“Key Points” will be a new section at the top of each earnings review. After conducting detailed interviews with many of you readers, it became quite apparent that this is needed. Thank you for your feedback. Nothing else about the earnings review format is changing.

The Trade Desk announced its intention to purchase Sincera. The two were already partners, and now TTD wants to own it. Sincera is an advertising data company that publishers rely on for  data quality. In a world where data volume is exponentially expanding, data-driven ad buying is table stakes and using the right data is paramount, Sincera helps a lot. It sifts through and contextualizes all of this insight to help advertisers better understand who they’re marketing to, and who they should be marketing to. It also communicates to publishers what data they should be sharing with the buy-side. In turn, this augments targeting precision and enhances return on ad spend (ROAS) for buyers. At the same time, the higher value means higher propensity to pay more for impressions, which benefits publishers too. A compelling win-win that TTD has facilitated for a decade. Sincera merely supports this well-entrenched equation. TTD CEO Jeff Green often laments about advertising supply chain players unfairly disclosing the utility they provide to extract more economic value than they provide from the ecosystem. Sincera is a rare case of a company that doesn’t behave in this way.

With its fortress, debt-free balance sheet, I think purchases like this make a ton of sense. There’s every reason to go buy high-quality assets and potentially faster growth. That’s the luxury of being in such a financially healthy position. Terms for the deal were not disclosed, but the Sincera is just 2 years removed from a $4.2 million cash raise, so I would think this purchase is very small. Sincera’s co-founder, Mike O’Sullivan,” will stay on with the company (always love seeing that) and report directly to Green.

SoFi announced a new $525 million personal loan securitization with PGIM fixed income. This follows a $350 million transaction just 7 months ago, which hints at this firm being pleased with credit performance so far. Why does this matter?

The deal likely means more gain on sale margin premium, which means more high-margin revenue for SoFi. But that’s not all. As we’ve talked about in the deep dive and several other times, SoFi must strictly adhere to capital ratio regulations as a chartered bank. By not stashing this credit on its balance sheet, SoFi can realize financial gain from these originations without placing undue stress on its capital ratios. This means it can cater to more borrower demand, collect all of that data for future cross-selling and pocket more revenue without using up any of its currently large capital ratio cushion. This greatly diminishes the balance sheet growth bottleneck and gives SoFi yet another outlet to pursue more revenue in a financially responsible way. I love these deals just like I loved the loan platform expansion to offer loans to customers within and outside of its credit demographics through partner-sourced liquidity on its own site.

"These personal loans represent an attractive investment opportunity for PGIM."

PGIM co-head of Securitized Products

In other SoFi news, Citi raised its price target from $12.50 to $18.

Duolingo launched its AI FaceTime feature for Android and 5 additional languages as expected. This is really where the firm’s industry-leading data scale (by a mile) shines. In partnership with OpenAI, the company merges better data with world-class models to create a GenAI-powered product that truly differentiates. Users can have full-fledged conversations with the Lily character, who has her own memory to draw from previous context and enrich learning experiences. Broken record alert: It’s launches like these that, I think, will make it clear that GenAI isn’t replacing Duolingo… it’s augmenting it. While competition like Chegg is used to cheat (something GenAI is very good at), Duolingo functions to educate and entertain. And it uses GenAI plus obsessive split-testing every step of the way to ensure it’s industry-leading product keeps getting better.

In other interesting news, the potential TikTok ban in the USA is leading to a more than 200% surge in Chinese language learning demand on the app. Many TikTok users are shifting to another app called RedNote, where dialogue between Chinese & English-based users is more frequent.

Results:

Guidance & Valuation:

BofA trades for 13x forward EPS expectations. EPS is expected to grow by 14% this year and by 18% next year. This marks a notable acceleration compared to a roughly 0% earnings CAGR from 2022-2024. Guidance led to modest upward pressure on 2025 EPS expectations.

More Provision & Allowance Context:

More NCO Context:

More DQ and Nonperforming Loan (NPL) Context:

Consumer & Economy Call Quotes:

“We appear to be settled into a 2% to 3% GDP growth environment with healthy employment levels and a resilient consumer… So far in the first 2 weeks of January, they’re spending money at a 4% to 5% growth clip over last year. That’s similar to Q4.”

CEO Brian Moynihan

“Earlier in the year, we highlighted our expectation of consumer credit stabilizing at a normal level. And on commercial office losses, we said they would trend down during the year. We saw both those trends continue in the Q4.”

CEO Brian Moynihan

“Based on our more recent growth experienced, we're assuming loan and deposit growth in 2025 that's higher than 2024, and more consistent with growth in a 2% to 3% GDP environment.”

CFO Alastair Borthwick

“We don't see overall net charge-offs or the related ratio changing much in 2025, without much change in current GDP or the employment environment, we expect the net charge-off ratio to be in the range of 50 to 60 basis points of loans for 2025.

CFO Alastair Borthwick

Results:

In Q4 2023, a $2.9 billion special assessment from the FDIC shaved $0.74 off of EPS. Without this comp tailwind, EPS would have risen by 27% Y/Y instead of 58% Y/Y. The same charges created very easy comps for EPS and also all return metrics. Additionally, mark-to-market losses in security holdings last year lowered EPS by another $0.19. Excluding both special items, EPS rose by 21% Y/Y.

2025 Guidance & Valuation:

EPS is expected to fall by 7% this year following 2 years of compounding at a 28% clip and amid the lower rate environment. I think there will be upward revisions following the strong annual guidance. This has already begun to play out. EPS is expected to grow by 6% in 2026.

More Provision & allowance context:

More Net charge-off (NCO) context:

More Delinquency (DQ) rate context:

“The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business. Two significant risks remain. Ongoing and future spending requirements will likely be inflationary. Inflation may persist. Geopolitical conditions remain the most dangerous and complicated since World War II. As always, we hope for the best but prepare the Firm for a wide range of scenarios.”

CEO Jamie Dimon

Results:

Guidance & Valuation:

WFC trades for 13x forward EPS expectations. EPS is expected to grow by 8% this year and by 17% next year. EPS expectations for 2025 fell following the release.

More Provision & Allowance Context:

More NCO Context:

More DQ Context:

Consumer & Economy Call Quotes:

"The U.S. economy has performed very well & remains strong. Lower inflation & unemployment position the economy well into 2025. We succeed when the country succeeds. So, the incoming administration's support of U.S. businesses & consumers gives us optimism.”

CEO Charlie Scharf

“Credit performance was relatively stable throughout the year and consistent with our expectations.”

CEO Charlie Scharf

This was a solid showing across the board for big banks and financial institutions. Credit quality metrics aren’t perfect, but there is far more good than bad. The pace of worsening for things like NCOs is heartening and the overall deterioration we’ve seen over the last 2 years has been more orderly and gradual than I think most were expecting at the end of 2022. Furthermore, the improvement in provision trends for all three of these bellwethers is something I also find encouraging. The word “recession” did not come up a single time in any of these transcripts. Instead, all three companies talked about resilient economic growth and consumption. This bodes well for the rest of earnings season and 2025 guidance for any company at all reliant on U.S. economic health (basically every name in the coverage network). I would have loved to see BAC and WFC estimate revisions be more positive following this report, but expense guidance likely led to this weakness, as revenue expectations rose for both. Furthermore, rising rate cut expectations are likely weighing on estimates.

Taiwan Semi builds chipsets for other companies like Nvidia, AMD and Qualcomm. It does so in its highly expensive, highly complex chip fabrication plants. These are called “fabs” for short.

Needed Definitions:

TSM beat revenue estimates by 3.6% & beat guidance by 1.5%. Its 19.6% 3-year revenue compounded annual growth rate (CAGR) compares to 16.5% last quarter and 9.8% 2 quarters ago.

TSM’s “Foundry 2.0” total addressable market (TAM) calculation includes all wafer production as it did before. It also now includes packing, testing and mask making in it. It sees Foundry 2.0 industry growth accelerating from 6% to 10% next year, “supported by robust AI demand” as well as gradual improvement in its non-AI categories. In line with this rising sector optimism, TSM set its initial 2025 growth target at roughly 25%, which compares favorably to its roughly 23% initial target set last January for 2024. It loves to under-promise and over-deliver, as any well-run company should. Also for 2025, it expects to spend about $40 billion in annual CapEx, which represents 34% Y/Y growth. It does expect to enjoy some significant depreciation expenses rolling off, which should help offset depreciation and allow that expense growth to be around 8%-9% Y/Y.

Finally, we got updated 5-year CAGR expectations from leadership. Last quarter, they were asked for an update to the 15%-20% 5-year CAGR expectation for the years 2021-2026. It declined to provide that information, but included it in this report (as it often does for Q4 earnings). For the next 5 years, it raised this 17.5% CAGR expectation to nearly 20%. Really good. 5G will continue to be a solid growth story, but this is really a byproduct of a GenAI-related explosion within the overarching AI accelerator bucket. This immensely compelling AI subsection of high-performance compute (HPC) tripled to roughly 15% of its overall revenue; it sees this segment doubling in 2025 to keep it on its 5-year growth path. TSM also thinks the AI accelerator 5-year CAGR for the entire sector will approach 45% through 2028. Its forward-looking visibility is telling leadership that this cycle isn’t close to over. If they’re right, that’s great news for TSM, as well as Nvidia, Broadcom, AMD, Marvel etc.

“As a key enabler of AI applications, the value of our technology platform is increasing as customers rely on TSMC to provide the most advanced process and packaging technologies at scale in the most efficient and cost-effective way.”

CEO C.C. Wei

EPS is expected to grow by 30% this year and by 19% next year. Estimate revisions should continue to be materially positive following this strong report.

2 Recent Regulatory Developments:

“We don't have a complete analysis yet, but we don’t think this is all that significant. It’s manageable. We’re applying for special permits for customers being restricted and we believe they will get some permission outside of the AI area.”

CEO C.C. Wei

Demand Breakdown:

“Due to the strong demand for our 3-nanometer and 5-nanometer process technologies, we continued to outperform the foundry industry in 2024.”

CFO Wendell Huang

74% of revenue came from “advanced technology” products vs. 69% Q/Q & 67% Y/Y. Within this bucket:

Just like the last several quarters, HPC use cases continued to power this growth engine. Specifically, HPC is now 53% of total revenue vs. 51% Q/Q and grew 19% Q/Q. The 5G revolution and hardware upgrade cycles keep making smartphones another, smaller growth driver as well. This bucket is now 35% of revenue vs. 34% Q/Q and enjoyed 17% Q/Q growth.

From a market share perspective, it was another great year for the company as competitors like Intel struggle and TSM excels. Industry-wide revenue within Foundry 2.0 (which now includes both packaging and testing revenue as of a few quarters ago) rose 6% Y/Y. That was materially below its previous forecast of 10%+ Y/Y growth. Despite this, TSM delivered 30% revenue growth vs. its beginning-of-year expectation of 23%. It did change the areas included in Foundry 2.0 growth mid-year, but this was still much better than expected on an apples-to-apples basis.

New Technology:

In a world where TSM is the king of its niche, everyone else is trying to catch up. So? Constant iteration and improvement is needed – just like for Nvidia rolling out Blackwell and eventually Rubin. Complacency kills and an obsessive paranoia stemming from thinking your competition will catch up tends to inspire faster innovation and serve capable companies very well. Furthermore, as Nvidia CEO Jensen Huang often puts it, failure to address “compute inflation” (needing perpetually more compute power than ever before) is the enemy of progress. The way to avoid this failure is to create chips that are increasingly more powerful and efficient, which is why it is so important for TSM fabs to support this endeavor. Together, TSM and its customers help make things like ChatGPT, Microsoft Copilot, Llama 3 and so many other things possible. They make usage of massive amounts of compute power efficient enough to turn GenAI app pipe dreams into reality. Data and compute are scaling rapidly. Chip performance needs to as well.

Leadership is adamant that its developing N2 and A16 (1.6 millimeter) technologies will deliver needed incremental performance gains and maintain its market leadership. TSM expects the number of new N2-based chip designs (“tape-outs”) to be higher than for N3 and N5, as the world continues to possess an “insatiable need for energy efficient computing and almost all of the innovators work with TSM.”

Specifically, N2 offers a 12.5% speed boost vs. N3E (most advanced N3 offering) at identical power or a 25% power improvement at identical speed. Chip density is also 15% higher, to allow partners to pack more compute capacity into each individual AI accelerator. N2P is an iteration of N2 that offers more performance benefits than N2. Large-scaled production for the N2 family will ramp during the 2nd half of 2026. Its A16 offering will also come later in 2026, and will feature a super power rail (SPR). This is a power source that attaches on the back-end of a chip, which, per TSM, offers better gate (building blocks for chips) density and design flexibility. It also features a 9% speed improvement or 17.5% power improvement vs. N2P. It is always sprinting and that will not change.

Within HBM, Taiwan Semi plans to have a much larger presence than it currently does. It’s working with “all memory suppliers” (including Micron on its latest HBM products) and thinks high volume production that actually moves the revenue needle will take just 6-12 more months. It’s coming. This is one of the most exciting growth areas within the overarching GenAI hardware boom and TSM will have a sizable piece of the opportunity… just like for GPU and ASIC manufacturing.

“Let me assure you that, whether it's ASIC or it's graphic, they all need a very leading-edge technology. And they're all working with TSMC.”

CEO C.C. Wei

Gross Margin:

As it usually does in its Q4 calls, TSM leadership walked us through the various factors that influence its profitability and how these factors would unfold in 2025. FX is one of them, and we’ll focus on the others that are actually in TSM’s control. First is technology ramp-up cycles. The N3 ramp-up costs will fade throughout 2025 as utilization rates “moderately increase” Y/Y towards more mature levels. This should be a modest gross margin tailwind, as it extracts more economic value from this now largely-completed investment. That’s the lone tailwind that it cited for 2025.

In terms of headwinds, tech mix, N2 ramp-up timing and CoWoS (already defined) expansion will be headwinds. It continues to convert some N5 manufacturing capacity to N3 in order to support thriving demand, while also ramping up its N2 technology for future deployment. Together, this will hit GPM by another 100 bps. Next, expansion to international facilities to diminish geopolitical risk and give customers more options will materially hit GPM this year too. Specifically, that will affect GPM by about 250 bps in 2025, with that rising throughout the year. This is mainly coming from Arizona and Japan. In Arizona, it already thinks its yield levels are approaching Taiwan for N4 technology (part of the N5 bucket with some upgrades). Still, smaller scale and a lack of developed supply chain are leading to this large headwind. European (Germany) expansion plans are still preliminary, so aren’t impacting things yet. Furthermore, electricity inflation in Taiwan will be another 100 bps obstacle. All in all, this equates to about 450 bps in named headwinds.

At the same time, 2024 GPM was 56.1%, which is 310 bps above its long term target. This implies expectations of a roughly 51.6% GPM, and it’s confident in re-surpassing 53% when these transitory items fade. There will always be more tech ramp-up dilution, but the large hit from global expansion shouldn’t be permanent.

Global Manufacturing Footprint Updates:

In the USA, it’s ahead of schedule for its first Arizona fab. This facility has already “entered high-volume production” for N4 technology and yield levels are already approaching its facilities in Taiwan. The next 2 fabs in Arizona are also “on schedule” and will feature its most advanced commercial N3 technology, as well as its next-generation N2 and A16 (1.6 millimeter) technologies. As an aside, it expects the “Made in the USA” label for chips created in Arizona to fetch a premium vs. its other manufacturing regions.

In Japan, its first specialty fab is up and running with “very good yield.” It will begin building its second factory there this year. In Europe, it continued to talk up strong preliminary support from Germany and the EU and is “progressing smoothly” on plans for its new Dresden facilities, which will focus on auto and industrial use cases.

Finally, In Taiwan, it continues to expand N3 capacity and prepare for future N2 deployment. It was bluntly asked if the Taiwanese supply chain can support CoWoS and Co-packaged optics (CPO) expansion plans. CPO incorporates “optical components” (things that interact with light) right onto GPUs. The more direct fusing improves speed, weight, efficiency and performance. It’s a key part of its packaging business. Leadership didn’t seem to have any concern over whether or not its home country could support the intricate manufacturing needs for these growth areas. It continues to quickly expand its packaging footprint in Taiwan as a result of this confidence.

As discussed in the guidance section, all of this expansion outside of Taiwan means higher costs for the company. Still, it expects to maintain cost leadership vs. everyone else in every country where it builds out fabs. The relative advantage will be preserved and so the competitive moat will be preserved despite the near-term gross margin headwind. I also just think this is a necessary concession to make when geopolitical tensions remain as elevated as they are. Leadership didn’t explicitly say this (they wouldn't), but that’s a safe assumption. This diminishes the risk of massive operational disruption if there is a future Taiwan invasion.

This was yet another flawless quarter. There are “moats” in stock markets and then there are real moats. This is one of the most overused terms in financial research as most “moats” are a competitive entry or misstep away from crumbling down. In this rare case, I think “moat” is an entirely legitimate classification. Nobody can really touch its global scale, cost advantages and efficiency in fabricating advanced chips. That’s why basically every chip-maker is lining up to work with this company on their latest and great creations. Its multi-year guide clearly depicts expectations of this runway still being massive and its continued rapid innovation ensures that it will stay ahead of the pack.

The team has a fortress track record of delivering on its promises, and so I take its expectation of 2025 margin headwinds being temporary very seriously. The reasoning makes perfect sense and I do think the 53% gross margin target will eventually be raised once we get through this period of expeditious global expansion and some cost inflation.

Maryland is gearing up to raise its tax rate from 15% to 30% following legislative hearings this week. While that’s not ideal, it is inevitable. I expect more states to raise their tax rates (easy way to plug budget deficits) and that is OK with me.

Let’s quantify the impact of this news. Maryland represents about 4% of USA sports gambling volume, meaning this specific change will cost DraftKings about 0.6% of total profits – all else being equal. I expect the company to generate about $1 billion in FCF in 2025 (as long as historically bad luck doesn’t recur like in 2024); this means that $1 billion becomes $994 million. And it gets better. As part of this news, Maryland sent cease and desist orders to 11 illegal sportsbooks. DraftKings can easily compete with subscale legal players in a higher tax environment. Inefficiency brought forth by higher taxes favors larger scale, as that’s what it takes to more easily overcome these new hurdles. DraftKings (and FanDuel) provide that. But? It’s very hard to compete with black market books that pay no tax and aren’t required to invest in safe gambling practices in the least. Higher taxes innately push people to these illegal books, and it is encouraging to see Maryland understand and get in front of this. Candidly, if you told me that all states are moving to a 50% tax policy in exchange for all black market activity vanishing, that is something that would make me very happy. The black market is still absolutely massive and again is DKNG’s toughest competition.

Next, there is nothing about progressive tax rate policy (rates that rise with volume), which is what is so annoying in Illinois, as this punishes scale and success, and so punishes DKNG and FanDuel the most. Good to avoid that. Furthermore, the words “all else being equal” were chosen very intentionally by me. DraftKings will not absorb this entire hit. In Illinois last year, the tax policy change was far less favorable than this is. Still, it has already been able to begin offsetting this challenge via marketing and promotional expense cuts and thinks there’s more progress to enjoy. FanDuel has also followed suit, which diminishes the risk of these cuts leading to market share losses. Both players will do the same thing in Maryland, and everyone else will follow – especially now with tighter black market controls in the state.

With all of this said, I do expect many more states to raise tax rates in the coming years to plug budget holes. That’s a risk I’m more than willing to accept to own one of two leaders in a gigantic, growing industry. I also strongly believe regulatory tailwinds from more sports betting and especially online casino legalization more than outweigh the negatives from this likely development. Still, DKNG will likely react negatively to these headlines every time they come out. If those reactions are negative enough, I will take advantage. As I said in other recent articles, at a $19 billion market cap and a multi-year expected FCF CAGR of over 100%, I think the margin of safety here is humungous and I don’t think DKNG earning $900 million in FCF vs. $1 billion this year will matter all that much in the grand scheme of things.

This news is not irrelevant… but it is still noisy and immaterial to the overall bull case.

Finally, the hold rate in New York for this past week was about 10.6% for DraftKings. Good to see the long stretch of awful luck beginning to revert. We finally got a couple of outright underdog wins, which helps a ton.

Tesla got a nice upgrade from Morgan Stanley’s well respected analyst this past week. The part of it that I found most interesting, however, was the large incremental delays that it baked into robo-taxi fleet growth assumptions. Before this change, the bullish analyst expected the ramp to begin in 2028, 700,000 robo-taxis by 2033 and 1.5M robo-taxis in circulation by 2035. Now? It sees the ramp beginning in 2031, with the company crossing 1 million in 2036.

Why does this matter? One key theme in my coverage of this name over the last several months has been Uber needing to avoid a robo-taxi hardware monopoly from surfacing to side-step being displaced. Its network effect is extremely valuable amid perfect competition and basically worthless when trying to partner with monopolies or even duopolies. This long delay offers Zoox, May Mobility and every other vendor pursuing autonomous vehicle taxis a lot more time to effectively compete with what is viewed as one of two leaders here. Waymo, the other leader, is a close Uber partner. I’d also like to point out that Uber has 7 million drivers. Morgan Stanley doesn’t see Tesla’s robo-taxi fleet crossing 7 million for 16 years. And? When you’re modeling massive technological disruption 16 years out, there’s invariably more room for delays.

Tesla will be a key cog in the AV machine. It will benefit greatly from that. I’m confident of this. Morgan Stanley’s note makes me a lot more confident in Uber being the de-facto demand aggregator for dozens of eventual vendors in this equation. And for now, it seems to have several more years of a rather stable market dynamic. This raises the likelihood of a more gradual shift to AVs playing out, with Uber complementing this rollout with its own drivers, connecting fleets to its app, ingraining itself in this changing market, ensuring its long-term piece of the pie, and continuing to profitably compound at massive scale and a dirt-cheap growth multiple in the meantime.

This headline was almost enough to get me to resume adding to UBER. I think I would do that if Uber approaches $60 again or if we get more positive developments like this. Accelerated buyback programs are cool… but this just matters so much more.

Lululemon preannounced Q4 results this past week. It raised the revenue target by 2.2%, the EPS target by 4.1%, the GPM target by 55 bps and the EBIT margin target by 65 bps. Strong showing that offers clear evidence of inventory assortment being the actual cause of its recent struggles and brand decay, as well as competitive threats being overblown. Great to see this and great to see the nearly dozen price target raises that came from it.

Per Canalys, Apple lost its top spot for Chinese smartphone market share. It fell to #3 with 15% share – behind Huawei at 16% share and Vivo at 17% for 2024. Two other Chinese brands are very close behind Apple too. Apple’s shipments to the country fell Y/Y in 2024 while the two leaders reported sharp Y/Y growth. At the same time, we have several cases of analysts reporting news like this while Apple goes on to tell investors in the next earnings call that the data is wrong. We’ll see.

Meta is cutting 5% of its lowest-performing employees. 

The Supreme Court is upholding the TikTok ban. They’re clearly not willing to sell to a U.S.-based buyer. Many think the new administration will delay the enforcement of this decision. We’ll see. It will be a fascinating few days.

Target pre-announced robust Q4 demand results based on holiday season strength and reiterated its EPS expectations. Perhaps this demand was secured via heavier discounting, which would explain the same-store sales raise and the profit reiteration.

Oppenheimer initiated coverage of SentinelOne with an overweight rating. It thinks go-to-market and leadership changes are working well and sees its product breadth improving to help support a continued reacceleration in net new ARR growth. On the other hand, UBS downgraded the name due to growth concerns. I’m in the Oppenheimer camp. We shall see.

Starbucks is ending its open store policy that let people use its bathroom without making a purchase. 

Alphabet and the Associated Press are partnering for a real-time Gemini news feed.

Amazon’s AWS launched a new availability zone in Mexico this week and purchased Axio, which offers buy now pay later products in India for $150+ million.

CrowdStrike debuted new controls for insider threat protection stemming from “negligent employees and malicious insiders.” It also disclosed a new study showing its identity protection product has a 6 month payback period for customers. Customers are saving about $167,000 over a 3-year period by making this change.

"The alerts are near real-time, more actionable, and don’t have a lot of false positives. Previously, it sometimes took four hours, but now, we know in less than 10 minutes." – VP of Information Security as a Pharmaceutical company

Encouraging Inflation Data that led to rate cut expectations moving from 0 to 2 for 2025:

Output data:

Consumption & employment data: