Silver banana goes to…

In this issue of the peel:

• 🌎 We wanted a Zuckerberg-Musk fight, and instead, we got an all-out brawl between the U.S., Canada, and Mexico. I’m not sure I even know what’s going on, but find out below.

• 🧠 Mind Medicine proves why investing in pre-revenue drug dealers is a brilliant move, and Tyson Foods killed a ton of farm animals last quarter. Tesla tanked on Musk’s latest innovation, and JetBlue fell out of the sky without Boeing’s help.

• 🍎 A day late but a billion over, Apple’s Q1’25 earnings report shows why it doesn’t matter if they’re past peak iPhone. Find out why below.

Market Snapshot

Banana Bits

• In case you missed it, our 2024 IB Work Conditions Survey results are out.

• Palantir dominated earnings, with shares booming after hours on a strong outlook.

• The tariff situation is a mess, as you’ll see below, and with the WSJ here.

• Bridgewater and Metaculus are hosting a forecasting competition with a $25k prize and a chance to interview with Bridgewater Associates.

• Remember the Texas Stock Exchange? Apparently, they weren’t joking, having just filed to start listing companies next year.

The Daily Poll

Previous Poll:

Is DeepSeek legit?

Yes: 45.2% // No: 54.8%

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Macro Monkey Says

An Intercontinental Game of Chicken

We’re all adults here. Let’s not act like we’ve never engaged in a good ol’ fashion game of chicken (back in the day, of course… obviously).

Now, whether you played it with traffic, kissing the homies, or any of the infinitely more perverse iterations, we’ve never seen the game of chicken taken to this extreme.

President Donald Trump, President Claudia Sheinbaum, and Prime Minister Justin Trudeau (for now) are playing a ~$33tn game of chicken.

Let’s get into it.

What Happened?

President Trump went through with plans to place 25% tariffs on all imports from Canada and Mexico, exempting Canadian energy with a 10% excise. 

In other words, North America just had its Jon-Snow-kneels-to-Daenerys moment—the North is no longer united.

President Trump also placed a 10% tariff on all-things-China, but we’ll have to save that for another day.

(P.S. The tough part about “breaking” news with a once-daily newsletter is exactly that—it’s once daily. The news we’re discussing is actively ongoing and very well could have changed by the time you’re reading this. FYI—I’m writing this at 4:53pm yesterday.)

What’s Happening?

Considering Canada and Mexico are the U.S.’s largest trading partners—with total trade valued at ~$665bn and $661bn, respectively, as of the latest estimates in 2024—it’s no surprise the two countries responded immediately.

By late afternoon Monday, both President Sheinbaum and Prime Minister Trudeau had spoken with President Trump and struck a deal to call off the tariffs… for now. But that certainly doesn’t mean the battle is over.

The USD/CAD and USD/MXN charts above tell the whole story. 

After spending 2024 strengthening against these currencies, the USD’s strength surged against CAD and MXN this weekend, only to give it all back once Trump agreed to delay tariffs for 30-days on Monday.

As of right now, nothing is certain. The only thing we know is that negotiations are ongoing.

Justin Trudeau, a.k.a Just-out Trudeau, recently resigned from the PM position and will no longer hold the role on March 9th, when the Canadian Liberal Party chooses its next leader. However, he’s given some indication of Canada’s mindset regarding these negotiations.

The idea is to 1) retaliate and 2) make American citizens feel the pain of tariffs. Trudeau said Canada would impose 25% tariffs right back on ~$105bn worth of U.S. goods, ~1/3rd of Canada’s total imports from the U.S.

Sheinbaum didn’t give as detailed of a response after Trump on Monday called off the 25% tariff he imposed on Saturday. All I could find was a commitment to working with U.S. officials and military personnel with regard to drug trafficking on the border.

If 25% tariffs are imposed by the U.S. on Canada and Mexico, basically everything will get more expensive. Including China, and based on the above chart, computers, phones, and cars are the three goods most at risk.

And we saw that in the share prices of the companies making those products yesterday. Unfortunately for any shareholders that sold, the news of a 30-day delay in the implementation of those tariffs came after the bell.

I’m certain more news will break on this topic later today—good luck staying tuned. We’ll keep you updated on the sh*t that actually matters.

The Takeaway?

Tom Petty said, “I won’t back down,” and while I’ll cry right now if you play that song,  I really hope the leaders of Canada, Mexico, and the U.S. aren’t big fans of his.

President Trump has made it clear that his tariff policies extend beyond economics. As we can see with Mexico already and their growing interest in border security, the President uses them as negotiating tools for social and other issues.

The President is even all too aware that the tariffs could harm Americans—in the short term. The goal is to use tariffs as a negotiating tool to affect the change President Trump wants to see in international relations with these countries.

Feel however you want to about that. Personally, the one thing I think is that it’s at least interesting.

Career Corner

Question

Had a great chat with a portfolio valuation guy at HL and even got put in touch with another portfolio valuation analyst after the chat (always a good sign).

Do you think there is a respectful way to ask to be connected to actual investment bankers in a way that won’t offend the portfolio valuation guys?

Answer

Not sure what your exact circumstances are, but I strongly suggest following the process to ensure that you are getting the most value out of your networking.

If you go out before you are ready, you could end up missing out on what could prove to be good connections.

Networking just to network isn’t super helpful; you need to have a strategy for when and why you are reaching out to maximize the outcomes.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Mind Medicine (IDXX) 11.1%

• Are people still talking about Q4’24 earnings? Psh. Wow. I remember my first earnings szn. Everybody knows the real pros are all locked in on FY’2029.

• At least, that’s according to Mind Medicine on Monday. Analysts at HC Wainwright are calling for an EPS of $2.84/sh in a fiscal year set to end 5yrs from now.

• These guys must have some vivid imaginations over there and a whole lotta time on their hands if they’re projecting positive EPS on a company that is still pre-revenue.

• However, non-brainless activities are helping to increase the stock, too. Evercore issued an “Outperform” rating on Mind Med last Tuesday, and on Friday, the firm announced it had dosed its first patient in a new trial for anxiety treatment.

Tyson Foods (TSN) 2.2%

• Why anyone would buy Tyson’s dumpy chicken when that Perdue gas is right next to it is beyond me, but apparently, a lot of people did in Q4. The meat maker beat estimates.

• Tyson reported a 0.8% rise in chicken sales despite prices falling 0.7%. That carried revenue to $13.6bn, up 2.3% from last year and above estimates.

• EPS of $1.14/sh easily beat estimates for $0.79/sh. Beef sales were 6.2% as prices grew 0.2%, and pork sales rose 6.6% on a 7% jump in prices and 0.4% slip in volume.

What's Rotten

Tesla (TSLA) 5.2%

• Musk really is quite the blue-flame thinker. Most people go into government to help their companies, not actively seek to ruin them like in Elon’s latest innovation.

• President Trump has been in office for two weeks as of yesterday—not really long enough to actually cause an economic impact, but certainly to sow the seeds.

• Markets are realizing all that tariff talk wasn’t just a bargaining tool. Now that they’re actually in place, those most impacted—like carmakers—are feeling the pain of higher future import prices.

JetBlue (JBLU) 8.2%

• Just like me on the golf course, JetBlue thought you wanted the highest score in this game. But high scores aren’t ideal if we’re talking fuel costs (or golf, apparently?).

• Airlines got hammered, and not in the same way that I did before getting onto their planes, as rising fuel costs dent earnings outlooks for the year.

• Oil prices jumped recently due to rising energy demand for AI and the implementation of U.S. tariffs. In their Q4 earnings, JetBlue was already forecasting the highest unit fuel costs, leading them to get hit the hardest.

Thought Banana

Earnings Spotlight: Is Tim Cooked?

There’s checkers, there’s chess, then there’s whatever the f*ck game Tim Cook is playing.

Apple managed to navigate another quarter of FUD by exchanging one group of customers getting ripped off for another.

Let’s dive in.

The Numbers

This earnings report feels more stale than the coffee left on the desk of Lehman’s Head of Risk Management in ‘08, given all the very-Apple-related news that’s occurred since last Thursday.

But, when we talk about signal and noise, rarely do you get more signal than the earnings report of the world’s most valuable company.

“Apple is reporting our best quarter ever,” said CEO Tim Cook, right before citing a 4% YoY revenue growth rate. Nonetheless, the market liked what it saw.

The Kingpin from Cupertino delivered EPS of $2.40/sh, up 10% from Q1’24, and sales of $124.3bn, beating estimates for $2.36/sh on $124bn.

Shares nosedived on the release, flailing more than 6% in the after-hours session by 6pm. This was driven by an initial reaction to weak iPhone sales in China, but quickly, the positive attention from services stole the spotlight.

iPhone sales in China declined 11%. This brought total iPhone sales growth into the negatives, down 0.8% to $69.14bn.

With the launch of the iPhone 16 during the quarter, that was especially discouraging. However, Apple’s been Tim Cookin’ up a backup plan for a long time.

Services revenue dominated, sending Apple to the highest gross margin it’s ever recorded at 46.9%. Analysts were expecting 46.5%. This segment contributed $26.34bn to Q1’25 sales, beating the $26.09bn expected.

And that was the key figure for the quarter.

Since ol’ Steve Jobs stepped onto the stage to release the iPhone back in ‘07, analysts far and wide have wondered if we’re at “peak iPhone.”

With an installed iPhone user base of ~1.5 billion—54% also owning a Mac, 35% an Apple Watch, and 95% AirPods (which they probably replace twice a year)—Apple isn't exactly struggling for hardware growth, especially considering this group largely represents the wealthiest 1.5 billion people on the planet.

Apple is focused on monetizing that user base—and what else would analysts be focused on in that regard besides AI?

Right now, Apple Intelligence sucks. Just now, I was asking Siri to call my tax guy (whose name is “Biqq Flapps” on my phone), and it kept telling me it couldn’t find directions there.

But it won’t always be that way. Apple is in a unique position where it does not need to compete on foundational LLM development to be competitive in AI. They can simply be the rails. 

In fact, Apple doesn’t even have to rely on ChatGPT or any other LLM to power its services. 

According to Wedbush analyst Dan Ives, 20-30% of App Store apps will be generative AI within the next 2-3yrs, many of which are expected to charge minimal user fees. If Uncle Sam allows Apple to keep raking in a 30% tax on all its apps, they’ll be alright.

Apple is the key to consumer AI—they’re just waiting for someone to be a good default option. If it’s anything like the upwards of $20bn in pure margin Apple gets from Google every year to run Google Search as the default on Safari, that’s definitely a trade I’d love a commission on.

The Takeaway?

This quarter was all about how Apple is positioning itself within AI and broader services. Slowing growth in China is largely expected and entirely immaterial to the consumer AI-driven growth analysts anticipate.

Maybe there’s a reason Apple is now worth more than $400bn more than OpenAI daddy Microsoft and $600bn more than your hero, Nvidia.

The Big Question: Did Apple already “win” AI? How could the LLM business model disrupt Apple’s? What are the biggest risks on Apple’s horizon? Will it end in 2025 as the most valuable company in the world?

Banana Brain Teaser

Previous

A certain state’s milk production was 980 million pounds in 2007 and 2.7 billion pounds in 2014. Approximately how many more million gallons of milk did the state produce in 2014 than in 2007? (1 billion = 10^ 9 and 1 gallon = 8.6 pounds.)

Answer: 200

Today

Working simultaneously and independently at an identical constant rate, four machines of a certain type can produce a total of x units of product P in 6 days. How many of these machines, working simultaneously and independently at this constant rate, can produce a total of 3x units of product P in 4 days?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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