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In today’s edition,
- SoftBank’s to invest in OpenAI
- Meta and 1 billion users
- Microsoft’s AI bottleneck
- Apple and China
- Weak credit demand
- Can Bitcoin’s performance be replaced?
Market Snapshot
U.S. stocks ended the week higher despite early volatility. Nasdaq closed at 19,627.44 (+2.05%), S&P 500 at 6,040.53 (+1.20%), and Dow Jones at 44,544.66 (+0.90%). The week started with a tech selloff, as DeepSeek’s AI breakthrough raised competitive concerns, leading to a 17% drop in NVIDIA. However, strong earnings from Meta and Apple helped markets recover.
Tariff risks resurfaced, with the Trump administration reaffirming 25% tariffs on Mexico and Canada and a potential 10% levy on Chinese goods, keeping investors cautious. Meanwhile, the Fed held rates at 4.25%–4.50%, signaling no rush to cut rates as core PCE inflation stayed at 2.8% for the third straight month.
The U.S. economy grew 2.3% in Q4 and 2.8% in 2024, slightly below forecasts but still outpacing the Fed’s 1.8% long-term target. Despite trade and inflation concerns, earnings and economic resilience supported market gains, with investors now watching Fed policy and trade developments.
Stock market closing data for the week of Jan 27th to Jan 31st, 2025
News Summaries
OpenAI is seeking to raise up to $40 billion, which would value the company at $300 billion, nearly doubling its October 2023 valuation of $157 billion. SoftBank is likely to lead this effort with an investment between $15 billion and $25 billion, while other investors will cover the remainder. This funding is crucial for OpenAI, providing the computing power it needs to compete with the Chinese startup DeepSeek, which is developing AI more cost-effectively. SoftBank’s involvement aligns with its ambitions in AI hardware, especially since it holds a 90% stake in Arm Holdings and has $25 billion in cash reserves. However, concerns linger about the financing of Stargate and whether it will go beyond its current data center plans. If successful, this investment could transform AI infrastructure. Ultimately, the success of SoftBank’s AI strategy will depend on turning its capital into sustainable AI leadership, rather than just another heavy investment.
Meta is all in on AI. CEO Mark Zuckerberg predicts Meta AI will reach 1 billion users by 2025. This goal is supported by a $65 billion investment in AI next year. AI-driven ad targeting is already boosting revenue. In Q4, sales hit $48.4 billion. However, the Q1 forecast of $39.5–$41.8 billion fell short of expectations. Meta’s capital expenditures for 2024 reached $39.2 billion, exceeding analyst estimates. The company is investing in AI infrastructure and hardware, including smart glasses and wearables. Meanwhile, DeepSeek’s cost-effective AI puts pressure on Meta to cut spending and remain competitive. If cheaper AI models succeed, Meta may need to rethink its high-cost strategy before investors question its long-term plans.
Microsoft’s Azure revenue is set to grow by up to 32% in Q3. However, capacity issues in AI data centres are hindering expansion, resulting in a 6% drop in stock price. AI services surged by 157%, and Azure commitments from OpenAI boosted commercial bookings by 67%. Yet, infrastructure limitations are capping growth. Last quarter, the company spent $22.6 billion on capital expenditures, exceeding expectations. This is part of an $80 billion investment in AI for the fiscal year. Microsoft anticipates AI revenue will reach $13 billion annually. Analysts question the sustainability of its massive cloud spending, especially with cheaper AI models like DeepSeek emerging. If Microsoft can’t scale capacity quickly, it risks losing market share—not just to Google and Amazon, but also to leaner, cost-efficient AI competitors.
Apple’s Q1 revenue rose 4% to $124.3 billion. This growth came from services, which increased 14% to $26.3 billion. Mac and iPad sales also exceeded expectations. However, iPhone revenue fell 1% to $69.1 billion. Sales in China plunged 11% to $18.5 billion, missing forecasts. CEO Tim Cook attributed much of the decline in China to inventory adjustments. Apple faces rising competition from Huawei and regulatory challenges in the EU. The company expects low-to-mid single-digit revenue growth in Q2. The real challenge lies in AI adoption. Apple Intelligence is rolling out slowly, making it less appealing than OpenAI and Google Gemini. It isn’t available in China, a key market. Cook highlighted the tight integration of hardware and software as a strength. However, with increasing AI competition and a cautious approach to innovation, Apple risks appearing reactive rather than leading. The next few quarters will determine if Apple’s AI strategy is a long-term play or a miscalculated delay.
U.S. banks are recovering from the 2023 crisis, but lending remains slow. Despite falling rates, deregulation, and low inflation—factors that usually boost growth—this trend continues. Total bank loans rose by only 2.7% in 2024, up slightly from 2.3% in 2023. Business loans grew by just 1%. Regional banks, which lack investment banking revenue, are struggling. Some, like PNC, Wells Fargo, and KeyCorp, even saw loan declines. Commercial real estate lending was the slowest in over a decade, growing only 1.3%. Banks tightened renewal terms to reduce risk exposure. Even megabanks like JPMorgan faced commercial loan declines. They compensated with private credit deals and advisory fees. The big question remains: Is this caution temporary, or a deeper shift? Are businesses delaying borrowing due to policy uncertainty? Or is bank lending losing ground to nonbank financial players? If it’s the latter, banks must rethink their credit strategies to keep up with alternative lenders.
From the World of Crypto
For investors who can’t buy Bitcoin directly—due to rules, compliance issues, custody worries, or platform limits—finding a good alternative is tough.
A true proxy should move with Bitcoin and provide similar long-term returns. However, most options either diverge in performance or bring extra risks that Bitcoin does not face.
Other cryptocurrencies might seem like a natural choice, but their performance compared to Bitcoin varies widely.
Take Ethereum, for instance. It often follows Bitcoin’s direction, but not always in the same way. Its price is also affected by network changes, regulatory updates, and competition from other smart contract platforms.
Altcoins are even less predictable, showing greater volatility and independent price movements that make them unreliable for tracking Bitcoin’s price.
Bitcoin mining stocks are another option since their revenue ties back to Bitcoin’s price. Yet, their stock prices can be influenced by operational issues, electricity costs, regulatory uncertainty, and capital spending.
While some mining stocks sometimes outperform Bitcoin, they usually lag over longer periods. Crypto-related stocks like Coinbase might seem like reasonable substitutes, as a strong Bitcoin market boosts overall trading activity.
However, Coinbase’s stock has historically underperformed Bitcoin due to factors like regulatory pressure, changing trading volumes, and broader equity market trends that don’t directly impact Bitcoin.
MicroStrategy stands out as the closest true Bitcoin proxy. The company has heavily invested in Bitcoin, using both corporate funds and borrowed money to acquire large amounts.
As a result, its stock price has often mirrored Bitcoin’s movements, and at times, it has even outperformed Bitcoin due to its leveraged holdings. Still, MicroStrategy is a publicly traded company with its own financial risks, making it a high-risk option.
Given these challenges, the best way to gain exposure to Bitcoin without direct ownership is through a Bitcoin ETF.
These funds hold actual Bitcoin and closely follow its price, making them a more reliable way to mimic Bitcoin’s performance while avoiding custody and security issues tied to direct ownership. Unless investors are completely barred from accessing Bitcoin ETFs, they remain the best alternative.
The bigger question is whether relying on financial products like ETFs or Bitcoin-heavy stocks undermines Bitcoin’s original purpose. If Bitcoin’s appeal lies in its decentralized, unregulated nature, holding it through traditional financial products may dilute its value. Investors seeking exposure without direct ownership may find proxies helpful, but none truly capture Bitcoin’s core qualities.
