Silver banana goes to…

In this issue of the peel:

• 🏈 The U.S. proves once again why football is better than soccer, dominating GDP growth in 2024. Despite all the worries, we made it out alive.

• 📦 IBM reminded us that they’re still a company and quite a profitable one at that. Meta rose despite strong earnings, while UPS couldn’t deliver packages nor on earnings. Comcast sank on fewer subs and became America’s most hated company.

• 🖥️ Microsoft needs a new calendar, but they still dominated their Q2’25 earnings. Unfortunately, the markets didn’t care, and the stock fell 6.18%.

Market Snapshot

Banana Bits

• President Trump is set to hit Mexico and Canada with tariffs as early as tomorrow; RenMac’s chief economist Neil Dutta, with his insights.

• Apple nosedived after hours on an 11% decline in iPhone sales in China.

• Broadcom surged as Meta’s earnings indicate plans to deepen their partnership on MTIA chips.

• Teflon Don must’ve given some of that stuff to Tesla, as Musk’s largest company reports an abysmal quarter leading to a 2.9% rise.

• Casino companies need our help—shares in Las Vegas Sands rose despite missing profit estimates.

• Whirlpool’s weak earnings underscore the extremity of America’s housing ice age.

• Caterpillar shares sank after the company’s revenue missed expectations, no word yet on changing their name and becoming “Butterfly.” 

• Americans definitely still love their blue jeans.

• OpenAI is in talks to raise $40bn—not valuation, that’s what they want to raise—in a funding round led by who else but Softbank, valuing the firm at ~$340bn.

• RFK Jr. hasn’t had an easy Senate confirmation process, but if he gets in, this is how screwed the pharma advertising complex is.

The Daily Poll

Shoutout to the beautiful ape out there who told me to run a poll on whether The Daily Peel community thinks DeepSeek’s claims about cost, performance, and hardware are legit. So…

Previous Poll:

Trump 2.0 has issued 27 Executive Orders already, ranging from energy production to federal hiring freezes. Which area do you think will have the biggest impact?

Energy production: 42.8% // Foreign aid cuts: 28.9% // Federal hiring freezes: 12.2% // The DOGE department (efficiency, not cr*pto): 16.1%

Tilt the Odds in Your Favor

In the competitive world of high finance, every advantage counts. Our exclusive curriculum, designed by industry experts, sharpens your skills and knowledge, making you a top candidate.

Enjoy personalized coaching, targeted internship opportunities, and a robust network of finance professionals with WSO Academy. 

» Join the Waitlist «

Macro Monkey Says

You Did It, Apes

The U.S. economy looked a lot like The Barbie Movie to close out 2024—not exactly good, but not as bad as you might expect.

If you were lucky enough to miss Barbie, just think of U.S. GDP growth in recent years as an old man doing coke again for the first time in 30-years.

You’re right, he’s gonna be fired up for a hot minute there, but the comedowns start to get real low when you’re this old (or so I’ve heard).

Let’s get into it.

What Happened?

Yesterday, the Bureau of Economic Analysis released the preliminary estimate of U.S. GDP growth in Q4 and for the full year.

Needless to say, the government agency takes their sweet time in getting to the final result. This is just the “Advance Estimate.” At the end of February, a more updated estimate will be released, followed by finalized figures in late March.

The Numbers

Real GDP grew by 2.3% in Q4 of last year, a deceleration from Q3’s 3.1% growth and below the 2.3% consensus estimate. Before adjusting for inflation, Q4 GDP grew 4.5%.

For the full year 2024, real GDP grew 2.5%, again a deceleration from the 2.9% real GDP growth the U.S. put up in 2023.

The good news is that these decelerations were broadly expected—and expected to happen much closer to the onset of the pandemic than nearly 5-years later.

When they talk about “long and variable lags” caused by economic shocks and monetary policy, this is what they’re talking about. Since real GDP accelerated so sharply from the lows in Q2’20, it’s only natural for growth to slow.

2024’s print was just above the average annual increase in real GDP we’ve seen since 1975 at 2.74% and easily beat out the average of this century so far at 2.19%, but unsurprisingly underperformed compared to our average since 1950 at 3.19%.

And for that GDP growth, we have no one else to thank but you apes. Consumer spending growth led the way, rising 2.3% in Q4 and a huge 3.2% for the full-year.

Wasting money at those levels takes some real talent—you U.S. consumer apes out there should give yourselves a nice pat on the back.

Government spending was the second biggest driver of GDP growth, which is really just re-branded consumer spending, considering that’s where all your tax dollars went.

Most of that government spending was concentrated in defense, up 5.1%. Nondefense spending grew 2.5%, and state & local spending increased 2.6%. In total, government spending rose 3.1% in 2024.

Imports and exports were rounding errors, but the decline in private investment is kind of a cause for alarm.

A 15% decline in nonfarm private inventories subtracted 0.93% from Q4’s total GDP growth. This was because businesses were largely still selling down existing inventories that had been oversupplied in recent years.

Similar trends aren’t expected in Q1 as imports are less certain with looming tariffs.

The decline in total business investment, which includes nonfarm private inventories, was the first in over 3-years. However, according to the BEA, this was attributable to the 2-month strike by Boeing’s manufacturing employees. 

Looking at prices, this is another potential cause for concern.

We’ll get the full PCE report for December tomorrow, but according to these estimates, PCE inflation—the Fed’s preferred measure—rose at a 2.5% annualized rate in Q4.

That was an acceleration from Q3’s 2.2% and remains firmly above the Fed’s target of 2.0%.

The Takeaway?

This is where we take a big, deep sigh of relief.

The U.S. economy performed strongly in 2024, nearly across the board. Aggregate supply and demand came closer to their pre-pandemic levels, inflation chilled (mostly), spending was strong, earnings were solid, and Philip Morris built a new Zyn factory.

I don’t know what else we could ask for. Despite all the noise that plagued last year and every other year, the U.S. economy did just fine.

Fingers crossed, we can say the same next year.

Career Corner

Question

I was wondering if you are allowed to use paper on IB technical interviews.

Answer

I was always given paper/pen in IB super days for math/analysis pieces (I also brought my own in case, but typically, for a case study, they would give me a specific deal/pitch deck to look at and analyze so they would provide that)

However, if it’s an easy question (like walk me through $100 deprecation), I’d expect someone to do that without pen and paper. It will show more polish and confidence if you’re able to get to the answer using just mental math.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

International Business Machines (IBM) 12.9%

• It’s easy to impress people when expectations are low, as all of my past teachers, coaches, and, most of all, clients would tell you. It seems that IBM is too an expert in the subject.

• Shares surged despite relatively lousy earnings. IBM beat sales and earnings expectations despite anemic 1% revenue growth. GAAP earnings were down 13% annually.

• However, markets chose to focus on the beat along with high software revenue growth and the 40% increase in their “generative AI book of business.”

Meta Platforms (META) 1.6%

• Meta CEO Mark Zuckerberg took a break from meatriding President Trump to make some f*cking money last quarter. The social media firm has arguably been the biggest non-Nvidia beneficiary of AI (so far).

• Shares are up >655% since lows reached in late 2022, with that trend continuing Thursday on a helluva strong earnings beat. Meta reported $8.02/sh on $4839bn in sales vs estimates for $6.77/sh on $47.04bn.

• Sales grew 21% for the quarter, while net income surged 49% to $20.8bn. Guidance called for Q1 sales of $39.5-$41.8bn, with a midpoint below Street estimates for $41.73bn.

• Meta AI, their ChatGPT, now boasts over 700mn MAUs, up from $600mn in December. Still pursuing their metaverse dream, the firm lost a record $4.97bn in their Reality Labs division.

What's Rotten

United Parcel Service (UPS) 14.1%

• I’m no expert in negotiation, but I’m pretty sure reaching an agreement to lower your biggest customer’s volume by 50% isn’t in the playbook. But maybe UPS knows better.

• That’s exactly the deal the company reached with Amazon, announced along with Q4 earnings. I don’t think anyone even read the rest of the report—traders just rushed to sell.

• Not that there was anything in the report to stop you from selling, however. UPS missed sales estimates on 1.5% annual growth to $25.3bn, carried by international revenue.

• EPS of $2.75/sh beat estimates, but no one cared since the firm had to rewrite guidance for Q1 and 2025 after losing 50% of their Amazon business.

Comcast (CMCSA) 11.0%

• America’s least favorite company lived up to its reputation last quarter, reporting results that surpassed market estimates but apparently couldn’t overcome the hatred of traders.

• Comcast delivered $0.96/sh on $31.92bn in sales vs estimates for $0.86/sh on $31.64bn. Net income jumped 47% while revenue grew just 2%, driven by weakness in broadband and streaming.

• The firm lost 139k broadband subs, above the 100k forecast in December. Peacock subs totaled only 36mn, while analysts were expecting 37.56mn. 

Thought Banana

Earnings Spotlight: Microsoft ($MSFT)

Consumers can get so hyped about new products that the excitement backfires. 

In cases where insane demand emerges like it has for NFTs, SPACs, The Daily Peel, or even AI, the growth itself can become a problem. Just ask Microsoft.

Let’s dive in. 

The Numbers

Microsoft needs a new data center—and a new calendar—after reporting Q2’2025 earnings late on Wednesday.

The world’s 2nd most valuable company beat analyst estimates in “Q2’25.” Microsoft reported earnings of $3.23/sh on $69.63bn in revenue vs estimates for $3.11/sh on $68.78bn. Still, the stock lost 6.18% during Thursday’s session.

The selloff was primarily attributable to weak revenue guidance and, in a supreme stroke of irony, everything the company is doing with AI.

Total revenue grew 12.3% annually, which further depressed analysts as that’s the slowest growth since Microsoft’s FY’23. CFO Amy Hood guided for Q3 revenue of $67.7bn-68.7bn, well below the $69.78bn consensus.

That missed guidance is mostly due to Azure, Microsoft’s cloud computing service. The firm doesn’t disclose Azure revenue in dollars because that’s too easy, so instead, they disclose percentage growth, guiding for 31-32% in Q3, while the Street wanted 33.4%.

Azure’s decline to 31% growth in Q2 was also a disappointment (somehow), coming off 33% in Q1. Most of the firm’s other segments looked fine, as seen in my personal favorite chart in finance, CNBC’s breakdown of Microsoft’s segment revenue growth.

The full Intelligent Cloud segment, which includes Azure, grew sales by 19% to $25.54bn, below consensus expectations for $25.83bn. 

Productivity & Business Processes, which include LinkedIn and Office suite subscriptions, grew sales by 13.9% and came in >$500mn above estimates. Shout to our 2024 CEO of the year, Ryan Roslansky, at LinkedIn.

More Personal Computing, which includes Bing, Windows, Surface and Xbox, beat growth estimates while sales of devices and Windows OS grew 4%.

Microsoft guided for CapEx expenses of $15.8bn next quarter, above estimates for $15.7bn, showing continued investment in AI infrastructure.

Speaking of which, the firm added ~$750mn to its OpenAI investment in Q2 with total investments in the subsidiary, I mean *startup, at $14bn. 

However, related to that investment and due to OpenAI’s lack of profitability, Microsoft booked a $2.29bn loss, well above the forecast for $1.5bn.

The Takeaway?

With a $13bn annualized revenue run rate from AI already, it’s clear the firm isn’t slowing down progress here. We knew that going into the report. However, it’s interesting to see how that’s playing out.

Hood guided for an acceleration in Azure growth in the second half of the calendar year, as Microsoft is currently constrained in its growth by not having access to enough data centers to run its AI applications.

That’s a good problem to have if I’ve ever heard one. So, you buying?

The Big Question: Is Microsoft’s AI strategy the right one? How does the DeepSeek news change the market's view of heavy CapEx investment? How can Microsoft better monetize AI to consumers?

Banana Brain Teaser

Previous

Last year, a state senate consisting of only Republican and Democrat members had 20 more Republican members than Democrat members. This year, the senate has the same number of members as last year, but it has 2 fewer Republican members than last year. If this year, the number of Republican members is 2/3 the number of senate members, how many members does the senate have this year?

Answer: 48

Today

Sam has $800 in his account. He will deposit $1 in his account for one week from now, $2 two weeks from now, and each week thereafter he will deposit an amount that is $1 greater than the amount that he deposited one week before. If there are no other transactions, how much money will Sam have in his account 50 weeks from now?

Send your guesses to vyomesh@wallstreetoasis.com

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

ADVERTISE // WSO ALPHA // ACADEMY // COURSES // LEGAL