It is difficult to offer a perfect, apples-to-apples valuation view across a diverse array of companies. Some don’t make any GAAP adjustments to EBIT. Some are inflecting to profitability, with growth rates facing abnormally easy comps. Some are lapping abnormally difficult comps. To more reliably compare, I made some adjustments for certain names. Those adjustments, along with a few pieces of added context, are found at the top of each chart.

Changes in Economic Projections vs. March 2025 Meeting:

Changes to the Fed Statement vs. Last Meeting:

Powell Presser – Inflation & Policy:

The themes of this event were “uncertainty” and ‘cut tariffs and we’ll probably cut rates.’ Powell acknowledged “tons of progress” towards its 2% inflation target, with three consecutive months of favorable readings after a more challenging January and February. At the same time, that progress has stalled a bit due to wildly fluctuating tariff expectations. Potential tariffs have led to survey-level and market-level inflation expectations moving higher. At the same time, key market indicators for longer-term inflation expectations remain in very good shape… and survey-level fears have dissipated since tariff concerns peaked in April.

“Uncertainty” was Powell’s favorite word of this event. The Fed simply doesn’t know if tariffs will even cause a one-time spike in prices. If that does happen, they also don’t know how sticky that spike will be. That has a lot to do with the final level of implemented tariffs and how enterprises and governments manage them. That’s hard to model. What isn’t hard is reading between the lines of what Powell is saying. The Fed would likely be cutting rates right now without a tariff overhang. And for this same exact reason, the conviction Fed members have in their rate projections is abnormally low. They feel well-positioned to wait a bit longer and see what the actual impact ends up being. They do not feel the need to cut ahead of that clarity. With economic growth and unemployment looking resilient, I think that is valid in the near term. At the same time, I do not think draining more liquidity via continued quantitative tightening (QT) is necessary and feel that maintaining the current size of the balance sheet would be appropriate. Bond markets are not flushed with liquidity and inflation has come down more than enough to make that decision. So yes, I get rate cut patience, but no I do not agree with more QT.

This week:

Powell Presser & Some Data from This Week – Unemployment & Consumer Health

The employment market is “in balance” when it comes to supply and demand. Wage inflation is gradually moderating, yet still at a healthy rate modestly above overall inflation. That’s what we want. Inflation cooling beyond the levels of wage disinflation to drive real income growth and purchasing power (without an overheating economy).

Powell Presser & Some Data from This Week – Economic Output:

Powell thankfully talked about the Q1 GDP reading being a direct byproduct of import front-loading. He rightfully cited private domestic final purchases (excludes net exports, inventory and government spending) and how that growth remained at a resilient 2.5% Y/Y clip. The negative GDP reading was a weird one-off event related to tariffs. Not a sign of our economy structurally decaying.

Jassy sent out a new shareholder letter on AI’s transformation of Amazon’s business. He reviewed how GenAI and agentic AI are already improving Alexa and shopping discovery (AI shopping assistant up to tens of millions of users). He spoke about new tools like Lens (take a picture to search), its Buy for Me shopping agent and size recommendation tools are enhancing its marketplace. He discussed AI advertiser tools with 50,000 merchant users, its chips and model tool work via Bedrock and SageMaker, as well as how dramatically AI is already enhancing fulfillment efficiency.

And while AI is touching basically everything Amazon does, they’re just getting started. Jassy views AI agents as the real frontier of software-level value creation. They’re going to keep rapidly innovating in this area, with constant updates to existing agents and so many more new ones coming. Notably, this should eventually shrink its corporate headcount needs over time, which will provide another layer of margin expansion for this behemoth.

AI is fiercely competitive. But? With Amazon’s world-class cloud infrastructure and data scale, its high-quality chips and plenty of internal talent, this company should clearly be one of the winners.

As a reminder, I liquidated my stake in April. The time-stamped sale and reasoning for the decision can be found via that link.

The company continues to call its guidance methodology “balanced” and respectful of uncertain tariff policy. Specifically, the updated forecasts assume 30% rates in China and 10% in Vietnam/Cambodia and were the sources of most of the profit/margin misses. At the same time, slightly worsening markdown rate assumptions added to some of the decline. That’s unrelated to tariffs and is a bit concerning. Fortunately, this is not at all related to inventory relevance risk. It’s also not related to anything they’re currently seeing in Q1 or so far in Q2. Instead, this is based on assumptions that U.S. consumer confidence will worsen through the end of the year. Markdown rate assumptions outside of the USA are unchanged. We really haven’t heard many consumer-facing companies offering that same commentary in their own remarks, so I found this a bit confusing. Maybe they just want to set up an easier beat and raise next quarter.

In terms of mitigating tariff impacts (we’ll dig into their approach later in this piece), they expect remediation work to more meaningfully kick in during Q3 and Q4. For this reason, it sees a sharper 200 bps GPM decline and a 380 bps EBIT margin decline during Q2. As the annual guide indicates, that impact will diminish thereafter. They continue to “layer back on” operating expenses in pursuit of more growth as new cost headwinds emerge and U.S. demand remains challenged. The overall effect is margin degradation.

Lulu trades for about 16x its new EPS guidance and probably somewhere around there based on sell-side estimates once they fall to reflect this material downward revision. EPS is expected to grow by 1% this year and 6.5% next year.

Assortment and Newness:

It has now been a full year since leadership overhauled organizational structure for its product teams. McDonald is pleased so far, but talked about more progress being needed. The need for “more innovation in the core assortment” was mentioned a few times, which to me, is a key piece of the “product newness” theme we’ve heard about for the last few quarters. The issue is that we have previously heard all product newness gaps would be addressed by this past spring. At that point, they were expected to catch-up on product introductions and maintain a steady pace from there. We got a mixture of commentary on newness levels being in a good place, with other notes on needing more seasonal colors, patterns and, generally speaking, more in the product pipeline. When pairing these contradictory ideas, it doesn’t seem like they’ve quite gotten there. That could potentially be a byproduct of their existing product line just not resonating like it used to, as the team is now talking about needing higher levels of newness vs. historical norms to juice demand this year.

On the brighter side, the innovation they have delivered is building traction. Debuts for its DayDrift lifestyle pants, BeCalm lifestyle items and others are going well; it sees both of those labels becoming core franchises in the future. The Align No Line legging launch, which was part of its Aligned franchise’s 10th anniversary, was “very encouraging.” 

It is great that women’s debuts in its Daydrift lifestyle pants, BeCalm lifestyle items and others are going well on the women’s side. It thinks Daydrift and BeCalm specifically can both become future core franchises. It’s also nice to hear the Align No Line leggings launch, which was part of its Aligned franchise’s 10th anniversary, was “very encouraging.” On the active women’s side, its Glow Up launch was well received with good reviews, while a few launches on the men's side, like its Zeroed In shorts (love them) were cited as well. Many of these new launches and core updates sold out, which, again, is all great. I’d just like to see that positive commentary come with a convincing inflection in U.S. comparable store sales growth.

Brand & Marketing:

Campaigns and events like its record-setting China yoga experience are working. Across the globe, it’s effectively pairing grassroots, bottom-up marketing with efficient usage of digital channels. In places like the USA, this helped its unaided brand awareness jump from about 35% to 40% Q/Q. Great progress.

Macro:

Leadership called the U.S. consumer “cautious” and “very intentional about buying decisions.” For the first time in a few quarters, Lululemon said it gained U.S. market share in both Men’s and Women’s attire. Still, what it sees as poor macro seems to be masking that momentum.

“We're not seeing the same discerning consumer in Canada as we are seeing in the U.S. in terms of traffic as well as some other metrics that we monitor.”

CEO Calvin McDonald

That caution has a lot to do with fluid tariff policy, which is driving both consumer uncertainty and Lululemon cost structure uncertainty. Their tariff assumptions for the year rose and drove the profit guidance reductions. And while that’s certainly not ideal, leadership does feel very well positioned to weather the U.S. storm they’re currently seeing. Per McDonald, guest engagement “remains high,” the brand is “strong,” and its athleisure niche tends to perform better cross-cycle than other fashion categories. He also reminded shareholders how a superior EBIT margin and debt-free balance sheet both allow them to keep playing offense as times remain delicate.

All of that’s encouraging, but Lulu is fortunately not relying on these modestly comforting traits. Instead, it’s seeking out new “efficiencies within the supply chain,” shifting where it makes economic sense and exploring some “modest” price hikes for certain items.

Lulu was bluntly asked why North American comps remain so lackluster and when the USA will return to durably positive growth. While they’re “definitely not happy” with results here, he did remind us again that market share gains are positive and they think this is mainly macro-driven. That’s driving the continued traffic weakness, just like it cited last quarter, which is holding back results despite modestly better Y/Y conversion rates. 

Macro will be the main bull/bear debate topic, at least in the near future. Bulls will rightfully say that discretionary, somewhat expensive apparel is the easiest thing to cut or reduce during times of macro anxiety. And with this in mind, it does make sense to see Lulu struggling with consumer appetite while other portions of the economy, like food service, fare better. If that is the case, Lulu’s results should brighten when retail apparel sales numbers do. Markdown rates and poor results being confined to the USA do support that argument, as other pockets of demand elsewhere show Lulu’s brand continuing to do well. It could also support the idea that competition is tougher here than elsewhere, which leads us to the bear side of the argument. 

“We are seeing and do anticipate a dynamic competitive market in the U.S.”

CEO Calvin McDonald

Bears offer that macro may be amplifying its headwinds, but is not the main culprit. They will point to Lulu seeing no discernible demand recovery during the month of May, like many other discretionary parts of the economy did. Is that because of Lulu’s specific niche or because of its fading clout? They conclude the latter. They’ll say that Lulu is not effectively adapting to fashion cycles and Alo and Vuori are cutting into the market share gains it had been enjoying for years. If those market share gains aren’t there, then Lulu’s growth will be a byproduct of the sector’s growth and its relative outperformance will continue to wane. 

I think there’s some truth to that idea as well. We closely cover the Piper Sandler Teen Survey data that has been showing Lulu losing mindshare from that important demographic for a few years now. That’s certainly relevant and is likely playing some kind of a role. Add to that how these macro excuses surfaced right as its inventory excuse was supposed to be fixed, and I don’t think the economic backdrop is the sole reason for its recent performance.

Another underwhelming quarter from Lulu. I do think macro is playing a role here, but I also think competition and product assortment are still holding them back. Fashion tastes can change on a whim, and while Lulu has admirably shifted with the times, the need to do so does not end. That’s why clothing is hard. You can overhaul a product lineup… only to need to overhaul it again in a few years with considerable execution risk. I do think this brand is reasonably healthy and do think its results will look better as retail sales numbers brighten. I just also think its days of 20%+ growth and fantastic pricing power may be hard to rediscover. I continue to avoid this part of consumer discretionary, focusing on other, more predictable pockets of it like food and transportation.

Adobe is a software giant whose co-founder (John Warnock) co-invented the .pdf file. It provides programs to create and imagine, handle customer interactions and process documents. Company revenue is split into two main buckets: Digital Media and Digital Experiences. Digital Media is made up of its “Creative Cloud” and “Document Cloud.” The Creative Cloud includes Photoshop and Illustrator. It’s what empowers creation, iteration and perfection of digital design. The Document Cloud, including the ubiquitous Adobe Acrobat, allows for secure PDF (Personal Document Format) management and collaboration – among other things.

Finally, its Experience Cloud includes the “handle customer interactions” part of the overall value prop. In it are things like Adobe Analytics and other products like “Campaign.” Campaign is its (intuitively named) marketing campaign tool. Experience Cloud covers end-to-end customer interactions with a real-time customer data platform (CDP), ensuring that those interactions are optimized. It also publishes some greatly appreciated macro data on overall commerce spend.

Its PDF archive provides a great base of data, which augments these customer interactions, while customer interaction data can help instruct things like campaign design. All of its products are designed to work well together.

A slightly confusing part of Adobe’s business is how frequently products within digital media and digital experiences intertwine. For this reason, last quarter, it began grouping reporting segments by “business professionals and consumers,” “marketing professionals” and

creative professionals and creators.” The first includes only digital media products like the document cloud, Acrobat Creative Cloud revenue and some Adobe Express revenue. The second and third include the other digital experience and Creative Cloud revenue, such as AEP and GenStudio. All of these segments routinely need products within both digital media and experiences categories, so this does a better job of representing demand from its key stakeholders.

Firefly:

Firefly is Adobe's family of GenAI and Agentic AI models and tools integrated throughout its product suite. It can generate videos and images from different content inputs, make scenes from sketches, create “custom motion design” etc. The Firefly Application features its “most comprehensive destination to generate images, vectors and now videos with unmatched control.” And again, whether it’s freeing developers to use quality models and customize on their use case’s behalf, using this content to power better customer outcomes in the experience cloud or ingesting PDFs from the document cloud to augment generation, the Firefly App is meant to help everywhere. Adobe offers Firefly Standard, Pro and Premium subscription tiers for various levels of access to these AI tools.

Other Product Definitions:

Adobe trades for 19x forward EPS. EPS is expected to grow by 12% in each of the next two years.

Investor Day Announcements (Some of the announcements are laced into the rest of this section):

Adobe’s main release at its March Investor Day was the Adobe AI Platform. This features agentic capabilities as the key ingredient for its AI utility advancement. It equips AEP with a new “Agent Orchestrator” to unlock the safe unleashing of AI agents within Adobe and partner environments. This includes 10 out-of-the-box agents for things like audience management, data analytics and more. It just launched a product support agent to continue pushing this introduction forward. Whether it assists with campaign design, customer interaction cadence, document organization or many other areas, this is an important launch. The new Adobe brand Concierge provides the tools needed to orchestrate agentic workflows from top-of-funnel inquiry to purchase. It uses Adobe real-time Customer Data Profiles (CDPs) to understand exactly what we want and to customize interfaces accordingly. This is very similar to what PayPal is doing with its “agentic commerce” push.

Next, it announced its commerce offerings in a Software as a Service (SaaS) format to drive better access for modern organizations. This also features the new “Commerce Optimizer,” which offers this service through a client’s legacy, antiquated, yet comfortable commerce platforms. Adobe handles all the integration work to greatly diminish adoption friction.

Digital Media – Business Professionals and Consumers:

This part of the business centers on the combination of Acrobat and Express. Acrobat continues to perform reasonably well. PDF link sharing monthly active users (MAUs) rose 20% Y/Y while it added new partner integrations from Google Ads and Vimeo to keep driving more interoperability. AI usage for the core product also continued to gradually ramp. For example, Acrobat and Express AI assistants enjoyed 3x Y/Y growth. Usage of Express within Acrobat rose 11x Y/Y, as the intersection of productivity and content creation continued to deepen. Creating more conversational usage and customization of PDFs and a plethora of other content within Express uniquely positions Adobe to handle the content supply chain in a more end-to-end fashion. They can conversationally take clients from dense industry reports and PDFs, to key insight gleaning and all the way to slide deck creation with these two products working together. And as we’ll see in the marketing section, they can use this insight from a massive array of cluttered documents to uncover customer interests, identify relevant cohorts for a given product/service and drive experience personalization too. Again… media and experience use cases constantly intertwine.

Digital Media – Creative Professionals & Creators:

The firm introduced Firefly tools during the quarter for this cohort. Launches included its new Firefly Image Model 4 and Image Model 4 Ultra, as well as the general release of Firefly’s Video Model. These helped drive 30% Q/Q growth in Firefly app traffic and 30% Q/Q growth in first-time Firefly subscribers. Firefly in isolation is not what makes Adobe stand out. It’s Firefly infused throughout all existing apps, with needed access to data and diverse partner models in one place. This is what allows Adobe to level-up its ability to take a client from campaign objective, to automated research, to an elevated understanding of audience, to creating materials for this audience, all the way to delivering them.

Digital Experiences – Creative Professionals, Creators & Marketing Professionals:

GenStudio’s combination of AEP products like Journey Optimizer with Adobe Express (which again is offered through several of its products) is merging creative, experience and marketing use cases and is resonating. GenStudio ARR rose 25% Y/Y, while AEP and native apps grew 40% Y/Y and GenStudio’s performance marketing tool rose 45% Q/Q. It launched GenStudio Foundation to drive unified, end-to-end content supply chain support. This is a streamlined interface that brings together its creative apps and marketing/campaign building apps under one roof. This should even more clearly convey its desire to cross-sell various products, handle more of the customer's content/marketing arm and drive higher retention levels.

Within AEP specifically, its new AI assistant is scaling nicely, while it adds new AI agents to more powerfully conduct goal-oriented tasks with less oversight. To me, this is another place where Adobe’s long roster of partner apps and model integrations can help it differentiate. AI agents routinely pull context from many different vendors to conduct multi-step, reason-based tasks. Native integrations help a ton in making this seamless. They allow developers to sidestep building an endless series of clunky, manual integrations to staple together disparate systems. Instead, these systems are already set up to easily and interoperably communicate. That naturally augments what these new agents can do.

Next, just like in other sections of this business, Firefly adoption is strong, with 4x ARR growth Y/Y. This is helping things like its customer experience orchestration more reliably handle the end-to-end content supply chain and make Adobe more of a true platform for all pieces of customer relationship management.

“Adobe is the only company unifying the entire workflow from creation and production, workflow and planning, asset management, delivery and activation through to reporting and insights.”

Digital Experience President Anil Chakravarthy

AI Financial Contribution & Monetization:

Adobe now expects to surpass its $250M in AI ARR by the end of this year. A larger chunk of its business is being indirectly “influenced” by AI innovation, but in terms of direct monetization, that’s where things stand. I can’t help but think to myself: “That’s it?” $250M represents about 1% of total revenue estimates for this current year. That’s a far cry from the impact Palantir’s AI Platform (AIP), ServiceNow’s various platform releases or Azure is enjoying from AI. I realize Azure gets a large bump from renting out GPU capacity that Adobe doesn’t enjoy, but neither do the others I mentioned and the point remains. 

Even within the app layer, which takes more time to monetize than the infrastructure layer, they’ve been slow in rolling out the kind of product innovation needed to meaningfully move the needle. That’s why quarterly Firefly generations have been stuck at 4 billion for a few quarters. It’s nice that subsections of Firefly are growing and helping other products growth. Still, that’s not good. This product should be in rapid sequential growth mode considering exploding industry demand and that Firefly is just 2 years old. They say they’re focused on adoption scale over monetization, but that adoption is just not scaling in this light. Others have been able to simultaneously do both, and I worry a bit over Adobe getting there – despite leadership remaining confident:

“I’m more bullish about 10%+ growth. I’m pleased with how we’ve re-architectured the business for AI-driven growth.”

CEO Shantanu Narayen

Average quarter for Adobe. I go back and forth on this name a lot. I tend to believe that GenAI will accelerate its business. While many other companies are doing a lot more in automated content creation, Adobe has the apps, data and internal talent to out-innovate others and stay ahead. They have the ability to make sure GenAI reinforces their lead, rather than eliminating it. The issue is that I haven’t really seen this show up in their results. Most of the products they’re debuting are coming after the Alphabet of the world debuted the same capabilities as part of Gemini releases. And that’s why I am concerned that this company is losing its moat, is seeing the competitive landscape intensify and is reeling to figure out the path forward. It’s not like double-digit revenue growth at this scale is bad. Far from it. But the lack of direct AI contribution to its base of revenue and missing on key metrics like RPO, while others deliver large beats, is a tad worrisome.

I question whether or not this current team is capable of moving quickly enough to fend off mega-caps and disruptive competition like Canva over the long haul. AI means the world is moving much faster than it ever has. And so? Adobe needs to do the same. The investor day event was a decent start, but traction for these announcements arguably needs to come faster. Even with all of that said, I am still tempted to go bargain hunting here, but I’ve decided to refrain from doing so for now.

Amazon and Roku inked an exclusive ad partnership this past week. The “exclusive” wording led many to believe this meant Roku would no longer work with other demand side platforms (DSPs) like Trade Desk. That’s not accurate. The exclusive piece of this deal refers to integration of proprietary audience identification data between the two players. Roku’s authenticated user data paired with Amazon’s gigantic supply of first party data is meant to offer advertisers great scale and more precise targeting. This is boosting reach by 40% and lowering instances of too much ad frequency by 30%.

Importantly, Roku will continue to work with other partners like The Trade Desk to place their demand with its own inventory.  Furthermore, Amazon also inked a partnership for its DSP to gain access to Disney’s inventory across its various streaming services. Disney is also a very close partner for The Trade Desk.

For Amazon, I think this news makes their DSP a stronger competitor and should enable continued scaling for that nascent product. And while that sounds intimidating, I don’t expect it to have a material impact on Trade Desk’s growth engine. The market is massive and Trade Desk has effectively outcompeted a stronger Alphabet for many, many years. Alphabet is now getting weaker as it intentionally deprioritizes its ad network business. And Amazon is getting stronger. The net impact should be relatively modest and the need for an unbiased demand side platform that doesn't own any of its inventory has never been higher. That’s not Google… that’s not Amazon… that’s Trade Desk. Finally, TTD is already world-class in identifying users across connected TV through its unified ID 2.0 (UID2) offering. It does not need players like Roku to help it understand audience data or any other facet of targeting.

There will continue to be anecdotes about people moving budgets from one platform to another and Trade Desk’s take rate being challenged. I’d just point out that we’ve heard these anecdotes for a decade, and TTD needing to outcompete one mega-cap instead of another doesn’t impact its ability to keep overcoming these sentiment-based narratives.

And finally, the current administration is gearing up to tighten regulations of pharma ads.

Uber will now allow advertisers to promote to passengers via a new product called “Ride Offers.” 

This new ad format will be offered directly to riders as they enjoy discounts or even entirely comped rides from the brand. That should create instant delight, raise brand intent and support overall marketing objectives for participating companies. At the same time, it gives Uber another way to leverage its merchant and consumer scale to stand out from the pack. In other ad news, Uber is making its Journey Ads format more addressable and granularly targetable by adding programmatic capabilities across Europe. They’re partnering with Google and The Trade Desk on this.

Uber is expanding its AI data services business to enterprise clients and AI labs. Through world-leading scale and several years of operational history, Uber has an elite and highly-relevant dataset to share with the world. This is how it plans to monetize that sharing, while making autonomous vehicle platforms more reliant on its value proposition. Though utilization rate optimization is Uber’s best skill for these driverless vendors, this is the most compelling capability I’ve seen them come up with aside from owning and managing warehouses for them.

The new products include a global digital task platform to connect builders and agentic workflows to its global base of talent. Whether they need coding or legal consulting, Uber will help. It also unveiled “Data Foundry” as a large base of dataset templates, across a wide range of modalities, for easy ingestion and usage. It’s easy to see how subscale AV platforms needing rapid access to large sums of driver data will find this immensely valuable. Next, it’s offering agentic AI support, including guidelines for building multi-step tasks, task simulations and more. Finally, it’s opening its internal developer platforms to clients. In the future, Uber plans to create a workflow where clients can merely ask for the data they need and have curated sets delivered to them.

All of this is meant to create more efficient model training, scaling and physical AI deployment. We just saw how large of a premium Meta will pay for a leading data categorizing firm like Scale AI. Now, Uber is trying to enter that space, with an innate advantage of being bigger and more mature than any competitor. I’m assuming most of these products are being offered through their Nvidia partnership, but that was not explicitly mentioned.

GENIUS ACT:

Congress passed the GENIUS Act this past week to begin formalizing rules and regulations for the budding stablecoin industry. The legislation clearly defines stablecoins as a digital currency closely tied to the value of traditional fiat. It also mandates reserve levels and capital ratio requirements for issuers, while obviously blocking money laundering and other illegal practices. Unlocking Bitcoin or other coins, this initiative is expected to fortify the strength of the U.S. dollar. Why? It makes sure the exploding popularity of this asset class is tied to U.S. dollar transactions, rather than other foreign currencies. It effectively allows the U.S. dollar to gain more direct exposure to digital assets. And because of the reserve requirements, global traction for this tool will support demand for U.S. dollars and bonds.

Coinbase:

Perhaps in response to this, Coinbase announced a stablecoin payments platform. This includes a checkout offering to fund transactions via crypto wallets, where consumers can seamlessly convert things like Bitcoin to stablecoin for payment. It also offers merchant integrations, support for authorizations and refunds, as well as a payments protocol “built to mimic credit card rails” with escrow and operator (payment transfer facilitator like Visa in existing rails) functionality. Notably, Coinbase designed this to be embedded right into existing checkout flows with minimal payment disruption. Effectively, the product frees a merchant to accept Circle’s stablecoin (USDC) through Coinbase’s blockchain network (called Base). The idea is to create more secure payment flows, faster settling and a lack of cumbersome fees for things like cross-border transfers. To start, this will be offered via partnership with Stripe and Shopify through that marketplace’s large base of adopting merchants.

Card Networks:

There’s a budding debate on the impact that stablecoins would have on card networks. Currently, networks serve as the connectors “or rails” between consumers, merchants, acquiring banks and issuing banks. They provide more certainty that transactions will be settled without drama or headache. Some think this will support Visa and Mastercard and argue that they’ll simply start using digital wallets like this one instead of bank transfers as the source of funds. They can also use stablecoins to make their own networks faster, cheaper and more efficient by tapping into the same fee-shedding and settlement-expediting traits these coins offer to everyone else. These companies have built ubiquitous brands and trust that augment confidence levels when checking out online. Merchants would likely be wise to maintain card network roles in their own transactions to maintain this trust and the heightened conversion rates that come with it. Finally, Visa and Mastercard are likely prime candidates to be the “operator” in Coinbase’s payments rail, which would solidify the idea that they maintain primary positioning and simply switch where they pull funds from.

On the other hand, large merchants can theoretically use stablecoins to shed interchange and other fees. Walmart and Amazon are supposedly exploring adding these digital assets to their businesses and some think that their ultimate goal is to do this. Pocketing 1%-2% per transaction with their massive revenue bases can move the profit needle very quickly. I tend to think the evolution of payment rails will continue to include Visa and Mastercard in modified fashion. That’s the more popular viewpoint at this time, but there is growing belief that stablecoins will be disruptive to these business models. That’s why both are so focused on innovation in this specific area.

PayPal:

For PayPal, this means more competition. The payments giant is hard at work on their own stablecoin (PYUSD) and has a Coinbase partnership that removes fees associated with transacting through this asset. Still, this announcement including a different stablecoin does clutter the fiercely competitive landscape even more. Just like PayPal has had to overcome Apple, Shopify, Affirm and so many other entrants over the last several years, this will simply mark another player it needs to win against. Fortunately, the $6T payments space is massive and there will continue to be many, many winners. I think PayPal now has a leadership team in place capable of innovating at the pace needed to avoid being left behind.

“We’re very excited for GENIUS & the future of stablecoins. It’s a big opportunity to help our consumers & merchants lead in the future of commerce.”

PayPal CEO Alex Chriss

OpenAI is shifting from a capped-profit model to a for-profit model. This needs approval from Microsoft, as that tech giant owns nearly half of the company. Understandably, Microsoft wants as much equity as it can get and OpenAI wants to allocate as little equity as possible under the new model. There is also considerable debate over whether or not OpenAI should be making the proprietary assets from its Windsurf acquisition available to Microsoft. OpenAI argues that the new purchase shouldn’t be included, as GitHub directly competes with Windsurf. Microsoft understandably wants access to the acquisition it helped fund. But wait, there’s more. Microsoft is technically required to allow its partnership to terminate if OpenAI achieves artificial general intelligence (AGI). The issue? That benchmark is subjective and there will surely be disagreement over when it is reached. Add to all of this OpenAI’s desire to diversify cloud infrastructure usage away from Azure, and you could easily say things are a bit heated right now.

OpenAI has even threatened to pursue antitrust lawsuits, while Microsoft has threatened to abandon current talks and restrict funding and cloud infrastructure access. This is ugly right now, but they could always make up and play nice again. We shall see. If that doesn’t happen, there will be a new mountain of compute demand left to serve for other hyperscalers. OpenAI has single-handedly dragged Azure’s growth rate higher over the last two years… despite the massive existing Azure revenue base. Based on a recent agreement between Google Cloud and OpenAI, I think that vendor is arguably the front-runner to secure a lot of this potential demand. Oracle, AWS and others like Coreweave would be more contenders as well. For all of them (including AWS), securing a material chunk of this business would be needle-moving to overall financials.

In the coming weeks, the Fed will meet to contemplate easing supplemental leverage requirements for chartered banks. We’ll have to see what actually happens, but this would be a very positive development for the sector. It would allow companies to hold more risk assets with the same balance sheet, and so would allow them to grow loan books more aggressively and extract more economic value from their books of business. If banks like SoFi are required to hold less cash and common equity tier 1 assets, that would be quite positive for the lending segment. 

SoFi is now rolling out its Cash Coach product to some users. This can ingest data from a large sum of 1st and 3rd party accounts to offer overarching recommendations on how to optimize finances. This can do things like alert users when there’s another account they can move money to for earning more interest. I think that should help with consumer deposit growth, as SoFi can more explicitly show users how much more interest they can be pocketing with SoFi vs. incumbent banks.

Unlike March Madness and the NFL Season, DraftKings is finally enjoying some decent luck in the NBA playoffs. While this doesn’t seem notable for the multi-year investment case, as outcomes are luck-based and this only impacts the current quarter’s results, I think it actually is. Terrible, abnormal, anomalistic outcomes had been becoming a multi-quarter theme. Despite this being random in nature, that led some to think there were structural issues with its odds-making algorithms. They vehemently denied those issues and remained adamant that this was entirely random in nature. The last few weeks of data support that idea.

Over the last 4 weeks, the hold rate for DraftKings in New York has been 12.9%. That is materially above its 11% expected hold rate for the year. And? Terrible year-to-date luck meant the actual hold rate was below the structural hold rate that it has comfortably surpassed for a month now. This 4-week stretch also compares to 10.0% during the previous 4-week stretch. The poor luck before that stretch was before its earnings report and so baked into guidance. Brightening luck in this state probably means brightening luck in other states (without available weekly data) and should mean no negative revisions to annual guidance on its next call. The outperforming hold rate should be enough to offset the modest impact from Illinois again raising its tax rate. Considering it trades for 22x forward FCF, is quickly growing revenue, taking market share, operating as a leader in a structural growth industry and expecting an 81% 2-year FCF CAGR from here, I think reiteration will work just fine.

Meta launched a new pair of Oakley smart glasses via partnership with that company and EssilorLuxottica. There are also plans to release a Prada-branded version of them. The Oakley model will start at $399 and come with Meta AI as well as the other tools enjoyed on the Ray-Ban glasses. I think these can be quite incremental to Ray-Ban, considering the athlete-focused design, branding and go-to-market.

As Zuck told us during the Q4 call, this is the year smart glasses will need to ramp to 10 million units if they’re going to likely be a sustainable hit for years to come. Ray-Bans are flying off the shelves and this should provide another growth lever to approach that goal. Step one is creating smart glasses like these that have enough utility to attract real scale. Step 2 will be miniaturizing the clunky Quest headsets down to this form factor and making all of the utility provided in that hardware available on a device that’s actually comfortable to wear. 

Meta is ramping WhatsApp monetization beyond business messaging. It’s infusing ads into the updates tab, where these updates can seamlessly turn into actionable placements for goods or services. From there, it’s also launching search ads on WhatsApp Channels, which will probably resemble sponsored listings, as well as premium subscriptions for this Channels product.

This is exciting. Meta always takes its sweet time in monetizing its apps. WhatsApp has over 2 billion MAUs and 100M+ in the USA alone. It has done the hard work to build a highly engaged, loyal and gigantic user base. It has created a boatload of traffic. Now, it’s time to turn on the money faucet and get paid. Morgan Stanley estimates that this can add $3B in advertising revenue for Meta’s annual results. That represents just 1.6% of 2025 revenue estimates. At the same time, this should essentially be pure margin revenue. It’s simply extracting financial value from the asset it has already established and fortified. And that $3B represents nearly 5% of total 2025 net income. Needle moving.

My oh my, how things have changed in a hurry. We’re roughly two months removed from when markets were in panic mode, I was buying up shares of holdings hand over fist and dipping into my emergency reserves cushion to help fund. Max readers, you received all of those updates in real-time. Fast forward to today, and benchmarks have rallied by more than 20%, with some holdings spiking 50% in that span.

So where are we in market cycles right now? We have IPOs doubling and tripling after a few days on public markets. We have pure-play quantum computing names fetching triple-digit sales multiples despite no near-term path to economic viability. We have Chamath Palihapitiya taunting retail investors on social media as he gears up to launch more SPACs. None of that screams “fear” in my mind. If anything, it screams “froth” and resembles the kind of animalistic spirits we witnessed in 2020 and 2021.

But there’s a large, large difference between then and now. The age-old saying is “don’t fight the Fed.” As we moved through 2021, that meant don’t get aggressive with risk assets like stocks. Powell was gearing up for an eventual 5 points of rate hikes and a multi-trillion dollar reduction in the Fed’s balance sheet. And today? The next few moves from the Federal Reserve will almost surely be rate cuts as quantitative tightening winds down, unemployment rates remain strong, inflation eases and economic output remains resilient. Today, “don’t fight the Fed” means stay aggressive with risk assets like stocks. I am carefully balancing the yellow flags of greed I’m seeing with this juxtaposing idea. As Max readers have seen, I have taken some profits on names with the most dramatic multiple expansion. I have let the cash position rise a bit in recent weeks. And yet, I remain mostly invested. That’s my plan. Trim into the severe pockets of froth yet keep those trims modest as macro tailwinds strengthen and the companies I hold continue to execute.

DA Davidson noticed an acceleration in Y/Y merchant growth as it remains upbeat on Shopify.

Alphabet’s Waymo added 250 more square miles to its Los Angeles service area. They’re also applying for a permit in New York City to begin testing (with a person in the driver’s seat).

Amazon announced a $13B Australian data center investment.