Big Tech is About To Save The Market

Welcome back everyone. Today on the Joseph Carlson Show we get into the biggest earnings week of this season. This is it, the most important one by far. There are trillions of dollars worth of market cap reporting earnings this week and we can take a look at the schedule. This is the weekly outlook on earnings. We start off here on the left with Monday.

We work our way to Friday and the most important days are Tuesday through Thursday. For example, jumping into tomorrow on Tuesday. We have a couple companies here that are familiar. We have S&P Global and Spotify reporting earnings. S&P Global is still today my largest position across both my portfolios.

It is massive and there's a reason why I'll be going over my expectations of this company going into tomorrow as well as we have Spotify. This is a company that I've outlined is one that's on my watch list. It's a top consideration. I'll be going over some predictions with Spotify and the reason that I believe this company deserves the premium it has. Moving on to Tuesday after market close, we have some other other big companies that are reporting earnings.

For example, we have Visa. I'm going to combine this one with MasterCard that's reporting Thursday market open. So I'll be looking at both of these companies. I'll be giving some thoughts on them. And then we also have Tuesday after market close, we have Booking Holdings, another massive company. This one's been a very successful investment in My Portfolio so far. And one interesting thing about Booking, this company faces what could be considered multiple

disruptions. For instance, it's a travel company and travel supposedly under pressure, and it's a company that's supposedly being pressured by LLMS that can plan vacations. But regardless of both of those, Booking Holdings is in the green year to date. So why does this company continue to go up despite all odds? We'll be going over that. Moving on throughout the week, we get to Wednesday, and this is the first massive day of the week.

Wednesday after market close. We have Microsoft and Meta both reporting earnings at the same time. We're going to be giving a full outlook. I own a lot of Microsoft. I don't own any Meta. I'll be going over the biggest thing investors should be looking for for both of these companies. And then Thursday after market close, we have Apple and Amazon both reporting earnings at the same time. I recently sold the majority of my Apple steak for a large profit. That was an incredible

investment. But Apple faces far more challenges today than they did a few years ago. And Amazon remains one of my most significant bets. It's a massive holding in My Portfolio. It makes up roughly 40% of the story fund. And Amazon faces a lot of questions this quarter over the tariffs. This is a jam packed, crucial week for the market. And the market so far, even despite the uncertainty of the tariffs, has staged the

beginnings of a comeback. It looks like it's headed back up and if this week goes well and certain things play out, there is reason to believe the market could make a full recovery. We'll be going over what needs to happen for these companies to rise once again. So we have all of that to get into plus more and we start things off by looking at this week. When we look at the calendar Monday, really not a lot it's

going on today. We don't have too many important earnings. It really starts to begin on Tuesday, tomorrow before market open. We have S&P Global reporting their earnings and this has been a key company in My Portfolio. If we bring up the passive income portfolio here, we can see my position in S&P Global. It's in the financial category and this company is a very large position, $105,000 holding with $23,000 being in the green.

So I have a substantial exposure to it in this portfolio. If we load in the story fund, which is my secondary portfolio, one of the five companies that I've picked is S&P Global, another $20,000 invested another 4300 in the green. So I have this one across both portfolios because I really like this company. S&P Global is a compounding machine through and through. It has a very durable competitive advantage through multiple aspects of its

business. It's deeply entrenched in the system, the financial system of the entire globe. It has worldwide scalability. It also generates significant and growing free cash flow every single quarter and the management team is aligned with the shareholders. They don't generate this cash flow just to give it back to the employees like some companies. I'm a shareholder. I want a company that will treat the shareholders right.

So when I look at S&P Global, this is a company that I believe fits well within My Portfolio. That's why I have so much exposure to it. Now going into this earnings, we can bring up some information here.

When we look at the most important aspects to watch for going into this earnings, we have a feature here that takes a look at the most recent earnings report and shows us what this company's focused on. A couple things that we can look at is S&P Global had record-breaking performance in 2024. They forecasted 5 to 7% growth in 2025. We need to see if they continue with that forecast. They may throw in the towel. They may say the future is too uncertain, we can't give

guidance. But I think that'd be very unlike S&P Global. My belief is that they'll once again reaffirm their guidance and in fact, they may even raise it. I think there's a chance they'll do that. They might. They might not because of the tariffs. They may say it's too uncertain. But I certainly don't think they're going to lower guidance. I would be surprised if they did that. The other thing is the Market Intelligence segment recovery and growth.

The reason that this is outlined is number 2 is this is the weakest part of S&P Global and it's also the biggest portion of revenue. The key indicators for the Market Intelligence segment include revenue acceleration and margin stabilization, particularly as the division works through cancellation headwinds from 2024 and faces heightened pricing pressure and competition.

So this segment of the business is under pressure and if we look at S&P Global and the revenue by segment, the market intelligence is this dark orange part, kind of the burnt orange there at the bottom. So it makes up a big portion of the company. And what they're basically saying is they're facing a lot of competitive pressures, specifically from companies like Bloomberg or Fax Set.

There's other data providers outside of S&P Global, and they're all competing for the same customers, for the same clients. Now, S&P Global notes that Q4 of 2024 highlighted the improved retention rates, strong annualized contract value, and successful competitive wins, but notes that the first half of 2025 remain muted before showing gradual improvement. So basically, it's warning right here that this next quarter could be slow once again for

market intelligence. Now #3 we have the resilience in the growth of the rating business in 2024. It highlights that it was an atypically strong year. It did better than expected. S&P Global outperformed in this segment of business. And the question is, can they do it again? Well, since this, we've had Moody's report earnings and their ratings business actually did really well. So this should not be a problem for SP Global this quarter. I think the ratings business

will be strong. Number four and five are focused around generative AI being implemented across the entire organization, basically changing how all the company operates and creating new products and how all of this will ultimately impact the revenue growth and the margins of the company. Those are the two primary things we should see from AI. We should see faster revenue growth and we should see margins go up. Employees should be able to do

more with less. If you have artificial intelligence, if you have Gemini and ChatGPT, you are more efficient. You get things done quicker. You answer your own questions much faster. That makes you a better employee. That makes it so that you can accomplish more tasks in the day and across an entire massive organization. That should mean that it's more profitable. Revenue should grow faster. So this is something that we want to see show up in the numbers we've had AI implemented

over the past year. We want to see actual margin increase, the same amount of employees accomplishing more and the organization able to launch more products generating more revenue. Another thing I'll add to it is it trades at a historically very cheap valuation. It's at a 27 Ford PE ratio and a 3.73 free cash flow yield.

And if we put this in a historic Oracle context, in terms of valuation in the past five years, it's trading towards the highest free cash flow yield it has, meaning that it's one of the cheapest price points you could buy it over the past half a decade. So right now I think is a decent time to own the company. I'm not concerned about S&P

Global's earnings at all. Now moving on, we get into Spotify. This company also reports tomorrow before market open. Spotify does miss on earnings frequently. It misses about half the time. So it's literally a coin flip of or not they'll beat on their earnings per share estimate or their revenue. In fact, on the revenue, it's even worse. They miss more than half the time, well over half the time on

revenue. But it doesn't really seem to matter with this company because this company is still kind of in the phase of where Netflix was when they used to report subscribers. All the investors care about is the subscriber number, the amount of users every single month. With Spotify, we have this is a KPI on Qualtrim. We can look at the monthly active users. We have that number right here. Total it's 675,000,000 users and you can look at it grow quarter

over quarter, growing 12%. Here's the break up. When we look at it through the free tear and the paid tear, the free users are in the green pads in the purple. But either way you look at it, whether or not you're just looking at the premium or just looking at the ad supported, both of them show consistent growth over time. The amount of users that Spotify reports will be top of mind this

quarter. It's going to be more important than whether or not they be on the earnings per share revenue. Now another thing that Spotify has been focused on for the past couple of years is the margins of the company. The gross margins are incredibly important to this company and they finally expressed operating leverage, something that the company was under question about. Investors thought that this company may not have any

operating leverage. They can't drive margins up and Spotify prove they could, so in this quarter, gross margin variability and profitability trends will be one of the major focuses. Investors should closely watch for changes in gross margins in Q1 of 2025 as management indicated that margins will likely decline sequentially due to seasonal weakness and investments in video and other

initiatives. However, improvements are expected across the full year with both gross and operating margins forecasted to rise, albeit at a slower paced in 2024's record expansion. So this quarter, gross margins and profitability are going to contract a little bit towards

the end of the year. It's going to be even higher under the subscriber game prediction, It says the prior quarter saw record net additions and monthly active users and premium subscribers, but the company forecasted a slowdown in net ads for Q1 of 2025 due to seasonality and a focus on a higher value, more engaged users.

Another important thing that investors in Spotify are looking at is an acceleration in the pace of product launches, focus on tailored subscriptions such as the Super Fan and hi-fi tear, expansion of video, podcasts and personalized AI driven experiences. The uptake of these innovations as well as the effect on user engagement, retention and average revenue per user will serve as key indicators for the financial opportunities and the competitive positioning.

Spotify has even talked about more recently of launching an even higher priced tear that has all these advanced features. So they're really trying to push the pricing power. The reason that I can't can't invest in Spotify today, and I've tried to make it work, I've tried to look at investing in this company, is when I type in different expectations. For example, a 30% earnings per share growth rate for the next 5

years and a 30 times multiple. With those lofty assumptions, 30% growth rate 30 times multiple, I get a 3% return. That's the only thing keeping me out of this stock. I'd love to own it, but I just can't get behind these assumptions. Spotify is a wonderful, one-of-a-kind company, but I want to find it at a cheaper deal. Now moving on throughout the

week, we get to Tuesday aftermarket close. We have a couple big companies here, Visa and Booking Holdings for Visa. I want to group this one with MasterCard because it's reporting on Thursday and the companies are very similar. This is the reason that I only own one of them. I chose MasterCard, but the companies have so much overlap that I didn't feel the need to

own both of them. If we look at the what to watch for for each of these companies, number one for Visa is sustained strong payment volume and revenue growth. This is top of mind for investors. The first thing they're going to be looking for with Visa. If we look at MasterCard, my guess is it's going to be the exact same sustained revenue growth and volume momentum, so worded slightly different, but basically the exact same thing. Investors want to look at the overall growth of these

companies. With every company reporting earnings, you get an idea of what the expectations are, what the economy looks like, their views on tariffs and how they're impacting consumers. But then you have companies like Visa and MasterCard, which are kind of the catch all. They really are part of almost every industry, every transaction. So they have more data than anyone. Their input is simply weighted

higher than any other company. So investors want to know what their expectations are going forward. We're going to get a look of how cross-border looks, how many people are going on vacation to Europe using credit cards, spending money on e-commerce and travel, all these different industries. We get an insight with Visa's earnings, then we have value added services tokenization

expansion. This is like the other part of Visa. Visa and MasterCard both are basically half a network and then half value added services. And most people aren't aware of the value added services. If we look at MasterCard, they don't break it up into as many categories, but the value added services last year was $10.8 billion and for the last year the payment network was 17

billion. So these value added services of security Analytics, all the data, all the type of SAS stuff they sell to these companies is worth a fortune. Visa and MasterCard are both trading at reasonable valuations, meaning they're not extremely expensive, they're not extremely cheap. They're not my top buys today. And I believe that this earnings season will be more business as

usual. They may note some various levels of slowdown with some consumer spending like in restaurants and pulling back from experiences. But these are extremely resilient companies and I'm not concerned about them going into these earnings. Moving on Tuesday after market close, we also have Booking

Holdings reporting earnings. I have to mention that I do have a large investment in this company. It's been a really fun one to own. Booking Holdings is a company that at first glance you may think it's weak because it's just a travel company. But really what they've done is they've aggregated a ton of demand of of hotel listings and inventory in Europe. They have a strategy where they have incredible marketing, they aggregate demand. They have a seamless platform

and integration. Booking Holdings as of this year is basically flat. It's down 1%. So despite the fact that this company is seemingly under pressure because travel may slow down with the tariffs, there's less vacationing going on and under pressure because a lot of LLM's advertising pitch is that they can plan a vacation. Despite those two big disruptive factors, the stock remains the same. How is that even possible?

Well, I can explain why Booking Holdings, despite all these factors working against it, is so profitable that even though some investors are selling their shares, reshifting their portfolios, they basically buy the shares from you. They do it with consistent buybacks. And I believe that's the reason that this stock continues to just be so strong despite uncertainty. One of the charts here we have on Qualtrum really illustrates this point. It's called the return of

capital. Now this isn't return on capital. This is return of capital, meaning the amount of money they pay back to shareholders. If we look at it just over the past five years, this is what it looks like over trailing 12 month basis, they've returned roughly $8 billion back to the shareholder. Through buybacks they did 6.51 billion, through dividends they did 1.17 billion. So they are throwing money back to the shareholder buying back shares.

Any shareholder that wants out of their position booking holdings will buy it from you. Another thing to note about this company is when they're buying back shares, they're not doing it just to pay their employees. A lot of companies buy back shares, but they also dilute the share count by paying employees through heavy stock based compensated packages. This company has a relatively low base level of stock based comp because they have fewer employees.

So they paid out roughly $600 million in stock based comp out of the $8 billion they return to shareholders. So basically, the money that they're paying back to shareholders is undiluted money, causing an enormous decline in share count over the trailing 12 months. It was -5.1%. This company is eviscerating their share count. So the reason that Booking Holdings holds up so well is the incredible finances behind the

company. It's simply so profitable that it can face a lot of uncertainty and still flourish. Now when we look at the biggest things to watch for this quarter, we have the number one, which I agree right here that it sustained growth in room nights and gross bookings. If we look again at insights, we have this metric in a KPI.

It is right here the gross booking metric and you can see this grow over time since 2020. We want to see if this trend continues or if it finally decides to pull back. There's a lot of reports that you've probably seen that the travel industry is completely dead because of the tariffs and the uncertainty. While there may be some truth to that, there's probably some data to say that things have slowed

down. Just keep in mind that this company has survived and expanded and grown and become more profitable and bigger during pandemics, wars, and financial crisis. It's done it through the Great Recession. It's done it through the COVID pandemic. It's done it through multiple wars in foreign countries. Travel is inherent to human nature. People want to travel when GDP per capita grows, when people have more money, they want to go out and have experiences, they want to leave the home.

And this is like an investment that captures that demand in an incredibly profitable way. So despite the near term concerns, I remain very bullish on this company. It may not be this quarter, but I believe this one's going higher. Now, moving down the week.

We get to Wednesday and this is where it really begins. So far we've been talking about important companies, but not big Tech. We get to Wednesday and this is the start of Big Tech. Specifically after close, we have Microsoft Meta. We'll start off here with Microsoft. We know the company is the poster child for the perfect fundamentals. They rarely ever miss on their earnings per share and their

revenue. I think that'll be fine, but there's bigger concerns for the Microsoft shareholder, specifically the AI outlook. This is what everyone's going to be digging into. Microsoft reported AI revenue above expectations, citing a $13 billion annualized revenue run rate for its AI businesses. Investors should closely track the company's ability to continually scaling AI infrastructure and monitor any future impacts from ongoing

capacity constraints. As management highlighted, the demand remains ahead of current supply, but investments are ramping up to address this. We have heard this time, time again, that demand is outstripping supply with artificial intelligence. Microsoft is one of the companies that said this, but then they also said some things that contradicted it a bit, saying that they're going to be very measured with their CapEx investment.

I believe the AI growth with Microsoft is going to continue at a very fast pace, but I do think we'll see some deceleration. It'll likely be 100% year over year, down from 175. Next we get to Microsoft cloud revenue. It's surpassed 40 billion for the first time with Azure and other cloud services showing strong 31% growth, including a significant contribution from AI services. So in the Azure and other services, we had 31% growth and that should continue at a very

brisk pace. In fact, there are some estimates that it may even increase, which would be incredible to see from this company. So this is going to be another big focus. Microsoft needs to hit their cloud numbers. If they show any weakness here, that's going to hit the stock. If they project out in the future any weakness, that's also going to hit the stock. This company should show continued strong growth on the AI.

Cloud investors should watch for capital spending levels, the pace at which new capacity comes online, and the impacts of these investments on margin profiles and free cash flow, especially as Microsoft transitions to higher margin AI and cloud services. Again, overall, we've seen this talk of artificial intelligence for the past couple of years. It's finally implemented. We should now start to see higher margins, higher efficiency.

If we don't end up seeing that at some point or another, investors are going to wonder, is artificial intelligence really boosting profits? Is it really increasing margins? Investors really want to see evidence of that. Now. Microsoft is very likely to post strong earnings with growth in cloud, artificial intelligence increases. And if they do happen to paint a positive picture of the future with optimism about consumer spending and resilience and AI, cloud growth, I believe it will

send the markets higher. Not just Microsoft, but the entire S&P 500. This is one of the kings of the market. It's one of the leaders of the S&P 500. Other companies and investors look to Microsoft to see which direction this market should trade. If they are optimistic about the future. If they post that they see a lot of resilience and opportunity for growth and higher profits ahead, then the S&P 500 could go higher, making a full recovery.

The S&P 500 trades off of big tech. It doesn't trade off of car companies and other companies hit by tariffs, low margin companies. It trades based on these incredible, magnificent 7 companies. They are the market leaders and I believe there's a strong potential here for Microsoft to lead them higher. Google tried, but Google is overshadowed by the threat of Chachi BT Microsoft doesn't have any type of disruptive threat to their story.

This company could post equally strong results, and without that overshadowing and concern of disruptive risk, it could send the markets higher. So overall, I'm very optimistic about Microsoft going into this week and I believe it could have big consequences on the entire S&P 500. The next company that we look at is Meta. This is another one that I believe will have strong results, but a lot of this strong result that we're going to see with Meta has been priced in due to Google.

This happened after Google reported earnings, tipping

investors off that the advertising market remains very strong. Meta actually went up more than Google again because Meta has a very similar thesis as Google, but less of an overall disruptive overshadowing of Chachi BT. This stock's already up around $70.00 from the low when I look at Meta. Overall, this is a company that's done incredibly well and I don't have any big reason to believe it can't go higher.

When we look at the valuation of Meta, it trades at a 22 Ford PE ratio, a 4% free cash flow yield. This is an attractive valuation despite its growth, despite the share price increase, it's growing revenue continually above 20%. So it's in the elite category of revenue growth. So long as they maintain this, they will be undervalued and the stock will continue higher. And I believe that's what you're going to see this quarter.

Now moving on further down the week, we get to Thursday where we get the other two big tech companies. We have Amazon and Apple both reporting earnings after market close on Thursday. We'll kick things off with Amazon. Now this is a company. Before we go into anything to watch for this quarter, I just want to highlight my investment in this company. If we look at the story fund, this is where I hold Amazon.

This portfolio is doing great. When I look at the year to date performance, just this year, it's down 1%, widely outperforming the QQQ, outperforming the S&P 500. And that is after this portfolio has has beat out the S&P 500 and

the QQQ by a huge extent. So it's not only doing well during bull years and bull markets, it's also holding up really well during this downturn, specifically because of Netflix. For example, if I just look at the year to date again right now, you can see that Netflix is really holding this entire portfolio up. It's the reason that it's not deeply in the red this year. It's counterbalancing all the other companies going down.

So if these companies start to perform, if they start to go up as well, if Amazon especially, which is my next biggest position by far, starts to perform, the outperformance will be incredible. The performance of this portfolio will just be epic. If we look at the performance of the Story Fund against the S&P 500 as of today, it's already crushing it. It's up 93% to the S&P 500, up 37%. So we've over doubled the

performance so far. And you can imagine what this would look like if Amazon went up to $200 per share. If Amazon went up to two 2240, the outperformance would be incredible. The S&P 500 would rise as well, but not to the same extent as My Portfolio because I have a much greater level of exposure specifically to Amazon. So what I'm looking for for this company is the $200 mark, the

220 mark, the 240 mark. I believe the fair value of Amazon is so disconnected from where the company trades today that my fair value for this company is around 260. A lot of people look at that and think that's crazy, but that's how I view the company. It's trading nearly $80.00 under value by my estimation. Amazon is a collection of incredibly high quality businesses, the first one of

which is AWS. The previous quarter highlighted continued strong growth in AWS, including 19% year over year revenue growth and a $115 billion annualized run rate. However, management indicated that further acceleration is being tempered by supply constraints. Where did we hear that news? We heard it from Microsoft.

They said the exact same thing. Number one on the list was that the AI developments and the growth of their cloud was being constrained, they say now, particularly in chips, power and select components. These are all from NVIDIA. Andy Jassi has gone on to interviews saying that this is all too expensive and prices will come down. They're creating a lot of this stuff themselves.

Investors should monitor whether or not the supply chain constraints begin to ease in the current quarter, enabling AWS to capture additional demand, and how ongoing AI infrastructure investments translates into realized revenue and margins. Now there's two different groups of investors here. There's ones that have avoided Amazon because they believe all this investment in CapEx spend is not going to have a high

return. I've piled into Amazon because I'm under the belief that this will have high returns, and I want to see that start over this year. So I'll be paying attention to the profitability, the margins of this investment. When we look further at the CapEx investment, this is a huge part of the story for Amazon.

Amazon achieved record operating income in the previous quarter with notable year over year margin expansion in both North America to 8% and international to 3%, supported by efficiency gains and cost reduction initiatives. However, significant capital investments, especially to support AWS AI initiatives, are expected to be maintained or grow, and management noted operating margins will likely be

impacted in the near term. Observing how operating margins evolve in light of ongoing CapEx, which is indicated to remain at high levels dominated by tech infrastructure, will provide insight into Amazon's profitability resilience. Another storyline with Amazon that I love about this company, the reason that I put $100,000 into it is partly because of the

robotics. When investors talk about robotics and investing in robotics, they're typically referring to Tesla, and I believe that's more of a branding type of thing. Investors have been sold this narrative that Tesla is the leading robotics company, and I don't believe that's correct. Amazon has far more robots working in factories and completing tasks than Tesla, and these robots are replacing human jobs.

Amazon has continued reducing its global cost to serve on a per unit basis for the second consecutive year and is accelerating the deployment of robotics and automation across its fulfillment network. The current quarter will show whether these logistics innovations are beginning to make a material impact on the cost structure and fulfillment scalability, potentially driving further margin gains. I don't think this is just potential, I think this is

incredibly likely. Amazon has already proven with real warehouses working today with real robots in them that they can automate and Dr. efficiency. Scaling that across all the various warehouses they have across the country will take time, but as they do, they'll Dr. margins higher and higher. This is another huge story for Amazon. The retail business is looked at as this very low quality, low margin business.

But when you layer robots on top of it, when you get rid of the need for all that human capital, where humans need health insurance, they can get injured, they have high hourly wages, and they're working these jobs and warehouses that are potentially dangerous, The robots can have a major impact here.

I can literally think of no other company in the world that has more room to benefit from robots and automation than Amazon. They're the biggest by revenue, they're the biggest company in the world. They sell the most stuff, they have the biggest amount of customers. The automation and any margin gains in this company are substantial. When you look at a company that has the amount of revenue that Amazon has, the slightest increase in margins on the retail side means massive profits.

People have no clue how it translates into profits. I'll give you just one example of how this type of margin expansion effects companies with this broad of revenue. You can take a look at Costco. If Costco is just to hike prices by 3% across the board, if they just increased everything they're selling by 3%, which is very difficult to notice for most people, a 3% price hike. But assuming Costco did that, their profits would increase by 70%.

That's how much just a slight increase in a broad based revenue increases profits. So when we talk about efficiencies, any slight marginal improvement in their retail business has enormous profit potential. And this is something that's incredibly difficult for analysts to analyze. They simply have a hard time baking this into their models. So Amazon has a real potential here to outperform analyst expectations by a huge extent.

The robotics part of the company should help out with the first party sales and the third party sales, which make up over half of Amazon's total revenue. But then we get to the higher margin portions of revenue. Third party sales is is fairly high margin, but the highest margin are the advertising subscriptions and AWS advertising. I've highlighted as one of the best businesses in the world.

Amazon's advertising in their direct click for sponsored links is really difficult to compete with and investors are expecting continued growth and even acceleration in the advertising. Advertising in the last quarter grew by 18% year over year to 17.3 billion, making it a major profit Center for both North America and international segments.

With new features such as an enhanced full funnel, advertising options and improvements to attribution modeling, investors should be attentive to whether Amazon sustains or accelerates its advertising growth trajectory, which directly boosts segment profitability and the company's overall margin mix. So as advertising takes market share, so to speak, from the other segments of Amazon, that's a good thing. We don't want advertising to lose market share from the rest of the company.

And then finally, one thing that could hamper profitability is the impact of foreign exchange. FX headwinds were significant in the prior quarter, with revenue negatively impacted by $900 million and future quarters guided with an anticipated $2.1 billion FX drag. So if the dollar continues to go up, that hurts Amazon with this foreign exchange. But the dollar has gone down a little bit. I haven't modelled out how that's going to impact the

company in terms of FX exchange. It's not something I model into The intrinsic value. Something that Amazon has more direct control over is the useful life accounting changes. This is basically where they amortize the life of a GPU or a server. They say that we get most of the value in the first year, but the life goes down over five years. It's very similar to what Netflix does with their content.

Netflix says that we have this content, we capitalize it, so it's something that's an asset, but the value of the content goes down over time as people consume it. So they have an amortization schedule for a new show that it drops off after the first year, becomes less valuable every additional year to about four years. That's what Amazon is doing, but with their servers instead of content. They have the same type of

accounting care. So we'll get to see commentary on what they do with that, whether they keep it the same or they extend the life or reduce it. Qualitatively, everything looks good for Amazon going into this quarter. But the big elephant in the room is the tariffs. Amazon is at the dead center of the tariff battle. They're the company that really has the most customers, that does the most business with China, which is at the center of this tariff war.

So Amazon is going to have a lot of questions on the earnings call about the tariffs. And I believe it will be very similar answers to what we heard already from Andy Jassy, that is that he believes it's going to harm consumers. He said directly that most of the sellers on Amazon will pass along the huge majority, if not all the cost onto the customer. That's going to be the response to it because the sellers on Amazon don't have a lot of margins to work with.

They're already a low margin business, so they can't absorb the impact of 100% price increases on an input cost. They're going to pass that price increase on to the consumer. Part of being an Amazon investor today means that you're ready to weather through this storm. We're going into some uncharted

territory here with the tariffs. But if you believe in the vision of Amazon long term, all the good things happening with their retail business, with artificial intelligence, with AWS, with the robotics and margin expansion, if you can look ahead past the near term uncertainty, I believe this still remains one of the most attractive investments in the market. So despite some near term uncertainty, I remain fully invested and very bullish on this company.

Now finally this week, we get to Apple reporting earnings at the same time as Amazon. This company typically beats on their revenue and their earnings expectations and I think they will again this quarter. Apple has been releasing Apple Intelligence slower than expected. They say initially investors should track the continued global roll out of user adoption of Apple Intelligence features as initial markets with these capabilities saw stronger iPhone 16 sales compared to those without.

The upcoming expansion to additional languages and markets in April is expected to further drive both device upgrades and user engagement. So the storyline, the thesis for Apple was there's going to be this super cycle of device upgrade. Everyone's going to upgrade to the new 16 iPhones because of Apple intelligence. And so far that thesis has played out a little bit.

Apple has said on the calls that in the markets they have Apple intelligence, they've done better, but we want to see that expand globally. They've been really slow in expanding Apple Intelligence. It's been one of the rare cases where Apple has over promised to feature Apple service business achieved an all time record 26.3 billion in revenue, up 14% year

over year. Continued growth and paid subscriptions and high gross margins now at 75% for services are critical to watch particularly as services become increasingly accretive to the overall company profitability. Apple services are set to grow and I believe they'll continue to because so far they haven't been forced to lower the price of their take rate. They're still taking 15 to 30%.

That's a huge portion of all these different companies doing business on the Apple App Store. So this company is still a toll booth taking a large cut of all these transactions taking place across this busy Rd. I sold my Apple steak early this year out of the fear that the company was trading at a relatively high valuation and it was not growing fast. In fact, when we look at Apple today, it trades at a 28 Ford PE and it trades at this premium PE ratio.

While the revenue growth has remained roughly the same for the past couple of years. Right now, even though the company should post great earnings, I don't believe it's an attractive investment overall. This week, we'll determine whether or not we have the

market make a full recovery. If these companies, specifically Visa, MasterCard, and the four big tech companies, Microsoft, Meta, Apple, and Amazon, all post positive earnings with positive future outlook, even in the face of uncertainty and tariffs, we could see the market market make a full recovery.

Because these companies have such power and influence over the S&P 500. If they alone signal to the market that earnings remain strong, that profit outlooks are still growing, the market will have no choice but to go further higher. That's going to be it for this episode. Hope you enjoyed. See you in the next one.