August 1, 2025 • 40 mins
Earnings season is in full swing and Meta and Microsoft are stealing the show. Anthony and Piers dive into why Meta’s shares rocketed 12% on blockbuster earnings, a stunning rebound from its metaverse slump. They explore how Zuckerberg’s all-in AI pivot is paying off, from $100M talent wars to $72B in CapEx.
Microsoft’s cloud machine, Azure, just clocked $75B in annual revenue with 34% growth catapulting the company past a $4 trillion valuation. Is $10 trillion next?
Also on the docket: Trump’s tariff campaign enters high gear as he turns a Scottish golf course into a global trade hub. Deals are landing, inflation fears rise, and Powell’s hawkish stance is pushing the dollar higher. With a September Fed cut now a coin toss, markets are bracing for more.
Big tech, big politics, and even bigger moves, your no-nonsense breakdown of the forces driving the summer markets.
(00:00) Intro & Key Themes
(01:37) Meta Earnings Surge
(12:49) Trump’s Trade Deals
(17:04) Fed’s Hawkish Shift
(31:57) Microsoft’s Cloud Growth
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Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome back to the Market Makerpodcast.
And just before we begin, literally before I hit the
record button, Piers just asked me, what did you want to do this
episode in? We've got three things to talk
about. Two massive tech giants or a big
macro update from the Fed. I was like, Piers, give the
people what they want. They don't want to know about
the Fed. They want to know about what's
(00:21):
happened to my Meta shares. They're up 12% and why and how
much further they're going to go.
So look back me, drop me a comment who, who, who's right or
wrong here? Do you want to hear in future in
a scenario like this? And I'm going to give you the
headlines for context, Meta shares so Facebook, IE Meta have
jumped 12% after smashing earnings.
(00:43):
Microsoft have said his quarterly profits soared as
revenues from his cloud computing division surged to a
record level, pushing his marketvalue past 1234 trillion.
Or Jay Powell, the Fed chair, striking A hawkish tone as the
Fed defies Trump's calls for a rate cut.
And there's also USGDP, so I've pushed Piers here.
(01:07):
You know where my vote lies. So Piers, Piers was like, we've
got to talk about Fed and interest rate situation.
And I was like, no, no, no, no. So look, you as the community,
let me know. So as your host, I'm I'm willing
to be proven wrong. And if in the future in this
scenario, you would like Fed 1stand then the stocks.
(01:28):
Happy to do that. So let me know in the comments.
So I'll put a poll text stock news or Fed and you can just hit
it and let me know. But yeah, well.
Let's do text stock news fine. I mean, whatever, 12% up in one
day. You know, one of the biggest
tech firms in the in the on the planet.
Is that news? I mean, yeah, You know, all
(01:48):
right, fine. Yeah.
Look, Meta let's go. Meta have absolutely destroyed
it. It's such a hit, such an in.
If you look back over the over the years, it's been such a
journey for a well, Zuckerberg, obviously, B, everyone who works
(02:09):
at Meta, but but C investors whoown that stock.
I mean, what a roller coaster, you know, some of the moves off
their earnings. Actually, I'd be interested to
go back and maybe someone can dothis or has this.
But what, what's the kind of volatility of earnings, you
know, releases for the big giantkind of, you know, well, even
(02:31):
just think the S&P 500I reckon meta's got to be up there.
Top of the list. Most volatile reaction to
earnings reports, you know, postCOVID Because I remember 1, I
mean, I think it was back 2022 where the stock dumped 30% off
their earnings report and their I remember Zuckerberg on the
(02:51):
earnings call basically giving up and saying TikTok are
basically destroying them. You were reading his final
rights at that. Point.
I thought this guy was down. He was.
He was deadly. At that point, and this is where
and this is where he was peddling his metal metaverse
strategy, right? And launching billions, 10s of
(03:14):
billions of dollars at this thing that it was like what the
metaverse? What is this?
Like is that a thing? And it was just a disaster a 30%
drop in one day like here when I12% up and obviously it's not
just 12% up on the day. This is smashing new all time
highs. Shares were sub $100 at that
metaverse peak. Yeah.
(03:35):
They're now knocking A800. Yep, and not even just the swing
this year if you go back like 21st of April was the low of the
year for meta $482 really nearly800 in.
April. Yep, April 21482 bucks it's
(03:55):
nearly I mean not quite at leastlike 40% up that that's in yeah
in in a few months, right. So not only is this a huge move,
obviously intraday 12%, but it'sit's new all time highs as well.
So obviously extraordinary. Why is this all happening?
Well, just straight up there. Their numbers are just awesome.
(04:17):
And I think what's what's reallywhat's kind of underpinning like
this earnings season, generally,the, the, the, the mag 7, I
mean, the back right? And they might have had a little
period on the sidelines underperforming.
Sorry, Mag 6. Fine, fine, let's take Tesla off
that list. But they're, they're the big
(04:39):
tech giants, they're just absolute.
They're back with, with a vengeance.
And look at their lot smashing revenue expectations.
So for quarter 2, here's some numbers.
Mehta delivered $47.52 billion on the quarter, much better than
the 44.8 expected. But more than that, it's a 22%
(05:00):
revenue increase, you know, on the same quarter from last year.
Where's all the money coming from?
It's just straight up. And in many ways it's a bit like
Google when they were report. It's just like their it's their
core business. It's like advertising revenues
are just a stellar and some of this is, is kind of AI related
(05:21):
with some of their clever sort of products helping people to
better target ads and so on. And it's leading to perhaps talk
about the stats around usage figures, But people are spending
more time on Instagram. They're spending more time on
I'm I'm talking about users, individuals now and there's more
targeted advertising going on. The latest feeding through to
just phenomenal numbers. Their net income was 18.3
(05:45):
billion. The forecast was 15 and they
have clocked 18.4. I mean, these are just
extraordinary beats and they, you know, their, their revenue
expectations for Q3, their rangeis 47.5 to 50 billion for Q3.
That was well ahead of expectations.
(06:06):
So no matter where you look on this report, it's just quite,
it's just you kind of just take a pause and go, Jesus, fair
play. So their core business is just
absolutely destroying it. You then look at all the other
stuff because they're obviously Zuckerberg's very aggressively
stepped up his, you know, the AIrace.
(06:29):
He's very aggressively this yearstepped up and like he's
offered, he's like trying to poach talent off open AI, Apple,
Google, some of the packages that he's putting on the table
for lit for individuals. We're talking $100 million, you
know, bonuses are on the table for a single human being to come
(06:53):
and work for me, that meta, rather than my arch rival down
the road at Google. And like I wonder.
Who's who's making that market price?
I well. Is it the company offering that
as a sensification? Because it can't be because open
AI and Apple and Google aren't paying that sort of salary.
(07:13):
So surely the surely there's a there's like a bounty hunter and
it's like, right then my price, I don't care.
I'm agnostic of tech firm. You pay me $100 million, you've
got me in your super intelligence lab.
Yeah, I mean, this is it. What is the price?
I mean, I don't, it was definitely not 100 million a few
(07:35):
months back. Now all of a sudden it is.
I mean, who knows it'll be 200 million by the end of the year,
right? I mean, such is the size of the
prize. I mean, I guess that this is the
point, right? When you think about an
individual getting 100 million bucks bonus is just kind of
insane. But then, you know, how much
money do you throw at this from Meta's point of view or Google
(07:55):
or Microsoft or all of them, right?
And it's the size of the prize is so gigantic that actually,
you know, in a few years time, maybe you look back at this
aggressive play and actually yousee it as genius and actually
really good value for getting anedge in the race, right?
So, so talking about expenditures, so for this year,
(08:17):
they've raised so that normally companies like this will say at
the start of the year, they'll say, look, this is the range of
money we're looking to spend capital expenditures, all right?
These days, the last vast majority of that is on their
kind of AI compute build out right there.
So how many NVIDIA chips are we going to buy basically?
And so for Meta, they've increased the bottom side of the
(08:40):
range, but they haven't increased the top side, which is
interesting. So at the start of the year,
they were saying we're going to spend somewhere between 64 and
72 billion on CapEx. Now they're saying it's going to
be somewhere between 66 and 72. So actually interesting here,
all the other players are increasing their spend, they're
increasing the top end of the range.
(09:02):
So what's been a real Achilles heel for Meta, as I was saying
on that roller coaster post COVID, go back to that metaverse
sort of Hail Mary play. One of the really big catalysts
for the sharp downside was investors opinions that Meta was
throwing too much money at what was seen as a bit of a long
(09:23):
shot. Right?
And like here, they've almost switched to the other side.
Not that I'm saying 72 billion. It's a small amount of money,
but at least they're not increasing spend whereas the
other players are. But look, 72 billion is
obviously still just gargantuan amounts of money.
And so yeah, I guess they're in that sweet spot where the core
(09:44):
business is just absolutely spewing out cash, making it
obviously more affordable to be aggressive on, on the AI race.
So I think that's the bottom line here.
And the the just their numbers and the beats and the forecast
for the rest of the year has just meant the stock.
It's just gone gangbusters. Yeah, alongside that talent
(10:06):
blitz, the other thing I'd notedwas that they've announced, not
with this earnings release, but within the last month, several
large data center projects, nuclear, new nuclear, renewable
energy deals, building out the infrastructure to support AI
drive. I mean, he, one thing I, I've
coming to really like about Zuckerberg is just his
(10:30):
commitment to his decisiveness on a decision.
I mean, the guy goes all in. I mean, and he definitely, I
think the question was with the metaverse, could he pivot?
I mean, obviously you were wrong.
And then can you pivot and go again?
And like, yeah, I think that's very admirable the way he did.
(10:50):
He actually, given what happenedwith the metaverse, he's
committed to this again fully. Yeah.
And so far. I like like when you put it like
that, you then think, well, if you think about the Mag 7, how
many of them are still being ledby their founder?
And as you'd say, it's Jensen atNVIDIA and it's Zuckerberg at
(11:15):
Mehta. And then that's it.
All right, fine, Musk at Tesla. But look, Tesla have dropped
off, dropped out of the running here.
But you know, your, your Googlesand your Apples and your Amazons
and and so on, you know, and your Microsofts, they're not run
by the founders anymore. And I think that is a different,
you know, mentality. If you're still found a lead.
(11:37):
I think Zuckerberg is still, it's like a dictatorship in a
way, right? And he calls the shots.
And look, he's obviously made enough money personally, his
wealth is not within question. So what's the risk for him?
Well, he, he wants to, he, what's his legacy, right?
(11:58):
And he wants to build the legacy, which is Meta winning
the AI race. And look, I'll double down, I'll
triple down, I'll quadruple down.
I'll throw all the money at it because the risk to me is, well,
I I'm rich beyond all dreams. It doesn't matter what happens
to Mehta from this point on, that's not going to change.
So it's just about winning one of the big kind of secular
(12:22):
shifts in in the. World question for you, who's
the bigger winner of the week, Mark Zuckerberg or Donald Trump?
I was counting up the amount of money that not only are they
going to be paying the US in tariffs, but also another all
these other countries are lumping in multi $100 billion.
(12:43):
I was like God this they must have committed like trillions
now. Yeah.
Well, yeah, it. Is so I mean, so who's the who's
the man of the week, Trump or Zuckerberg I.
Don't know. I mean, like it's hard to it's
hard, it's hard to it's look August.
So pivots trump are set because obviously August the 1st
tomorrow we're recording on Thursday, 31st of July here.
(13:07):
You know, that's D-Day, as in right, the liberation day,
second of April. You know, here we are, you know,
in that kind of second phase where he said, right, let's just
pull back from the brink here. You know, rather than me
threatening all these D-Day tariffs, let's give you that
kind of 90 day period. Let's talk it out, see if we can
(13:28):
do some deals. Well, that's tomorrow is the
deadline. That's why all of a sudden it's
kind of all coming together, so to speak, in that he's obviously
been at his golf course, where his golf course is, I should say
in Scotland. I love the fact he just rocks up
at his golf course in Scotland and everyone comes to him and he
turns Scottish golf course into some kind of global trade
(13:54):
agreement conference and everyone kind of wheels up
anyway. EU deal in the bag, 15% tariffs
on everything basically. But then the EU will spend.
I can't remember the numbers now.
What was it, 600 billion on energy?
I think US energy and then I can't remember something else
(14:15):
anyway, just huge amounts of money, as you're saying.
Yeah, look, Trump, you know, I'dsay this is turning into a
definitely a successful week forTrump on the tariff.
So everyone's falling into line.And there's a few outliers that
are kind of digging their heels in, like India, for example.
And so now Trump's saying, all right, well, look, if you're not
(14:35):
going to do a deal, it's going to be 25% tariffs and, you know,
will India fall into line? Probably.
There's an issue around India buying Russian oil, and Trump
doesn't like that. So that's a kind of sticking
point in that deal because wheredoes India go for their oil?
Because obviously a huge portionof their oil comes from Russia.
So obviously Trump wants to pivot that money to to the US
(14:59):
and they should buy US energy, but I don't know if there's
enough capacity. But look, so yeah, generally
speaking from a tariff point of view, it has been a very, very
positive week, you would say. And I probably put him ahead of
Trump, sorry. As of of met Zuckerberg for Yeah
(15:19):
most successful week, although we've still got a full 24 hours
to go yet, so. Yeah, and in trouble.
Well, that's a long time. And look, I don't want anyone to
hear or or to listen to think that we know we're we're being
fanboys of Trump here. We're just calling it as we see
it. And these deals are indeed
coming over the line. So and I just was reading
(15:40):
Canada. Perhaps not though, given some
of the latest comments that MarkCarney's been making.
So we'll see how that plays out given the somewhat lack of
leverage Carney has. Well, that that's it.
But the the final point, like Trump is trying to weave in some
political sort of elements to these deals.
So I think it was Cambodia and someone else where like part of
(16:06):
the deal was, look, you've got to have some kind of ceasefire
agreement, which actually is notentirely in Cambodia's control,
right? So obviously they could try and
do that. And but so anyway, my point is
it's these deals are not straightforward, nor I mean,
like pre Trump, normally a tradeagreement would take literally
years to negotiate. And you know, here's Trump
(16:29):
saying, let's do 200 trade agreements in 90 days.
You know, clearly that is impossible.
And so here we are at the end ofthe 90 days.
But the key thing is the big, the big players as in the
countries that have, you know, the largest trade surpluses
slash deficits with the US, they're coming into line and
deals are getting done. And so from a kind of global
(16:51):
risk point of view, from a global tariff risk point of
view, you know, as long as thosebig deals come in which they are
doing, then look, markets were right to kind of look beyond it
and not see it as a risk like somewhere, OK.
I'm going to meet you halfway and let's, as we've mentioned
Trump, let's just move into the Fed situation.
We'll we'll circle back to Microsoft.
(17:12):
So. I got my way.
So what would say the market? We had equities initially just
in the wake of the immediacy of the announcement from the Fed on
Wednesday, midweek, the the dollar rallied, stocks did fall
slightly. So the asset class reaction
(17:33):
would have been somewhat of a hawkish 1.
So what was going on here to create that movement?
So the outcome of this meeting was that it was hawkish.
So that means very simply, if you want to put it in real
simple terms, let's put it in interest rate terms.
We now think interest rates are going to be higher than we did
(17:56):
before in the future, meaning the Fed are going to cut.
There'll be less cuts than we were hoping is maybe the best
way to put it. OK, Now there's a few layers to
this. Obviously there's the Trump
Powell sort of battle that's been going on and played out in
the media. And the latest one, did you see
(18:17):
Trump so awkward during he visited the Federal Reserve who
are undergoing. I didn't actually know this.
They're redeveloping their building and it's spiralled to
like over $3 billion worth of costs.
So Trump was like, perfect, I can get in there live TV and I
can I can make everyone aware ofhow pals let this go way I can.
(18:40):
Yeah, I saw this video of that, and it was like they had hard
hats on. They're walking through this
derelict old, you know, the Federal Reserve building.
And then Trump got out this piece of paperwork just in front
of the media, and he was like, yeah, $3 billion.
And power was like, what? Like, where did that number come
from? And then he was like, can I have
the paper? And then power, like this kind
(19:01):
of lawyer that he is from, trained profession, puts his
glasses on, looks at the paperwork and goes, now that's
the building you built five years ago.
And I was like I said to my wife, I was like, is this real?
Yeah, it can't be extraordinary like.
Surely that's this is fake news like, because anyway, so it was
like Laurel Hardy. It was like this kind of
(19:23):
fictitious role play. And I was like, wow, imagine if
I showed myself six months ago the image of those 2IN hard
hats. Like doing what?
I mean, I'd be like, you're crazy, but here we are.
But basically, Powell, I would imagine, came away from that,
like, furious that Trump made him or at least tried to make
(19:43):
him out to look like some kind of idiot.
And I would have been fuming if I was Powell.
So look, obviously, they've beenat loggerheads.
Trump wants Powell to cut rates.Powell's like, get out of my
face. You know, you're not.
You know, you can't influence us.
The Federal Reserve, we're independent, OK, for good
(20:04):
reasons. And we control monetary
policies. Say whatever you want.
But actually it's got to the point now where I would say even
if it's just subconsciously, Powell's now doing the opposite.
Because he doesn't want to be seen to kind of be sort of
giving in, if you like, and cutting.
So I'm not surprised this meeting turned out to be
(20:27):
slightly hawkish just for that relationship and political
situation between the two of them.
Whether it's subconscious or conscious, I don't know.
But look, ultimately what Powelldid at this meeting, they didn't
cut rates and we weren't expecting them to, but it was
about right. September cut.
For months and months and monthseveryone's been predicting the
first cut in 2025 will be the set of the September meeting.
(20:48):
And actually really what Powell did at this meeting was not only
did they not cut yesterday, but also they reduced the chances of
a September cut. It's about 5050 now, which is
quite interesting. We could talk about, you know,
we've had a lot of data this week.
We've had GDP data, we've had inflation data.
(21:08):
Tomorrow on Friday, we're going to get labour market data, you
know, on top of all the earningsreports and the Fed meeting.
It's been a mega week for kind of macro and micro news flow,
right? But on the GDP side, but there's
obviously it's a, it's a complexbit of data this, but and it's
been so disrupted by the tariff thing because we had companies
(21:31):
in quarter one front loading their purchases and building up
inventory because they were worried tariffs were coming in
quarter two. That just meant then there was a
drop off in kind of Indra inventory build up in quarter 2.
And that's really screwed up theheadline GDP figures.
So actually the GDP number in itself is a bit useless.
(21:52):
So it was 3% just to be accurate, but it was minus
nought .5% in quarter one. Really you've got to take both
together and kind of just take the average I would say.
But like when you look under thebonnet of it, well then actually
you start to look at what what'sthe most worrying is something
called final domestic sales. So this is looking at real final
(22:12):
sales to private domestic purchases, OK.
It kind of just takes out all that import export stuff, which
screws up the headline data. And what you're seeing is
actually a real loss of momentum.
So we've really stepped quite sharply down from 2024.
On average in 2024, we had about2 1/2 to 2.75% growth rate in
(22:34):
real final sales to private domestic purchases, OK, But so
around about 2 1/2 to 2.75 in this year, it's dropped in
quarter 1 to 2% and now in quarter 2 to nearly 1%.
So it's really stepping down, which perhaps indicates that
consumption is losing momentum, and about 75% of GDP is
(22:57):
consumption. So if that thing's going in the
wrong direction, and obviously if it continues on that trend,
then we might have a bit of a problem.
But look, none of that is showing up in the labor market
though. And this is the confusing thing.
The labor market's super strong.When you look at things like the
unemployment rate, it's 4.1%. It's like multi decade lows,
(23:17):
right? But The thing is the labor force
is actually shrinking and again,linked back to Trump policy
about immigration and so on. So you basically got, you
basically got a shrinking workforce, fewer jobs being
created, but one's offsetting the other.
And it's fine. You're still ending up with this
kind of full employment idea. So powers like I'm not cutting
(23:39):
labor markets really strong. And then you look at inflation
and it's again, a little tricky.We just have PCE inflation
figures out earlier this afternoon as you went back up,
which was OK, fine, justifies Powell's more hawkishness.
So year on year is at 2.6%. So look, they like, like, like
(24:04):
like forever economic data. You can spin it however you
want. And there's reasons in there to
back a cut. And there's reasons to say
actually we should hold off. What was really interesting
about the Fed meeting was that there were two members of the
Fed, so Michelle Bowman and Christopher Waller, who both
dissented. He's going for a job, Chris.
(24:26):
Well, Chris Waller's one of the shortlisted candidates, 100%.
He's going for the job. He's a shortlisted candidate to
appraise Powell when his term ends next year.
But Waller and Bowman said we should cut now this meeting in
August or sorry, in July. But what's weird, I still can't
believe this stat. But apparently that's the first
time there's been two people that have dissented on the
(24:49):
Federal Open Market Committee, two people that have dissented,
IE wanting to do something different to what the committee
overall has decided to do. It's the first time there's been
2 dissenters for over 30 years apparently, which I don't know,
I can't believe. But again, just further
emphasizes the division even within the Fed now, which you
(25:12):
could say has been sort of Trump's strategy all along.
Whilst I can't remove Powell, let's do everything in our power
to try and get the world and markets thinking that more cuts
are coming because ultimately Trump just wants lower yields so
he can refinance American debt at lower cost, right?
So, yeah, quite an interesting mix.
(25:35):
But overall, hawkish and big move was the dollar.
You know, if you take all the asset classes muted and mainly
and obviously these big earningsresults have kind of been in the
mix when you're thinking about equities.
But check out the dollar move this week, Really quite
aggressive dollar strength off the back of what's been a very
(25:58):
weak year for the dollar. So it's been weak all year.
So it's now rebounded. All right, a small portion.
But look, the dollar's lost 10% of its value in the first half
of this year, so it's got a hugedistance down.
And we've had a quite a, you know, decent step back up here
as people begin to worry that September cup ain't going to
(26:21):
happen. Right.
And then the the the clues coming for that is like looking
ahead, what are the known thingsthat are coming?
And yeah, obviously there's there's the the uncertainty over
Trump, but there is a degree of clarity now just given the deals
that are ongoing being negotiated.
So the surprise factor is probably lesser than it was more
(26:44):
several months ago. But then Powell, he's speaking
at the Kansas City Fed's JacksonHole event that happens in late
August, so not far three weeks or so from now.
And that event is akin to the Fomc's ninth meeting of the year
situation. So the Fed, just for clarity,
(27:06):
have 8 meetings a year. But Jackson Hole historically
has been a platform to signal also to communicate as a Federal
Reserve Chairman, potential changes in policy.
So not that we're expecting thatright now, but it's a platform
nonetheless. And then you've got dimension
the jobs data from when we're recording this actually
tomorrow, but then you also get the following report plus
(27:29):
readings for inflation in July. So this is all coming down the
pipe which are very weighted factors for this.
Will they, Won't they? And.
There's another point to make, actually, because one of the
things that Powell has been using as a reason why they're
not cutting is the uncertainty on how tariffs might impact
inflation, as in push inflation back up.
(27:52):
So we can't cut because of that potential risk.
Now as it stands, tariffs, well,a, we haven't had the nightmare
high tariffs that Trump was originally threatening, but
tariffs are going up 15% deals getting done with the EU and
Japan and whatever, right? So how much of that increase is
going to be fed through to the consumer?
(28:14):
And what we found is there's been a surprising amount of
companies wearing some of this tariff increase themselves, IE,
their margins are narrowing. But it was interesting in this
earnings season to hear from individual companies about how
these tariffs are having an impact and then what they're
talking about with regards to pricing strategy going forwards.
(28:38):
And will inflation go up becauseof tariffs or not?
So I've got 3 examples here fromthe earnings season so far.
So Procter and Gamble. So look, forget tech here, you
know, all these software companies, they're not really
impacted by tariffs. So this is like physical goods.
All right. So Procter and Gamble said in
their earnings report that they're forecasting, sorry,
(28:59):
they're, they're forecasting a $1 billion hit to pre tax
profits in the full year becauseof tariffs.
And what they said on the call was, so they're saying that we
will look for every opportunity to mitigate these impacts,
including sourcing flexibility, productivity improvements, blah,
blah, blah. But they said pricing with
(29:20):
innovation in affected categories, which is a kind of
very convoluted way of saying, look, we're probably going to
have to increase prices, sorry, General Motors CFO.
Basically they're saying that we're still tracking to offset
at least 30% of the four to 5 billion full year tariff impact.
(29:41):
So they're looking to offset 30%through things like and they've
described it as targeted cost initiatives and consistent
pricing. Translate we're putting prices
up. Stanley Black and Decker,
they're talking about an $800 million tariff impact and
they're talking about targeted pricing actions.
(30:05):
Again, translate to we're going to have to put prices up.
So like when you think about that, again, that's evidence in
Powell's camp and justification to look, let's just wait here
and let's just see how this plays out.
What's a few more months, you know, in the grand scheme of
things, if it means we're patient and not making an error
(30:27):
by cutting and then inflation gets out of control.
And I guess the market pricing dictates that degree of
uncertainty right now. You said it's 5050 basically.
So 5050 is not where the centralbank wants it to be at the point
of release because by being not priced in, it's going to create
(30:47):
and destabilize short term at least, it's going to create
market volatility and that is the central bank effectively
failing on its ability to forward guide appropriately.
So even though the, you know, Powell's juggling a pretty
tricky proposition here of factors, you would imagine
though that that 50 is probably going to shift one way or the
(31:07):
other. Those incoming data points
developments for Trump plus the whatever else could happen in
the inter period will shift the night shift the needle.
Look, you go back a few weeks and a September cut was almost
100% likely, and now it's 50. So that's why the dollar
strengthened. And yeah, that and, and a
(31:27):
direction of travel. If if Trump carries on pissing
off Powell at every opportunity,well then like you know, the
chances are going to drop below 50 of a cut in September.
Come on, Power's not. Power's not.
He's bigger than that. Well, he's human like once he's
been. Cut the chink of his armor then.
(31:47):
Embarrassed on live TV, so power's.
Got a bigger ego than Trump thenmaybe not All right well, let's
let's let's let's close and talkabout Microsoft because again,
another mega cap giant with its market value I mean 4 trillion
it's amazing you know so it's kind of like predicting the
(32:10):
future will we get a $10 trillion company one day yeah,
for sure we will we're at the four market now so.
Yeah, well, they're the second. Well, they're the second company
to hit the four trill mark ever in history.
That is so NVIDIA past that level on July 9th actually
talking about getting to 10. So since NVIDIA hit 4 trillion
(32:32):
on the 9th of July, like here weare what 3 weeks later they've
already added another $400 billion to that and add 4.4
trillion, which is just mine though.
Anyway, that's NVIDIA. So look, Microsoft, well, so in
early trading, they've it's comeback off a little bit, I would
(32:54):
say, but like overnight, the initial kind of reactions in
aftermarket trade was that theirstock was up about 6 1/2%.
Just looking now it's it's come back a couple of percent.
So it's up 4 1/2 at the moment. But like Meta, these are huge
gains through all time ever highs, right?
So it's not like these companieswere cheap having had a big sell
(33:15):
off and like relief rally. These are big strides up through
all time ever highs. So yeah, Microsoft took out the
$500 handle at the end of June and now it's 535 and it's just
kind of motoring. But you know what for?
For them, it was all about Azureand one of.
So that's their cloud service division.
(33:37):
And actually for the first time ever, and due to investor
pressure, by the way, Della, theCEO was talking about, right,
we're going to split things out and we're going to let you know
for the first time ever how muchrevenue our cloud division has
made as a single unit and what'sthe growth rate of that unit.
And so this was the big news. And so the, so they've said that
(34:00):
for their fiscal year, so full the last full 12 months to the
end of June, their Azure cloud division brought in 75 billion
dollars in revenue and it's growth rate is 34%.
So that's the big news, right? And it's just kind of
stratospheric that something that's already that gargantuan
(34:22):
in size can be growing a 34% growth rate, right.
And so I think what's interesting with Microsoft
talking about AI, they're kind of very well placed for kind of
the second and third phases. So phase one of AI is like, it's
like NVIDIA, right? That's the kind of the the kind
(34:45):
of infrastructure that you need.And so, well, actually, well, so
Microsoft are in that I would say they're in the
infrastructure layer, right? So you've got NVIDIA who built
the chips, but then you you needthe cloud compute to be able to
run these kind of things. And so this is where Microsoft
are very well placed. It's only them and AWS, they're
the two big cloud service providers.
(35:05):
Google are trying to catch up. But the big two are definitely
AWS and Azure at Microsoft. So they're going great guns, OK.
But then the next is the kind ofapplication layer.
So that's right, fine, we've gotall this compute power, but
right, what are the apps that that then I can use to kind of
make my life more efficient? And so obviously Copilot and
(35:27):
stuff, obviously they're a big investor in open AI.
So here they're making money nowthrough that.
And then finally, you'll see thethird phase of AI, which is
efficiency gains at all companies across the world,
right? And human life in general.
So as an investor, it was about trying to invest in the
infrastructure guys, first NVIDIA, Microsoft and so on.
(35:50):
Then it's right, who's got the apps open, AI, Copilot, all the
rest of it. And then right, let's just
actually think about more broadly which companies are
going to have the most rapid efficiency gains because of all
this stuff that kind of comes next.
But yeah, Microsoft are right inamongst it.
Their, you know, revenues net overall, whilst their cloud
(36:11):
division was up 34%, net as a whole business they were up 18%
and that their cloud clocks 75 billion for a year, right.
That's roughly their quarterly revenue overall.
So overall their quarterly revenue to the end of June was
76.4 billion. So yeah, that you could say from
that rough maths, 1/4 of their revenue is now from Azure and
(36:33):
it's the fastest growing part oftheir company.
So that was the kind of big news.
And yeah. I was just looking at basically
like a summation on the street of what the equity analysts on
the sell side banks were saying kind of you've pretty much
covered it like they're most of them along still.
So in terms of their their positioning remain saying that
(36:54):
they they're kind of set to capture a major secular trend
Gen. AI, public cloud consumption,
SAS adoption. And there's something
interesting you said earlier as well, that tech, and in this
case Microsoft, insulated somewhat from tariff
considerations. So of the moment, it's almost
(37:15):
like compounding these moves, right For these big tech firms,
given what's happening to your Potter and Gamble's in your
Black and Decker. Yeah, and it's just that the one
negative for all of this has been that idea earlier this year
that American exceptionalism wasover.
That was the trade of 20/23/20. 24, come on, that's I think we
(37:36):
said. That ships sailed.
Yeah, that's that ships well sailed and the the players, you
had that little window of opportunity to pick up these big
tech boys. You know, they'd step down like
20 percent, 30% in some cases. That was your little window.
It's just hard now. Like when you look at the
Microsoft share price, you can'tbuy now, it's like.
(38:01):
Famous famous words. So the upside well, but this is
the thing about human nature, right?
If you're in the trade, I'll ownup.
I own Microsoft shares. OK, I'm really happy you're the.
Eighth biggest shareholder though, right?
Well, but but my point is I'm holding, I'm not selling even
though it's just kind of throughthe roof.
I am holding OK, but if I didn'town those shares, would I now
(38:26):
buy because you should do if therational is it's going to go
higher. But it's very difficult to buy
something that has just gone through a vertical kind of smash
up through all time highs. You you feel like you're buying
something that's at the top and it's really expensive.
Case study from human behaviour in recent months might be
(38:47):
NVIDIA. What do they get to 135 or
something? And then you had the big move
down to 90 and I was trading at what, 200?
Well. Yeah, exactly.
So if you bought at 1:30, yeah, you might have felt like this is
the worst call ever, but that that's that being vested concept
(39:08):
of time and duration, right, with your horizon.
Because yeah, I think, I can't recall the stat now, but it was
one of those data studies that they had done and it was looking
at if you bought at the top at the time of all of these stocks,
then actually you'll end up making more money than trying to
pick bottoms because your famousphrase.
(39:30):
Yeah, exactly. Get smelly fingers.
And on that though, yeah, cool. All right, well, look, let's
wrapped it up there. Yeah.
Incredibly busy week, lots goingon so.
So state. Google and Apple tonight, in
terms of more like with the earnings season is far from over
(39:52):
here. You got two of the biggest
giants of all. Not Google, sorry, Apple and
Amazon, I think, Am I right saying yes?
Yeah. Still, still some big guns,
still to deliver. And a payrolls report tomorrow.
All right, well, look, if you'vemade it to the end of the
episode, then you're a big fan because I see the stats on
(40:15):
dropout rates. If you have, then you're
probably a regular listener. So can I ask just one quick
favour? I'm going to drop a link within
the comments or the the text of this episode.
And we have been shortlisted forthe People's Choice Awards at
the British Podcast Awards for 2025.
It takes no more than like 10 seconds to vote, but can I ask
(40:37):
you take that 10 seconds, click on the link, you just need to
search market maker, select it and hit fire and that's it.
That would be amazing. Yes, please.
All right. Thank you, everyone.
Thank you, Piers. See you next week.
Yep. Catch you later.
Bye now.
Welcome back to the Market Makerpodcast.
And just before we begin, literally before I hit the
record button, Piers just asked me, what did you want to do this
episode in? We've got three things to talk
about. Two massive tech giants or a big
macro update from the Fed. I was like, Piers, give the
people what they want. They don't want to know about
the Fed. They want to know about what's
(00:21):
happened to my Meta shares. They're up 12% and why and how
much further they're going to go.
So look back me, drop me a comment who, who, who's right or
wrong here? Do you want to hear in future in
a scenario like this? And I'm going to give you the
headlines for context, Meta shares so Facebook, IE Meta have
jumped 12% after smashing earnings.
(00:43):
Microsoft have said his quarterly profits soared as
revenues from his cloud computing division surged to a
record level, pushing his marketvalue past 1234 trillion.
Or Jay Powell, the Fed chair, striking A hawkish tone as the
Fed defies Trump's calls for a rate cut.
And there's also USGDP, so I've pushed Piers here.
(01:07):
You know where my vote lies. So Piers, Piers was like, we've
got to talk about Fed and interest rate situation.
And I was like, no, no, no, no. So look, you as the community,
let me know. So as your host, I'm I'm willing
to be proven wrong. And if in the future in this
scenario, you would like Fed 1stand then the stocks.
(01:28):
Happy to do that. So let me know in the comments.
So I'll put a poll text stock news or Fed and you can just hit
it and let me know. But yeah, well.
Let's do text stock news fine. I mean, whatever, 12% up in one
day. You know, one of the biggest
tech firms in the in the on the planet.
Is that news? I mean, yeah, You know, all
(01:48):
right, fine. Yeah.
Look, Meta let's go. Meta have absolutely destroyed
it. It's such a hit, such an in.
If you look back over the over the years, it's been such a
journey for a well, Zuckerberg, obviously, B, everyone who works
(02:09):
at Meta, but but C investors whoown that stock.
I mean, what a roller coaster, you know, some of the moves off
their earnings. Actually, I'd be interested to
go back and maybe someone can dothis or has this.
But what, what's the kind of volatility of earnings, you
know, releases for the big giantkind of, you know, well, even
(02:31):
just think the S&P 500I reckon meta's got to be up there.
Top of the list. Most volatile reaction to
earnings reports, you know, postCOVID Because I remember 1, I
mean, I think it was back 2022 where the stock dumped 30% off
their earnings report and their I remember Zuckerberg on the
(02:51):
earnings call basically giving up and saying TikTok are
basically destroying them. You were reading his final
rights at that. Point.
I thought this guy was down. He was.
He was deadly. At that point, and this is where
and this is where he was peddling his metal metaverse
strategy, right? And launching billions, 10s of
(03:14):
billions of dollars at this thing that it was like what the
metaverse? What is this?
Like is that a thing? And it was just a disaster a 30%
drop in one day like here when I12% up and obviously it's not
just 12% up on the day. This is smashing new all time
highs. Shares were sub $100 at that
metaverse peak. Yeah.
(03:35):
They're now knocking A800. Yep, and not even just the swing
this year if you go back like 21st of April was the low of the
year for meta $482 really nearly800 in.
April. Yep, April 21482 bucks it's
(03:55):
nearly I mean not quite at leastlike 40% up that that's in yeah
in in a few months, right. So not only is this a huge move,
obviously intraday 12%, but it'sit's new all time highs as well.
So obviously extraordinary. Why is this all happening?
Well, just straight up there. Their numbers are just awesome.
(04:17):
And I think what's what's reallywhat's kind of underpinning like
this earnings season, generally,the, the, the, the mag 7, I
mean, the back right? And they might have had a little
period on the sidelines underperforming.
Sorry, Mag 6. Fine, fine, let's take Tesla off
that list. But they're, they're the big
(04:39):
tech giants, they're just absolute.
They're back with, with a vengeance.
And look at their lot smashing revenue expectations.
So for quarter 2, here's some numbers.
Mehta delivered $47.52 billion on the quarter, much better than
the 44.8 expected. But more than that, it's a 22%
(05:00):
revenue increase, you know, on the same quarter from last year.
Where's all the money coming from?
It's just straight up. And in many ways it's a bit like
Google when they were report. It's just like their it's their
core business. It's like advertising revenues
are just a stellar and some of this is, is kind of AI related
(05:21):
with some of their clever sort of products helping people to
better target ads and so on. And it's leading to perhaps talk
about the stats around usage figures, But people are spending
more time on Instagram. They're spending more time on
I'm I'm talking about users, individuals now and there's more
targeted advertising going on. The latest feeding through to
just phenomenal numbers. Their net income was 18.3
(05:45):
billion. The forecast was 15 and they
have clocked 18.4. I mean, these are just
extraordinary beats and they, you know, their, their revenue
expectations for Q3, their rangeis 47.5 to 50 billion for Q3.
That was well ahead of expectations.
(06:06):
So no matter where you look on this report, it's just quite,
it's just you kind of just take a pause and go, Jesus, fair
play. So their core business is just
absolutely destroying it. You then look at all the other
stuff because they're obviously Zuckerberg's very aggressively
stepped up his, you know, the AIrace.
(06:29):
He's very aggressively this yearstepped up and like he's
offered, he's like trying to poach talent off open AI, Apple,
Google, some of the packages that he's putting on the table
for lit for individuals. We're talking $100 million, you
know, bonuses are on the table for a single human being to come
(06:53):
and work for me, that meta, rather than my arch rival down
the road at Google. And like I wonder.
Who's who's making that market price?
I well. Is it the company offering that
as a sensification? Because it can't be because open
AI and Apple and Google aren't paying that sort of salary.
(07:13):
So surely the surely there's a there's like a bounty hunter and
it's like, right then my price, I don't care.
I'm agnostic of tech firm. You pay me $100 million, you've
got me in your super intelligence lab.
Yeah, I mean, this is it. What is the price?
I mean, I don't, it was definitely not 100 million a few
(07:35):
months back. Now all of a sudden it is.
I mean, who knows it'll be 200 million by the end of the year,
right? I mean, such is the size of the
prize. I mean, I guess that this is the
point, right? When you think about an
individual getting 100 million bucks bonus is just kind of
insane. But then, you know, how much
money do you throw at this from Meta's point of view or Google
(07:55):
or Microsoft or all of them, right?
And it's the size of the prize is so gigantic that actually,
you know, in a few years time, maybe you look back at this
aggressive play and actually yousee it as genius and actually
really good value for getting anedge in the race, right?
So, so talking about expenditures, so for this year,
(08:17):
they've raised so that normally companies like this will say at
the start of the year, they'll say, look, this is the range of
money we're looking to spend capital expenditures, all right?
These days, the last vast majority of that is on their
kind of AI compute build out right there.
So how many NVIDIA chips are we going to buy basically?
And so for Meta, they've increased the bottom side of the
(08:40):
range, but they haven't increased the top side, which is
interesting. So at the start of the year,
they were saying we're going to spend somewhere between 64 and
72 billion on CapEx. Now they're saying it's going to
be somewhere between 66 and 72. So actually interesting here,
all the other players are increasing their spend, they're
increasing the top end of the range.
(09:02):
So what's been a real Achilles heel for Meta, as I was saying
on that roller coaster post COVID, go back to that metaverse
sort of Hail Mary play. One of the really big catalysts
for the sharp downside was investors opinions that Meta was
throwing too much money at what was seen as a bit of a long
(09:23):
shot. Right?
And like here, they've almost switched to the other side.
Not that I'm saying 72 billion. It's a small amount of money,
but at least they're not increasing spend whereas the
other players are. But look, 72 billion is
obviously still just gargantuan amounts of money.
And so yeah, I guess they're in that sweet spot where the core
(09:44):
business is just absolutely spewing out cash, making it
obviously more affordable to be aggressive on, on the AI race.
So I think that's the bottom line here.
And the the just their numbers and the beats and the forecast
for the rest of the year has just meant the stock.
It's just gone gangbusters. Yeah, alongside that talent
(10:06):
blitz, the other thing I'd notedwas that they've announced, not
with this earnings release, but within the last month, several
large data center projects, nuclear, new nuclear, renewable
energy deals, building out the infrastructure to support AI
drive. I mean, he, one thing I, I've
coming to really like about Zuckerberg is just his
(10:30):
commitment to his decisiveness on a decision.
I mean, the guy goes all in. I mean, and he definitely, I
think the question was with the metaverse, could he pivot?
I mean, obviously you were wrong.
And then can you pivot and go again?
And like, yeah, I think that's very admirable the way he did.
(10:50):
He actually, given what happenedwith the metaverse, he's
committed to this again fully. Yeah.
And so far. I like like when you put it like
that, you then think, well, if you think about the Mag 7, how
many of them are still being ledby their founder?
And as you'd say, it's Jensen atNVIDIA and it's Zuckerberg at
(11:15):
Mehta. And then that's it.
All right, fine, Musk at Tesla. But look, Tesla have dropped
off, dropped out of the running here.
But you know, your, your Googlesand your Apples and your Amazons
and and so on, you know, and your Microsofts, they're not run
by the founders anymore. And I think that is a different,
you know, mentality. If you're still found a lead.
(11:37):
I think Zuckerberg is still, it's like a dictatorship in a
way, right? And he calls the shots.
And look, he's obviously made enough money personally, his
wealth is not within question. So what's the risk for him?
Well, he, he wants to, he, what's his legacy, right?
(11:58):
And he wants to build the legacy, which is Meta winning
the AI race. And look, I'll double down, I'll
triple down, I'll quadruple down.
I'll throw all the money at it because the risk to me is, well,
I I'm rich beyond all dreams. It doesn't matter what happens
to Mehta from this point on, that's not going to change.
So it's just about winning one of the big kind of secular
(12:22):
shifts in in the. World question for you, who's
the bigger winner of the week, Mark Zuckerberg or Donald Trump?
I was counting up the amount of money that not only are they
going to be paying the US in tariffs, but also another all
these other countries are lumping in multi $100 billion.
(12:43):
I was like God this they must have committed like trillions
now. Yeah.
Well, yeah, it. Is so I mean, so who's the who's
the man of the week, Trump or Zuckerberg I.
Don't know. I mean, like it's hard to it's
hard, it's hard to it's look August.
So pivots trump are set because obviously August the 1st
tomorrow we're recording on Thursday, 31st of July here.
(13:07):
You know, that's D-Day, as in right, the liberation day,
second of April. You know, here we are, you know,
in that kind of second phase where he said, right, let's just
pull back from the brink here. You know, rather than me
threatening all these D-Day tariffs, let's give you that
kind of 90 day period. Let's talk it out, see if we can
(13:28):
do some deals. Well, that's tomorrow is the
deadline. That's why all of a sudden it's
kind of all coming together, so to speak, in that he's obviously
been at his golf course, where his golf course is, I should say
in Scotland. I love the fact he just rocks up
at his golf course in Scotland and everyone comes to him and he
turns Scottish golf course into some kind of global trade
(13:54):
agreement conference and everyone kind of wheels up
anyway. EU deal in the bag, 15% tariffs
on everything basically. But then the EU will spend.
I can't remember the numbers now.
What was it, 600 billion on energy?
I think US energy and then I can't remember something else
(14:15):
anyway, just huge amounts of money, as you're saying.
Yeah, look, Trump, you know, I'dsay this is turning into a
definitely a successful week forTrump on the tariff.
So everyone's falling into line.And there's a few outliers that
are kind of digging their heels in, like India, for example.
And so now Trump's saying, all right, well, look, if you're not
(14:35):
going to do a deal, it's going to be 25% tariffs and, you know,
will India fall into line? Probably.
There's an issue around India buying Russian oil, and Trump
doesn't like that. So that's a kind of sticking
point in that deal because wheredoes India go for their oil?
Because obviously a huge portionof their oil comes from Russia.
So obviously Trump wants to pivot that money to to the US
(14:59):
and they should buy US energy, but I don't know if there's
enough capacity. But look, so yeah, generally
speaking from a tariff point of view, it has been a very, very
positive week, you would say. And I probably put him ahead of
Trump, sorry. As of of met Zuckerberg for Yeah
(15:19):
most successful week, although we've still got a full 24 hours
to go yet, so. Yeah, and in trouble.
Well, that's a long time. And look, I don't want anyone to
hear or or to listen to think that we know we're we're being
fanboys of Trump here. We're just calling it as we see
it. And these deals are indeed
coming over the line. So and I just was reading
(15:40):
Canada. Perhaps not though, given some
of the latest comments that MarkCarney's been making.
So we'll see how that plays out given the somewhat lack of
leverage Carney has. Well, that that's it.
But the the final point, like Trump is trying to weave in some
political sort of elements to these deals.
So I think it was Cambodia and someone else where like part of
(16:06):
the deal was, look, you've got to have some kind of ceasefire
agreement, which actually is notentirely in Cambodia's control,
right? So obviously they could try and
do that. And but so anyway, my point is
it's these deals are not straightforward, nor I mean,
like pre Trump, normally a tradeagreement would take literally
years to negotiate. And you know, here's Trump
(16:29):
saying, let's do 200 trade agreements in 90 days.
You know, clearly that is impossible.
And so here we are at the end ofthe 90 days.
But the key thing is the big, the big players as in the
countries that have, you know, the largest trade surpluses
slash deficits with the US, they're coming into line and
deals are getting done. And so from a kind of global
(16:51):
risk point of view, from a global tariff risk point of
view, you know, as long as thosebig deals come in which they are
doing, then look, markets were right to kind of look beyond it
and not see it as a risk like somewhere, OK.
I'm going to meet you halfway and let's, as we've mentioned
Trump, let's just move into the Fed situation.
We'll we'll circle back to Microsoft.
(17:12):
So. I got my way.
So what would say the market? We had equities initially just
in the wake of the immediacy of the announcement from the Fed on
Wednesday, midweek, the the dollar rallied, stocks did fall
slightly. So the asset class reaction
(17:33):
would have been somewhat of a hawkish 1.
So what was going on here to create that movement?
So the outcome of this meeting was that it was hawkish.
So that means very simply, if you want to put it in real
simple terms, let's put it in interest rate terms.
We now think interest rates are going to be higher than we did
(17:56):
before in the future, meaning the Fed are going to cut.
There'll be less cuts than we were hoping is maybe the best
way to put it. OK, Now there's a few layers to
this. Obviously there's the Trump
Powell sort of battle that's been going on and played out in
the media. And the latest one, did you see
(18:17):
Trump so awkward during he visited the Federal Reserve who
are undergoing. I didn't actually know this.
They're redeveloping their building and it's spiralled to
like over $3 billion worth of costs.
So Trump was like, perfect, I can get in there live TV and I
can I can make everyone aware ofhow pals let this go way I can.
(18:40):
Yeah, I saw this video of that, and it was like they had hard
hats on. They're walking through this
derelict old, you know, the Federal Reserve building.
And then Trump got out this piece of paperwork just in front
of the media, and he was like, yeah, $3 billion.
And power was like, what? Like, where did that number come
from? And then he was like, can I have
the paper? And then power, like this kind
(19:01):
of lawyer that he is from, trained profession, puts his
glasses on, looks at the paperwork and goes, now that's
the building you built five years ago.
And I was like I said to my wife, I was like, is this real?
Yeah, it can't be extraordinary like.
Surely that's this is fake news like, because anyway, so it was
like Laurel Hardy. It was like this kind of
(19:23):
fictitious role play. And I was like, wow, imagine if
I showed myself six months ago the image of those 2IN hard
hats. Like doing what?
I mean, I'd be like, you're crazy, but here we are.
But basically, Powell, I would imagine, came away from that,
like, furious that Trump made him or at least tried to make
(19:43):
him out to look like some kind of idiot.
And I would have been fuming if I was Powell.
So look, obviously, they've beenat loggerheads.
Trump wants Powell to cut rates.Powell's like, get out of my
face. You know, you're not.
You know, you can't influence us.
The Federal Reserve, we're independent, OK, for good
(20:04):
reasons. And we control monetary
policies. Say whatever you want.
But actually it's got to the point now where I would say even
if it's just subconsciously, Powell's now doing the opposite.
Because he doesn't want to be seen to kind of be sort of
giving in, if you like, and cutting.
So I'm not surprised this meeting turned out to be
(20:27):
slightly hawkish just for that relationship and political
situation between the two of them.
Whether it's subconscious or conscious, I don't know.
But look, ultimately what Powelldid at this meeting, they didn't
cut rates and we weren't expecting them to, but it was
about right. September cut.
For months and months and monthseveryone's been predicting the
first cut in 2025 will be the set of the September meeting.
(20:48):
And actually really what Powell did at this meeting was not only
did they not cut yesterday, but also they reduced the chances of
a September cut. It's about 5050 now, which is
quite interesting. We could talk about, you know,
we've had a lot of data this week.
We've had GDP data, we've had inflation data.
(21:08):
Tomorrow on Friday, we're going to get labour market data, you
know, on top of all the earningsreports and the Fed meeting.
It's been a mega week for kind of macro and micro news flow,
right? But on the GDP side, but there's
obviously it's a, it's a complexbit of data this, but and it's
been so disrupted by the tariff thing because we had companies
(21:31):
in quarter one front loading their purchases and building up
inventory because they were worried tariffs were coming in
quarter two. That just meant then there was a
drop off in kind of Indra inventory build up in quarter 2.
And that's really screwed up theheadline GDP figures.
So actually the GDP number in itself is a bit useless.
(21:52):
So it was 3% just to be accurate, but it was minus
nought .5% in quarter one. Really you've got to take both
together and kind of just take the average I would say.
But like when you look under thebonnet of it, well then actually
you start to look at what what'sthe most worrying is something
called final domestic sales. So this is looking at real final
(22:12):
sales to private domestic purchases, OK.
It kind of just takes out all that import export stuff, which
screws up the headline data. And what you're seeing is
actually a real loss of momentum.
So we've really stepped quite sharply down from 2024.
On average in 2024, we had about2 1/2 to 2.75% growth rate in
(22:34):
real final sales to private domestic purchases, OK, But so
around about 2 1/2 to 2.75 in this year, it's dropped in
quarter 1 to 2% and now in quarter 2 to nearly 1%.
So it's really stepping down, which perhaps indicates that
consumption is losing momentum, and about 75% of GDP is
(22:57):
consumption. So if that thing's going in the
wrong direction, and obviously if it continues on that trend,
then we might have a bit of a problem.
But look, none of that is showing up in the labor market
though. And this is the confusing thing.
The labor market's super strong.When you look at things like the
unemployment rate, it's 4.1%. It's like multi decade lows,
(23:17):
right? But The thing is the labor force
is actually shrinking and again,linked back to Trump policy
about immigration and so on. So you basically got, you
basically got a shrinking workforce, fewer jobs being
created, but one's offsetting the other.
And it's fine. You're still ending up with this
kind of full employment idea. So powers like I'm not cutting
(23:39):
labor markets really strong. And then you look at inflation
and it's again, a little tricky.We just have PCE inflation
figures out earlier this afternoon as you went back up,
which was OK, fine, justifies Powell's more hawkishness.
So year on year is at 2.6%. So look, they like, like, like
(24:04):
like forever economic data. You can spin it however you
want. And there's reasons in there to
back a cut. And there's reasons to say
actually we should hold off. What was really interesting
about the Fed meeting was that there were two members of the
Fed, so Michelle Bowman and Christopher Waller, who both
dissented. He's going for a job, Chris.
(24:26):
Well, Chris Waller's one of the shortlisted candidates, 100%.
He's going for the job. He's a shortlisted candidate to
appraise Powell when his term ends next year.
But Waller and Bowman said we should cut now this meeting in
August or sorry, in July. But what's weird, I still can't
believe this stat. But apparently that's the first
time there's been two people that have dissented on the
(24:49):
Federal Open Market Committee, two people that have dissented,
IE wanting to do something different to what the committee
overall has decided to do. It's the first time there's been
2 dissenters for over 30 years apparently, which I don't know,
I can't believe. But again, just further
emphasizes the division even within the Fed now, which you
(25:12):
could say has been sort of Trump's strategy all along.
Whilst I can't remove Powell, let's do everything in our power
to try and get the world and markets thinking that more cuts
are coming because ultimately Trump just wants lower yields so
he can refinance American debt at lower cost, right?
So, yeah, quite an interesting mix.
(25:35):
But overall, hawkish and big move was the dollar.
You know, if you take all the asset classes muted and mainly
and obviously these big earningsresults have kind of been in the
mix when you're thinking about equities.
But check out the dollar move this week, Really quite
aggressive dollar strength off the back of what's been a very
(25:58):
weak year for the dollar. So it's been weak all year.
So it's now rebounded. All right, a small portion.
But look, the dollar's lost 10% of its value in the first half
of this year, so it's got a hugedistance down.
And we've had a quite a, you know, decent step back up here
as people begin to worry that September cup ain't going to
(26:21):
happen. Right.
And then the the the clues coming for that is like looking
ahead, what are the known thingsthat are coming?
And yeah, obviously there's there's the the uncertainty over
Trump, but there is a degree of clarity now just given the deals
that are ongoing being negotiated.
So the surprise factor is probably lesser than it was more
(26:44):
several months ago. But then Powell, he's speaking
at the Kansas City Fed's JacksonHole event that happens in late
August, so not far three weeks or so from now.
And that event is akin to the Fomc's ninth meeting of the year
situation. So the Fed, just for clarity,
(27:06):
have 8 meetings a year. But Jackson Hole historically
has been a platform to signal also to communicate as a Federal
Reserve Chairman, potential changes in policy.
So not that we're expecting thatright now, but it's a platform
nonetheless. And then you've got dimension
the jobs data from when we're recording this actually
tomorrow, but then you also get the following report plus
(27:29):
readings for inflation in July. So this is all coming down the
pipe which are very weighted factors for this.
Will they, Won't they? And.
There's another point to make, actually, because one of the
things that Powell has been using as a reason why they're
not cutting is the uncertainty on how tariffs might impact
inflation, as in push inflation back up.
(27:52):
So we can't cut because of that potential risk.
Now as it stands, tariffs, well,a, we haven't had the nightmare
high tariffs that Trump was originally threatening, but
tariffs are going up 15% deals getting done with the EU and
Japan and whatever, right? So how much of that increase is
going to be fed through to the consumer?
(28:14):
And what we found is there's been a surprising amount of
companies wearing some of this tariff increase themselves, IE,
their margins are narrowing. But it was interesting in this
earnings season to hear from individual companies about how
these tariffs are having an impact and then what they're
talking about with regards to pricing strategy going forwards.
(28:38):
And will inflation go up becauseof tariffs or not?
So I've got 3 examples here fromthe earnings season so far.
So Procter and Gamble. So look, forget tech here, you
know, all these software companies, they're not really
impacted by tariffs. So this is like physical goods.
All right. So Procter and Gamble said in
their earnings report that they're forecasting, sorry,
(28:59):
they're, they're forecasting a $1 billion hit to pre tax
profits in the full year becauseof tariffs.
And what they said on the call was, so they're saying that we
will look for every opportunity to mitigate these impacts,
including sourcing flexibility, productivity improvements, blah,
blah, blah. But they said pricing with
(29:20):
innovation in affected categories, which is a kind of
very convoluted way of saying, look, we're probably going to
have to increase prices, sorry, General Motors CFO.
Basically they're saying that we're still tracking to offset
at least 30% of the four to 5 billion full year tariff impact.
(29:41):
So they're looking to offset 30%through things like and they've
described it as targeted cost initiatives and consistent
pricing. Translate we're putting prices
up. Stanley Black and Decker,
they're talking about an $800 million tariff impact and
they're talking about targeted pricing actions.
(30:05):
Again, translate to we're going to have to put prices up.
So like when you think about that, again, that's evidence in
Powell's camp and justification to look, let's just wait here
and let's just see how this plays out.
What's a few more months, you know, in the grand scheme of
things, if it means we're patient and not making an error
(30:27):
by cutting and then inflation gets out of control.
And I guess the market pricing dictates that degree of
uncertainty right now. You said it's 5050 basically.
So 5050 is not where the centralbank wants it to be at the point
of release because by being not priced in, it's going to create
(30:47):
and destabilize short term at least, it's going to create
market volatility and that is the central bank effectively
failing on its ability to forward guide appropriately.
So even though the, you know, Powell's juggling a pretty
tricky proposition here of factors, you would imagine
though that that 50 is probably going to shift one way or the
(31:07):
other. Those incoming data points
developments for Trump plus the whatever else could happen in
the inter period will shift the night shift the needle.
Look, you go back a few weeks and a September cut was almost
100% likely, and now it's 50. So that's why the dollar
strengthened. And yeah, that and, and a
(31:27):
direction of travel. If if Trump carries on pissing
off Powell at every opportunity,well then like you know, the
chances are going to drop below 50 of a cut in September.
Come on, Power's not. Power's not.
He's bigger than that. Well, he's human like once he's
been. Cut the chink of his armor then.
(31:47):
Embarrassed on live TV, so power's.
Got a bigger ego than Trump thenmaybe not All right well, let's
let's let's let's close and talkabout Microsoft because again,
another mega cap giant with its market value I mean 4 trillion
it's amazing you know so it's kind of like predicting the
(32:10):
future will we get a $10 trillion company one day yeah,
for sure we will we're at the four market now so.
Yeah, well, they're the second. Well, they're the second company
to hit the four trill mark ever in history.
That is so NVIDIA past that level on July 9th actually
talking about getting to 10. So since NVIDIA hit 4 trillion
(32:32):
on the 9th of July, like here weare what 3 weeks later they've
already added another $400 billion to that and add 4.4
trillion, which is just mine though.
Anyway, that's NVIDIA. So look, Microsoft, well, so in
early trading, they've it's comeback off a little bit, I would
(32:54):
say, but like overnight, the initial kind of reactions in
aftermarket trade was that theirstock was up about 6 1/2%.
Just looking now it's it's come back a couple of percent.
So it's up 4 1/2 at the moment. But like Meta, these are huge
gains through all time ever highs, right?
So it's not like these companieswere cheap having had a big sell
(33:15):
off and like relief rally. These are big strides up through
all time ever highs. So yeah, Microsoft took out the
$500 handle at the end of June and now it's 535 and it's just
kind of motoring. But you know what for?
For them, it was all about Azureand one of.
So that's their cloud service division.
(33:37):
And actually for the first time ever, and due to investor
pressure, by the way, Della, theCEO was talking about, right,
we're going to split things out and we're going to let you know
for the first time ever how muchrevenue our cloud division has
made as a single unit and what'sthe growth rate of that unit.
And so this was the big news. And so the, so they've said that
(34:00):
for their fiscal year, so full the last full 12 months to the
end of June, their Azure cloud division brought in 75 billion
dollars in revenue and it's growth rate is 34%.
So that's the big news, right? And it's just kind of
stratospheric that something that's already that gargantuan
(34:22):
in size can be growing a 34% growth rate, right.
And so I think what's interesting with Microsoft
talking about AI, they're kind of very well placed for kind of
the second and third phases. So phase one of AI is like, it's
like NVIDIA, right? That's the kind of the the kind
(34:45):
of infrastructure that you need.And so, well, actually, well, so
Microsoft are in that I would say they're in the
infrastructure layer, right? So you've got NVIDIA who built
the chips, but then you you needthe cloud compute to be able to
run these kind of things. And so this is where Microsoft
are very well placed. It's only them and AWS, they're
the two big cloud service providers.
(35:05):
Google are trying to catch up. But the big two are definitely
AWS and Azure at Microsoft. So they're going great guns, OK.
But then the next is the kind ofapplication layer.
So that's right, fine, we've gotall this compute power, but
right, what are the apps that that then I can use to kind of
make my life more efficient? And so obviously Copilot and
(35:27):
stuff, obviously they're a big investor in open AI.
So here they're making money nowthrough that.
And then finally, you'll see thethird phase of AI, which is
efficiency gains at all companies across the world,
right? And human life in general.
So as an investor, it was about trying to invest in the
infrastructure guys, first NVIDIA, Microsoft and so on.
(35:50):
Then it's right, who's got the apps open, AI, Copilot, all the
rest of it. And then right, let's just
actually think about more broadly which companies are
going to have the most rapid efficiency gains because of all
this stuff that kind of comes next.
But yeah, Microsoft are right inamongst it.
Their, you know, revenues net overall, whilst their cloud
(36:11):
division was up 34%, net as a whole business they were up 18%
and that their cloud clocks 75 billion for a year, right.
That's roughly their quarterly revenue overall.
So overall their quarterly revenue to the end of June was
76.4 billion. So yeah, that you could say from
that rough maths, 1/4 of their revenue is now from Azure and
(36:33):
it's the fastest growing part oftheir company.
So that was the kind of big news.
And yeah. I was just looking at basically
like a summation on the street of what the equity analysts on
the sell side banks were saying kind of you've pretty much
covered it like they're most of them along still.
So in terms of their their positioning remain saying that
(36:54):
they they're kind of set to capture a major secular trend
Gen. AI, public cloud consumption,
SAS adoption. And there's something
interesting you said earlier as well, that tech, and in this
case Microsoft, insulated somewhat from tariff
considerations. So of the moment, it's almost
(37:15):
like compounding these moves, right For these big tech firms,
given what's happening to your Potter and Gamble's in your
Black and Decker. Yeah, and it's just that the one
negative for all of this has been that idea earlier this year
that American exceptionalism wasover.
That was the trade of 20/23/20. 24, come on, that's I think we
(37:36):
said. That ships sailed.
Yeah, that's that ships well sailed and the the players, you
had that little window of opportunity to pick up these big
tech boys. You know, they'd step down like
20 percent, 30% in some cases. That was your little window.
It's just hard now. Like when you look at the
Microsoft share price, you can'tbuy now, it's like.
(38:01):
Famous famous words. So the upside well, but this is
the thing about human nature, right?
If you're in the trade, I'll ownup.
I own Microsoft shares. OK, I'm really happy you're the.
Eighth biggest shareholder though, right?
Well, but but my point is I'm holding, I'm not selling even
though it's just kind of throughthe roof.
I am holding OK, but if I didn'town those shares, would I now
(38:26):
buy because you should do if therational is it's going to go
higher. But it's very difficult to buy
something that has just gone through a vertical kind of smash
up through all time highs. You you feel like you're buying
something that's at the top and it's really expensive.
Case study from human behaviour in recent months might be
(38:47):
NVIDIA. What do they get to 135 or
something? And then you had the big move
down to 90 and I was trading at what, 200?
Well. Yeah, exactly.
So if you bought at 1:30, yeah, you might have felt like this is
the worst call ever, but that that's that being vested concept
(39:08):
of time and duration, right, with your horizon.
Because yeah, I think, I can't recall the stat now, but it was
one of those data studies that they had done and it was looking
at if you bought at the top at the time of all of these stocks,
then actually you'll end up making more money than trying to
pick bottoms because your famousphrase.
(39:30):
Yeah, exactly. Get smelly fingers.
And on that though, yeah, cool. All right, well, look, let's
wrapped it up there. Yeah.
Incredibly busy week, lots goingon so.
So state. Google and Apple tonight, in
terms of more like with the earnings season is far from over
(39:52):
here. You got two of the biggest
giants of all. Not Google, sorry, Apple and
Amazon, I think, Am I right saying yes?
Yeah. Still, still some big guns,
still to deliver. And a payrolls report tomorrow.
All right, well, look, if you'vemade it to the end of the
episode, then you're a big fan because I see the stats on
(40:15):
dropout rates. If you have, then you're
probably a regular listener. So can I ask just one quick
favour? I'm going to drop a link within
the comments or the the text of this episode.
And we have been shortlisted forthe People's Choice Awards at
the British Podcast Awards for 2025.
It takes no more than like 10 seconds to vote, but can I ask
(40:37):
you take that 10 seconds, click on the link, you just need to
search market maker, select it and hit fire and that's it.
That would be amazing. Yes, please.
All right. Thank you, everyone.
Thank you, Piers. See you next week.
Yep. Catch you later.
Bye now.
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