📈 Apple's Services Gold Rush

UPS and Amazon heading for a split, Nationwide to acquire Allstate Employer Stop Loss for $1.25B, Chevron has earnings miss, SoftBank may lead OpenAI round at $300B valuation, Apple's gross margin hits new highs

Author

Evelio Silvera
January 31, 2025

Good morning.

⚡ The Fast Five → UPS and Amazon heading for a split, Nationwide to acquire Allstate Employer Stop Loss for $1.25B, Chevron has earnings miss, SoftBank may lead OpenAI round at $300B valuation, Apple's gross margin hits new highs

🔎 Market Trends → Indexes end up as investors weigh earnings; tariff talk a damper; US Futures Rise on Strong Apple Earnings

And now…

⏱️ Your 5-minute briefing for Friday, January 31, 2025:

MARKET BRIEF
Before the Open

As of market close 01/30/2025.

Pre-Market

  • IBM shares jumped nearly 13%, the best performer on the Dow and the second-best on the S&P 500.

  • Comcast shares declined 11%, the worst performer on the Nasdaq and among the worst on the S&P 500.

Fear & Greed

 

Markets in Review

Stocks Gain as Earnings Impress, Growth Holds Steady

The S&P 500 rose 0.5% to 6,071.2, while the Dow Jones Industrial Average climbed 0.4% to 44,882.1. The Nasdaq Composite edged up 0.3% to 19,681.8. Utilities led the gainers, while tech lagged after mixed earnings.

The Big Picture:

Investors found reasons to stay optimistic as corporate earnings mostly delivered, and fresh GDP data confirmed the US economy is still expanding at a healthy pace.

The US economy grew at a 2.3% annualized rate in Q4, slightly below forecasts but still strong enough to dismiss near-term recession fears. Inflation ticked up but remains manageable.

West Texas Intermediate crude oil rose 0.7% to $73.09 a barrel, while gold jumped 2% to $2,849.60/oz as traders weighed the Fed’s latest signals on rates.

Market Movers:

  • IBM (IBM): Surged 13%, leading the Dow after a Q4 earnings beat reassured investors.

  • Mastercard (MA): Gained 3.1% on strong consumer spending trends, which helped lift earnings.

  • Comcast (CMCSA): Tumbled 11%, the worst on the Nasdaq, as the company reported a sharper-than-expected loss of broadband subscribers.

  • Caterpillar (CAT): Dropped 4.6% after warning that 2025 revenue could be weaker amid slowing demand in construction and resources.

What They’re Saying:

"We may see consumer spending slow and drift back to trend over the next few quarters, but we do not see any evidence of an inflection point that would push the economy into a recession any time soon," Jefferies wrote in a client note.

WHAT WE’RE WATCHING
Events

  • Today: Bureau of Economic Analysis - Consumer Price Index (CPI) - 8:30am

  • Why You Should Care: It's the Federal Reserve's primary inflation measure. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.

  • Today: Bureau of Labor Statistics - Employment Cost Index - 8:30am

  • Why You Should Care: It's a leading indicator of consumer inflation - when businesses pay more for labor the higher costs are usually passed on to the consumer.

Earnings Reports

  • Today: Exxon Mobil, Chevron, Colgate-Palmolive, Charter Communications, Phillips 66, Church & Dwight, Novartis

  • Monday: Palantir, NXP Semiconductors, Tyson Foods, The Clorox Company, IDEXX, BellRing Brands

MARKET BRIEF
Leading News

Apple's Services Gold Rush: Why Wall Street's Love Affair with Margins Could Keep Powering the Stock

Why it matters:

Apple's evolving from a hardware company into a profit-generating machine, with its services business pushing margins to an all-time high of 46.9% — proving that the most valuable paths to growth aren't always the most obvious ones.

Zoom Out:

The iPhone maker's metamorphosis into a services powerhouse represents one of tech's most remarkable pivots. While skeptics fret over slowing iPhone sales (-1% YoY), Apple (AAPL) has quietly built a $100 billion annual services empire that would rank as a Fortune 100 company on its own.

Think of it as the ultimate upgrade cycle: Instead of just selling you a new phone every couple of years, Apple's now extracting recurring revenue through App Store purchases, subscriptions, and advertising — essentially earning rent on its massive ecosystem.

Key Insights:

  • The Margin Story: Apple's transformation mirrors Warren Buffett's famous shift from textile manufacturing to insurance float at Berkshire Hathaway. Services revenue (now 21% of total sales) carries margins estimated above 70%, acting as a profit multiplier on Apple's already formidable hardware business.

  • China Conundrum: While bearish headlines focus on Greater China weakness, they miss the broader picture: Apple's services revenue rose 4% despite global headwinds, suggesting the ecosystem's gravitational pull remains strong even when hardware sales wobble.

  • AI Wild Card: Wall Street's starting to price in Apple's potential as an AI powerhouse. The company's massive install base (2.35 billion active devices) provides an unmatched platform for deploying on-device AI applications.

Market Pulse:

"Apple's margin expansion isn't just about selling more apps — it's about building an ecosystem so sticky that customers happily pay recurring premiums for the privilege of staying in it," - Argus Research

Bull’s Take:

While bears obsess over quarterly iPhone units, smart money should focus on Apple's evolving into a high-margin software and services juggernaut. With services growth accelerating and AI optionality ahead, the stock's premium valuation could actually be understating the company's long-term earnings power.

Headlines

  • US DOJ sues to block Hewlett Packard Enterprise's $14 billion Juniper deal (link)

  • Nationwide to Acquire Allstate Employer Stop Loss Business for $1.25 billion (link)

  • SoftBank in talks to lead OpenAI funding round at $300 billion valuation, sources say (link)

  • Chevron misses earnings estimate as refining posts first loss in four years (link)

  • UPS and Amazon May Be Headed for a Split—and the Stock Is Paying the Price (link)

  • FDA approves Vertex’s non-opioid painkiller, first new kind of pain medicine in decades (link)

CRYPTO
Fear & Greed

 

Headlines

  • Bitcoin, ADA, DOGE Notch Slight Gains as Litecoin ETF Filing Spurs LTC 14% Higher (link)

  • Apollo and BlackRock-backed Securitize launching access to tokenized credit fund on various chains like Solana, Ethereum (link)

  • Tether Brings Its $140B USDT Stablecoin to Bitcoin and Lightning Networks (link)

DAILY SHARE
On the Socials

*Hat-tip to cryptosum_

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