Feb 4th Pre-Market

Good morning.

For two years the AI trade was simple. Buy everything touched by it.Recently we have seen some changes. $300 billion in software stocks got sold because investors started asking a what if AI doesn't help these companies? What if it replaces them?

Gold bouncing back closer to record highs tells you people aren't sure of the answer yet.

Let's dig in...

Today's Big Picture

1. Software Stocks Just Lost $300 Billion

Anthropic added legal tools to its Cowork AI assistant. $300 billion gone in one session. Thomson Reuters dropped 16%. Intuit fell 11%. Salesforce, Adobe, Shopify, Atlassian all hit. This wasn't about fundamentals. It was fear.

Overnight it went global. Xero down 16% in Australia. Infosys down 7% in India. SAP still sliding in Europe. Private equity got dragged in too. Blue Owl, KKR, Ares each fell around 10%.

Jensen Huang called the "AI replaces software" narrative "the most illogical thing in the world." Markets ignored him.

2. Earnings Are Splitting Winners From Losers

Eli Lilly surged 8%. Guidance: $80-83 billion. Street expected $77.6 billion. GLP-1 demand is still running hot.
AMD dropped 9% despite beating. Operating expenses came in $200 million above guidance. Again. Novo Nordisk collapsed 18% in Europe on weak guidance and pricing pressure.

Beating estimates doesn't matter if your cost structure is broken.

3. Strip Out Healthcare, Hiring Went Negative

ADP reported 22,000 jobs added in January. Expectations were 45,000.

Education and health services added 74,000. That means every other sector combined lost 52,000 workers.

Friday's BLS jobs report got postponed because of the shutdown. The Fed is stuck watching a labor market that's too soft to ignore and too stable to act on.

Market Overview

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Stock Spotlight (pre-market)

Advanced Micro Devices $AMD ( ▼ 16.63% ) 

Revenue grew significantly but the outlook for the next quarter disappointed the market. Investors wanted to see even faster growth given the current AI boom.

Super Micro Computer $SMCI ( ▲ 13.8% )

Profit grew and sales doubled as demand for AI servers stays high. The stock is moving higher because they are proving the demand is real.

Chipotle Mexican Grill $CMG ( ▲ 1.77% ) 

Customer traffic fell for the fourth straight quarter and the outlook for this year is flat. It looks like consumers are finally hitting a limit on burrito prices.

Enphase Energy $ENPH ( ▲ 38.28% ) 

Revenue and profit came in higher than expected with a strong forecast for the next quarter. This is a big win for a solar sector that has been struggling lately.

Adobe $ADBE ( ▲ 2.86% ) Salesforce $CRM ( ▲ 1.56% ) Intuit $INTU ( ▲ 2.66% ) 

These stocks are lower in early trading as the software sell-off continues. People are questioning if these legacy platforms can defend their territory against AI.

What to Watch

ISM Services — 10:00 AM ET 
Services make up 70-80% of GDP. Anything above 50 means expansion. This number either confirms the soft landing or starts the recession chatter again.

Alphabet $GOOGL — After Close 
Street expects $111.3 billion revenue. Microsoft already disappointed and helped trigger the software selloff. Google needs to prove the Mag Seven isn't falling apart. Watch AI spend and cloud margins.

Amazon $AMZN — Thursday After Close 
The last big tech report of the week. AWS growth tells you where enterprise spending is headed. Retail margins tell you if the consumer is still holding up.

Bank of England — Thursday 8:15 AM ET 

Two rate decisions in two hours. Any divergence from the Fed's path moves the dollar. Lagarde's press conference follows the ECB decision.

Thanks for reading 🙂

- John

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