U.S. & China Drop The Gloves

In this issue of the peel:

• ???? Kinda feels like Donald Trump and Xi Jinping are the perfect American and Chinese versions of each other—and it certainly seems that way in this Cold Trade War.
• ?? Aurora Cannabis got investors super high after reporting strong earnings, while Novo Nordisk’s next weight-loss drug has investors excited. Uber missed earnings despite almost $7bn in benefits and AMD gave Jensen Huang a good laugh.
• ?? A day late and a few billion dollars short, we dive into Google’s latest earnings report to find out why shares dumped despite spending big on AI.

Banana Bits

• In his first act as Treasury Secretary, Scott Bessent seems to have already squashed the beef between President Trump and Fed Chair JPow.
• Streaming delivered Disney a huge profit last quarter, but the firm’s overall operating income was still too weak for investors to stand.
• Speaking of which, Marvel Studios had its best year in a long time.
• Toyota’s emphasis on hybrids seems to be paying off despite slips in profitability.
• Santander shares ripped Wednesday on strong earnings and a huge buyback.
• New York Times shares plummeted almost 12% on weak subscriber and revenue numbers.
• A soft sales outlook and an even softer new CEO sent shares down harder than the excitement of my matches once they see me in person.
• This CFP holder is putting his kid’s college savings in BTC and is calling you dumb for not doing the same.
• Fed officials are getting worried about tariffs.
• Uhhh, is everything okay in Washington? We can’t help but wonder as President Donald Trump seems to be in rare agreement with Sen. Elizabeth Warren.

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Macro Monkey Says

Gloves Were Dropped

I’ll admit it—I’ve been known to dabble in some reality TV. It’s hard not to love watching people beef, fight, or handle whatever other conflicts occur.

It’s the same reason I’d watch hockey, NASCAR, or replays of the Challenger launch. Similarly, it’s the same reason we’re all locked in on these tariffs.

Mexico and Canada bought themselves a 30-day delay by beefing up border security. But, unfortunately (maybe very fortunately), the U.S. and China aren’t neighbors.

Let’s get into it.

What Happened?

First of all, this isn’t a new feud. China and the U.S. began their trade “war” during President Trump’s first term back in 2018. The “war” then cooled off for a few years—a cold trade war, if you will—until President Trump came back to the Oval.

However, I don’t know many “warring” countries that do $582bn worth of business together in a single year, as the U.S. and China did last year.?

Anyway, the world’s two largest trading countries certainly don’t need an all-out war to cause concern. As always, markets are forward-looking, so any potential disruptions or perceived potential disruptions to that $582bn automatically become a concern.

And that’s exactly what happened over the weekend and into this week.?

On Saturday, President Trump implemented a 10% tariff on all imports from China—full stop. That was on top of existing selective tariffs on certain Chinese goods, such as a 30% on most textiles, a 49% tariff on animal hydes, and a 34% tariff on prepared food and transportation equipment.

It didn’t take long for China to respond, implementing a 15% tariff on LNG and coal products from the US and a 10% tariff on American cars, farm equipment, and oil.

However, China got a little more creative too. The Middle Kingdom implemented export controls on five rare earth elements, including tungsten, tellurium, bismuth, indium, and molybdenum.?

Even more creative, China also hit the U.S. in its most personal area—its private companies. As of this week, China added PVH Corp. and Illumina to its “We Don’t F*ck With You” list and even opened an antitrust investigation into Google.

The goal of these tariffs are slightly less clear and slightly more multifaceted than Canada and Mexico.

While U.S. trade restrictions are partially intended to curb fentanyl imports from China, a top commodity, President Trump’s disapproval of the U.S.’s massive trade deficit is more front-and-center with China.

A trade deficit happens simply when one country imports more from another country than it exports to them.?

At face value, a $295 billion trade deficit with China (as of 2024) looks like the U.S. is losing the economic war. But trade deficits aren’t necessarily all bad—especially for a country like the U.S. that enjoys reserve currency status.

First, the U.S. imports more from China because American consumers demand cheap goods. That’s not a sign of economic weakness; it’s a reflection of our purchasing power and high wages compared to other countries.

Every time you buy an iPhone, a cheap Amazon gadget, or a lithium battery, you’re adding to that deficit. The alternative? Paying more for the same products made domestically—good for jobs, bad for wallets.

Second, the dollars China earns from selling to the U.S. don’t just vanish.?

China reinvests those dollars back into U.S. assets, particularly Treasury bonds, stocks, startups, and real estate. This keeps interest rates lower than they otherwise would be, making borrowing cheaper for businesses and the government.

Third, a trade deficit isn’t the same as a value deficit.?

The U.S. exports services, intellectual property, and high-end technology to China in ways that aren’t always captured in raw trade data. Think Apple selling iPhones in China or Disney raking in yuan at the Shanghai theme park—high-margin, high-value transactions.

Source

The Takeaway?

So, while tariffs and trade tensions create headline drama, a trade deficit itself isn’t an economic catastrophe. In fact, it’s often just the cost of being the world’s biggest consumer economy.

These tariffs aren’t necessarily about economics, as we know well with President Trump. It’s difficult to get a read on what his primary goal is, as it’s not a great negotiating tactic to tell the other side exactly what you want, especially for the guy who literally wrote The Art of the Deal.

Career Corner

Question

Do you recommend purchasing LinkedIn Premium? If so, which do you think will be the main benefits?

Answer

Unlimited networking.

Head Mentor,?WSO Academy

Check out WSO Academy

What's Ripe

Aurora Cannabis (ACB) 45.9%

• Stocks and drugs have a lot in common. They’re addictive, fun, and can get you real high, as Aurora Cannabis knows well. However, it’s easy to forget about the comedown…
• Canadian cannabis producer Aurora Cannabis shocked the world with the first semi-decent earnings report from a pot stock since Eli Lilly was selling weed from 1890-1937.
• The firm reported $61.74mn in sales, up 37% annually thanks to a 51% pop in its medical cannabis business, driven by expansion into the German medical market.
• However, don’t get too excited. Heading into Wednesday, Aurora had a short interest of about 10% of its total float, so much of today’s action could be linked to a temporary squeeze.

Novo Nordisk (NVO) 3.8%

• Speaking of drug dealers, Danish pharmaceutical giant Novo Nordisk put a lot of weight in investors' portfolios yesterday, mostly by taking it off their bodies.
• Shares surged as Novo beat earnings estimates, driven by a doubling in annual Wegovy sales, the firm’s weight-loss drug. Total sales grew 30%
• Even more exciting, especially for the future of the average American waistline,? Novo added positive commentary on its next-gen weight-loss drug, CagriSema, announcing the start of a new Phase 3 trial.

What's Rotten

Uber Technologies (UBER) 7.6%

• The ultimate pickup-up artist, Uber shares tanked Wednesday on a mixed earnings report. Honestly, nothing short of full autonomy will impress me, even 20% sales growth.
• That’s what the firm reported as it’s $12bn in revenue, beat estimates for $11.8bn. GAAP earnings beat estimates thanks to $6.956bn in benefits related to tax revaluations and gains on its equity investments.
• The $770mn in operating income reported woefully missed estimates for $1.15bn. Q1 guidance on gross bookings was weaker than expected too, anticipating 17-21% growth.?

Advanced Micro Devices (AMD) 6.3%

• Nvidia CEO Jensen Huang is laughing harder at AMD’s earnings than I do watching a Shane Gillis performance. Data center revenue was worse than a Fox News Mom finding out her kid watches CNN.
• Total revenue of $7.7bn and EPS of $1.09/sh squeaked past estimates for $7.5bn and $1.08/sh. Data center revenue of $3.86bn was a big swing–and–a–miss against the $4.14bn expected.
• Analysts took that as a sign of slowing growth of its x86 product, which has been eating Intel’s market share for lunch. Plus, Arm’s increasing involvement in this space adds another threat to growth.

Thought Banana

Earnings Spotlight: Alphabet Inc.

My bad apes. We’re a day late and a lot more than just one dollar short on Alphabet’s earnings, but how could we not get hyped about a U.S. sovereign wealth fund yesterday?

Better late than never. Amazon’s earnings are out tonight, so expect more on that tomorrow… unless I forget… which is highly likely.

Let’s dive in.

The Numbers

Google-parent Alphabet is having a busy week.?

On Monday, China opened a politically driven antitrust investigation into the firm, meaning Google is now under antitrust scrutiny from the two countries with the world’s largest economies and most powerful militaries. Anyone wanna trade places?

It’s hard to have a good earnings day after that, especially when you miss revenue estimates, too.?

Released Tuesday afternoon, Alphabet delivered EPS of $2.15/sh on $96.47bn in sales, mixed against estimates for $2.13/sh on $96.56bn and sending shares down 7.4% on Wednesday.

Not sure how that’s possible when there are more ads than videos on YouTube, but I digress. In fact, YouTube’s ad revenue was a primary driver of selling pressure, up only 13.8% compared to 15.5% in Q1’24.

Total revenue grew just 12%, primarily driven by a slow 10.6% growth in Google Ad revenue. Google Cloud's growth of 30% was a disappointment to investors expecting to beat Microsoft’s 31%, with the final figure of $11.96bn missing estimates for $12.19bn.

Source

Considering Google Cloud is the smallest of the major cloud players with only a 12% market share, slow growth compared to the larger MS Azure was a big red flag.?

However, the firm did manage costs effectively as net income surged 28% annually to $26.54bn.

Another potential area of concern for investors was CapEx. In 2024, spending more was a surefire path to a green print. However, the potential implications of DeepSeek hang heavy in investor’s minds.

Alphabet plans to spend $75bn in capital expenditures in 2025, planning for $16-$18bn of that spend to come in Q1. Nearly all of that pie will go to technical infrastructure, especially servers and data centers.

Source

The Takeaway?

That’s the problem of being a big tech firm–when you’re everywhere, so are your problems.?

Getting double-teamed by the U.S. and China while trying to compete with all the best companies in the world–from Apple to Nvidia to Meta to Sequoia Capital–is a tough spot and one in which investors don’t want to be a part of.

However, this is Google we’re talking about. Larry and Sergey are back (kinda) and ready to search for a solution.

The Big Question: Can Google turn things around in Q2? Is the firm overspending on AI? Underspending? Just right? How will pending antitrust cases change that?

Banana Brain Teaser

Previous

If 65% of a certain firm’s employees are full-time and if there are 5,100 more full-time employees than part-time employees, how many employees does the firm have?

Answer: 17,000

Today

In a certain high school, 80% of the seniors are taking calculus, and 60% of the seniors who are taking calculus are also taking physics. If 10% of the seniors are taking neither calculus nor physics, what % of the seniors are taking physics?

Send your guesses to [email protected]

?

I think it is often easier to make progress on mega-ambitious dreams. Since no one else is crazy enough to do it, you have little competition.

Larry Page

How Would You Rate Today's Peel?

?? All the bananas

?? Meh

?? Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick