Next Legacy Weekly Huddle

“From what we get, we make a living; what we give, however, makes a life.”

― Arthur Ashe

Dear Friends,

The markets managed to close only slightly down on the week, after what looked like was going to be a disastrous five days. Most of the week’s headlines were dominated by the news around DeepSeek, which single-handedly wiped out nearly $600B of market capitalization in Nvidia on Monday. The hawkish hold on interest rates and mixed results from Q4 earnings reports (four of the Magnificent 7 presenting), also helped drive market sentiment. ?

Despite the extreme volatility on Monday, it was encouraging to note that, for the S&P 500, rising stocks far outnumbered declining ones, 350 to 152, despite the benchmark sliding 1.5% (which is quite rare). An equal-weighted version of the S&P 500 closed the day little changed, and stocks focused on dividends, value, low volatility and long-term Treasuries all posted gains of at least 1%. Clearly a shift in sentiment.

In the news, Chinese startup DeepSeek rocked the AI sector, raising questions about US tech dominance and casting doubts on sky-high valuations for companies such as Nvidia, Israel and Lebanon agreed to extend their ceasefire until Feb. 18 to give Israeli troops more time to withdraw, Americans wagered more than $140 billion in 2024, per data collected by Legal Sports Report, Amazon has tapped Whole Foods CEO Jason Buechel to lead its entire grocery business, the company said Monday, Microsoft is eyeing TikTok, according to Trump who said it’s in talks to buy ByteDance’s US arm. Microsoft declined to comment, Euro-area banks tightened credit standards for companies by the most since 2023, Apple has been working with SpaceX and T-Mobile to add support for the Starlink network in its latest iPhone software, Trump administration officials are in the early stages of considering additional restrictions on Nvidia’s sales of artificial intelligence chips to China, SoftBank is in talks to invest as much as $25 billion in OpenAI, in a deal that would make the Japanese firm the largest financial investor in the U.S. artificial intelligence giant, OpenAI has found evidence that the Chinese firm behind DeepSeek, developed the AI using information generated by OpenAI’s models, according to OpenAI employees, the US Fed left rates unchanged, Canada cut rates, the ECB cut rates, and Brazil raised by 100 basis points, and Google on Thursday offered U.S. employees of its Chrome, Android and Pixel teams voluntary buyout package that included severance pay,

On the earnings front, Meta Platforms reported 21% higher fourth-quarter revenue of $48 billion, slightly faster growth than the previous quarter. But the company projected a sharp slowdown in revenue growth for the first quarter, to between 8% and 15%, and projected that operating expenses would rise as much as 25% to between $114 billion and $119 billion in 2025, compared with $95 billion in 2024. Tesla reported a mediocre fourth quarter and annual performance. Gross profit from vehicle sales excluding regulatory credits—payments from other companies to meet government clean vehicle thresholds—was 13.6%, continuing a slide since 2022. As recently as the first quarter 2022, the figure was 30%. However, Tesla shares rose after CEO Elon Musk said the company would deploy unsupervised driverless cars in a paid service in Austin, Texas in June and the rest of the U.S. next year. Microsoft said its revenue grew 12% in the fourth quarter of 2024 compared to the same period a year earlier—four points slower than its third quarter growth—as growth in its Azure cloud server rentals also slowed for the second consecutive quarter. Still, the company said revenue from artificial intelligence products, including selling access to software from OpenAI and other AI providers to Microsoft cloud customers, has grown steadily; such revenue is on track to exceed $13 billion in annualized sales in the current quarter, up from less than $10 billion three months ago. Apple reported that iPhone revenue shrank by 0.8% in the December quarter, the company reported, likely a result of weakness in China where the tech giant faces intense competition from Chinese brands such as Huawei. Despite the drop, sharp growth in revenue from sales of Macs, iPads and services helped the company report 4% higher revenue of $124.3 billion. The company’s net income rose 7% to $36.3 billion.

For the week, the Dow rose 0.3%, the S&P 500 fell 1.0%, and the Nasdaq Composite dropped 1.6%.

On the economic front, New Home Sales rose by 3.6% m/m to an annualized rate of 698,000 in December, the most since September (above expectations of 670,000). Sales grew in the West and Northeast, while declining slightly in the South and Midwest. Durable Goods Orders fell 2.2% m/m to $276.1 billion in December, following a 2% drop in November (below expectations of a 0.6% increase). The decline was driven by transportation equipment, particularly aircraft and parts. The Trade Deficit widened to a record $122.11 billion in December (above expectations of $105.4 billion). Imports surged 3.9% to $289.6 billion, while exports dropped 4.5% to $167.5 billion. GDP expanded at an annualized 2.3% in Q4, the slowest growth in three quarters, down from 3.1% in Q3 (below expectations of 2.6%). Personal consumption remained the main driver of growth, while fixed investment and private inventories were a big drag. Personal Consumption Expenditure Price Index (PCE) increased 0.3% m/m (2.6% y/y) in December, the highest gain in eight months (in line with expectations). Prices for goods increased 0.2% and prices for services were up 0.3%. The Core PCE Index (ex-food & energy) rose 0.2% m/m (2.8% y/y).

Have a great week.? ?

John N. Ailanjian, CFA

Macro News:

• The Securities and Exchange Commission rescinded a Biden-era crypto accounting guidance that banks said have curbed their ability to provide custody of crypto assets. The earlier guidance—staff accounting bulletin No.121—directed public companies to record clients’ crypto assets as a liability on their balance sheets. That deterred banks from offering crypto custody, because it would tie up capital they could otherwise use for lending.
• The world’s oceans are warming four times faster than in the 1980s, which helps explain recent unprecedented sea temperatures—and more extreme storms, a study showed. Sea temperatures hit record highs for 450 straight days between 2023 and early 2024, which helped fuel massive hurricanes. While some of this is caused by El Ni?o, the research found that 44% of the record warmth was caused by oceans absorbing heat at a faster rate. Oceans “set the pace” of climate change, adding to the urgency of meaningful steps to cut carbon emissions and wind down fossil fuels, the study’s lead author said.
• Federal Reserve Chair Jerome Powell said officials are not in a rush to lower interest rates, adding the central bank is pausing to see further progress on inflation following a string of rate reductions last year. “We do not need to be in a hurry to adjust our policy stance,” Powell said Wednesday, noting that the economy remains strong, and interest rates are no longer restraining the economy as much as they had been. The Federal Open Market Committee voted unanimously to keep the federal funds rate in a range of 4.25%-4.5%, after lowering rates by a full percentage point in the final months of 2024. Strong economic growth coupled with a solid labor market allows officials to wait for further evidence of cooling inflation before adjusting rates again. It also offers them time to evaluate how President Donald Trump‘s policies on immigration, tariffs and taxes may impact the economy.
• Hefty US import taxes are expected to take effect this weekend on goods from America’s top international trade partners. Under President Donald Trump’s new policy, the US will impose a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China—countries that collectively account for $1.6 trillion in annual US imports and exports.
• The FAA indefinitely closed helicopter routes near Washington's Reagan National Airport as investigators begin to piece together the circumstances surrounding Wednesday's tragic crash. The military helicopter involved in the crash was flying too high and off of its prescribed route, sources told The New York Times. Route 4 — the route the helicopter was supposed to be flying — tracks along the eastern bank of the Potomac. Helicopters are supposed to stay at 200 feet when using it. The Black Hawk involved in Wednesday's crash was flying at 300 feet and at least a half mile off course, per the NYT.

Micro News:

• Wall Street banks are preparing to sell $3 billion in debt tied to Elon Musk’s buyout of Twitter, now X, with a bit of sweetener — a claim on X’s stake in Musk’s artificial intelligence venture, xAI Corp. The valuation of X is being boosted by the previously undisclosed stake of about $6 billion in xAI. That has raised the price of the debt to a range of 90 cents to 95 cents on the dollar, from as low as 60 cents in 2022.
• OpenAI rolled out a new, lightweight artificial intelligence model that it said is capable of humanlike reasoning and makes gains on efficiency—a product that will be closely watched following the release of an open-source model from China’s DeepSeek. The model is called o3-mini and will be free to use. The company first announced plans for it in December at the same time it unveiled a more powerful version, o3. Both models are meant to answer complicated questions related to topics such as coding, math and science.
• For the first time in over two decades, the FDA has approved a new type of pain med. This one comes without the addictive side effects of opioids, which kill tens of thousands of Americans every year. On Thursday, the agency approved Vertex Pharmaceutical’s Journavx for short-term pain in adults. While Vertex’s new pill worked better than a placebo in reducing pain after surgeries in two studies, it didn’t beat the classic opioid + acetaminophen combo. Nonetheless, it offers a non-addictive option.
• The Justice Department sued to stop Hewlett Packard Enterprise’s $14 billion takeover of Juniper Networks, which would combine two of the biggest networking service providers in the United States. The department had already raised concerns about the deal under President Joe Biden, suggesting there may be some continuity on antitrust policy between the two administrations.
• The Ohio Tax Credit Authority approved a 2.594%, 30-year job creation tax credit for Anduril Industries, which plans to employ 4,000 people and create 4,500 more indirect jobs at a new facility in Pickaway County. Ohio’s largest single job creation project in state history could receive more than $450 million in tax breaks. Anduril Industries announced on January 16 its plan for a 5 million-square-foot facility, which officials project will add nearly $1 billion to Ohio’s gross domestic product. It’s the largest single job creation and new payroll project in the state's history and will be near Rickenbacker International Airport. It includes a $9 million capital investment and projects 8,500 direct and indirect jobs in the next 10 years. The build-out of the facility is planned to begin immediately after state and local approvals. Manufacturing is expected to start in July 2026.

Capital Markets:

• Skild AI, a startup building robotics software, is set to be valued at $4 billion — up from $1.5 billion last July — in a new $500 million funding round. SoftBank is in talks to lead the round. Amazon, Menlo Ventures and Sequoia Capital are among Skild’s investors.
• ElevenLabs, a London-based AI audio technology developer, raised $180 million in Series C funding. a16z and ICONIQ Growth led the round and were joined by NEA, World Innovation Lab, Valor, Endeavor Catalyst Fund, Lunate, existing investors Sequoia Capital, Salesforce Ventures, Smash Capital, and others.
• Motif, a San Francisco-based software provider for the architecture, engineering, and construction industry, raised $46 million in seed and Series A funding. Redpoint Ventures led the seed round and was joined by Baukunst. CapitalG led the Series A round and was joined by existing investor Baukunst.
• Anchor, a New York City-based billing platform for small and medium businesses, raised $20 million in Series A funding. Mosaic General Partnership and Zeev Ventures led the round and were joined by Amy Banse, Tien Tzuo, existing investors Entrée Capital and Tal Ventures, and others.
• Clutch Security, a Tel Aviv-based non-human identity security platform, raised $20 million in Series A funding. SignalFire led the round and was joined by existing investors Lightspeed Venture Partners and Merlin Ventures.
• Observo AI, a Newark, Calif.-based AI-powered data pipeline, raised $15 million in seed funding. Felicis and Lightspeed Venture Partners led the round and were joined by angel investors.
• Oumi, a Seattle-based AI research lab, raised $10 million in seed funding. Venrock and Obvious Ventures led the round and were joined by Plug & Play and Ascend.
• Cedar Money, a New York City-based cross-borders stablecoin payments platform, raised $9.9 million in seed funding. QED Investors led the round and was joined by North Island Ventures, Wischoff Ventures, Lattice, and Stellar.
• C the Signs, a London-based AI-powered cancer detection platform, raised $8 million in funding from Khosla Ventures.
• Helion, a Everett, Wash.-based fusion energy company, raised $425 million in Series F funding from Lightspeed Venture Partners, SoftBank Vision Fund 2, existing investors Sam Altman, Mithril Capital, Capricorn Investment Group, and others.
• Rad AI, a San Francisco-based generative AI developer for radiology, raised $60 million in Series C funding. Transformation Capital led the round and was joined by existing investors Khosla Ventures, World Innovation Lab, UP2398, and others.
• Oligo Security, a Tel Aviv-based application security platform, raised $50 million in Series B funding. Greenfield Partners led the round and was joined by Red Dot Capital Partners, Strait Capital, and existing investors Ballistic Ventures, Lightspeed Venture Partners, and TLV Partners.
• Paxton, a Bend, Ore.-based Ai-powered legal assistant, raised $22 million in Series A funding. Unusual Ventures led the round and was joined by Kyber Knight, 25Madison, and WVV Capital.
• Formance, a New York City-based open source financial infrastructure provider, raised $21 million in Series A funding. PayPal Ventures and Portage led the round and were joined by Y Combinator, Hoxton Ventures, and AXC.
• Nucleus, a New York City-based DNA health test technology developer, raised $14 million in Series A funding from Neo, Giant Step Capital, One Eight Capital, existing investors Seven Seven Six and Founders Fund, and angel investors.
• Aligned, a remote digital sales room developer, raised $8 million in Series A funding. JAL Ventures led the round and was joined by existing investors NFX, Hetz Ventures, and others.
• Final Round AI, a Palo Alto-based AI-powered interview assistance platform, raised $6.9 million in seed funding. Uncork Capital led the round and was joined by HF0, Linear Capital, Ritual Capital, angel investors, and others.
• TravelPerk, a Barcelona-based business travel management platform, raised $200 million in Series E funding. EQT and Atomico led the round and were joined by Noteus Partners, Sequoia Capital, existing investors Kinnevik, General Catalyst, Softbank Vision Fund, and Blackstone.
• SafelyYou, a San Francisco-based AI-powered senior living care provider, raised $43 million in Series C funding. Touring Capital led the round and was joined by Foundation Capital, Omega Healthcare Investors, Founders Fund, and others.
• VideaHealth, a Boston-based dental AI platform developer, raised $40 million in Series B funding. Threshold Ventures led the round and was joined by Avenir Ventures, BAM Ventures, and existing investors Spark Capital, Zetta Venture Partners, and Pillar VC.
• Delve, a San Francisco-based AI compliance agents developer, raised $3.3 million in seed funding from Y Combinator, General Catalyst, FundersClub, Soma Capital, and angel investors.
• Atomicwork, a San Francisco-based AI agents management solutions provider, raised $25 million in Series A funding. Khosla Ventures and Z47 led the round and were joined by Battery Ventures, Blume Ventures, and Peak XV Partners.
• Manas AI, a New York City-based AI-powered medicine discovery company, raised $24.6 million in seed funding. General Catalyst and Reid Hoffman led the round and were joined by Greylock.
• Earth AI, a San Mateo, Calif.-based AI-powered clean energy metals discovery and drilling technology developer, raised $20 million in Series B funding. Tamarack Global and Cantos Ventures led the round and were joined by Overmatch, Alpaca, Sparkwave Capital, and existing investors including Y Combinator and Scrum Ventures.
• ShopMy, a New York City-based creator marketing and partnerships platform, raised $77.5 million in Series B funding. Bessemer Venture Partners and Bain Capital Ventures led the round and were joined by Menlo Ventures, existing investors Inspired Capital and AlleyCorp, and others.
• Allara Health, a New York City-based women’s hormonal healthcare virtual platform, raised $26 million in Series B funding. Index Ventures led the round and was joined by existing investor GV.
• Ati Motors, a Bengaluru, India-based autonomous AI-powered robot manufacturer, raised $20 million in Series B funding. Walden Catalyst Ventures and NGP Capital led the round and were joined by existing investors True Ventures, Exfinity Venture Partners, Athera Venture Partners, and Blume Ventures.
• Teal Health, a San Francisco-based at-home cervical cancer screening developer, raised $10 million in funding. Emerson Collective and Forerunner led the round and were joined by Serena Ventures and Metrodora.

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