Digesting the first batch of Mag 7 earnings… Presidents Trump and Xi sign off on a trade framework… nuclear stocks jump on news of U.S. government buildout… beware of the “cockroaches”
Coming into this week, one of the big questions was “Will the Magnificent Seven post earnings that keep the market party going?”
We’ve now got part of the answer.
“Sort of.”
After yesterday’s closing bell, three of the Magnificent Seven posted quarterly results. While the numbers were mostly impressive, the size of the AI buildout is raising eyebrows.
Meta (META) reported 26% revenue growth, with sales jumping to $51.2 billion. However, Wall Street is spooked by its aggressive AI spending, which has increased to a range of $70 billion to $72 billion, up from the prior $66 billion to $72 billion. The stock is selling off double digits as I write on Thursday.
Microsoft (MSFT) also beat, with $77.7 billion in revenue (up 18%) and Azure growth of 40%. But here too, investors are concerned about the scope of the AI buildout. The spending ramped up 74% during the quarter, reflecting AI initiatives, and management said that spending will accelerate further. The stock is down some as I write, though the reaction is milder than Meta’s.
Finally, Alphabet (GOOG) delivered $102.3 billion in revenue (16% growth) with strong performances from Search, YouTube, and Cloud. While its AI capex rose to $91–93 billion, investors feel more confident thanks to growth from Google’s cloud unit, a key driver for AI profits.
Overall, results from these “Magnificent Three” reinforce what we already know: AI investment remains aggressive, Big Tech’s earnings power remains intact, and AI remains the dominant driver of today’s market…but investors are a little nervous about the eventual payoff.
Amazon and Apple report today after the bell. Depending on when you read this, the numbers could already be out. We’ll report back.
(Disclaimer: I own MSFT and GOOG.)
President Trump and Chinese President Xi agreed to a trade deal this morning
U.S. tariffs on Chinese goods will drop from about 57% to 47%. In return, China agreed to resume large-scale purchases of U.S. soybeans, delay its planned rare-earth export restrictions for one year, and commit to cracking down on fentanyl precursor flows.
Perhaps most importantly, barring a blowup, this gives investors some stability for at least a year. Here’s President Trump:
We have a deal. Now, every year we’ll renegotiate the deal, but I think the deal will go on for a long time, long beyond the year.
But all of the rare earth has been settled, and that’s for the world.
To be clear, this morning’s pact isn’t deeply comprehensive or permanent, but it’s a good start.
Investors with portfolios exposed to China (especially rare earths/metals), U.S. agricultural exporters, and trade-sensitive industrials can breathe a little easier.
The nuclear trade keeps going nuclear
Last month, we profiled the growing opportunity in uranium/nuclear stocks, concluding:
Whether you want to trade it or buy it for the long haul, the tailwinds are strong. Give this opportunity a look.
As we’ve written many times in the Digest, AI is extraordinarily energy-hungry. Running and training these models demands staggering amounts of electricity – straining the grid in ways we’ve never seen before.
OpenAI CEO Sam Altman spoke to this on Monday, saying that the U.S. needs to drastically accelerate its investment in new energy capacity to stay ahead of China in the AI race.
Trading veteran Jonathan Rose highlighted China’s nuclear ambitions last month:
China’s nuclear expansion is so aggressive it will consume one-third of global uranium supply by 2030. That’s a structural shift investors can’t ignore.
Just how aggressive will China’s expansion become?
Here’s how it all breaks down…
- By 2026: Imports will rise to ~55M lbs/year. That’s nearly 30% of world production.
- By 2030: China will operate ~96 reactors. Demand should grow to 58–68M lbs/year, equaling one-third of the global supply.
- By 2040: The fleet will swell to 170 reactors. From there, demand will easily top 90M lbs/year, or 35–40% of global consumption.
Put it all together – and China is on track to become the uranium whale.
This brings us to Tuesday’s news…
The U.S. government announced plans to build at least $80 billion worth of nuclear reactors to meet AI energy demands.
Here’s Commerce Secretary Howard Lutnick:
Our administration is focused on ensuring the rapid development, deployment, and use of advanced nuclear technologies.
This historic partnership supports our national security objectives and enhances our critical infrastructure.
The entire uranium sector lit up on Tuesday in the wake of the news. Energy Fuels (UUUU) rose as high as 9%, Uranium Energy (UEC) ended the day up 14%, and Cameco (CCJ) exploded 23%.
Even broad uranium ETFs that hold dozens of securities posted strong gains. For example, the Sprott Uranium Miners ETF (URNM) popped almost 10%.
As I write Thursday, these gains have largely held. The Sprott fund is even higher, now up more than 12%.
How Jonathan is playing it
Jonathan is going back to the well with Uranium Royalty Corp (UROY) – but perhaps not how you might think.
Jonathan put his Masters in Trading – All-Access subscribers into UROY’s stock in late August. They’re up 62% as I write Thursday.
But as the entire uranium sector surges, traders are pricing volatility more expensively in the options market – and that’s where Jonathan sees opportunity.
Let’s go to his trade alert from Tuesday:
I’m still surprised just how much this stock can move for a royalty company.
When you see that kind of implied volatility, you’ve got two choices: chase overpriced calls or take advantage of them…So let’s buy more UROY shares and sell calls against the position.
It’s a simple covered call setup that lets us collect premium from the inflated volatility while holding a long-term uranium play we already like.
Let’s get paid while we wait for the next leg higher.
It’s this kind of second-level thinking that’s helped Jonathan put a wad of cash in his subscribers’ pockets in recent months, generating a laundry list of triple-digit returns. As his newsletter sign-off goes, “the creative trader wins.”
If the idea of options and covered calls makes you nervous…
Below is a perspective from one of Jonathan’s followers.
If you’re having trouble reading the screenshot, here’s the takeaway as quoted from the subscriber:
Even after trading stocks/options for over 10 years, I realize that learning JR’s method is like taking a graduate level college class in financial trading. He’s a great teacher…
If you attend “class” every day, take notes, watch the replay videos of each YouTube Live at least once, and paper trade, you’ll be amazed at how quickly you’ll learn his process.
If you’re interested in learning more about Jonathan’s approach to trading – and how he uses options safely – check out his Masters in Trading Challenge right here. Echoing the subscriber above, Jonathan is a fantastic teacher – one of the best in our industry.
Circling back to uranium, whether you approach it as a short-term options trade or long-term buy-and-hold, this is a massive, multi-year growth story.
Here’s Altman’s take:
Electricity is not simply a utility. It’s a strategic asset that is critical to building the AI infrastructure that will secure our leadership on the most consequential technology since electricity itself.
Bottom line: If you want long-term portfolio growth, you’ve found it.
Beware the “cockroaches”
During my recent vacation, JPMorgan (JPM) CEO Jamie Dimon made news with his comment about “cockroaches” in the private credit market.
Even though the story is slightly dated, I want to cover it since it could turn into something bigger. Even if you’re not directly exposed to private credit in your portfolio, this is important to have on your radar since contagion could have a spillover effect.
To establish context, “private credit” is the name for loans made to individuals or businesses from any lender other than a traditional bank.
For borrowers, these non-bank lenders offer a way to access funds when traditional banks are reluctant because of tougher regulatory hurdles and/or stricter lending standards. For the lending institutions, these loans have become big business, providing a reliable stream of high-yield income.
In the wake of the global financial crisis, regulatory bodies clamped down on big banks lending practices. This created space for non-banks to step in. And step in they did. Private credit assets have grown from around $300 billion in 2010 to approximately $3 trillion last year.
So, what’s the problem?
It’s the same time-bomb that’s been at the root of all sorts of economic explosions over the centuries – debt.
Let’s go to legendary investor Louis Navellier who has been sounding the alarm on private credit for months:
Private credit is still promising 11% yields, but they are leveraging these loans to get those yields.
If the private credit industry ever blew up because of economic weakness or whatever, or them just trying to out-leverage each other to outdo each other, the Fed would have to start slashing rates to save the economy.
Louis’ reference to the sector “blowing up” brings us to the recent news prompting Dimon’s “cockroach” comment.
Here’s Reuters:
The twin collapses of First Brands and Tricolor in September have affected some pockets of Wall Street’s multitrillion-dollar credit machinery, and forced some debt investors to cut exposure to certain sectors over concerns about weakness in consumer and auto lending.
While Dimon and JPM didn’t have exposure to First Brands, they had to write off $170 million in bad debt to the car dealership group Tricolor.
Now, top executives from the banking sector have been quick to dismiss these bankruptcies as one-offs. But Dimon sounds more cautious:
I probably shouldn’t say this, but when you see one cockroach, there are probably more.
And so, we should—everyone—should be forewarned on this one…
These are early signs there might be some excess out there… If we ever have a downturn, you’re going to see quite a few more credit issues…
I expect it to be a little bit worse than other people expect it to be, because we don’t know all the underwriting standards that all of these people did.
Turning to action steps for your portfolio
Be aware of any of your portfolio holdings that have excessive exposure to private credit.
A few illustrations are Apollo Global Management (APO), Ares Management Corporation (ARES), Blackstone Inc. (BX) (Disclaimer: I own BX), and Blue Owl Capital Inc. (OWL).
Not all businesses with exposure are necessarily “sells,” but it’s worth investigating just how extensive their lending operations are.
Review recent filings or investor presentations for mentions of “private credit AUM” or “direct lending exposure.” Also, keep an eye on businesses heavily tied to leveraged borrowers or floating-rate debt – they’re often the first to feel stress if credit markets tighten.
Overall, we’re not predicting an imminent collapse. But there’s growing risk here that we need to keep an eye on.
Here’s Louis’s takeaway:
Leveraged debt created the 2008 financial crisis, so we want to keep a good eye on this…
If private credit breaks, commerce breaks. And it would really cause the Fed to have to come in and slash rates.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
