Melissa Otto, she's head of visible Alpha Research at S&P Global.
Melissa, welcome. hello.
What do you make of this trading session?
Wow, holy mackerel, it looks like a little bit of momentum came back in the market this afternoon.
Very exciting to see that a lot of momentum indeed.
Let's talk earnings because certainly we do see the major indices move on earnings.
SpaceX set to report.
What are you watching?
We're watching a couple of things.
First and foremost, all eyes are really gonna be on that connectivity segment.
How is Starlink behaving?
Investors are likely going to want to see north of 10,000 satellites in orbit, and that operating profit margin getting to at least 36% this quarter.
Consensus is looking for 37.5% next quarter, so all eyes on the guidance around that as well, because that's really what's driving the earnings for the entire company at the moment.
Capex as well will be really important for the AI segment.
We see a wide range.
Of CapE assumptions around AI for the company, it could be anywhere from 1 to $6.5 billion which is really what's making it so difficult to assess what the EPS will be for the company and how to value it.
I'm glad that you brought up X AI, AI, I guess in particular, right, and a lot of talk since the XAI merger.
How important is revenue in that area for investors?
I think it's very important.
Revenue growth is ultimately what is dictating the return, so we're investing this money.
We want to grow the company, and revenue is the best evidence that investors have of how that growth is coming to fruition.
So we've seen 6 of the 7 Max 7 companies report so far, of course the largest technology firms out there, even though each of their business models is a little bit different than the next you mentioned.
AI Capex focus here now when it comes to what this, you know, might portend going forward, what have you been able to glean?
One of the most exciting data points out of the quarter so far has been around Microsoft.
Microsoft's earnings were very solid for the quarter, but what got, I think, investors excited was very much the fact that their guidance for.
The cloud accelerated from this most recent quarter, and that acceleration is potentially some very clear evidence of the Capex really coming to hit the market.
Yeah.
Any other takeaways from these big name companies as they've been reporting?
Any other big takeaways?
Capex, Capex, Capex?
It's all about AI.
This is really what people are talking about.
They want to understand is.
This really going to move the needle in terms of earnings growth, and I think we're starting to get whispers of that, but that's really what's on investors' minds.
Nvidia would be 7 of 7 in terms of the max 7 reporting.
What are you looking forward to when Nvidia reports?
I mean, we ran our models just before this segment, and what I can see is that from last quarter we've seen all the major line items for the company edging up higher.
Whether it be data center revenues, data center profits, Blackwell, all of these things are demonstrating that there is a fundamental acceleration around expectations in their business.
You know, it's interesting here we've had several companies go public.
It seems like the market is open for that and closing at a record high certainly would seem to add to sentiment.
Are you finding that sentiment in the market is strong now?
I mean, sentiment has been wild.
I mean, there's, you know, I feel like we ebb and flow between, OK, it's a risk on, it's a risk off.
It's about the Middle East, it's not about the Middle East, it's about Capex, it's not about Capex.
I think.
At the end of the day, companies that deliver strong fundamentals, beat expectations, and continue to demonstrate that their strength and sustainability in their business models are probably the ones to pay attention to.
That's interesting that you say that any other.
Firms outside of the mag 7 that are on your radar.
Absolutely micron.
Interesting.
OK, tell me more memory, memory, memory.
I mean this has been an amazing story.
I mean, everyone thought memory was left for dead, and here we are.
It's back to life.
Whether it be Samsung, SK Heinx, or Micron, these companies have just come alive.
And so the question is, what is the point at which they meaningfully slow down?
And coming into this quarter, we're going to be keenly listening to what the earnings growth looks like and where in fact the trajectory of expectations should be going for the company.
Right now the stock trades.
Time PE for next year compared to Apple at 35 times.
So I think investors are really wanting to understand, is this just a short term trade or is this likely to be around for a while.
So I think we'll be listening keenly for that.
We're going to get some major economic data as well, notably the jobs report.
Does the economic data matter for these large technology companies and if so, to what extent?
The economic backdrop is in fact important because it dictates the direction of travel for the dollar.
How the dollar plays out in this environment affects all sorts of things around revenues and earnings and how different transactions are going to happen.
And so I think there is an important dimension to this. macro backdrop around where these companies are going to be placed in terms of international transactions around the dollar.
So another aspect of the macro that I think is very important is headcount.
We've seen headcount be quite volatile at these firms, you know, we have 10,000 employees.
Coming out and then another 9000 coming in and and I think that's been around them having to really repurpose and refocus the skill set of their tech talent to position for AI.
All right, Melissa Otto, thanks so much for joining us down here on the training floor.
It's fun.
I love being down here.
Great to have you, yes.
