Next Legacy Weekly Huddle

“I believe one of these two teams will win the Super Bowl.”

― Gilbert Gottfried

Dear Friends,

The markets ended slightly lower this week, after another roller-coaster of a ride. Feels like this may become more the norm under the new administration, as Trump headlines/initiatives continue to dominate the news flow and sentiment (tariffs, sovereign wealth fund, Middle East, government overhaul). On top of that we had a busy week of fourth quarter earnings and economic data. ?

In the news, crypto witnessed its worst single day of liquidations, ever, on Monday with $560B wiped from the total crypto market in a 24hr period, over $2.2B worth of liquidations, the US-China spat escalated with the US Postal Service suspending inbound international packages from China and Hong Kong Posts, Meta Platforms announced it is merging the teams behind tariff Facebook and Messenger into one unit as the company prepares for layoffs across the business next week, Cruise laid off nearly 50% of its workers Tuesday after parent General Motors stopped Cruise’s robotaxi development work because of increasing competition and problems stemming from a pedestrian accident, Gold rose to a record high above $2,870 an ounce as the opening salvos of the US-China trade war stoked haven demand, Nissan is pulling out of its deal with Honda to combine both brands, the Nikkei newspaper reported, China hit back with new tariffs on US products and started an antitrust probe into Google in response to Donald Trump’s 10% levies. Trump signed an executive action he said would direct officials to create a sovereign wealth fund, SoftBank said it would spend $3 billion per year on technology from OpenAI for itself and its subsidiaries, such as chip designer Arm and electronic payment service PayPay, Ford said profit may fall by $2 billion or more this year on lower prices and costly new-model launches, adding to risks posed by potential steep new tariffs under Donald Trump, Gemini, the crypto exchange founded by Cameron and Tyler Winklevoss, is considering going public as soon as this year, Bloomberg reported, and Stripe has acquired Bridge for $1.1 billion, its largest acquisition to date. The deal, which closed Tuesday after clearing regulatory hurdles, gives Stripe a firm foothold in crypto, a market where it previously struggled to gain traction.

On the earnings front, Alphabet’s revenue grew 12% year-over-year to $96.5 billion in the fourth quarter of 2024, three percentage points slower than growth in the third quarter, and growth in its rentals of cloud servers slowed by five percentage points compared to the prior quarter. Google Cloud sales rose 30% year-over-year to $12 billion, down from 35% in the third quarter but up from 29% in the second quarter. On the bright side, Google Cloud’s operating income more than doubled to $2 billion in the fourth quarter, and Google said demand for cloud AI servers exceeded its available supply, limiting its potential revenue. Uber said Wednesday revenue for the fourth quarter rose 20% to $12 billion, helped by strength in its ride hailing and delivery businesses, which both reported 18% growth in gross bookings, or total value of customer orders. But warned that bookings growth will slow in the current quarter, in part because of the stronger dollar, Los Angeles wildfires and liability insurance costs, which increases prices for riders. Amazon reported sales growth of 10% year-over-year to $187.8 billion in the fourth quarter, the company said Thursday. Operating income, meanwhile, grew 61% to $21.2 billion, in part as the company kept a lid on logistics costs. Most of Amazon’s business lines reported steady or slightly slowing growth during the period. Palantir earnings for the fourth quarter were 14 cents on an adjusted basis, up 75% from 8 cents a year earlier. Revenue climbed 36% to $828 million, the maker of data analytics software said. In Q4, US. commercial revenue grew 64% year-over-year to $214 million. U.S. government revenue grew 45% to $343 million. Leverage in operating margin was also impressive with 45% adjusted operating margins, six points better than expected.

For the week, the Dow fell 0.5%, the S&P 500 lost 0.2%, and the Nasdaq Composite dropped 0.5%

On the economic front, ISM Manufacturing PMI rose to 50.9 in January from 49.2 in December (above expectations of 49.8). The reading pointed to the first expansion in the factory sector after 26 months of contraction. New orders increased at a faster pace, and both production and employment rebounded. The ISM Services PMI declined to 52.8 in January from 54 in December (below expectations of 54.3). Smaller increases in business activity, new orders, and a contraction in inventories led to the decline. Meanwhile, employment and new export orders increased, and price pressures eased. The US Trade Deficit widened to $98.4 billion in December, following a $78.9 billion gap in November (above expectations of $96.6 billion). It is the highest trade deficit since a record in March 2022. Exports increased 3.9% to $3,191 billion and imports rose 6.6% to $4,110 billion. Non-Farm Payrolls added 143,000 jobs in January, below the 307,000 gains in December and forecasts of 170,000. The unemployment rate fell to 4.0% from 4.1% and average hourly earnings rose 0.5% from 0.3%. The University of Michigan Consumer Sentiment fell to 67.8 in February from 71.1 in January (below expectations of 71.1). Consumer sentiment fell for the second straight month, to its lowest reading since July 2024. The gauge of economic conditions fell to 68.6 from 74, the expectations subindex declined to 67.3 from 69.3, and inflation expectations for the year-ahead soared to 4.3% from 3.3% (the highest reading since November 2023).

Have a great week.? ?

John N. Ailanjian, CFA

Macro News:

• The U.S. agreed to a monthlong pause on the implementation of tariffs through two separate deals with Mexico and Canada on Monday. The deals temporarily avert 25% levies with huge economic implications for all three countries. The agreement with Mexico came barely an hour after stock markets opened in the U.S. ?The deal with Canada was announced late in the afternoon by Canadian Prime Minister Justin Trudeau and Trump. Like the deal with Mexico, it came following commitments to border security. ?
• Donald Trump’s latest musings about revisiting American expansionism, as with earlier asides about Canada, Greenland and the Panama Canal, triggered the usual media firestorm and handwringing Wednesday. Though by afternoon, Trump’s aides reportedly started to walk back many of the 78-year-old’s comments regarding a US military takeover of the Gaza Strip.
• The volatile start to the year has spooked some professional investors but has done little to dowse retail traders’ enthusiasm for the US market and for high-flying tech stocks in particular. Mom-and-pop investor sentiment has reached the highest level on record, surpassing what was seen during the meme-stock mania in 2021. Retail exposure to stocks is near the highest level since 1997. Even as stocks got hit this week by Trump’s tariff threats, mom-and-pop investors continued to buy, pouring in $3 billion on that day alone. On Tuesday, some 70% of the inflows went to Magnificent 7 stocks, with Nvidia a top pick.
• President Donald Trump said Thursday he wanted to eliminate a carried-interest tax deduction that allows venture capitalists, hedge fund managers and private equity investors to pay a lower tax rate on their share of profits from investments than the higher ordinary income tax rate.
• The Trump administration plans to fire thousands of workers across several agencies. The White House will cut nearly 10,000 jobs at the U.S. Agency for International Development, The Times reports. The group, which administers humanitarian aid around the world in the interest of the United States, will be reduced to fewer than 300 staff members. The administration also plans to eliminate positions in the Department of Health and Human Services, the Food and Drug Administration and the Centers for Disease Control, The Wall Street Journal reports. Related: A federal judge paused Trump’s earlier effort to get federal workers to resign. More than 40,000 workers had accepted the offer.

Micro News:

• Vanguard slashed fees for dozens of its mutual and exchange-traded funds in a record move that’s likely to send a shockwave through the asset management industry. The Jack Bogle-founded investing giant is lowering expense ratios for 168 share classes across 87 mutual funds and ETFs effective immediately. The reduction is the largest Vanguard has ever undertaken and amounts to a dramatic challenge to rivals in a business where the firm is already one of the cheapest operators. For many it will conjure memories of the heights of the fee war that found its limits five years ago with zero-fee products and even one fund that offered to pay people to invest.
• Alphabet said it expected to lay out $75 billion on capital expenditures this year, a 43% lift over 2024. That puts Google very close to Microsoft, which has said it will spend $80 billion building artificial intelligence data centers in its fiscal year ending June. Meta Platforms, with plans to spend as much as $65 billion on capex, is only a little way behind. Amazon, meanwhile, projected $75 billion in capex for 2024 and said it will spend $100 billion in 2025. In other words, the three big cloud firms and Meta are projecting around $300 billion in capex, mostly related to AI, this year. To put that into context, the OpenAI-SoftBank Stargate AI data center venture plans to spend $100 billion in the near term and $500 billion over four years.
• Apollo Global Management is seeking to build a marketplace that would allow investors to buy and sell high-grade private assets more easily, while encroaching further into terrain once dominated by the biggest Wall Street firms. The alternative asset manager is in discussions to partner with banks, exchanges and fintech firms to deliver real-time information and intraday prices for private credit deals. The firm has said that the biggest trends in the next five years are the convergence of public and private markets and the changing role of financial institutions.
• Lenders to Elon Musk’s X, formerly known as Twitter, sold a total of $5.5 billion of debt on Wednesday, the Wall Street Journal reported, more than two years after Musk borrowed $13 billion to help fund his $44 billion buyout of Twitter in 2022. The debt was sold at 97 cents on the dollar, according to the Journal report, a better price than the lenders originally expected. Typically, lenders sell debt soon after a transaction is done but in the case of Twitter, the collapse of its ad business after the takeover forced lenders to hold off.

Capital Markets:

• Semgrep, a San Francisco-based application security platform, raised $100 million in Series D funding. Menlo Ventures led the round and was joined by existing investors Felicis Ventures, Harpoon Ventures, Lightspeed Venture Partners, and others.
• Archive, a San Francisco-based resale services provider, raised $30 million in Series B funding. Energize Capital led the round and was joined by Woodline Partners, Frontline Growth, and existing investors Lightspeed Venture Partners, Bain Capital Ventures, G9 Ventures, and Capital F.
• Ivo, a San Francisco-based AI-powered contract review platform, raised $16 million in Series A funding. Costanoa Ventures led the round and was joined by NFDG, Blackbird VC, and existing investors Fika Ventures, Uncork Capital, GD1, and Phase One Ventures.
• Urban Sky, a Denver-based stratospheric balloons developer, raised $30 million in Series B funding. Altos Ventures led the round and was joined by New Legacy Ventures, Lerer Hippeau, Catapult Ventures.
• Presto, an Oakland-based electric vehicle charging platform, raised $15 million in seed funding from Union Square Ventures, Congruent Ventures, Powerhouse Ventures, and Jetstream.
• Model ML, a New York City-based AI-automated financial research and due diligence platform, raised $12 million in funding. Y Combinator and LocalGlobe led the round and were joined by angel investors.
• Miist Therapeutics, an Alameda, Calif.-based inhaled therapies developer for smoking addiction and migraines, raised $7 million in seed funding from Refactor Capital, 1517 Fund, Freeflow Ventures, and others.
• &AI, a San Francisco-based AI agent developer for patent attorneys, raised $6.5 million in seed funding. First Round led the round and was joined by Y Combinator, SV Angel, BoxGroup, and angel investors.
• TaxGPT, a San Francisco-based AI-powered accounting co-pilot, raised $4.6 million in seed funding from Rebel Fund, Mangusta Capital, Y Combinator, angel investors, and others.
• 7AI, a Boston-based agentic cybersecurity platform, raised $36 million in seed funding from Greylock Partners, Spark Capital, and CRV.
• DevAI, a Palo Alto-based AI agents developer for enterprise IT, raised $6 million in seed funding. Emergence Capital led the round and was joined by Base10, Benchstrength, and existing investor Pear VC.
• Hidden Level, a Syracuse, N.Y.-based drone detection technology developer, raised $65 million in Series C funding. DFJ Growth led the round and was joined by Booz Allen Ventures, Revolution Growth, Costanoa Ventures, and others.
• Riot, a San Francisco-based employee cybersecurity platform, raised $30 million in Series B funding. Left Lane Capital led the round and was joined by existing investors Y Combinator, Base10, and Funders Club.
• GenLogs, a Washington, D.C.-based freight intelligence platform, raised $14.6 million in Series A funding. Venrock and HOF Capital led the round and were joined by Steel Atlas, AutoTech Ventures, Venture 53, and others.
• Warmly, a San Francisco-based AI-powered revenue orchestration platform, raised $6 million in Series A+ funding. RTP Global led the round and was joined by existing investors Felicis, NFX, and others.

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