Tariffs Are Here; Meta, GM, and Tesla Earnings

Author

Ram Ahluwalia
February 02, 2025

Here’s a preview of what we’ll cover this week: 

  • Macro: Tariffs Are Here

  • Market: Meta, GM and Tesla earnings, Nvidia Read-Thrus, Venture Capital is Over-Rated

  • AI: Datacenter Theme On Sale

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Macro

By year-end, we expect markets will be materially higher.

However, there is the journey vs the destination.

Last weekend, we noted that markets had a ‘Peak Sentiment’ event due to Trump’s talk at WEF where he called for lower global interest rates combined with the enthusiasm for Project Stargate.

All asset classes rallied.

That left markets vulnerable to negative newsflow like DeepSeek.

Funny enough, we have a similar setup now. These markets sure are providing choppy waters.

This past Wednesday EOD, Meta - one of Lumida’s top picks - reported stellar results. The business grew earnings 48% YOY. Tesla reported mediocre results - but the announcement of autonomous driving coming to Austin sent the stock higher.

Both events led to a peak sentiment event on Thursday. Here’s a screenshot of what we saw Thursday.

Notice the green all over the place:

Two Thursdays ago, you’d see a similar screen. Here’s what happened then:

Both days are characteristic of Peak Sentiment. They leave markets vulnerable to weakness.

Meta’s strong earnings lifted all stocks…even though those stocks aren’t experiencing Meta’s strong earnings growth.

It’s an irrational exuberance. Similarly, Tesla’s results boosted other stocks. That’s pure ‘Animal Spirits’. It measures a reduction in risk aversion. People get bulled up and want to buy more stock because they feel optimistic.

On Friday after the close, President Trump announced that we’ll see tariffs on Canada and Mexico.

Anticipation of this news caused markets to drop, and we expect more downside volatility ahead.

Market participants are under-estimating Trump’s commitment and resolve to use Tariffs to finance the U.S. government. 

Market participants once again will be caught off-sides as this information is priced in.

We would expect that Trump provides relief to U.S. automobile manufacturers who rely on a complex and organized supply chain to deliver cheap American cars to the public.

That will boost those stocks… at some point. But, you’re going to get a healthy dose of volatility in the meantime.

Canada announced retaliatory tariffs.

Notice no Mag 7 type names are implicated here. The breadth component in the market and small business that is impacted. 

Sectors like financials and healthcare aren’t impacted of course – and no surprise financials have done well. We expect financials will continue to do well although they are technically overbought.

Last week we noted several areas were over-extended:

Excerpt

This ETF dropped right to the moving average and remains lower than it was last week.

We also noted these Datacenter theme ideas were over-extended.

Both of these names tanked 20%+ and their peers including Constellation Energy.

We also called out large cap financials as vulnerable - such as JP Morgan. 

We got 3 out of 4 of those calls correct.

What we did on Tuesday morning was aggressively buy the various names that we identified as prone to selling off and other names in the Datacenter theme.

These include names like Vistra and Talen Energy (Independent Power Producers supplying energy to datacenters). We bought Nvidia on the 200 DMA. We bought several other names too.

We went from a risk-off posture on Friday to a risk-on late Monday and snapped up these names as they corrected 20 to 25%.

Many retail investors were scared about DeepSeek and we saw indiscriminate selling in the Datacenter theme.

This week, we have Google results to look forward to. We expect they show continued strong growth, and the results can improve market sentiment.

That said, we expect tariff exposed names to suffer. Markets were not expecting tariffs this quickly; they expected a gradual step up over time. That wrong way set of expectations will cause volatility.

We do believe that taking advantage of this volatility is a good idea. How to take advantage of it depends on how the week unfolds.

For example, we think most of the bad news around GM’s exposure to tariffs is priced in.

We sold GM a few weeks ago when we saw the tariff risks. They reported stellar numbers - increases in earnings, market share, and buybacks - and the stock sold off on tariff fears. 

We snapped up the name and continue to believe it offers a good valuation. It’s hard to know if we are exactly at the bottom. There could be a shake-out below the 200 day moving average. But, on balance, the risk reward looks attractive from the perspective of a long-term investor.

Zooming out, after we get thru February volatility (a possibly a tariff related correction), we should finish the year strong due to earnings growth.

We expect Trump will receive the message from Mr. Market. He’s the stock market President and that’s his scoreboard.

Trump’s Trade Chaos: A Pattern Emerges?

Do you see a pattern?

Nvidia 

What we learned from Microsoft and Meta is they reiterated their capex spend on Nvidia.

After Nvidia reports, we expect the forward PE will drop significantly. Take a look at the Forward PE over the last 5 years.

The valuations are attractive and will be even more so after Nvidia reports.

What we say Monday we saw record margin debt combined with 3x levered long Nvidia and Semiconductor ETFs get wiped out due to excessive leverage.

Monday was a technical margin call driven correction that pushed prices into an overshoot. The fundamentals are intact.

Notably, however, institutions are cautious on paying up for valuations. Microsoft and Nvidia’s PE have compressed over the last 9 months.

Microsoft’s stock has gone up only 3% in the last 12 months. 

All of this is healthy - including the volatility - it gives room for multiple expansion in the future.

Other Nvidia Read-Thrus

1) Intel’s recently departed CEO, Patrick P. Gelsinger, shared on X that he bought shares of $NVDA

The former CEO tried to wage war on Nvidia and has intimate knowledge of the customer needs and GPU battlefield. 

2) Microsoft cloud revenue grew 31% YOY

Capex was up to $22 Bn up from $20 Bn last quarter. 

Most of the Capex goes to the datacenter theme: Coreweave and Nvidia, 

3) Microsoft reports $13 Bn in AI revenue

So… the capex spend is ROI positive.

That’s a reasonable payback period. (Microsoft was simply Consensus and over-priced.) 

4) Microsoft reiterates capex spend and Project Stargate

Microsoft is now hosting the DeepSeek model that may have been illegally trained on OpenAI.

(Sam Altman must be pissed.)

5) Corning (GLW) reported record demand for fiber optics

Sales rose 51% YOY at its fiber electrical unit.

The beneficiaries of all of this?

CapEx Receivers: Such as Nvidia and CoreWeave.

Stepping back, Mr Market has delivered healthcare, energy, financials, homebuilders and now the Datacenter theme on sale in the last 2 months.

Those are great themes to own for the rest of the year, and we feel very good about our positioning.

“You make your money on the buy”

Tariffs on GPU Chips?

TRUMP: "I had a good meeting with (Jensen Huang, CEO of NVIDIA). We're eventually going to put tariffs on chips, on oil and gas on the 18th of February, and tariffs on steel, aluminum, and ultimately, copper."

Mr Market does not like tariffs… take a look at any index this Friday

To offset a 25% increase in imports of, say, automobiles or avocados - the US dollar would need to rise by around that amount to make US consumers whole

And a stronger dollars reduces the attractiveness of American exports. These exports are 25% more expensive and now less competitive.

So, tariffs won’t reduce the trade deficit.

(Which was never a problem in the first place, since the trade deficit finances capital inflows to the United States)

The dollar will strengthen partially offsetting but not by 25%. 

That means US consumers are in fact bearing a significant portion of the tariff costs

Tariffs create a ‘dead weight loss’ from mutual gains from trade that simply never happen.

If you buy a car as an American consumer, you are worse off.

If you export a car as an American exporter like GM, you are worse off.

How do risk assets perform when the US dollar goes up?

Badly. And, as we’ve noted, foreign investors have been bidding up U.S. stocks. The demand for stocks will lower on the margin.

So what are we doing here?

‘If you squeeze here, it gives there’

Last week, we noted that when foreign investors are piling into the U.S. market, they are leaving their home market cheap. 

A strong dollar means focusing on international markets is a good idea. Markets like Brazil and China have rallied nicely in recent weeks - although they are poised for digestion right now.

The Curse of Manufacturing

No American wants this mindless grunt job, any more than any American wants to pick berries in the field or clean houses.

This is the dilemma of manufacturing.

The solution is robotics. But, that’s still many years away, and the supply chain for robots is in China.

Venture Capital is Over-Rated

Investing in QQQ easily beats venture indices and provides you with liquidity.

We expect that trend to continue.

Take a look at vintage performance from 2021. Way behind on delivering DPI to investors.

Buying the Dip: Reentering GM After Strong Results

On that note, I bought GM after stellar results. 

$14 Bn free cashflow

Earnings growth of 38% YOY

Stock price up similar amount YOY, beating the S&P

Market share increased to 17.5%

#1 in retail, fleet and total sales

Reduced 1 Bn in shares. Returned $7.5 Bn in capital

How we Approached It:

We SOLD GM on tariff concerns a few weeks ago. 

You may have noticed we are obsessed with tariffs. 

The Q&A tariff talk tanked the stock. 

It’s at 200 DMA ish despite strong results. 

Now, I buy back in because I expect tariffs are priced in. 

GM also donated $1 MM to Trump inauguration… 

…these issues will be resolved.

Fwd PE is 4.5x

Market Cap: $54 Bn

and $4 Bn in free cashflow

Apollo should buy them

This my proof to you that value stocks can do just well

Don’t fall for the growth stock psyop.

Intuition is something that is uncomfortable for many people to talk about. 

Intuition is a pre-rational knowingness that precedes evidence

It’s a scent that leads you down a path at the end of where only later you find the ‘reasons’ your intuition already knew. 

Intuition isn’t magic—it reflects the quality of your inner and outer life. 

The more reckless your existence—conflict, anger, cannabis, alcohol—the more you dull your intuition. 

The more grounded you are in nature, love, community, health, and gratitude, the sharper it becomes.

Most people ignore intuition because it doesn’t fit into a spreadsheet or a backtest. 

Academics worship data, models, and logic— and they are terrible investors. 

Some of the best decisions are born out of a gut feeling that defies all of that.

The Ancients probably had a better understanding of intuition. 

The Greeks had this concept of the Muse. 

The Muses were invoked at the start of an epic. 

An epic was tens and tens of thousands of words - impossible to memorize. 

Epics were passed down orally long before writing. 

The Greeks saw the Bards as merely antennas or conduits for the Muse. 

See this first line in the epic the Iliad:

“Sing, O goddess, the anger of Achilles, son of Peleus, that brought countless ills upon the Achaeans.”

That’s an invocation. 

The Muse is literally being summoned to speak through the bard.

Socrates, the first philosopher, took the concept of the Muse literally. 

He believed that wisdom wasn’t generated by the mind alone—it was something revealed to those willing to receive it.

There is a distinction between Intellect and Wisdom. 

Anyone who's solved a math puzzle knows what a Eureka moment feels like. 

There is no logical deduction. 

As the Zen monks would say, it’s purely spontaneous. 

The best investors, artists, and creators understand this intuitively. 

They don’t treat intuition as a shortcut or superstition. 

They cultivate it, respect it, and pair it with discipline.

Because intuition is fragile. 

Treat it poorly, and it goes silent. 

Numbing behaviors, chaos, and overstimulation will drown it out.

But a life of stillness, health, and presence will amplify it.

Maybe the Muse never left us. 

Maybe we’ve just forgotten how to listen.

Softbank Values OpenAI at $300 Bn?

Quick reactions:

1) How much dilution will OpenAI shareholders receive?

2) Softbank is the like the Fed : 'Investor of last resort'

There is no further provider of capital at these valuations.

Not even Tiger Global would write a check at.

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