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Important notes:

I usually only do snapshots for this name, but there were a lot of questions following the report, so I wanted to cover this one in a bit more detail.

Micron sells semiconductors for memory and storage. Its “Not And” (NAND) chips offer non-volatile data storage, which maintains stored information when a system’s power is turned off. Dynamic Random Access Memory (DRAM) offers volatile memory storage for personal computers, data centers, and mobile devices. This makes sure other processors have the context they need at any given time to minimize processing latency. These chips are considered to be at least partially commoditized at this point, with Micron’s cost advantages providing its edge.

These chips provide the foundation for its solid-state drives (SSDs), which are used in things like USB flash drives. Micron sells standalone DRAM and NAND processors and also SSDs with these chips in them. SSDs replace hard disk drives (HDDs), as they’re more power efficient, durable and resilient. It provides basic memory cards for things like gaming devices and cameras too.

To cater to the vast data processing needs of GenAI and to capture its piece of that opportunity, it offers high-bandwidth memory (HBM) hardware. This vastly expands data processing capabilities and the ability to pass context between CPUs and next-gen GPUs. Nvidia is a big customer. It also offers higher-capacity SSDs to help with LLM storage.

Gross margin & all other margins violently fluctuate based on pricing & asset utilization rates. This is a highly cyclical business. 

For DRAM, growth is expected to be roughly 18% Y/Y for 2024 and about 15% Y/Y in 2025. This was a reiteration. Supply is currently considered a bit “tight” due to strong HBM demand, with supply growth expected to track demand… meaning favorable pricing dynamics for this category should continue next year. It expects China revenue from its suite of DRAM products to be about 10% of total. Finally, it now thinks AI demand will lead to strong 13% sector-wide data center server growth for 2024. Growth will “continue in 2025.”

For NAND, it now sees about 12% growth for 2024 and 2025, which is lower than previously thought. It had told investors that NAND growth would be closer to 15% in 2024 and 2025. This is coming from consumer-facing categories like personal computers (PCs) and automotive. Inventory adjustments here have been less favorable than expected due to aforementioned slowing in data center SSD demand following a period of rapid growth. This is leading to CapEx cuts to allow the demand recovery to kick-in and avoid inventory gluts.

“We previously shared our expectation that customer inventory reductions in the consumer-oriented segments would impact Q2 shipments. We are now seeing a more pronounced impact of customer inventory reductions. Fiscal Q2 bit (units of memory) shipment outlook is weaker than we previously expected… We expect this adjustment period to be relatively brief and anticipate customer inventories reaching healthier levels by spring, enabling stronger bit shipments in the second half of fiscal and calendar 2025.”

CEO Sanjay Mehrotra

“The decline in 2024 and 2025 industry NAND demand outlook implies that supply actions will be needed to achieve balance.”

CEO Sanjay Mehrotra

This is a violently cyclical business. In 2023, EPS fell from $7.75 to  -$5.34. It’s expected to get almost back to 2023 levels this year, with $7.04 in EPS expected. EPS is expected to grow by 46% next year to $10.30, and then shrink modestly the year after. These estimates will be highly fluid and will likely be coming down over the next few days following this guidance.

Data center demand for DRAM remains fantastic, with HBM a key piece of this momentum. Specifically, revenue rose by 400% Y/Y (40% Q/Q) to cross 50% of total sales for the very first time. HBM revenue rose by more than 100% Q/Q and came in ahead of expectations due to strong “capacity ramp execution.” The strong demand is leading to a favorable supply dynamic and compelling pricing power, while HBM sales remain “accretive to both DRAM and overall company gross margins. Always good to see newer products already serving as margin tailwinds.

It’s important to re-emphasize that Micron doesn’t compete with Nvidia in the world of next-gen GPUs and data centers. Instead, its HBM products serve as a complement to ensure processors within those data centers can quickly access all needed context at any given time. Micron helps next-gen data centers (or “AI factories” as Jensen Huang calls them) to be faster and more efficient. This is how this company plans to capture its GenAI opportunity, as increasingly complex models and apps will lean on the most efficient memory and storage to operate. Enter Micron.

Its newest commercial HBM product (HBM3E) is a key component of Nvidia’s Blackwell platform. So far, that mega-cap has bought up all the supply that Micron can create, but it just began shipments to its second customer, with a 3rd expecting deliveries to start early next year. As stated last quarter, HBM is sold out through the end of next year with pricing already locked in. That provides a level of multi-quarter visibility that Micron is generally not able to provide and just goes to show how robust demand for this product currently is. That has a lot to do with HBM3E delivering a 20% power consumption and 50% memory capacity lead over everyone else in the space. It’s already working on the next iteration of this product called HBM4, which it’s confident will maintain sector performance leads. Shipments there will ramp in 2026. Finally, HBM4E will come after HBM4. This will introduce “logic customization” to offer more granular HBM services for different needs. Notably, it’s producing this in partnership with TSMC rather than purely in-house and thinks the added value will improve pricing power for the product line.

To support new HBM products, its extreme ultraviolet (EUV) lithography scaling is going well. This will ramp throughout 2025 and enable Micron to create more miniscule circuit patterns to pack more performance and density into one chip. This could also turn into a margin tailwind once the new technology is ramped, as EUV can potentially boost yields. This should supplant some usage of its currently most advanced production (or node) process called 1-beta.

All in all, Micron now sees the HBM market growing from $16 billion this year to over $100 billion in 2030. For fiscal year 2025, it expects “multiple billions” in overall HBM revenue.

Outside of data center demand, its mobile business is performing about as expected. 2024 volumes are tracking to its ~5% Y/Y growth expectation, and it expects that to slow to closer to ~3% Y/Y next year. It sees inventory dynamics here playing out as expected and thinks overall shipment volume in 2025 will be weighted towards the second half of the year.

Within personal computing (PC), the refresh cycle is going more slowly than expected. It revised its PC volume guidance to roughly 0% for 2024. It sees Windows 10 refreshes later in 2025 creating renewed growth for the bucket. Micron thinks PC volume for 2025 as a whole will grow by around 5% Y/Y, with growth 2nd half-weighted like for mobile.

In automotive, disappointing sector sales and a shift to lower-priced, non-electric cars have led to demand headwinds there. It sees this as a temporary blip, as things like autonomous driving programs rely on vast sums of HBM and storage.

Micron envisions data center demand for NAND SSDs becoming more popular for replacing HDDs, which should create an “inflection in long-term NAND demand growth.”

Cost reductions in 2024 have played out as expected, and it sees DRAM and NAND cost reductions for 2025 coming in at roughly 8% and 13%, respectively. Both represent reiterations of previous targets.

Fine quarter. Its GenAI-related products are ramping nicely, while the lower growth revenue segments were a bit weaker than expected. Micron is another case of “how long do you think the GenAI infrastructure boom is going to last?” If the answer is years instead of quarters, this should do very well. King Nvidia readily leans on it for its HBM products and the demand runway there is capable of carrying the entire company… if it’s as durable as Micron and other industry players think. At the same time, when this boom eventually ends, this will likely go back to a purely cyclical vendor of commoditized memory and storage products. It will go back to years of negative growth and margin contraction, followed by years of rebounds… with the cycle churning over & over again.

As Fed policy flips to dovish, disinflationary trends continue and we remain firmly in full employment territory, things have gotten fun. High fliers have doubled and even tripled in the span of a few months and pockets of the market have certainly gotten more expensive. When the fun parts of cycles unfold, the predominant questions shift from “when do I add” to “when do I trim or exit positions entirely?” In reality, there’s no one-size-fits-all approach here, as these moves depend on our own approach, risk tolerance and near-term need for liquidity. We’re all different. But while this isn’t a perfectly uniform science, I do have rules that I use to guide my decision-making process and I’ll explore them here. We will split this section into trimming decisions and exiting decisions, as I consider those separate ideas.

When something gets overly expensive and valuations rise, that always means risk/reward is deteriorating to a certain extent. As companies are rewarded for their success via higher share prices, the views of what future success looks like brighten. When all of the good is finally priced in, incremental positive headlines are mysteriously shrugged off and anything disappointing or even in-line is severely punished. We can’t possibly know if things are fully priced and local tops are in, but we can gauge shareholder optimism and future expectations. When I feel assumptions becoming overzealous and valuation multiples getting ahead of themselves, I tend to lighten up on exposure and harvest some profits. Generally speaking, these trims usually range from 5%-20% of a position, depending on how aggressive the valuation multiple expansion has been and how lofty that multiple has become.

But what does “expensive" mean?” Within my approach, it obviously has a lot to do with forward valuation multiples. But that’s not the only important ingredient. The rate of expected profit growth matters a lot, as companies can more easily grow into lofty price tags if the bottom line is expanding rapidly. Finally, the direction of estimate revisions also matters dearly to me when classifying something as “cheap” or “expensive.” Why? Because If analysts are constantly revising numbers higher, forward multiples and PEGs will likely turn out to be cheaper than they seem. And the opposite is true as well. If a share price rose, but earnings expectations rose more… that company got cheaper in my mind and vice versa. Follow the estimates! My process has nothing to do with share price and less to do with headline P/E than most traditional frameworks.

To capture all of the variables that I emphasize in trim decisions, I enthusiastically embrace Peter Lynch’s PEG ratio ideology. PEG ratios measure P/E divided by rate of expected profit growth; I tweak this formula (like in section one) by using multi-year profit CAGRs instead of one year of data. This makes the reading more structural and less prone to over-focusing on short-term results. PEGs appropriately reward growth to help us better understand if harsh share price volatility is actually warranted. As an overly generalized rule of thumb, anything below 1.0x is considered cheap, 1.0x-1.5x is considered fairly priced and anything above that is considered expensive.

Let’s start with SoFi. The stock went from $5/share to $15/share while remaining “cheap” in my mind despite trading for 74x forward EPS. Why? Because its expected rate of multi-year profit compounding is around 90%, putting the PEG ratio at a still compelling 0.8x. The stock more than tripled, but the valuation went from stupidly cheap to cheap, so I’ve held the vast majority of my shares through the gains. Furthermore, rising estimates throughout that time have helped offset some of the P/E and PEG-level multiple expansion to keep this thing cheap. These rising estimates (which are still far below management’s expectations) also give me more confidence in current assumptions being fair or pessimistic, if anything.

Meta offers us another interesting example. One year ago, it traded for $340 with $14.00 in 2024 earnings and $17.50 in 2025 earnings expected. This put it at 24x earnings and a PEG ratio of 0.96x. The stock has nearly doubled to $600/share today, but did the valuation also nearly double and push the PEG to an expensive 2x? No. Why? Because estimate revisions have been explosively positive. Meta will end up earning $22.60 this year, not $14. It’s also expected to earn $25.40 for 2025 (not $17.50) and nearly $30 for 2026. So? The stock exploded, yet the forward multiple stayed at 24x and the PEG has stayed at a more modest level of 1.3x. This led me to hold my shares and not consider trimming at all.

Ok so when is it actually time to trim? When share price appreciation is driven by multiple expansion for names that were already fairly valued or expensive. It’s when valuations stretch from fair to somewhat greedy.

Let’s consider Shopify as a different example. From February to August of this year, Shopify fell from $90/share to $50/share. During that time, Shopify’s forward profit estimates did not budge. Its PE went from 90x to 50x and its PEG went from 2.6x to 1.5x. It’s an elite company in my mind, yet the PEG equated it to an average competitor. So? I pounced. The exact opposite has unfolded since August. The stock is up about 120% from then to today, while 2024 profit estimates rose by 33% (2025 estimates by about 10%). This paved the way for significant PEG ratio expansion, and so I lightened up on my shares. I am not a trader, but I will readily and opportunistically react when forward multiples fluctuate this violently. This worked out especially well and that’s not always going to happen. I accept that. I will sell things that go higher in the near-term and buy things that go lower. I am not trying to time local tops or bottoms… I can’t… I am just reacting to materially fluctuating risk/reward. 

Now consider a company like TransMedics (TMDX). It’s up 220% over the last 5 years, as its performance led to outperforming growth and soaring estimates. More recently, it has endured a sharp dose of downward volatility, as profit estimate trends turned negative. Just as positive revisions offset multiple expansion from higher share prices and can lead me to forgo trimming, the opposite is true on reductions. If a stock goes from $100 to $50, but its profit expectations fell from $4 to $1 and forward growth expectations fell from 20% to 5%, that company got more expensive, not less.

PEG-level multiple expansion is more tolerable within some backdrops to me than others. If the Fed is cutting rates, stimulus checks are flowing, consumers are feeling great and velocity of money is zooming, that impacts valuations for all risk assets in a positive way. It generally makes me a bit more patient on widening the bands of multiple expansion needed to justify trimming and shortening the bands of multiple contraction needed to accumulate. That played out throughout the pandemic bubble and has just recently begun to play out again. Through 2022 and 2023, the exact opposite was true.

Separately, some sectors are more reliant on favorable macro than others. Credit is a fantastic example. If you have a company relying on credit demand and capital market liquidity as we enter the next rate hike cycle (whenever that may be), there is probably more risk to those forward estimates than there is for a company like Walmart and other consumer staples vendors. While macro isn’t the largest part of my process, it is a big piece and is always something to be minded and respected. Not doing so is arrogant; don’t fight the Fed. I might be a bit quicker to trim shares for a name like Lemonade, for example, as we pivot from dovish to hawkish policy, even without any multiple expansion. Estimate revisions do take time to unfold.

There’s no perfect valuation framework and caveats are always needed. The highest quality companies in the world deliver a level of multi-year financial visibility that newer, younger, more speculative firms simply cannot match. Analysts are more confident in the next couple years of Microsoft growth than they are for a firm like SentinelOne. This is often rewarded with a PEG ratio premium as people are willing to pay more for the incremental confidence. For this reason, I think comparing PEG ratios only works within peer groups of similar company quality. Comparing Apple to Affirm is not super valuable. For world-class companies that seem to always be given premiums in excess of what financials would warrant, I think two other things are important to focus on for the trim/add decision:

While trimming is based on a Lynch-like valuation framework, exiting is based on fundamental execution. The decision to continue holding a company and allocating time, energy and money to the business must be emotionless and rational. Investments do not deserve our loyalty and certainly don’t deserve our unconditional love. They don’t care about you or me. Falling in love with a stock is a great way to let bias interfere with a calculated sell or hold decision. Make them earn it.

Knowing when to exit relies on understanding the prospects, performance, and execution of a given firm. That’s how I can know when an investment case is deteriorating or if things like sentiment are simply turning irrationally negative. Knowing what should look good is the best way to quickly know when something is wrong. It’s the only way I know if overly negative price action is to be approached with greed or caution. If we are relying on an incomplete argument to support a buy or hold decision, we leave ourselves extremely vulnerable to approaching alpha-fostering price action with anxiety rather than opportunism. In sum, determining when to sell is as simple as identifying if there is a broken stock, or a broken company.

What does a broken company look like? Here are some general examples:

Here are some general examples of things that are often punished by Mr. Market, but don’t necessarily mean a company is broken:

You’ll notice that poor financial performance over a “string of several quarters” is generally required to manifest an exit decision for me personally. Businesses are not perfect, hiccups are inevitable and a “one strike and you’re out policy” is too harsh and premature. Iconic companies throughout their histories have ALL had missteps and exogenous factors weigh on performance from time to time. Microsoft messed up Windows 8 and Zune, iPhone 6 dealt with bending issues and Amazon has flopped on several product releases. These 3 companies are 3 of the most successful in the history of humanity.

Progyny is a great example of frequent fundamental missteps leading me to exit a broken company. As I explained a few months ago, for several quarters in a row, brand new “anomalies” were used to explain poor results and guidance. The thing about “anomalies” is that they’re not supposed to constantly happen (that’s why they are anomalies). Especially when those rapid changes involve human biology. Evolution doesn’t accelerate on a whim. Fishy excuses being used to justify consistently poor results make exiting an easy decision.

There is no shame in admitting defeat as a long term investor and moving on from a stinker. I pick losers. You pick losers. We all pick losers… and that’s entirely ok. It’s why we maintain a diversified portfolio. The finite downside & infinite upside profit structure of common equities means we don’t need perfection to realize great success. Picked a dud? Cool… it’ll happen again. Learn from it, don’t dwell on it and move on.

This offers a structured framework of how I think about adding and selling to names.” I use these rules to guide my decisions, but if the specific plan of action based on this approach doesn’t make sense to me, I don’t force myself to transact anyway. The annoying thing about valuation is that it’s an art, not a science. There’s no perfect rule or metric to use in every situation. Instead, fluid, subjective opinion is a permanent piece of the puzzle.

“In my first call, I want to start by saying how energized I am to be back at Nike… When I retired in 2020 after 32 years, I continued to stay in touch with many of my teammates and cheered them on from the sidelines. Why? Because I have an irrational love for this company. I know NIKE inside and out, take pride in what the brand stands for and want to see the company succeed. And in a moment where our team, brand and business are being challenged, my singular focus is to help get us back on track to get back to winning.”

New CEO Elliott Hill’s Opening Remarks

GPM pressure was due to inventory liquidation and markdown pressures discussed later. Much of that pricing pressure is coming from footwear, as inventory there is in a terrible spot. Elsewhere, inventory dynamics aren’t as concerning and strategic pricing initiatives (cutting promotions) helped offset the margin pressure.

“We are targeting a significant reduction in weeks of supply for our classic footwear franchises over the next few seasons… As a result, summer order books will be down versus the prior year.”

CFO Matthew Friend

EPS is expected to fall by 42% this year and then compound at a 23% clip over the next two years.

New CEO Elliott Hill has now been back with Nike for about 60 days following his 30-year tenure that ended in 2020. He spent the last two months on the road with his team learning from stakeholders and team members about where Nike is currently going wrong. He listened… he learned… he contemplated… and he formed the first draft of a turnaround plan that we’ll dig into here.

To start, Hill thinks the firm needs to do “more of Nike being Nike.” By this he means they need to lean into what has already made them so historically successful. They have three elite brands, countless famous athletes and league partnerships to leverage, yet have strayed too far away from a central focus on sports. It will begin to craft product design based on athlete preferences and “put these athletes at the center of all decisions.” Based on newly renewed deals with the NBA, FC Barcelona, the NFL and more, it will surely have a lot of valuable feedback to learn from. Football, soccer, basketball and running will be the focus areas to start.

Next, the company prioritized performance marketing for its digital business over brand-level marketing to create stable demand for the overall company. That’s going to change as Nike looks to “deepen storytelling” and reconnect with its consumers. Some of these investments will be earmarked for key cities around the globe. Hill thinks the company has gotten too comfortable with manufacturing, talent and distribution “centralization.” He is determined to nurture growth opportunities around the globe with a more locally supported go-to-market game. As he told investors, it’s these local employees that understand their communities and how to connect with them. Nike had been overlooking that reality.

Thirdly, the company has focused too much on its direct digital business. It has fixated on maximizing the proportion of sales through that channel, rather than simply placing great products wherever consumers may be. This created a supply/demand mismatch and a perpetual discounting approach in the marketplace that hurt Nike margins. It also angered wholesale partners, as vendors like Dick’s Sporting Goods felt somewhat abandoned by a company that seemed determined to undercut them whenever possible. 

“Some partners and channels feel we've turned our back on them, and we stopped engaging consistently… We have work to do.”

CEO Elliott Hill

To compound this issue, similarly to Lululemon, Nike has been struggling with pace of compelling product innovation and newness. That has created a lot of stale inventory, which has merely bolstered the need to discount more heavily in digital… thus diluting the quality of the brand. All of that has also led to traffic weakness across all channels.

Nike embraced a “push model” to stock inventory under previous leadership, which based orders and distribution on demand forecasting and educated guesses. It was not in a position to react to actual demand data quickly enough to meet inventory needs on the fly (called a “pull model”). It’s getting back to the pull model now, especially for shoes where it thinks it can leverage data analytics to more expediently react to consumer demand. That should mean lower waste, lower markdowns and higher margins over time. For evidence of this being the correct approach, in Korea and Japan, its footwear newness is ahead of the rest of the world, and growth is outperforming.

Again, for now, the combination of the unhealthy marketplace, shifting focus to full-price sales and poor assortment will force Nike to accelerate the liquidation of aging inventory through lower-margin channels. This is part of its previous talks of accelerating the sunsetting of some older legacy shoes to focus on newness. It’s a needed short-term concession to get it to a point of being able to deliver sustainable growth and margin. Over the coming year, that process will wrap up, tough comps from cutting discounts will end, and Nike’s results should begin to look a lot better. For now, Q3 and Q4 liquidation impacts are supposed to be even worse than in this quarter.

“Digital delivers a roughly 50-50 split for full and promotional sales. The level of markdowns impacts our brand, our marketplace and partner profitability. We will return Nike Direct to premium destinations… I’m optimistic but we’re still in the early innings of elevating the marketplace for direct and our wholesale partners. Nike Direct traffic has softened because we lack newness in product and we're not delivering inspiring stories.”

CEO Elliott Hill

We laced a few of the plan of action ingredients into the section above, but there are more items to note. Starting with returning the central focus to sport, Nike is further segmenting these teams. It has groups split by individual sports, but will now further split those teams by gender to ensure product development and marketing are as relevant as possible. It has made these moves in the past to unlock years of continued growth, and it sees an opportunity to run that same playbook today. And again, international teams will now get the needed resources to optimize their financial contributions to the brand and team. 

“We’re going to get much more intentional about investing in the brand moving forward.”

CEO Elliott Hill

Lastly, it’s going to embrace wholesale as an important long-term piece of the business. Its key performance indicators (KPIs) will no longer include ensuring the maximum percentage of dollars flows through its own channels. Hill has spent significant time with wholesalers to assure them that Nike is ready to be a partner again. It will unlock higher-value inventory for these partners and re-create more hands-on relationships to help them with messaging around key events and product launches. The overall marketplace (stores, digital, wholesale) is only as healthy as its weakest link, with an issue in one piece of the formula directly impacting the rest of it. Hills knows this.

As you can see in the forward guidance, these changes are all creating disruption and hurting near-term results. 

“What our teams need right now is clear direction and focus… Our talent is world-class.”

CEO Elliott Hill

September and October for Nike were notably worse than its November performance. In the last month of the quarter, traffic growth returned to positive growth. This was partially helped by liquidations to get company inventory to a healthier place and a successful holiday period, where results met or exceeded expectations across the board (including in China). Those two noisy items make me somewhat hesitant to call this the beginning of a turnaround; I’d like to see more evidence before I’m comfortable determining that. It’s very early for Hill.

“Our Winning Isn't Comfortable running campaign won Ad Age's Best Ad of 2024, as our ground game built momentum at the Chicago and New York marathons.”

CFO Matthew Friend

China was again cited as a macro-induced weak spot for the company. The team also acknowledged that competition is getting much tougher, but remains confident in the long-term opportunity there.

In my mind, Nike and Starbucks are in identical positions. Both are struggling companies that have allowed the customer experience and offerings to worsen to a point of financial declines. Both have new CEOs in charge dedicated to revitalizing the iconic brands.

Just like with Niccol, I think Hill will right the ship. At the same time, I also think the turnaround will resemble the slower pace of PayPal, rather than the rapid recovery of Meta. There’s more to fix within the core business and more competition standing in the way of success. I think Nike needs another quarter or two to begin showing more compelling results. It will lap product sunsetting, inventory liquidations and periods of slow innovation, and there’s every reason to believe that results will sharply improve after that happens. I’m carefully considering starting a new position here.

An account on X (OpenRouterAI) tracks developer traffic requests for various large language model players (LLMs). In the last year, Gemini 1.5 model market share has gone from 5% to 50% with developers. Why is this so positive? Because LLMs are racing to commoditization. Cost advantages and better data will be the two things that power future differentiation. With a dominant market share of search, YouTube, Google Cloud, Google Maps etc. it has that data and then some. Now? It is clearly showing you that it can launch best-in-class frontier models to give developers what they really want: great tools AND massive amounts of traffic. That’s how they get paid, while their work on Gemini is how Alphabet can become a lower-cost model provider to stick out from the pack. Important development and another piece of evidence showing the Google doubters that they’re more than capable of winning in GenAI. Thanks for sharing this great data, OpenRouterAI.

Speaking of LLMs, Alphabet launched Veo 2 as its brand new video model. The video quality is better than any other product that I’ve seen… and that makes sense. Why? Because Alphabet is the only large LLM player who also owns a massive streaming service. This ties back into why having better data is so imperative for building better models. It’s like having a world-class coach to train you vs. someone who just picked up a ball for the very first time. YouTube is that world-class coach for Veo 2.

Alphabet is quickly building one of the most compelling full-stack AI suites in the world. From Google Cloud infrastructure (and eventually quantum computing developments)... to enjoying data from billions of users across several products… to new Gemini models… to its LLM suite… to its GenAI-upgraded advertising campaign tools… it is participating within every single layer of the GenAI opportunity. And? It’s creating compelling products to turn that participation into real traction.

Alphabet was arguably the worst offender during the pandemic in terms of just hiring way too many people. It has since laid off a lot of employees, and just announced a 10% cut to its senior management team. Whether that’s via GenAI automation or just knowing they went way too far with hiring is unclear. What is clear is that this will be yet another source of operating leverage. Not only does Alphabet provide leadership across search, cloud, full stack AI, streaming and autonomous driving (5 giant secular growth stories), but it’s also a mega-cap with significant cost bloat left to address. Bad mistake when looking backwards… and a great setup when looking forwards. I know this sounds insensitive to those affected and I hope all of those team members quickly find new roles. With their resumes, I think that’s very likely.

Brian Niccol is running the same playbook with Starbucks that he masterfully executed at Chipotle. That entails creating better store environments, vastly accelerating throughput, improving marketing efforts and? Attracting great talent.

This week, Niccol announced an extended parental leave benefit, making its “already best in retail” coverage even better. This joins other unique programs like its Starbucks College Achievement Plan (SCAP) (online degrees) and what it sees as “industry-leading” health benefits.

In other related news, the Starbucks workers union representing 10,000 baristas authorized a strike. The two sides met this week to try to iron out differences, but talks could leak into the new year. For now, there’s a 5-day strike planned in 3 cities. I’m candidly rooting for this to get worse before it gets better. The stock is getting close to me being able to add again and we all know this will be resolved eventually.

When Niccol took over as the new SBUX CEO, the forward multiple immediately snapped back to 2-year highs. I think Niccol is a star and am confident he will get this brand rocking and rolling once more. But? This will not happen overnight. He cannot rapidly fix the China mess, U.S. throughput issues, customer service and overarching financials immediately. He is laying the foundation to set this company up for a large turnaround, but that comeback will not be linear. I do expect some quarterly disappointment to round out the year while timely union strike drama compellingly adds to temporary noise; I would selfishly love to use that to finish building out the position. I did not get a chance to buy as much as I wanted to, and think that opportunity could still be coming. 

SoFi crossed 10 million members this week. With about 2 weeks left in the quarter, this implies at least 627,000 members added. This would represent a Q/Q acceleration and its 3rd-best quarter in over 2 years. And? It still has 2 weeks left to add even more. Great products… growing brand awareness… improving macro. When pairing this data with mid-quarter conference commentary from leadership about the period going quite well, Q4 should be strong. 

Bernstein reiterated its outperform rating for Uber with a $95 price target. It discussed fundamental progress being entirely disconnected from current sentiment. It also is “comfortable” with mobility estimates over the coming quarters. Oppenheimer also named it a top pick for large caps for 2025 and is comfortable with its market share and positioning. It thinks Lyft will have to match Uber’s higher insurance cost structure, which will lead to market share gains for Uber. Longer term, Oppenheimer sees this company as the “leading matching & logistics platform in a world of several Robotaxi providers due to lower cost to serve and higher utilization.” If they’re right about the world having several providers, I agree that Uber should do extremely well. I view that as the most likely outcome, but Waymo creating a hardware monopoly is undoubtedly the largest risk to that bull case… and one that I think must be deeply respected. Again, that’s why you’ve seen me make this a smaller position over the last couple quarters. For those who spend a significant amount of time on Twitter, I think it’s important to consider who we’re talking to. Twitter is Elon-land. Twitter loves Elon. Maybe take opinions on there of Tesla killing Uber with a grain of salt. I’ve worked through why I think Uber will likely be fine in several recent pieces.

The Senate Judiciary Committee began hearings on legal sports betting in the USA this week. This is important for Draftkings, Flutter and all other players. The talks were encouragingly uneventful meetings. Regulatory drama will continue for this sector. But fortunately, regulatory tailwinds in the form of more state legalization (especially iCasino) provide a highly compelling offset to that risk.

UBS initiated coverage of Palantir with an $80 price target. Their optimism was based on concrete value creation stemming from its AI platform for several customers. The amount of success Palantir has had within the GenAI app layer opportunity is uniquely massive. It’s about as amazing as its sky-high valuation multiple. Bulls here are relying on profit estimates not being remotely close to reality. This likely needs massive, massive beats and raises to keep earning this price tag.

Meta’s Threads now has 300 million monthly active users vs. 275 million at the end of October and 30 million a little over a year ago. It also has 100 million daily active users (DAUs). As a reminder, they’ll introduce ads to the app next year. The ad load will ramp slowly as always, and engagement on this app is not nearly as good as its others. Still, Threads could soon become another material growth driver for this company. Meta also updated its Ray-Ban smart glasses with new AI tools this week.

Bank of America named The Trade Desk, Spotify and Netflix as its top media picks for 2025.

Disney’s Marvel Rivals game has 20 million users after just two weeks.

Nu invested $150 million in Tyme, which offers financial services across South Africa, the Philippines and soon to be Vietnam. This is a more asset-light, low-risk way to pursue eventual international expansion. Just invest in the probable winners and buy them down the road if you need to.

Jefferies upgraded SentinelOne to buy with a $30 price target.

Amazon Web Services (AWS) announced a new $10 billion cloud infrastructure investment in Ohio. There’s also a 7-city employee strike happening at the moment. This will be resolved.

Fed meeting notes were sent mid-week. The ironic thing from that meeting is that if it happened a week later… the commentary would have been wildly different. Powell hinted at inflation risks skewing back to the upside, right before the encouraging personal consumption expenditures (PCE) reading we got on Friday. The Core PCE rose 0.1% M/M vs. 0.2% expected, while the PCE rose 0.1% vs. 0.2% expected as well. Y/Y readings were a tick better than expected. The Y/Y Core PCE now sits at 2.8%.

This just clearly tells you Powell and the Fed are working with the exact same info that you and I are. They have no insider data.

More Inflation Data:

Output Data:

Consumer & Employment Data: