With a concentrated portfolio, we expect greater volatility, and that has definitely been the story for us this year.

We currently hold 10 equities, including four core positions and six swing trades. Core positions are businesses we view as exceptional and intend to own over the long term. Swing trades are generally special situations or shorter duration investments, typically held for up to one year. A few of these positions, including Fannie Mae and Rocket Companies, are approaching that one year mark.

At the end of Q2, the portfolio was down 5.1% year to date. After a difficult start to the year, the portfolio returned 21% in the second quarter.

The early year decline reflected pressure on several of our larger positions amid higher Treasury yields, weakness in SAAS equities, and a broader risk off environment. The latter had the greater impact because of our position sizing.

Higher yields weighed on Robinhood (HOOD), Howard Hughes (HHH), and Rocket Companies (RKT). Howard Hughes fell below the 2024 lows at which we initially established the position. Given our valuation work, we viewed prices below $64 per share as an opportunity to add.

Robinhood was also a meaningful detractor earlier in the year. Our average cost basis is approximately $32 per share, but the stock’s performance from the fourth quarter of 2025 through the middle of the second quarter of 2026 was disappointing. During much of that period, HOOD appeared highly correlated with crypto asset prices, particularly Bitcoin.

Since early June, the stock has diverged from that relationship and has risen approximately 28%.

Rocket Companies has similarly been pressured by higher yields. Elevated mortgage rates constrain both home purchase activity and refinancing volumes, two important drivers of mortgage industry activity. RKT was down approximately 25% year to date.

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This is where the mistakes and lessons portion of the subtitle comes into play.

We have discussed The Trade Desk (TTD) with readers since mid 2025. We initiated the position in spring 2025 after a weak earnings related selloff around the rollout of its AI platform, Kokai. The shares had declined sharply amid concerns about competition from Amazon and adoption of the new platform. Following our due diligence and valuation work, we concluded that the market was underestimating the strength of the business and began purchasing shares in the mid $40 range.

If you look at the company's financials, you’d see a business significantly growing revenue and strong growth in free cash flow.

The stock started to turn around later that spring and rally throughout the summer, hitting around $86 per share, then it collapsed again. To save you all time, we caught a falling knife. We continued to believe it was a great business that was capable of a turn around. However, the internal turnover, primarily around the CFO position, worried investors, and then the SAAS apocolpse that occurred this spring put the final nail in the coffin.

The stock was also removed from the Nasdaq 100.

We walked away with a 40% loss, our first major blunder since launching the portfolio at the start of 2024.

Our original thesis was solid, and we truly believed the business could compete against Amazon and other competitors, but we did not take into account the potential risk AI would bring to the business model, and we paid the price for overlooking that small factor.

Due to our loss with TTD, we have spent Q2 playing catch up and rebuilding a portion of our portfolio, which we have done successfully thus far.

Trading update

We initiated a few buys during the last quarter.

We opened a position in Apple (AAPL) at $253.03 per share. (+22.52%)

We like Apple for a few reasons.

First, we believe management has taken a more disciplined capital allocation approach to AI than many large technology peers. Rather than attempting to develop a native AI, the company appears it may allow any AI to integrate into its software and collect a fee for allowing Apple users to use AI, similar to the Google search engine arrangement.

Second, we see potential value in Apple expanding its product range at lower price points. The MacBook Neo, introduced at a starting price of $599. Our view is that products in this price range could broaden Apple’s addressable market, including consumers who may previously have chosen lower cost Windows laptops or Chromebooks.

We also opened a new position in Victoria’s Secret (VSXY) at a cost basis of $55, and we closed our position at $101.98. (+87%)

As we shared in our last market memo, we came across the stock due to shopping trends of our significant others.

What stood out initially was the company’s shift in marketing, reverting to what they have historically done.

Also, GLP-1’s. We have been analyzing sectors that we believe will benefit from the GLP-1 trend. We concluded that women’s clothing would be one of the biggest beneficiaries of the weight loss trend. Other sectors we felt were crowded, and there was not a clear winner.

Victoria’s Secret controls its sector. And because of that, as people lost weight and felt more confident, we figured the retailer would benefit greatly.

Outlook

We are cautiously optimistic for the remainder of the year. We are not outright bearish, but we have become more selective.

As we have shared with readers in the last year, the one thing regarding the hyperscalers and AI companies that worries us is the circular investments. We have thought that the circular investments could be one of the biggest risks to the sector and to the overall bull market.

In a recent article in the Wall Street Journal, they identified that there are $3 trillion in off balance sheet comintments between the tech companies.

^{( Source: Wall Street Journal)}

Besides the circular investments, there are two big concerns we have.

1. The CAPEX story is worse than it appears. Big tech has significantly increased its CAPEX, and it’s only increasing each quarter. Investors have thought there was roughly $600 billion in AI CAPEX spend based on companies filings. The $3 trillion in commitments dwarfs the initial expected spend figure.

2. These projects are huge investment risks. Many of the commitments are non cancalble or very difficult to unwind. This is a large concern due to the amount of upfront capital being provided by the Tech giants.

Moving past our AI fears, the treasury market has our attention.

The US 30 Year briefly hit 5.3%; this is the highest since the GFC.

We are not saying that we think this is the next GFC, but the bond market is flashing warning signs, and it may be a good time to start taking a look around.

Upcoming:

Portfolio Earnings Review

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree to our disclaimer. Please read the full disclaimer here.

Looking at last week’s PCE data, it increased at a seasonally adjusted rate of 0.4%, below forecasts of 0.5%. This puts the 12-month inflation rate at 3.8%, which is in line with expectations.

April Core PCE rose 0.2% for the month and 3.3% for the year — the highest reading since November 2023.

According to the Labor Department, payrolls rose 172,000, and the unemployment rate fell to 4.3%.

Yields

The bond market is starting to flash warning signs. For the first time since 2007, yields on the 30year Treasury broke 5%. What’s interesting is that the U.S. bond market isn’t the only one selling off over the past few weeks; so have Europe and Japan.

As we’ve shared with readers, we’ve long believed the Fed’s 2% inflation goal was a bit overzealous. With the war in Iran dragging on and energy prices moving higher, bond investors are pricing in higher for longer rates and a high probability that the Fed will raise rates later this year.

Investors want more compensation for holding longer maturity bonds, and frankly, we don’t blame them.

With the rise in yields, specifically the 10year, the equity risk premium is disappearing. It’s now at levels not seen since the dotcom crash. The S&P’s earnings yield is currently around 3.9%, while the 10year sits at 4.56%, meaning stocks are yielding less than risk-free government bonds.

The Current Situation

There’s an interesting problem unfolding in the markets right now, portfolio allocation.

Even though risk free government bonds are yielding more, does it actually make sense to move to safety? As noted above, investors are beginning to price in higher inflation for longer, the war in Iran is ongoing, and we believe investors are starting to worry about government deficits. Bonds continue to sell off, driving yields higher. Moving to bonds lets you collect the coupon, but you risk losing principal at the same time.

Turning to stocks, unlike bonds, company earnings can grow. We believe a lot is riding on the AI buildout theme. If companies capital expenditures on AI are actually boosting productivity and the labor market continues to stay healthy, earnings could expand fast enough to justify current valuations.

What makes this particularly interesting is that both asset classes face the same enemy, rates and inflation. Elevated inflation and higher rates affect bond prices and eventually pressure equity multiples by raising the discount rate, which weighs on future earnings.

By December, if rates rise further, current equity multiples may no longer be justified.

The IPO: SpaceX

SpaceX is set to go public this Friday at $135 / share. The company will have a market cap of around $1.75 trillion. This would make it the seventh largest publicly traded company in the U.S.

At this time, the only truly attractive segment of the business, solely looking at the numbers, is the connectivity business. For the first quarter of 2026, the connectivity segment generated revenue of $3.2 billion and operating income of $1.18 billion.

However, management plays a very important role in valuations, and it’s very hard to bet against a man who never stops.

Nasdaq’s New Fast Entry Rule

What concerns us about the SpaceX IPO is a rule change Nasdaq recently made for large IPOs. The new rule significantly benefits large companies like SpaceX by allowing them to enter the Nasdaq 100 far faster than previously possible.

Under the old rules, there was a standard seasoning period. New IPOs had to trade for approximately three months or more and needed a minimum public float of 10% of their shares. This essentially protected passive investors from the higher volatility that typically accompanies IPOs.

Effective May 1 of this year, Nasdaq introduced the fast entry rule. New companies going public can now be added to the Nasdaq 100 after just 15 days of trading if their market cap ranks in the top 40 names of the index. Nasdaq also removed the 10% float requirement.

SpaceX is going public with a float of roughly 5%. When indexes begin buying in the second week of trading, they’ll be chasing higher prices due to the small float.

This change benefits not only SpaceX but also Anthropic and now OpenAI, which has announced plans to go public by the fall.

Is direct indexing the way forward?

New Position

We added Victoria’s Secret (VSXY) to the portfolio a few weeks ago. While we were working on a deeper dive to share with readers, the company reported earnings, and shares moved faster than we had initially anticipated.

Looking at fiscal year 2027 earnings, we still believe shares are trading at a discount, just not the discount they were at before.

(Note: This valuation was based on shares trading at roughly $52.45.)

Why Victoria’s Secret?

I call this the Spouse Index: pay attention to your significant other’s shopping trends.

For the last three years, Victoria’s Secret was a struggling retailer. They moved away from what attracted customers in the first place and cancelled their popular fashion show, and the stock reflected it. When I would go shopping with my girlfriend, looking back never noticed a busy store or really anyone ever talking about their products.

As a guy, I know nothing about women’s clothing, but when the women in my life start talking about a brand, I pay attention. So far, that instinct is 3 for 3, Abercrombie, GAP, and ELF.

That observation sent us to do the work. The company has moved away from its disastrous marketing approach and returned to what worked in the past.

Another reason we were drawn to the stock is the growing popularity of GLP-1s. People are slimmer, feeling better, and looking better, all of which benefits retailers like Victoria’s Secret.

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree to our disclaimer. Please read the full disclaimer here.

CPI data came out on the 12th; the uptick was in line with our expectations.

As we shared a few weeks ago, we expected inflation to rise due to the conflict in the Middle East. This should not be a surprise to anyone; energy prices jumped 3.8%. The jump in energy prices accounted for more than 40% of the headline gain. For the 12 months, energy is up 17%.

Seasonally adjusted, CPI rose 0.6% for the month. This puts the one year CPI rate at 3.8%.

Core CPI increased by 0.4%, bringing the 12 month period to 2.8%.

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Earnings:

Toast (TOST):

Toast reported great numbers, beating on revenue expectations but missing on EPS expectations.

For Q1, total revenue reached $1.63 billion, up from $1.34 billion in Q1 2025.

• Subscription Revenue: $268 million

• Financial Technology Solutions: $1.32 billion

• Hardware and Professional Services: $39 million

ARR increased 26% YoY to $2.2 billion, and the company added 7,000 new locations in Q1. Toast is now serving 171,000 locations, up 22% YoY.

Toast also reported a very strong quarter in gross payment volume (GPV). GPV increased 22% YoY to $51.3 billion.

For the second quarter ending June 30, 2026, Toast expects to report:

• Non-GAAP subscription services and financial technology solutions gross profit in the range of $565 million to $575 million (22–24% growth compared to Q2 2025).

• Adjusted EBITDA in the range of $185 million to $195 million.

One thing we have continued to appreciate from management is the decrease in stock based compensation and the increase in share buybacks. For Q1, the company repurchased 14 million shares.

As we shared in our Deep Dive, we are very bullish on Toast and have continued to add to our position. Our thesis has not changed, and we continue to believe Toast is an excellent business trading at a steep discount.

Rocket Companies (RKT):

Rocket reported a very strong quarter, beating on both revenue and EPS estimates.

Revenue came in at $2.91 billion, and EPS was $0.15.

Since the Middle East conflict began, mortgage rates reversed from their downward trend and started to move back up.

Although rates have increased and the spring buying season is off to a slower start than usual, Rocket was able to increase revenue and beat the top end of its fiscal guidance.

During the quarter, Rocket generated $49.4 billion in net rate lock volume and $44.7 billion in total closed mortgage loan originations.

Outside of the fiscal performance, two things stood out during the earnings call:

1. Rocket closed on its acquisition of Mr. Cooper in the fall of 2025. The company is on track to realize its original $400 million expense synergy by the end of 2026, a full year ahead of what was originally planned.

2. The company is utilizing agentic AI to handle top of funnel prospecting and outreach.

Management on the impact of using agentic AI:

freeing up what previously took roughly two hours of loan officer time per day. Loan officers now spend that time with clients who are already engaged and prescreened, driving conversion higher by double digits. With our latest AI launches, we have added an incremental $1 billion in volume per month, on top of the incremental $1 billion added last quarter.

We continue to stand by our original thesis. We do acknowledge that the increase in rates affects the overall housing market. The chart of treasuries relative to Rocket’s share price illustrates the inverse relationship clearly. That said, Rocket has successfully navigated this environment and has continued to drive revenue.

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree with our disclaimer. Please read the full disclaimer here.

What’s driving the markets:

The conflict with Iran continues to be the primary force moving markets. We are currently in a cease-fire that keeps getting extended, with the Strait of Hormuz blocked by the U.S. Navy, leaving no clear resolution in sight. A single post on Truth Social can move the market in any direction. As unpredictable as that sounds, we must roll with the punches and not allow geopolitical events to derail our long term investing philosophy.

Economic Data:

Starting with last week’s CPI report, the seasonally adjusted figure came in at 0.7%, in line with expectations. On an annual basis, this puts core inflation at 3.5%, also meeting expectations.

Jobs Data:

The Labor Department reported initial jobless claims (seasonally adjusted) of 189,000, a decline of 26,000 from the prior week. This reading came in significantly below the estimate of 212,000 and marks the lowest initial jobless claims figure since September 1969.

PCE:

PCE increased at a seasonally adjusted rate of 0.3%, bringing the 12 month inflation rate to 3.2%. Core inflation is now at its highest level since November 2023.

Tech Earnings:

Big Tech reported earnings last week. What stood out to us was that all of them, including Apple, increased fiscal year CAPEX forecasts.

During earnings, Microsoft, Alphabet, Amazon, and Meta all said that AI cloud demand is limited by capacity, not a lack of customers. As long as there are bottlenecks in infrastructure, big tech will justify spending more to capture the demand.

Apple:

The company reported a 17% increase in revenue, resulting in a beat on both revenue and EPS expectations.

Revenue: $111.8B vs $109.66B

EPS: $2.01 vs $1.95

During the earnings call, CEO Tim Cook said the company is increasing their CAPEX due to a shortage of memory.

What surprised us more than anything was the the announcement that Tim Cook will step down as CEO on September 1st.

Meta:

Revenue: $56.31B vs $55.45B

Eps: $7.31 vs $6.79

Meta reported a strong quarter; revenue increased by 33%, up from $42.3B the year prior.

CAPEX came in under the estimates at $19.84B. The street had forecasted CAPEX to come in at $27.57B. However, Meta increased their expected CAPEX spend for the year from $115B- $135B to $125B - $145B.

We are very skeptical of Meta’s ability to make a return on the investment. The company said that CAPEX forespend forcasts wereincreased was due to rising component costs and the need to add additional data center capacity.

Amazon:

Revenue: $181.52B vs $177.30B

EPS: $2.78 vs $1.64

AWS Revenue: $37.59B

Although the company has started to burn free cash flow, they have been able to grow key segments of its business. The company’s cloud service business grew faster than what the street had forecasted, increasing by 28%.

CAPEX forecasts have not changed since we last shared the company’s spending forecast of $200B for the fiscal year.

Amazon reported higher than expected PPE expense for the quarter. The CAPEX and PPE expense has caused a 95% decrease in free cash flow, $1.2B.

Alphabet:

Revenue: $109.9B vs $107.2B

EPS: $2.62 vs $2.63

Key Business Segment Revenue:

Cloud: $20.03B

YouTube: $9.88B (under expectations of $9.99B)

Similar to the rest of the tech names that reported, the company has revised CAPEX forecasts. The company had originally forecasted CAPEX of $175B - $185B. Now, CAPEX is forecasted to come in between $180B - $190B.

Management signaled that CAPEX for fiscal year 2027 will be significantly higher. This is mainly due to the company reporting that they are constrained for the short term and expect cloud revenue to increase once they can meet the demand.

Portfolio Earnings:

Starbucks reported a very strong quarter. We said last quarter that Brian’s turnaround plan seemed to be working; that sentiment remains the same, as the company has posted another very strong quarter.

For new readers, we begin buying shares in SBUX after Q3 earnings in 2024. Starbucks had already reported a disappointing round of earnings the previous quarter and as a result, the stock dropped over 20%. We thought this was a good time to open a position in a dominant company that seemed to have lost its way.

Prior to the change in leadership, the company was reporting for the first time since the pandemic, decreases in same store sales.

Revenue: $9.53B vs $9.16B

EPS: $0.50 vs $0.43

Same store sales have continued to increase. For the quarter, SBUX reported a 6.2% increase for same store sales, up from the 4% estimates.

This is the second straight quarter of traffic growth. On top of the traffic growth, the company has seen a 4.3% increase in transactions. CEO Brian Niccol said during the earnings call that the company has not seen this strenght in transaction in years.

As a result, the company has raised its full year guidance.

Global and U.S. comparable store sales growth of 5.0% or greater;

Consolidated net revenues roughly flat year over year;

Non-GAAP consolidated operating margin to slightly improve year over year;

Non-GAAP earnings per share in the range of $2.25 to $2.45; and

Approximately 600 to 650 net new coffeehouses globally across company-operated and licensed businesses.

We remain bullish on the company.

Robinhood:

Revenue: $1.07B

EPS: $0.38 vs $0.39

The company reported mixed earnings, mainly due to a sharp decrease in crypto revenue. Crypto revenues fell to $ 134M, down 47%.

Besides the fall in crypto, the company looks strong and the growth is promising.

Robinhood continues to see strong growth in funded customers and Robinhood Gold subscribers. The number of funded customers increased by 6% YoY to 27.4 million. Gold subscribers grew by 36% YoY to 4.3 million.

As a result, total platform assets increased by 39% YoY to $307 billion.

One very large win for Robinhood during the quarter was the announcement from the U.S Treasury that the company will be the broker and sole initial trustee for the Trump Accounts!

If you have been following the stock for the past year, the share price has fallen 32% YTD. During the quarter, management repurchased $250 million worth of shares at approxamently $81 per share. We like this move by management, taking advantage of lower share prices and aligning with shareholders on long term value creation.

Managment did not revise the fiscal year guidance.

This Week:

We have two earnings events this week, and we are closely following, TOST and RKT. We have provided a deep dive on both of these companies in the last twelve months.

TOST Expectations:

RKT Expectations:

Initiated Coverage:

Over the past few weeks, we have started to buy shares in both ServiceNow and CRM. In the days ahead, we will provide a full overview of our investment thesis and expectations for both companies.

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree with our disclaimer. Please read the full disclaimer here.

Firstly, you may notice we’ve rebranded. As our community continues to grow, we felt this was the right moment to evolve our identity.

While value investing will always be a core part of what we do, our research has expanded beyond just value stocks. Additionally, there are several great Substack publications with names similar to our old one, so this felt like the natural time to create a brand that reflects our broader focus and stands uniquely on its own.

I want to highlight a few pieces of work that I think everyone should check out:

The first being Nick over at Mispriced Assets. If you have not been paying attention to his latest pieces on private credit risk, I would make it a priority to read his work.

Mispriced Assets

Research that translates equities, crypto, and macro into conviction-ready opportunities. Follow the unlevered Mispriced Assets portfolio.

By Nick Nemeth

Nick was recently featured on the Compound to discuss this topic with Josh Brown. I am a bit biased, but the interviews done by Josh are top tier.

Next, check out the latest from Citini. They were able to have one of their analysts sneak into the Straight of Hormuz and report on what is actually happening. Come to find out, the Straight is more active than the street thinks. In fact, ships are moving through, just at a cost…

Citrini Research

Strait of Hormuz: A Citrini Field Trip

Introduction…

Read more

5 months ago · 897 likes · 33 comments · Citrini

The Market:

That felt like the longest Q1 I can remember. Here are some key events that happened during Q1:

• The Trump Administration threatened 25 % tarriffs on the EU if Greenland was not sold

• DOJ subpoenas Fed Chair Jerome Powell

• Gold & Silver reach all time highs

• The Trump Administration Captures Venezuela’s leader

• Fed held rates at 3.50%-3.75%

• The U.S. and Israel launch a war against Iran

• SAAS sector meltdown due to AI fears

• Supreme Court rules Trump administration tariffs are Illegal

• Private Credit funds limit withdrawals

Below are a few key charts from the previous quarter:

Coming into 2026, we were extremely bullish. We believed the largest threat to the economy was a global trade war and noted that the weakening labor market and AI valuations were starting to concern us.

2026 started off with new tariff threats that rattled the market, and then the geopolitical risks showed up out of nowhere. For the last 2 months, the markets have been trading off of headlines. As we said last week, until this geopolitical event is resolved, the market remains extremely difficult to read.

Looking ahead at Q2, we are watching bank earnings, inflation, and what is happening in the Middle East. I would be very surprised if the Fed cuts rates this quarter.

As long as the Iran war continues, we expect inflation to tick back up, and the labor market has been inconsistent. With this in mind, it puts the Fed in a tough position. We remain by our previous statements that the Fed may have to move on from their 2% inflationary target.

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Economic Data:

Last week, we received fresh labor market data, starting with the ADP private payroll data.

March private payrolls came in at 62,000, an increase from the expected 39,000. Similar to the February private payroll data, education and health services contributed to the majority of the reported jobs.

Nonfarm payroll also came in significantly higher at 178,000 than forecasted at 59,000.

The March Nonfarm payroll was a strong reversal from the February Nonfarm payroll decline of 133,000.

The Bureau of Labor also reported the montly Non farmpayroll revisons for the months of January and February. For the month of January, Nonfarm payrolls were revised up by 34,000, and the month of February was revised down by 41,000.

Similar to the ADP private payroll data, the majority of the job creation was in the healthcare sector.

Lastly, the unemployment rate came in at 4.3%

This Week:

This week is going to be very important. Aside from all else, the Trump Administration is holding firm to its Tuesday morning deadline. If no deal is made, the administration will conduct military strikes on key infrastructure in Iran. This includes all bridges and power plants.

This will be a pivotal day depending on what happens. As I am editing this Monday evening, futures are flat, and oil futures are up slightly.

April 8th:

• Crude Oil Inventories

• FOMC meeting minutes

April 9th:

• PCE

• Initial jobless claims

April 10th:

• CPI

Extra:

BNY, Robinhood Win Contract for Running Trump Accounts

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree with our disclaimer. Please read the full disclaimer here.

As a reminder or an introduction, if you are a new subscriber, something we will be adding to the weekly memos is our OpenClaw portfolio. We started building our own OpenClaw agent to filter through all equities and give recommendations based on the criteria we set.

At this time, we have given our OpenClaw agent a paper tradding account with an initial balance of $100,000. The agent will make weekly recommendations to the portfolio, and we will publish these results in the weekly memos. As a heads up, this section will sound like it was written by AI because it will be. We will share the information exactly as it was written by our AI agent. This is not Investment advice

SOLV: PASS

• Revenue shrinking (-3.7%), operating margins at a pathetic 7% — half where medtech peers sit

• $5.25B in debt with no proven management team

• Forward P/E of 9.8x looks cheap but it deserves the discount

• Would reconsider if revenue stabilizes + margins hit 12%+

KVUE: BUY

• This is the real spinoff play. Iconic brands (Tylenol, Listerine, Neutrogena, Band-Aid), 58.4% gross margins, trading at a 30-40% discount to consumer staples peers

• 4.5% dividend yield while we wait for re-rating

• Forward P/E of 15.3x vs peers at 21-25x. Even a modest re-rate to 18x = 17.5% upside

• Adds defensive exposure to a portfolio heavy on tech/energy. Beta of 0.47 is a portfolio stabilizer.

Week 3 call: The $4,500 goes to KVUE if it’s at or below $18. If it spikes above $20, we redirect to adding AVGO or GEHC instead.

Portfolio Moves:

• AVGO $3,500

• GEHC $3,000

• GOOGL $5,000

• META $4,000

• KVUE $4,500 (if ≤$18)

What’s Driving the Markets:

Since our last market memo, there has been no shortage of market moving events. It feels like a distant memory that investors were trying to get a footing with the threat AI posed to SaaS companies following the selloff triggered by Anthropic, and that was only a month and a half ago. Today, investors are trying to gauge the economy in the face of mixed economic data, while the outbreak of the war in Iran has introduced a new layer of uncertainty.

The war in Iran has raised a host of questions, spanning both geopolitical and market uncertainty. Since the war began, both Brent Crude prices and Treasury yields have spiked. As a result, nearly every sector has pulled back. As of the end of last week, the S&P 500 had closed lower for the fourth consecutive week, with all sectors declining except for energy.

With the Strait of Hormuz closed, investors are increasingly concerned about a resurgence in inflation. This dynamic helps explain the unusual correlation between energy prices and the 10-year Treasury yield moving in tandem.

The situation has an almost surreal quality to it. On Monday, President Trump announced that substantial progress had been made in negotiations with Iran and that the U.S. had postponed planned strikes on Iranian energy facilities. Markets responded sharply to the upside, posting their best single day in weeks: the Dow closed up 631 points, the S&P 500 gained 74 points, and the Nasdaq rose 299 points.

However, Iran claims no talks have happened between the two parties.

Until this geopolitical situation is resolved, getting a clear read on this market will remain extremely difficult.

Economic Data:

There has been a significant amount of economic data released over the past 10 days.

GDP:

Fourth quarter 2025 GDP came in below expectations. The first revision to the figure was 1.4%, falling short of the forecasted 1.5%. A likely contributor to the softer than expected reading is the government shutdown, which extended into mid-November and weighed on economic activity during the quarter.

For the full year of 2025, GDP grew 2.1%, down from the 2.8% growth rate recorded in 2024.

Inflation:

January’s Personal Consumption Expenditures (PCE) index rose 0.3%, in line with expectations, bringing the annual rate to 2.8%, slightly below the forecasted 2.9%.

Core PCE, which excludes food and energy, increased 0.4% for the month and 3.1% on an annual basis. The monthly reading was 0.1 percentage points higher than December’s figure.

The Consumer Price Index (CPI) rose 0.3% for the month, putting the annual inflation rate at 2.4%. Both readings came in exactly in line with forecasts. Core CPI showed a 0.2% monthly increase, also placing the annual rate at 2.4%, and both figures met expectations.

Federal Reserve:

Against this backdrop, the Federal Reserve opted to hold interest rates steady at the 3.50%–3.75% range. Looking ahead, 7 of the 19 FOMC members indicated they do not anticipate any rate changes for the remainder of the year.

Fed Chair Powell acknowledged the war in Iran but noted it is too early to assess the full inflationary impact of the conflict.

On a more constructive note, the Fed revised its PCE outlook for the year to 2.7% for both headline and core inflation. Additionally, the Fed raised its GDP growth forecast to 2.4%, reflecting a more optimistic view of economic expansion in the year ahead.

Extra:

If you have not yet read our Deep Dive on Toast, be sure to check it out!

Value Investors

Deep Dive, 3rd edition

We are excited to share with you all our latest long term investment position, Toast…

Read more

6 months ago · Joseph

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

We are excited to share with you all our latest long term investment position, Toast.

How We Found It:

Our interest in Toast started organically from two visits to restaurants over Thanksgiving. We noticed servers using a sleek handheld device to take orders and process payments tableside. We could tap to pay and leave immediately, with no waiting for the check. It was a meaningfully better experience.

The second time we saw the same device, we made a point of writing down the name, Toast. We then went back to the first restaurant to confirm, and sure enough, they were using it too.

From that point on, every restaurant and coffee shop we visited, we made sure to check what their ordering and payment systems were. The results were consistent, the majority of the locations we visited were running on Toast. When we traveled home for Christmas and repeated the exercise, 8 out of 10 places we visited for food or coffee were using Toast.

At this point, we wanted qualitative validation, not just our own observations, but feedback from the people actually using the software day to day. We began speaking with servers and managers at the locations we visited. The feedback was remarkably consistent. Not a single person had a negative word about the software itself. The only friction mentioned was the operational lift of switching from paper to digital, and even then, multiple people noted that Toast’s onboarding team was hands on throughout the transition, helping with training and setup.

Across all of our conversations, four themes emerged consistently:

• Faster order entry

• Fewer mistakes

• Ability to serve more tables

• Improved kitchen efficiency

Based on our interactions with restaurant workers, we felt that there was something worth researching.

About the Company:

Toast is a cloud based, all in one technology platform purpose built for the restaurant industry. Through a single unified system, restaurants can manage point of sale, payments, digital ordering and delivery, marketing and loyalty, team management, and back of house operations.

The business generates revenue through three segments:

• Subscription Services: SaaS fees charged per location, based on the number of software products, configuration, and employee headcount.

• Financial Technology Solutions: Transaction based revenue from payment processing facilitated through the platform.

• Hardware & Professional Services: Revenue from the sale of handheld devices, tablets, terminals, and accessories, along with installation and training fees.

(Source: Toast Investor Relations Presentation)

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Investment Thesis:

We believe Toast is a high quality business trading at a discounted valuation that the market does not fully understand.

Toast has built the operating system for the restaurant industry. Through a single, unified platform, restaurants manage their entire workflow, from menu configuration and order taking, to kitchen coordination, payment processing, and payroll. Rather than stitching together a patchwork of vendors, Toast customers get one product that runs the business end to end. That depth of integration creates real switching costs and makes Toast genuinely sticky.

The operating results reflect this position. In fiscal year 2025, Toast added 30,000 net new locations, grew Gross Payment Volume (GPV) 23%, expanded Annual Recurring Revenue (ARR) 26%, and delivered Recurring Gross Profit growth of 33%. This is not a company in survival mode, it is a business compounding at scale while the market is distracted by AI narratives.

Why does the opportunity exist? Two reasons. First, the broader AI driven selloff in SaaS has unjustifiably punished Toast alongside lower quality peers, even though the case for AI meaningfully disrupting restaurant operations software in the near term is far from clear.

Second, competitive concerns around players like Shift4 and Square have weighed on sentiment. But the market is missing something, Toast is solely focused on restaurants. While competitors spread their attention across retail, e-commerce, and enterprise payments, Toast has spent years going deep on the specific, complex needs of the restaurant industry.

Valuation:

Given Toast’s high growth rate, we assessed valuation primarily through revenue based multiples rather than static earnings metrics.

Toast currently trades at an EV/Revenue multiple of 2.3x, meaning for every $1 of revenue, the market is paying $2.30. On the surface, that is a modest premium for a business growing at this pace.

On an EV/EBITDA basis, Toast trades at approximately 38x. Without context, that sounds elevated. But when you layer in the trajectory of the business, the picture changes significantly. Toast has been adding approximately $1.2 billion in revenue per year since fiscal year 2023. More importantly, EBITDA margins have expanded from -6.0% in 2023 to +6.7% in 2025, a 1,270 basis point improvement in just two years. Revenue is scaling faster than costs, and the business is inflecting.

Toast has also been able to compound revenue by roughly 38% annually since the IPO, while EPS turned positive for the first time in 2024 and continued to accelerate in 2025.

Since going public, Toast has demonstrated five years of consistent margin expansion, with operating and profit margins now positive and accelerating.

Put all together, we believe the market is undervaluing the pace and durability of Toast’s margin expansion. The EV/EBITDA multiple looks high by itself, but if you factor in the margin growth, it is more than justified.

For context, here is how Toast compares to its closest publicly traded peers:

One additional point worth highlighting, unlike many of its payment processing peers, Toast does not rely on M&A for growth. Its location count, GPV, and ARR expansions are all organic. This is a meaningful quality differentiator that we believe the market also underappreciates.

Risks:

With any investment comes risk.

The first is the SaaS selloff. Toast has been caught in the sell off of software stocks driven by AI sentiment. We believe this is largely unrelated to Toast’s business and represents an opportunity, but the overhang on the stock is real in the near term.

The second and most important structural risk is that Toast’s singular focus on restaurants is both its greatest strength and its greatest source of concentration risk. Restaurants operate on thin margins and are sensitive to labor costs, inflation, and consumer sentiment. Toast’s growth story depends in part on new restaurant locations opening and existing locations remaining viable. The U.S. restaurant industry has a roughly 10% annual failure rate even during favorable economic conditions, and a meaningful deterioration in the macro environment could pressure Toast’s net location growth.

The third risk is regulatory. Toast currently earns an attractive payment processing margin of approximately 55 basis points. Regulators have become increasingly critical of surcharging practices in the payments industry, and any adverse regulatory action targeting processing fees could pressure this revenue stream.

Recent Catalysts:

Over the past several months, Toast has announced product and partnership developments that reinforce the long term thesis.

Toast IQ

Toast’s new AI powered operations layer, Toast IQ, automates inventory management, menu optimization, and pricing recommendations. Rather than relying on manual analysis, restaurants can now access data driven suggestions grounded in their own business trends and local market conditions.

New Enterprise Partnerships

Toast has secured three significant new partnerships that validate its enterprise level capabilities:

• Applebee’s

• Uber

• Coca-Cola

These partnerships signal that Toast is beginning to win at scale with national brands, a market segment that adds significant ARR per location and carries strong retention characteristics.

Fiscal Year 2026 Guidance:

Management has issued the following guidance for fiscal year 2026:

Management’s guidance implies continued double digit gross profit growth and a significant step up in EBITDA, consistent with our operating leverage thesis.

Summary:

Toast has built a genuinely differentiated business in a large and underserved market. The platform is deeply embedded in its customers operations, the growth trajectory is strong, and the margin expansion story is playing out ahead of expectations. The current valuation does not reflect the durability of Toast’s competitive position or the earnings power developing beneath the surface.

We added Toast to our portfolio and believe it will continue to compound as the market comes to appreciate what this business has built.

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree with our disclaimer. Please read the full disclaimer here.

Something new we will be adding to the weekly memos is our OpenClaw portfolio. We started building our own OpenClaw agent to filter through all equities and give recommendations based on the criteria we set. We are still in the early stages of this project. However, this tool is more powerful than I had originally thought, and I can understand the fear in the market that AI is causing.

At this time, we have given our OpenClaw agent a paper tradding account with a inital balance of $100,000. The agent will make weekly recommendations to the portfolio, and we will publish these results in the weekly memos. As a heads up, this section will sound like it was written by AI because it will be. We will share the information exactly as it was written by our AI agent. This is not Investment advice

If any of you are interested, I highly recommend checking out OpenClaw. If anyone would find it helpful, we can share how we set it up and what we learned in the process.

Open Claw Week 1 Portfolio:

Our agent recommended and purchased 4 equities.

Deployed: ~$29,978 | Cash remaining: ~$70,022

Why this split:

• META & EOG get the biggest bites — highest conviction, best risk/reward right now. META is the best big tech value play, and EOG is the screener’s #1 with a bulletproof balance sheet.

• GEHC gets a solid starter — love the spinoff setup, 15x fwd earnings, 49.5% ROIC. Want room to add more if it pulls back.

• AVGO gets a smaller starter — 23x is fair but not screaming cheap. I want exposure to the AI infrastructure theme, but I’d rather add on any dip than go heavy at this price.

What I’m watching for the next $70k:

• GOOGL — still like it, just want to see Q1 Cloud numbers before sizing up

• TGT — want to see one more quarter of margin improvement before committing

• Spinoff watchlist — SOLV and KVUE are interesting but need more work

Any pullback in AVGO or GEHC — I’d add aggressively on weakness

Headlines:

• Anthropic hits cybersecurity stocks

• The U.S. Supreme Court struck down President Trump’s Tarriffs

• President Trump hits back with higher tariffs, raising global tariffs to 15%

• GDP grew slower than expected

  • 1.4% vs expected 2.5%

What’s Driving The Markets:

Starting with last week’s CPI report, the seasonally adjusted figure came in under expectations at 0.2%. Core inflation came right in line with expectations at 0.3%.

For the year, CPI came in at 2.4% and Core CPI at 2.5%. Analysts had forcasted 2.5% for both readings. Core CPI is now the lowest since April of 2021.

Jobs Data:

The January Nonfarm payroll showed an increase of 130,000. This was significantly above the forecasted 55,000. On top of a strong Nonfarm payroll reading, the unemployment rate came in under expectations at 4.3%. Analysts were expecting unemployment to be at 4.4%.

PCE:

PCE increased by 3% for the month of December, a MoM increase of 0.2%.

Headline PCE came in over expectations at 2.9%. This is 0.1% higher than what analysts had forecasted of 2.8%.

Taking into account all of the new economic data, we are at an interesting crossroads. On the positive side, unemployment appears to be stabilizing. However, due to seasonal effects, I would like to see another strong payroll report before becoming fully confident in this trend.

Inflation remains the biggest question mark.

I think under the new Fed chair, we will see them abandon the 2% inflation target. In my view, 2% is neither achievable nor appropriate in today’s economic environment. Now, one could argue that Warsh, often characterized as a hawk, might actually push harder to hit 2% and keep policy more restrictive. I don’t see that as the likely outcome, but it’s worth acknowledging.

Inflation will only meaningfully decline if the money supply is restricted, and there are several reasons to doubt that will happen. Americans have historically been poor savers and strong consumers, and that behavior hasn’t changed. Falling interest rates only reinforce this, reducing any incentive to save while keeping spending elevated. Adding to this, tariffs and rising service costs are creating structural price pressures that won’t easily unwind even if consumer demand softens. Additionally, the pressure from President Trump to lower interest rates, I dont see going away anytime soon.

Added all together, these forces don’t point toward 2% inflation rates; they point toward inflation that remains elevated.

I am not forecasting a major spike in inflation, I just dont see a world where we hit 2%. I belive 2.5% - 3.0% is the new normal.

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Earnings:

HOOD:

The company reported a beat on eps but revenue expectations came in under expectations for Q4. EPS came in at $0.66 per share; however, revenue came in at a record $1.28 billion, which was below expectations. Although the company missed on revenue expectations, revenue was up 27%.

As we have shared, our portfolio’s largest position is HOOD, and we remain extremely bullish on the company.

Q4 Highlights:

• Transaction based revunes increased by 15% to $776 million

• Total platform assets are up 68% YoY

• Robinhood Gold subscribers increased by 1.5 million, a 58% YoY

• Record net deposits, $16 billion

Fiscal Year 2025 Highlights:

• Total revenue of $4.5 billion, 52% increase YoY

• Net income of $1.9 billion

• 4.2 million Robinhood Gold subscribers

• Total net deposits of $68 billion

TOST:

The company reported a beat on revenue expectations but missed on EPS expectations. Toast reported revenue of $1.63 billion and EPS of $0.16. Analysts estimated $0.19 for Q4 EPS.

Q4 Highlights:

• 26% YoY increase in ARR, $2.0 billion

• Total locations increased 22% YoY

• Gross Payment Volume increased 22% YoY, $51.4 billion

Fiscal Year 2025 Highlights:

• Added 30,000 net locations

• Recurring Gross Profit of 33%

• $500 million increase to the share repurchase program

Outlook:

“For the first quarter ending March 31, 2026, Toast expects to report:

• Non-GAAP subscription services and financial technology solutions gross profit in the range of $505 million to $515 million (22-24% growth compared to Q1 2025)

• Adjusted EBITDA in the range of $160 million to $170 million

For the full year ending December 31, 2026, Toast expects to report:

• Non-GAAP subscription services and financial technology solutions gross profit in the range of $2,270 million to $2,300 million (20-22% growth compared to 2025)

• Adjusted EBITDA in the range of $775 million to $795 million.”

Toast has quickly become one of our largest holdings. This is an exceptional business trading at a discount. Due to the recent sell off, we are very happy to see management increasing the share buyback program

Update on Toast Deep Dive: As we were preparing to share our Deep Dive, Software sold off due to the new releases by Anthropic and very disappointing PayPal earnings that rocked payment stocks. We went back and checked our work, and our thesis has not changed, and dont see any new business risk to Tost. Since the sell off, we have been accumulating shares. The Deep Dive will be released in the upcoming week.

The Week Ahead:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• Anthropic releases new Claude plug-ins

• Software stocks take a large hit

• IT Research and Consulting stocks slide

  • Gartner (IT) is down 70% over 1 year and down 36% for the month

• BTC continues to fall, down 52% form ATH in 2025

• Energy and Materials sector reach new ATH

• DOW closed above 50,000 for the first time in history!

Looking at the chart above, you would never guess that the software sector fell 11% this week, its largest weekly decline since the Global Financial Crisis.

Coming into the week, markets were already uneasy following earnings from Microsoft and Meta, particularly around the scale of projected capital expenditures among hyperscalers. Microsoft, Meta, Amazon, and Google alone are expected to spend roughly $700 billion on CAPEX this year, a figure we will return to later.

Markets initially started the week on a positive note after manufacturing data surprised to the upside. Monday’s PMI report showed the first expansion in 12 months, driven by rising production and new orders.

However, sentiment shifted sharply after Anthropic released new legal, finance, and marketing plugins for its Claude platform.

This development triggered a broad selloff across software stocks. The sector declined 11% for the week, its steepest drop since 2008.

The most heavily impacted stocks included Atlassian, Salesforce, and ServiceNow.

Investors are increasingly concerned that large enterprises may begin reducing spending on high cost software licenses and instead build customized solutions in house using AI tools. In effect, enterprise software may be losing some of its historical “stickiness.”

Going forward, software providers will need to deliver meaningful productivity improvements and better user interfaces to justify pricing. Otherwise, corporations may increasingly rely on internal development teams to address these needs themselves.

The selloff was not limited to traditional SaaS companies. Legal automation and research firms were also hit, as Anthropic’s legal focused plugins present a direct competitive threat to their business models.

Beyond public equities, private markets may also feel the impact.

KKR and Apollo both declined sharply this week. Over the past decade, SaaS has been Wall Street’s “golden child,” and private credit has been a major funding source for these companies. KKR and Apollo are among the largest lenders to this sector.

If AI begins to materially reduce demand for standalone software services, private credit portfolios could come under pressure. Many private equity firms hold large positions in SaaS businesses, and weakening growth prospects may impair exit opportunities.

Anthropic’s latest release may have just shortened the window for these SaaS companies to go public.

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Earnings:

Alphabet reported a beat on both EPS and revenue.

EPS was reported at $2.82, and revenue came in at $113.83 billion, which is an 18% increase YoY.

A few takeaways from earnings call/release:

• Google Cloud revenue increase 48% YoY

• Gemini reported 750 million monthly users

• Gemini Enterprise reported 8 million paid seats.

The company’s CAPEX guidance for 2026 is between $175 - $185 billion. This is double what the company spent in 2025.

The stock dropped 3% after earnings.

Amazon reported a miss on EPS, but beat on revenue expectations at $213.39

Analysts were expecting $1.97; however, Amazon reported EPS of $1.95.

Amazon released its 2026 CAPEX guidance; they are expecting to spend $200 billion. This is $55 billion more than what they spent on CAPEX for fiscal year 2025.

With this guidance, the company expects to be free cash flow negative for 2026. In addition, on Friday, the company filed with the SEC to let investors know they may have to raise capital as they build out AI.

The Week Ahead:

Tuesday:

• Retail Sales MoM

Wednesday:

• Non Farm Payrolls

• Unemployment Rate

Thursday:

• Existing home sales

Friday:

• Core Inflation Rate MoM

• Core Inflation Rate YoY

• Inflation Rate

• CPI

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• President Trump names Federal Reserve chair nominee, Kevin Warsh

• S&P 500 briefly hits 7,000

• Amazon announced another round of layoffs, 16,000 workers

• Nike to lay off 775 workers as they push for automation

• Fed holds rates at 3.50%-3.75%

• Commodities see an unprecedented sell off

What’s Driving The Markets:

This was an unusually volatile week across nearly all asset classes.

What we saw on Thursday and Friday was particularly rare and worth explaining.

Typically, during periods of uncertainty, investors rotate out of equities and into traditional safe assets such as U.S. Treasuries and gold. When the risk appetite improves, capital flows back into equities and other growth sensitive assets.

Leading up to President Trump’s announcement of his Fed Chair nominee on Friday, markets were behaving in a fairly typical way. The dollar was weakening, equities were under pressure, and commodities, particularly precious metals, were rallying. This reflected expectations for easier monetary policy and a more accommodative Fed.

However, once the nominee was announced, nearly every major asset class sold off simultaneously.

The Dow fell over 150 points, the Nasdaq dropped more than 200 points, bond yields surged, and commodities reversed sharply. Gold and silver experienced violent selloffs within minutes ( Gold dropped 10% and Silver dropped 30%). This type of synchronized move across equities, bonds, and commodities is highly unusual.

So what caused it?

At its core, the selloff was driven by a sudden repricing of monetary policy expectations.

Investors appeared surprised by the nomination of Kevin Warsh, who is widely viewed as more hawkish. In the days leading up to the announcement, markets had priced in multiple interest rate cuts, which supported both equities and commodities. A weaker dollar and lower expected rates encouraged firms to increase leverage and rotate into inflation sensitive assets.

Essentially, stocks and commodities were both benefiting from expectations of easier policy.

The Warsh announcement changed the story.

With the prospect of a more hawkish Federal Reserve, markets quickly began to price in fewer rate cuts, tighter financial conditions, and a stronger dollar. Rising real yields and a firmer dollar are unfavorable for both commodities and equities, which helps explain the broad based selloff we witnessed.

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Earnings:

Three of the “Magnificent Seven” companies reported earnings this week; Microsoft, Meta, and Apple.

Starting with Microsoft, the company beat expectations with EPS of $4.14 and revenue of $81.27 billion. However, Azure cloud growth came in below analyst estimates, which spooked investors.

More importantly, Microsoft is now expected to spend more than $97 billion in capital expenditures in fiscal year 2026, nearly double its FY2025 level, largely driven by investments in AI and data centers.

Turning to Meta, the company also delivered strong results, beating expectations with EPS of $8.88 and revenue of $59.89 billion. Management additionally announced record capital expenditures for the year, reflecting continued investment in AI infrastructure.

So why did the market reaction differ?

Microsoft continues to spend aggressively on AI and supporting infrastructure, but has yet to demonstrate the level of returns investors want to see. While revenue is growing, the monetization of AI investments remains uncertain.

This is a question we have been highlighting for the past year, at what point do investors begin to focus on return on invested capital rather than headline spending?

Meta is beginning to show tangible revenue and engagement growth tied to its AI investments, while Microsoft has not yet provided the same level of visibility. As a result, markets are starting to differentiate between companies that are effectively monetizing AI and those that are still in the heavy investment phase.

Portfolio Earnings:

Starbucks reported a slight miss on EPS, coming in at $0.56 versus expectations of $0.59. However, the company beat on revenue, posting $9.92 billion for the quarter.

Operationally, the company’s “Back to Starbucks” strategy appears to be gaining traction. For the second consecutive quarter, Starbucks reported positive same store sales growth across both U.S. and international locations.

Additionally, the company saw transaction growth from both loyalty and non-loyalty customers for the first time in eight quarters, a meaningful signal that customer engagement is improving.

With our ‘Back to Starbucks’ initiatives gaining traction, we have clear line of sight to translating top line strength into sustainable earnings growth that positions us for long-term profitable growth.

Cathy Smith, chief financial officer.

The Week Ahead:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• President Trump threatens 25% tariffs on select European countries if Greenland is not sold to the U.S.

• Bessent says a Supreme Court ruling on the legality of Trump’s tariffs is “unlikely.”

• DOJ subpoenas Fed Chair Jerome Powell

• Warner Bros rejects Paramount’s bid…again

• Luxury retailer Saks files for bankruptcy

• Argentina repays the U.S. for its currency swap

What’s Driving The Markets:

Markets finished the week lower as key economic data was released and Q4 earnings season began with banks.

CPI came in at expectations for the month. Headline CPI rose 0.3%, bringing the annual rate to 2.7%. Both numbers came in at street estimates.

Core CPI also increased 0.2% on the month, placing the annual rate at 2.6%, similarly below expectations.

Part of the Federal Reserve’s dual mandate is getting inflation below 2%. Parts of this month’s CPI data show that inflation is not going away in key parts.

It’s important to keep in mind that shelter accounts for more than a third of the CPI weighting. Shelter had a monthly increase of 0.4%, bringing the annual increase to 3.2%. The BLS noted this is the largest monthly increase.

Additionally, energy and food also showed increases for the month. Energy increased 0.3% for the month, bringing the annual increase to 2.3%. Food prices increased by 0.7% for the month.

Chart Source: (YCharts)

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Bank Earnings:

JP Morgan (JPM):

JP Morgan earnings came in above expectations. The bank reported revenue of $46.77B vs expectations of $46.20B, 7% increase YoY.

The banks Net Income decreased by 7% to 13.03B. During their earnings call, officials said this was primarily due to the bank taking over Apple’s credit card program from Goldman.

Another notable decrease was the banks investment banking fees. These fell 5% to $2.3B.

However, Net Interest Income (NII) increased by 7% to $25.1B.

The bank said it expects full-year 2026 net interest income of about $103 billion and adjusted expenses of roughly $105 billion, though both measures are “market dependent”. (cnbc)

Citi (C):

Citi also reported a beat on revenue expectations. The bank reported revenue of $21B vs expectations of $20.72B, 8% increase YoY.

A bank spokesperson said the increase in revenue was mainly due to increased business in the bank’s banking, wealth, and institutional service divisions.

Net income decreased by 13% to $2.47B. The bank noted this is primarily due to its divestment in its Russian operations.

NII increased 14% to $15.67B, showing strong momentum in core lending activities.

Bank of America (BAC):

Bank of America reported a beat on revenue expectations. The bank reported revenue of $28.5B vs expectations of $27.94B, 7% increase YoY.

The increase in revenue was driven by loan growth and an increase in depostis the bank said.

Net Income increased by 12%, bringing it to $7.6B.

The bank also reported an increase in NII of 9.2%, bringing NII to $15.92B.

Wells Fargo (WFC):

Wells reported a miss on revenue expectations. The street was looking for revenue of $21.65B, and the bank reported revenue of $21.3B. Note, the bank did see an increase in revenue of 4%, just under what the street was looking for.

Similarly to JPM, Wells noted that the bank saw a 1% decrease in investment banking revenue. However, there was an 8% increase in trading operations revenue.

Net Income increased by 6%, bringing it to $5.4B.

Wells also reported a miss on NII expectations. This was the second quarter of the fiscal year that they reported a miss on NII. The street was looking for $12.42B, and Wells reported NII of $12.3B.

Our strong financial results reflected the significant momentum we’re building across the company. Our net income increased to $21.3 billion, and our diluted earnings per share grew 17% from a year ago. (CEO Charlie Scharf)

We shared with readers over the previous summer that we began to buy shares of Wells. The miss on NII does not come as a surprise to us. If you remember, in June, the Federal Reserve lifted the bank’s long standing asset cap. Fiscal year 2026 will be the first full year Wells can operate without restrictions. CEO Charlie Scharf noted this during the earnings call:

We are excited to now compete on a level playing field and are able to dedicate even more resources to growth with the ability to grow our balance sheet.

We remain very bullish and stand by our original thesis:

We believe that Wells will benefit the most from the easing of capital requirements. In addition, in June, the Federal Reserve lifted the bank’s asset cap. Previously, the bank was capped at assets of $1.95 trillion. With the cap lifted, the bank can grow for the first time in almost ten years.

Supplementary Data:

Deep Dive #3 Sneak Peek:

In the next week, we will be sharing our latest Deep Dive on a company that we believe has been overlooked and has quietly been growing.

The company is Toast (TOST):

We recognize how competitive this space is, but what stood out to us is Toast’s singular focus on restaurants.

If you dine out frequently, you’ve likely seen servers using Toast devices to take orders and process payments.

During the holiday season, we noticed Toast being used at the majority of restaurants we visited. We started asking servers and managers about their experience:

A common theme emerged:

• Faster order entry

• Fewer mistakes

• Ability to serve more tables

• Improved kitchen efficiency

Turning to the financials to validate the story we saw.

• Over 3 years of 20%+ growth in revenue

• Strong Free Cash Flow

• 30% + growth in annual recurring revenue

Toast also posted positive EPS for the first time in FY2024, and profitability has continued into FY2025.

We look forward to sharing the complete Deep Dive with you all soon.

The Week Ahead:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• Trade deficit comes in at its lowest levels since 2009

• JP Morgan to take over Apple Credit Card

• Anthropic is raising $10 billion

• President Trump orders the purchase of $200 billion of mortgage bonds

• Mortgage rates hit 3-year low

• GM to take a $6 billion write down on EVs

What’s Driving The Markets:

Markets finished the week higher following the release of jobs and unemployment data.

The unemployment rate came in at 4.4%, slightly better than expectations of 4.5%. On the surface, this was welcomed news and provided short-term support for equities.

Turning to payrolls, Nonfarm payrolls rose by 50,000 ( seasonally adjusted) for the month of December. This is lower than the revised November Nonfarm payroll, which was 56,000. In addition, the expected Nonfarm payrolls for December was 73,000.

The prior two Nonfarm totals have had downward revisions. For November, there was a revision of 8,000. For October, payroll revisions are now at 173,000. For the October Nonfarm Payroll data, the initial revision estimate was 105,000.

According to the BLS, payroll growth is now averaging 49,000 per month, a sharp slowdown from 168,000 per month in 2024.

While markets reacted positively to the declining unemployment rate, it’s worth noting that unemployment has increased in five of the past six months.

For the month of December, planned job cuts totalled 35,553. This is a 50% decrease MoM and a decrease of 8% YoY.

This sounds good, but we have to remember that December is seasonally strong due to holiday hiring.

To end the year, employers announced plans to cut a total of 1.2 million jobs. This is a 58% increase from a year ago and the highest since the pandemic.

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Despite economic uncertainty, consumer spending continues to surprise to the upside.

The U.S consumer spent $257.8 billion online this holiday season. This is an increase of 6.8% from last year’s holiday online shopping season.

However, consumers are still relying on Buy Now Pay Later (BNPL) services, and this trend is increasing. BNPL usage this holiday season totaled $20 billion. According to Adobe Analytics, BNPL usage this holiday season is “up 9.8% YoY and representing $1.8 billion more than the last season.”

Upcoming:

We are working on our first Deep Dive for 2026. We are looking forward to sharing it with you all soon. We believe we have found a great company trading below its fair value.

To Watch:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

We closed Q4 with our first red quarter of the year, finishing down 11.24%.

This decline was primarily driven by our portfolio’s high concentration in a few core positions, most notably Robinhood (HOOD) and The Trade Desk (TTD). For the quarter, HOOD declined 20.96%, while TTD fell 22.96%.

Our portfolio structure remained unchanged throughout Q4. We continue to run a highly concentrated portfolio consisting of 11 total holdings, with the majority of capital allocated to our core positions and smaller allocations to special situations and swing trades.

Among our core holdings, HOOD, SBUX, TTD, and HHH remain unchanged.

As mentioned above, we operate with a very concentrated approach; three positions currently make up roughly 70% of the portfolio.

Toward the end of the quarter, we added additional shares of TTD. Nothing fundamentally has changed in our thesis since we began accumulating shares. We believe the December sell-off was largely driven by tax-loss harvesting, and we remain bullish with our thesis fully intact.

Despite the volatility in Q4, the portfolio finished 2025 up 34.87% overall.

Based on our investment style, we aim for 20% annual returns.

We do not expect or aim to generate 30%+ returns every year. Over the past two years, Mr. Market has treated us very well, though we continue to hold a few positions where Mr. Market has yet to agree with us.

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Performance of Ideas Shared in 2025:

In 2025, we shared five investment ideas with our readers. Four out of the five finished the year positive, with Comcast (CMCSA) being the only position to close the year down.

Comcast had announced plans to spin off its legacy media assets by the end of Q4 2025.

“The distribution of Versant shares is expected to be completed after the close of trading on Nasdaq on January 2, 2026” (Comcast investor relations)

The new company, Versant, will house:

• USA Network

• CNBC, MSNBC

• Oxygen, E!, SYFY

• Golf Channel

Comcast will retain ownership of its streaming business, theme parks, and broadband/consumer segments (including Xfinity).

Lessons Learned:

Lesson One: Be Greedy When Others Are Fearful, a timeless reminder from Mr. Buffett.

In April of last year, “Liberation Day” caused major indices to sell off sharply. The S&P 500 fell 12%, the Nasdaq dropped over 20%, and the VIX surged more than 50%.

Historically, it is very difficult to go wrong buying equities when volatility reaches those levels. Notably, retail investors held their ground and bought equities at a higher rate than institutions during that week, and it paid off.

Lesson Two: Don’t Follow the Crowd

Our investment style is anything but flashy. We are not chasing early-stage tech, startups, or overly glamorous narratives.

Instead, we focus on finding high-quality businesses trading at discounted valuations, often due to temporary macro concerns or company-specific overreactions. In the short term, we are particularly attracted to spin-offs, which frequently create pricing inefficiencies.

2026 Outlook:

The dominant themes we observed in 2025 are likely to persist into 2026:

• Increased CAPEX spending among hyperscalers

• A hot IPO market

• Growing pressure on the labor market, driven by AI-related restructuring ( We will come back to this)

• Continued capital flows into meme stocks

We remain very bullish on equities heading into 2026, with a particular emphasis on the financial sector. We believe financials could be one of the best performing sectors of the year.

Our conviction is based on several factors:

1. Lower interest rates

2. A favorable environment for M&A activity

3. Increased adoption of blockchain technology in operations

4. The ability to tokenize securities

5. Long-term margin expansion as banks automate operations and reduce costs through blockchain infrastructure

Thoughts & Opinions:

We expect layoffs to continue increasing as companies further adopt and invest in AI. Where our view differs from the consensus is why this is happening.

We do not believe AI applications themselves are directly replacing workers at a large scale. Rather, companies are facing mounting financial pressure from rising CAPEX requirements and internal mandates to adopt AI, often without immediate returns.

This is evident in the fact that layoffs are disproportionately occurring at companies investing most aggressively in AI. The roles being eliminated tend to be departments that can be consolidated or automated to offset rising costs.

The departments that have seen the most layoffs are:

• Customer service

• Admin support

• Deign / Marketing functions

• Data entry

• IT roles

Closing Thoughts:

As investment continues to flow into thematic and short term trades, we will continue to prioritize discipline, patience, and long-term thinking over short term market movements.

While volatility is inevitable in a concentrated portfolio, we remain focused on owning high quality businesses where we believe intrinsic value is compounding over time.

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

To help improve structure and organization going into 2026, we’ll be introducing a few new content sections. Today, our Deep Dive area covers long-term value plays, but we’ve noticed a gap in how we present shorter-term or special situation investments. Those ideas have been living inside our weekly Market Memos and tend to get buried over time.

To fix that, we will be adding a dedicated section for short-term and special situation trades, along with an improved earnings tab for company-level tracking.

We look forward to continuing to grow and share our investment ideas with all of you in the New Year.

Cheers

Headlines:

• Disney makes a $1 billion investment in OpenAI

• Warner rejects Paramount’s hostile bid

• Ford expects a $19.5 billion EV write-down

• EU to roll back the 2035 combustion engine ban

• Bank of Japan hikes rates again, the highest in 30 years

• The Trump Administration reached a deal with drugmakers to lower prices

• U.S. home sales rise for the third consecutive month

• RobinHood to match the $1,000 U.S Treasury contribution to the Trump Accounts

What’s Driving Markets:

Last week, the Fed lowered interest rates by 25 bps, bringing the Fed Funds target range to 3.50%–3.75%.

Chair Powell delivered a surprisingly dovish message. His comments made it clear that the Fed is becoming more concerned about rising unemployment than lingering inflation pressures.

Supporting that shift, November CPI came in well below expectations.

Headline CPI came in at 2.7% YoY vs. the 3.1% expected.

Core CPI was also below expectations, a 2.6% increase YoY vs. 3.0% expected

If this downward trend in inflation continues, the Fed can shift its focus fully to the labor market.

We noted in recent memos that layoffs have already reached 2020 highs at 1.17 million this year, and job data uncertainty remains elevated due to the government shutdown and consistent revisions.

The last full employment dataset included a massive downward revision of 911,000 jobs, reinforcing the idea that the labor market may be materially weaker than headlines suggest.

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Portfolio Commentary:

Howard Hughes:

Howard Hughes remains one of our largest positions, though we don’t frequently write about it. From the start, we viewed Howard Hughes as one of the most overlooked value opportunities in the market.

On Thursday, Executive Chairman Bill Ackman announced Howard Hughes is acquiring Vantage Group Holdings, marking what could be a major evolution of the company’s long-term capital model.

“The combination of Vantage’s insurance expertise and Pershing Square’s investment capabilities creates the opportunity to build a large, highly profitable insurance company and an important source of long-term value creation for Howard Hughes.”

Ackman has spoken publicly about finding an insurance company or building one in order to establish a long-term permanent capital machine.

Ackman’s goal is to turn Howard Hughes into the modern-day Berkshire. Those of you who are familiar with Berkshire, one of the reasons why Buffett was able to be so successful was that he had a long-term, permanent source of capital. That source was Insurance.

RobinHood:

The company held its Yes No event this week to release new AI products and share new ways to trade event contracts.

During the event, Vlad said, “People are starting to realize that using prediction markets can be cheaper than conventional fire, flood, and hurricane insurance.”

I don’t think Individuals will not so much use prediction markets to hedge their insurance risk, but rather the Insurance companies themselves.

As these markets continue to evolve, I believe they will provide large institutions with a cheaper and more effective way to hedge their risks.

Wall Street’s 2026 Market Outlook:

JP Morgan:

S&P target of 7,500

“In 2026, style positioning will likely resemble 2025, with new extremes in crowding, record concentration and a “winner-takes-all” dynamic. Looking at the S&P 500, J.P. Morgan Global Research estimates the AI supercycle driving above-trend earnings growth of 13–15% for at least the next two years.”

“The AI-driven supercycle is fueling record capex and rapid earnings expansion. This momentum is spreading geographically and across a diverse list of industries, from technology and utilities to banks, healthcare and logistics, creating winners and losers in the process,” Lakos-Bujas observed.”

Source: 2026 Outlook

Deutsche:

S&P target of 8,000

“We maintain a broadly constructive outlook for equity markets in 2026. This will be partly due to strong demand for new AI-based applications, which should continue to drive substantial corporate investment flows. Beneficiaries will not only include US “Big Tech” but also a wide range of sectors – construction (thanks to new data centres), utilities (via higher electricity demand) and industrial and basic materials along the supply chain. Our earnings growth forecasts for companies across all major regions are therefore firmly in double-digit territory. “ (Christian Nolting, Global CIO)

“US growth is likely to be supported by the continuation and introduction of extensive tax relief measures, as well as increased spending on security and defence under the One Big Beautiful Bill Act. The three interest rate cuts expected from the Federal Reserve by the end of 2026 and planned deregulation in the banking sector should also further improve the investment and consumption environment. What makes these government stimuli remarkable is that they come at a time when the US economy is not in recession but is already growing robustly. The US also appears to be close to full employment. Despite the long-term risks such an environment may pose – including inflationary pressures and rising public debt – we expect fiscal and monetary measures to deliver noticeable economic support in 2026.” (Christian Nolting, Global CIO)

Source: 2026 Outlook

Morgan Stanley:

S&P target of 7,800

“U.S. equities should outperform global peers in 2026, with the S&P500 rising to 7,800 in the next 12 months—a 14% gain from its current level, compared with expected gains of 7% for Japan’s TOPIX and 4% for the MSCI Europe.”

“U.S. earnings and cash flow growth are poised to benefit from several factors, including a market-friendly policy mix, interest-rate cuts by the Federal Reserve, a reduction of $129 billion in corporate tax bills through 2026 and 2027 from the One Big Beautiful Act, positive operating leverage, the re-emergence of pricing power and AI-driven efficiency gains.”

One point that stood out to me was that of “the estimated $3 trillion in data center-related capex that Morgan Stanley expects to see, less than 20% has been deployed to date.”

Source: 2026 Outlook

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• Netflix set to buy Warner Bros film and streaming business for $72 billion

• Salesforce shares gain after a promising Q3

• Layoffs top 1 million, highest level since 2020

• PCE for September came in under expectations

• 88% chance of a rate cut at next Fed meeting

What’s Driving Markets:

The government finally released the September Personal Consumption Expenditures Price Index (PCE) after the shutdown delayed key economic data. Core PCE (excluding food and energy) rose 0.2% month over month, in line with expectations. On an annual basis, Core PCE is running at 2.8%, slightly below the 2.9% consensus.

Headline PCE (includes food and energy) increased 0.3% for the month, also placing annual inflation at 2.8%. That annual figure came in 0.1 percentage points above expectations.

On the labor side, November’s cut announcements point to growing pressure in the job market. According to a report from Challenger, Gray & Christmas, companies announced 71,321 layoffs for the month. The two primary drivers: restructuring efforts and the adoption of AI technologies.

Year to date, companies have announced 1.17 million layoffs, a 54% increase YoY.

With inflation still sticky and job cuts accelerating, markets are pricing in an 88% probability of a Fed rate cut at the next meeting.

Turning to the consumer, the remainder of the Black Friday data has been released.

As we shared in last week’s Market Memo, consumers spent a total of $11.8 billion on Black Friday, a 9.1% YoY increase.

For Cyber Monday, Adobe Analytics had projected $14.2 billion in online spending. Actual spending slightly exceeded expectations at $14.25 billion, marking a 7.1% increase YoY. One stat from Adobe I found to be very interesting is that during “the peak hours of 8 pm to 10 pm, consumers spent $16 million every minute.”

Another notable statistic from Adobe is the use of Buy Now Pay Later (BNPL) services. If you are new to my newsletter, this has been one area of concern for me over the past year.

For Cyber Monday, consumers spent $1.03 billion using BNPL services. This is a 4.2% increase YoY.

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The Week Ahead:

• 12/10 FOMC meeting

• 12/11 Jobless claims

• 12/11 PPI data

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

Hope everyone had a Happy Thanksgiving and enjoyed the shortened trading week.

Headlines:

• Private payroll losses have increased, with an average of 13,500 jobs lost per week over the past four weeks

  • This represents an increase of 2,500 job losses per week from the previous update

• Consumer confidence has fallen to its lowest point since Liberation Day

• PPI increased by 0.3%, in line with expectations

• Hedge funds recorded their largest two-day equity purchases since May

• The Atlanta Fed is projecting 4.2% GDP growth for Q3

What’s Driving The Markets:

We’re in a very unusual environment.

On one hand, this remains one of the strongest bull markets—fueled by the AI revolution. On the other hand, Main Street is clearly struggling, and the Fed is now being pushed toward cutting interest rates. The unemployment rate has climbed to 4.4%, the highest level in four years.

Normally, this kind of weakening labor data would rattle markets. Instead, it has done the opposite. Markets have rallied because investors believe the softening labor market will force the Fed to cut rates.

Another element supporting this narrative is inflation data:

• Core PPI fell to 2.6%, below expectations of 2.7%.

• Meanwhile, headline PPI rose to 2.7%, slightly above expectations of 2.6%.

While inflation remains mixed, Core PPI is less concerning to the Fed than the labor market. Despite rising unemployment, the U.S. consumer continues to hold up. On Black Friday, consumers spent $11.8 billion, a 9.1% YoY increase.

According to Adobe Analytics, consumers are expected to spend:

• $5.5 billion on Saturday

• $5.9 billion on Sunday

• And $14.2 billion on Cyber Monday

The big question now: How much longer can the consumer remain this resilient?

So far, consumers have managed to push through higher prices, rising tariffs, and a slowing labor market.

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Earnings:

Walmart:

Walmart reported a strong Q3 and raised its full-year guidance. The company now expects net sales to grow 4.8%–5.1% for the year, up from the prior 3.75%–4.75% range.

For Q3, the company reported revenue of $179.5 billion and EPS of $0.62, both exceeding expectations.

Net income jumped to $6.14 billion, up from $4.58 billion in the same quarter last year.

Management also noted an increase in higher-income shoppers, as more households continue to seek lower prices on goods

Target:

Target’s results painted a very different picture.

After reporting Q3 earnings, the company cut its full-year guidance, marking its third straight quarter of same-store sales declines. Target has also gone four years without sales growth, signaling persistent consumer pressure and competitive challenges.

Q3 net income came in at $689 million, down 19% YoY. Revenue missed expectations at $25.27 billion, although EPS of $1.78 came in ahead of consensus.

Like Walmart, Target emphasized that shoppers are still focused on value.

The company maintained its holiday sales outlook. According to CNBC, Target added 20,000 new holiday items, with over half being exclusive to Target. The strategy is aimed at offering unique seasonal products to draw customers back into stores.

Looking ahead, Target plans to increase its 2026 CAPEX by 25% to $5 billion as part of its turnaround efforts.

The U.S. consumer continues to show resilience. Black Friday results were strong, and Cyber Monday is expected to draw an even larger wave of shoppers.

Across retailers, performance remains uneven. Walmart is seeing steady growth and an influx of higher-income customers, while Target continues to struggle. Some argue that affluent shoppers are moving from Target to Walmart — and while there’s some truth to that, Target’s challenges run deeper. The company has faced operational and merchandising issues for years, long before tariffs became a headwind. The tariffs have simply amplified existing weaknesses.

On the other end of the market, higher-end retailers like Williams-Sonoma posted a strong Q3, with both sales and revenue continuing to rise. This suggests that while value-focused consumers are moving to Walmart, the higher-income cohort is still spending, just not at Target.

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• The House votes to reopen the government, ending the longest government shutdown

• Walmart CEO steps down; shares drop 3%

• Trump introduces a 50-year mortgage product

• SoftBank exits entire NVDA position

• Tech valuations continue to spook investors

• Credit Default Swaps (CDS) imply rising default risk among major AI players

• Odds of a December Fed cut fall from 62% to 51%

• Subprime auto loan delinquencies hit the highest level since 1994

• Berkshire Hathaway discloses a new position in Alphabet

What’s Driving Markets:

Markets saw more volatility this week than we’ve seen in recent weeks. We started the week at fresh all-time highs, led by strong momentum in tech. By mid-week, however, indices experienced broad sell-offs driven by several catalysts:

1. The White House signaled that October economic data may not be released, creating uncertainty.

2. Inflation concerns resurfaced, lowering the likelihood of a December rate cut.

3. CDS spreads widened in major AI companies, indicating rising perceived default risk.

4. Concerns around AI companies accounting practices.

On point 4, Michael Burry highlighted that several AI firms may be inflating reported earnings by extending depreciation schedules, allowing them to push costs further into the future. I believe that the bigger fear investors seem to have is actually different: Will the massive CAPEX spend across AI ever generate a real return?

Valuations:

Last week, I shared two charts comparing returns of the S&P 500 versus the S&P 493. As headlines focus on “high valuations,” the narrative often assumes the entire market is expensive.

But the data tells a more nuanced story.

Take the P/E ratio of SPY (S&P 500) vs. QQQ (Nasdaq 100 ex-financials). Historically, the S&P trades around 15x earnings and the Nasdaq around 24x. Tech has always traded at a premium multiple, and now that tech represents 35%+ of the index, the overall S&P multiple is naturally pulled higher.

This makes headline valuation metrics look stretched, even if the broader market is far more balanced.

The comparison between RSP (equal-weight S&P) and SPY (market-cap weighted S&P) drives this home. The equal-weighted index, essentially the S&P 493, is trading near long-term averages.

If you look beyond mega-cap tech, many high-quality companies are still trading at reasonable, even attractive, valuations.

The Week Ahead:

What all investors have been waiting for: Nvidia earnings.

The company needs to deliver a strong quarter to keep markets calm. Investors often joke that Nvidia is holding up the entire market, and it’s only half a joke.

What investors need from Jensen Huang this week:

• Reinforcement of durable, long-term AI demand

• A clear justification for accelerating CAPEX

• Confidence that revenue growth can sustain the investment cycle

If Nvidia posts slowing revenue and can’t justify the massive CAPEX ramp, fear could continue to spread across the broader market, especially given how dependent indices have become on megacap tech performance.

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We will also be keeping an eye on Home Depot and Walmart as they report earnings. Alongside Nvidia, these two reports are very important. The earnings will give us a real-time read on the consumer and set expectations for the holiday season.

CNBC published a piece this morning noting that this round of earnings from Home Depot, Walmart, Target, and Gap will be critical. Gen Z is pulling back on spending, and even higher-income shoppers are increasingly hunting for deals before making purchases.

Many of the themes we’ve been writing about for months are starting to flash warning signs: heavier reliance on BNPL, rising auto delinquencies, and a broader pullback in discretionary spending. All of it points toward the possibility of a softer holiday season.

Extra:

Earlier this week, Buffet released his last letter to shareholders. Thankfully, he will continue to write his yearly Thanksgiving letter.

Buffett’s Final Letter To Shareholders

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

We are changing the name of our weekly newsletter, “This Week In The Markets,” to “The Market Memo”.

Headlines:

• FAA reduces flights, starting at 4%

• Supreme Court hearing on Trump administration tariffs

• Worst October for layoffs since 2003

• Private payrolls rose more than expected, 42,000 for October

• Tesla shareholders approve Musk’s $1 trillion pay package

• DoorDash has the largest drop in share price after earnings, -17%

• ELF shares plunge 25% after the company reported earnings

Market Check In:

This week was a volatile one for markets. On Thursday, the Dow fell 0.84% and the S&P 500 dropped 1.1%.

I think there are three key factors contributing to the recent increase in uncertainty:

1. AI Valuations: Investor anxiety continues to rise around AI-related valuations, especially amid “circular” investments among top AI players. The concern is that these investments are reinforcing inflated valuations rather than reflecting sustainable growth.

2. Supreme Court & Tariffs: This week, the Supreme Court began hearing arguments on whether the Trump administration’s tariffs were lawful. If the Court rules against the administration, it could have massive economic consequences. The U.S. government has collected over $1 trillion in tariff revenue, which could be refunded if the tariffs are deemed unconstitutional.

3. Economic Divergence: As Steve Eisman put it, we’re in a “K-shaped economy.” Certain segments, especially AI and tech, continue to perform exceptionally well, while most others remain flat or in decline. For the past two years, AI and tech have driven the market, but I worry that when capital spending in these sectors slows, broader market momentum could stall as well.

Below are 2 very helpful charts.

Chart 1 is a comparison between RSP, an equally weighted S&P 500 ETF (not weighted by market cap), and SPY, the traditional market-cap-weighted S&P 500 index.

Chart 2 compares the performance of the Magnificent 7, the S&P 500 as a whole, and the S&P 493 (the rest of the market excluding the Mag 7).

Chart 1:

Chart 2:

Source: YCharts

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Portfolio Earnings:

HOOD:

Robinhood reported incredible Q3 earnings.

The company reported $1.27 billion in revenue (100% increase YoY) and net income of $556 million ( 271% increase YoY).

The two metrics I was very happy to see increases in were Robinhood Gold subscribers and funded customers.

• 3.9 million Robinhood Gold subscribers ( 77 % increase YoY)

• 26.8 million funded customers ( 10% increase YoY)

Growth in Gold subscriptions is especially important—it directly boosts annual recurring revenue (ARR) and expands monetization opportunities as users adopt more premium features.

Robinhood also reported $333 billion in platform assets (+119% YoY). I’m cautious here, as part of that increase likely comes from market appreciation rather than net new deposits.

One segment of the business that pleasantly surprised me was prediction markets. The company rolled this out in Q2, and to say the least, it has exploded. In Q3, over 2 billion event contracts were traded! Looking ahead, I expect this segment to grow significantly with the Super Bowl in Q1 and the U.S hosting the World Cup.

Overall, I am very pleased with the Q3 numbers, and management has strong guidance for Q4; I remain very bullish.

TTD:

The Trade Desk also reported strong Q3 earnings.

The company reported $739 million in revenue ( 17% increase YoY) and net income of $115 million ( 22% increase YoY).

Its new AI platform, Kokai, continues to gain traction. Earlier this year, investors were concerned about slow adoption, but momentum has accelerated since Q1, and management expects this to continue through 2025.

In Q3, TTD repurchased $310 million worth of shares, and the board authorized an additional $500 million for buybacks. With no debt and a strong cash position, we view this as a smart use of capital, especially given that TTD has been one of the worst-performing S&P stocks this year.

The company also raised Q4 guidance, which suggests confidence heading into year-end.

The Week Ahead:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• China and the U.S. reach another short-term trade deal.

• OpenAI is reportedly exploring an IPO that could value the company at $1 trillion.

• Santander Bank UK delays earnings release due to losses in its auto loan portfolio.

• Tech companies deliver strong earnings as CAPEX forecasts surge.

• FI suffers its worst trading day on record, plunging 44% after earnings.

• The Federal Reserve cut interest rates by 25 bps. Chair Powell did not signal whether additional cuts are likely this year.

• Amazon announced 14,000 job cuts, citing efficiency measures following large AI investments.

Starbucks

Starbucks delivered a mixed Q4 report. The headline numbers were weak, but there were encouraging signs beneath the surface.

On the downside, operating income fell 45% YoY. Operating revenue and net income were also lower due to restructuring expenses tied to the closure of 627 locations.

• Quarterly revenue $9.57 billion

• Net income $133 million

• Net sales up 5%

• Same-store sales growth in China: second consecutive quarter

However, on the bright side, U.S. same-store sales grew for the first time in two years, a promising sign that the company’s turnaround strategy is showing signs that it is working.

Thesis:

We initiated our position in Starbucks after Q3 earnings in 2024. Starbucks had already reported a disappointing round of earnings the previous quarter and as a result the stock dropped over 20%. We thought this was a good time to open a position in a dominant company that seemed to have lost its way.

Prior to the change in leadership, the company was reporting for the first time since the pandemic, decreases in same store sales.

With the change in leader in Q4 2024, we were confident that the new CEO could turn around the company.

Rocket Companies

Rocket reported strong Q3 results, beating analyst expectations as mortgage activity showed signs of recovery.

• Total revenue $1.61 billion (above estimates)

• 20% increase in mortgage rate lock volume

• $32.4 billion in closed loan origination volume

• In October the company closed on the Mr Cooper acquisition.

Overall, results suggest that Rocket is adapting well to a gradually improving mortgage market.

Thesis:

We initiated our initial position in Rocket Companies in September of this year.

We believe that in a lower interest environment, Rocket Companies has strategically positioned itself to capture new homebuyers, first-time buyers, and homeowners interested in refinancing through an integrated platform. Rocket Companies is ultimately making the home-buying and refinancing process as easy as possible.

Comcast

Comcast also posted an earnings beat, though management signaled near-term headwinds as it transitions to a mobile-first strategy aimed at simplifying product offerings.

The company’s broadband business lost 104,000 customers during the quarter, marking the start of a likely earnings decline in that segment.

• Total revenue $31.2 billion (down 6% YoY)

• Media revenue down 20%

• Peacock loss narrowed to $217 million, compared to $436 million in Q3 2024

• Film studio revenue up 6%

Comcast reaffirmed plans to spin off its cable division by the end of Q4, which could help unlock value and streamline the business.

Thesis:

Another position we opened in September, similar to our Warner Bros play, Comcast is spinning off their cable division into a new company called Versant.

Comcast will retain ownership of its streaming business, theme parks, and broadband/consumer segments (including Xfinity).

We believe that the separation will help Comcast be able to operate more efficiently as they will be able to spectate from the debt and losses from the cable division.

The Week Ahead

We will be keeping an eye on Robinhood next week as they report earnings. A few key metrics to watch include:

• Increase in deposits

• Managed portfolio AUM / new clients

• Crypto outflows

• Buying activity, how bullish was retail during Q3?

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

• Markets close at new record highs

• Trump administration to meet with Chinese trade officials

• The Trump administration is set to increase tariffs on Canada by 10%

• Apple reports strong demand for the new iPhone

• Target announces an 8% workforce reduction

• Mortgage rates fall to a one year low at 6.19%

• PrimaLend files for bankruptcy

Economic Data:

CPI came in below expectations this month. Headline CPI rose 0.3%, bringing the annual rate to 3.0%, compared to expectations of 0.4% and 3.1%.

Core CPI also increased 0.2% on the month, placing the annual rate at 3.0%, similarly below expectations.

The softer inflation print keeps the door open for a second rate cut from the Federal Reserve later this year, as the Fed continues to weigh slowing price pressures against broader macro conditions.

The Week Ahead:

We have several earnings reports next week that we are watching closely:

1. Starbucks (SBUX)
   Same-store sales have been weak for the past six quarters. We are looking for improvement, particularly in North America. Last quarter, China posted positive same-store sales while North America declined at a slower than expected rate. We want to see that turnaround continue.

2. Comcast (CMCSA)
   This will be our first earnings call as shareholders. The key focus is clarity on the planned spin-off, including updated timing. Previously, management indicated they aim to complete the transaction by the end of Q4 2025.

3. Rocket Companies (RKT)
   Also, our first quarter as shareholders. We want to hear forward guidance regarding returns expected from the acquisitions of Redfin and Mr. Cooper. Additionally, we are looking for commentary on their outlook for the housing market and mortgage rates heading into 2026.

4. Carvana (CVNA)
   We are currently not long or short. However, we remain bearish on Carvana and the broader subprime auto sector. We are watching earnings and management’s tone on credit quality, inventory strategy, and demand levels.

Coming Soon:

We are wrapping up our latest deep dive, which will focus on CVNA and the Subprime Auto Sector.

To Watch:

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.