. So this is just the concern that AI is going to kind of take over this market and make a lot of these companies irrelevant.
Any good takes that you've seen about the notion of AI, the sector, what's involved in the sector, and what I guess investors should keep in mind? Any salient takes? Because there's just so much fear and uncertainty on one side, and then also just really strong belief that that sector is not a bubble.
I think looking at the earnings, the big marquee earnings of this past week feeds into that a little bit. So Alphabet beat expectations, revenue up 18%. Cloud revenue growth was 48%. So by all accounts, an extremely good report. But the stock was down mostly because of its CapEx prediction. So it predicted $175 to $185 billion in 2026 CapEx. So put that into perspective here.
The company for 2025 reported revenue of $403 billion and net income of $132 billion. So if you take the high end of its CapEx projection, that's 46% of revenue and 140% of net income. So basically all the money plus some from last year that it made in profit, it's going to reinvest into mostly AI when we're looking at the CapEx. And then if you look at Amazon, Similar story.
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Chapter 3: What trends are emerging in the software stocks sector?
Now, a lot of Amazon's revenue comes from the extremely low margin companies. retail part. So you can see that two and a half years worth of net income are being reinvested in 2026 into AI projects. So we look at the decline in the software stocks and we look at the reaction the market has had to these CapEx spending, the sticker shock that they're getting from this.
You kind of have two different concerns that are in some ways contradictory and other ways somewhat overlapping. So you have this concern that These companies are going to spend so much on AI that it's never going to pay off. You aren't going to be able to buy the profit growth you need to justify this expense. Meanwhile, there's an arms race going on.
And so to a certain extent, these companies feel like they have to do it, that if they don't, they'll lose out. Meanwhile, on the other side, you're worried that AI is going to work too good and kind of wipe out these whole industries. And then you're going to be just left with these mega tech companies that are going to operate
much everything you know you're going to get your tax software through um google ai and you're going to get your um you know your legal advice from google ai or whatever um so i think that the the market has kind of for whatever reason kind of came to a head this week where you know the the metabolizing of that the the ai future as bright as it might still be is going to there's going to be a really rough transition to get there you know the creative destruction
kind of model I think is kind of scary in the near term. You know, people are kind of looking at the horizon, they can see a bright future ahead, but you have to kind of get through the swamps and deserts in between.
The fall before the rise. It seems somewhat similar to me in the Bitcoin world and the companies that were buying up, have been buying up. Bitcoin, and this reckoning moment that may have come that may keep coming the volatility that may just be inherent in the sector.
What would you say to that like companies that have been when Bitcoin looks good they look like geniuses, and when Bitcoin is sliding. you know, below certain levels, let's say 60,000, let's say 50,000 and perhaps below, then they start, you know, pointing fingers and laying blame.
What would you say, do you see any similarities between that, between the AI spending, between the, you know, getting into Bitcoin and then having these reckoning moments?
Yeah, I think that's a good way to phrase it, a reckoning moment. I mean, you think about a company like Strategy, formerly MicroStrategy, which has become basically a Bitcoin acquisition firm. They're fundamentally tied to this commodity the way that a gold miner would be tied to gold. If the price is going up, then they're going to benefit, and if the price is going down, they're not.
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Chapter 4: What new AI advancements were announced this week?
Speaking of tried and true brands, we've got Coca-Cola reporting on Tuesday. What else are you looking at earnings wise?
Yeah, I mean, just on that theme, you have Ford also coming out. You have Budweiser coming out.
You've got some classics.
Yeah, you have some real classics coming out. Budweiser is good for after the Super Bowl, too, I think. And then in the tech space, you have Cisco. You've got Spotify. I think one interesting one would be Robinhood is coming out. Let's see if there's any commentary about the recent situation with Bitcoin and the markets in general. Hood's been down. a lot with that sell-off.
So it'd be interesting to kind of hear what they have to say. And then Shopify also kind of in the software space, and they've been affected by that decline. So they'll be interesting to look at. And then economics, I think, are going to be critical. So we were supposed to get the jobs data this week. It's been delayed because of the very brief government shutdown.
So that's coming out in the middle of next week. We got some data this week on the jobs market. It has not been... Positive. So initial jobless claims are up. Jolts showed the lowest job openings since September of 2020. Meanwhile, Challenger Gray and Christmas showed the highest January job cuts since 2009, more than double of January last year.
We had just anecdotally, you had layoffs announced at Amazon, The Washington Post, UPS. So you see these large companies making announcements. So I'm not optimistic for a strong jobs report next week, just based on the fundamentals that we're seeing. Also, it's a little scary. You see that job openings are at the lowest point since the pandemic.
You see that layoffs are the highest point since sort of the pandemic. The financial crisis time period, these are not kind of cops that you want to see when it comes to employment. And I think that's part of what contributed to the defensive rotation. I think people are starting to brace for more bad economic news, especially on the labor front.
The Bezos overlap at Amazon and Washington Post, anything smart to say there?
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Chapter 5: How did Hershey's earnings report influence market reactions?
Neither party is interested in a fundamental change in the system. So I just don't know how much impact anything, if we're doing a tax credit here or a subsidy there, I just don't know if that's going to make a huge difference.
Stay tuned.
Stay tuned, right?
What else you got for us?
The jobs data is going to be kind of the centerpiece next week. Still busy earnings season, but not so much on the marquee names. There's not a huge sort of centerpiece as there has been the last couple of weeks. So going to be much more kind of individual stock dependent and sector dependent.
Thank you, Brian. Talk to you next week.
Talk to you next week. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com slash WSB. And join the highest level discussion of any stock or ETF with our community of serious investors like you. Find us at SeekingAlpha.com slash subscriptions.
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