Earnings Season is Upon Us

Welcome to this week's Forward Thesis, where we analyze the most important developments moving technology and markets.

This week has been eventful, with major earnings reports from tech giants, continued tariff drama, and signs of a shifting global economic order.

Let's dive into the key stories moving markets.

Palantir's Moment

This was a defining week for Palantir, with their stock soaring over 23% after reporting Q4 earnings. Revenue grew 20% year-over-year to hit $608 million, significantly beating expectations. But the real story here is Palantir's emerging position as the premier enterprise AI platform.

CEO Alex Karp articulated a clear vision: virtually every application will be reinvented with AI inside it. Palantir isn't just talking - they've built what may be the most formidable competitive advantage in technology today. Their three-layer approach combines custom AI hardware development, proprietary software platforms like Gotham and Foundry, and deeply embedded partnerships, particularly with defense and intelligence agencies. Rather than chasing the consumer AI spotlight, they've focused on complex enterprise problems where data integration and security are paramount.

Their government relationships, built over two decades, create nearly insurmountable barriers to entry. The company's "forward deployed engineers" work directly with agencies to implement solutions, creating sticky relationships that would be extremely difficult for competitors to replicate. The recent integration of X.AI's Grok into their AIP (Artificial Intelligence Platform) demonstrates both their growing ecosystem and strong support from the current administration. Over 4,500 organizations now rely on their AI platform, with the U.S. government representing a particularly stable and expanding revenue base.

The market is certainly rewarding this execution - Palantir's stock is up around 140% in the past three months. However, with a price-to-earnings ratio now over 580, the valuation sits at historically extreme levels. This reflects both excitement about AI's potential and Palantir's unique positioning, but also creates risks if execution falters.

Big Tech's Mixed Signals

Apple posted modest beats with revenue up 0.22% and EPS beating by 2.26%, but underneath these numbers lies a concerning trend. iPhone sales actually declined year-over-year, falling nearly 1% to $69.1 billion, missing analyst projections of $70.7 billion. The much-hyped Apple Intelligence rollout has also fallen short of expectations, with executives trying to attribute regional iPhone weakness to its limited availability - a claim that seems dubious given the feature's limited impact so far.

Amazon blew past earnings expectations with EPS beating by 25.29%, but markets focused on their massive AI investment plans. CEO Andy Jassy announced approximately $100 billion in planned capital expenditure for 2025, with "the vast majority" going to AI infrastructure for AWS. While AWS revenue grew 19% to reach a $115 billion annual run rate, the huge spending commitment sparked concerns, leading shares lower despite the earnings beat. Jassy defended the investment, calling AI "the biggest opportunity since cloud, probably the biggest technology shift in business since the internet."

Meta emerged as perhaps the quarter's strongest performer, with revenue beating by 2.96% and earnings crushing expectations by 19%. Meta AI has reached over 700M monthly active users, while their core advertising business continues to strengthen. The company shows no signs of slowing their aggressive investment in AI infrastructure, planning $65 billion in capital expenditure for 2025. This combination of strong execution and bold investment continues to make Meta a favorite among investors betting on both AI and advertising recovery.

The quarter highlights a key dynamic: while all these companies are making massive AI investments, their ability to manage those costs while maintaining core business strength varies significantly. The market is rewarding those who can demonstrate both technological ambition and operational discipline.

The Tariff Domino Effect

The trade policy landscape shifted dramatically this week. While Trump paused the 25% tariffs on Canada and Mexico for 30 days after negotiations, the 10% tariff on Chinese imports went into effect as planned. The market impact has been swift and complex:

China responded aggressively, implementing retaliatory tariffs targeting U.S. energy, agricultural equipment, and critical metals. They've also opened antitrust investigations into Google and restricted exports of key materials like germanium and gallium.

Global supply chains are already feeling the strain. The U.S. Postal Service has paused packages from China and Hong Kong - which represent 30% of all packages shipped into the U.S. daily. Major retailers are scrambling to adjust inventory strategies.

Europe is watching closely, with a senior EU official noting that a "pivot back toward China is already happening." This highlights a key risk: U.S. trade actions may inadvertently push allies toward deeper economic ties with China.

The real economic impact remains uncertain. Economists estimate American households could pay $1,000 to $2,000 more annually under the new tariffs. Industries from homebuilding to tech manufacturing face higher input costs. Bond markets may demand higher yields to offset inflation risks, potentially undermining the Fed's efforts to maintain stability.

Gold Surges as Uncertainty Reigns

Amid this backdrop of trade tensions and policy uncertainty, gold has emerged as a favored safe haven. The precious metal hit a new all-time high of $2,867 per ounce this week, driven by several factors:

• Inflation concerns as tariffs threaten to push prices higher

• Geopolitical tensions driving safe-haven demand

• Central bank buying, with China, India, and Turkey leading purchases

• Growing questions about U.S. fiscal stability

Bank of Montreal analysts note that tariffs create "a strong tailwind for gold, not only because of their inherent inflationary effects but also as the USA's increasingly hawkish foreign policy may accelerate de-dollarization plans."

Global Economic Signals Flash Warning Signs

Key economic indicators are sending conflicting signals, complicating the outlook for investors in 2025:

U.S. job openings fell to 7.6 million, missing expectations and suggesting the Fed's policies are finally cooling the labor market. While this supports the case for rate cuts, markets remain focused on whether we achieve the hoped-for "soft landing."

Euro-area inflation unexpectedly accelerated just as Trump's tariffs threaten to push prices higher. This has forced the ECB to maintain a hawkish stance, disappointing investors who expected more aggressive easing. Meanwhile, China shows a confusing mix of holiday-driven inflation amid persistent deflation risks, keeping global investors cautious.

The Bank of England's recent move - cutting rates while signaling limited future easing - exemplifies the challenge facing central banks. They must support growth without reigniting inflation, particularly as trade tensions threaten price stability. Markets are now pricing in a more gradual pace of rate cuts, which could challenge the recent rally in risk assets.

This complex backdrop suggests higher volatility ahead. While strong earnings and AI optimism provide support, the path higher looks increasingly narrow as economic crosscurrents intensify.

Looking Ahead

The coming week brings several critical events that could move markets:

• Fed Chair Powell's congressional testimony Tuesday and Wednesday

• January CPI data release

• Retail sales figures for January

• Multiple central bank decisions globally

The UK government issued a secret order demanding Apple create a backdoor to access users' encrypted cloud data worldwide - a move that could force Apple to withdraw encrypted storage services from the UK market rather than compromise global user privacy.

German industrial production continues its concerning decline, with total production now down nearly 20% from its 2017 peak. The collapse has accelerated despite global prosperity, raising concerns about Germany's economic resilience in any potential downturn.

In AI developments, OpenAI's latest o3 model reportedly achieved an 87.5% score on key benchmarks, surpassing average human performance of 85%. While these metrics deserve scrutiny, they highlight the accelerating pace of AI development and raise questions about how quickly these advances will transform industries and labor markets.

That's all for this week's Forward Thesis.

Markets are navigating an increasingly complex landscape of technological transformation, trade tensions, and monetary policy shifts. Understanding these intersecting forces - and their second-order effects - will be crucial for investors in the months ahead.

Until next time.