Streaming wars, tech sector rebound: Asking for a Trend

On today's episode of Asking for a Trend, Host Josh Lipton breaks down some of the top trends and takeaways from the trading week.

Streaming giants Disney (DIS) and Paramount (PARA, PARAA) both reported earnings this week. Disney reported an earnings beat on both the top and bottom lines for its fiscal third quarter, revealing its streaming segment was profitable for the first time. Paramount Global reported mixed results for its second quarter, with adjusted earnings beating estimates, but revenue falling short of expectations. Morningstar Senior Equity Analyst Matthew Dolgin explains, "All these companies other than Netflix (NFLX) are continuing to make progress, but they are just not there, not mature." He adds, "the difference with them and Netflix, a decade or less ago, is that they have these other legacy businesses that they're managing. And so they're not getting the pass from Wall Street as streaming continues to grow and is not yet a mature or good business necessarily. They're seeing their other business decline, so they need that to turn."

Despite a volatile week on Wall Street, investors still seem to love tech. Semiconductor stocks closed largely in the green, despite Nvidia (NVDA) falling 2.3%. Meanwhile, bond yields are bouncing back after coming under pressure last week. Jared Blikre breaks down his biggest takeaways from the trading week.

The phrase "bad news is good news" for stocks used to be true, but now good economic news is good news for stocks. Josh Schafer breaks down a chart from Piper Sandler's Michael Kantrowitz taking a look at the impact of economic news on stocks ahead of big economic news out next week, including the CPI report and retail sales.

Anduril Industries, a defense tech start-up, raised $1.5 billion, making the company valued at $14 billion, co-led by Founders Fund, which is Peter Thiel's venture capital firm, and Sands Capital. Anduril now joins a small, elite group of high-valued defense companies like Lockheed Martin (LMT). The company's goal is "to manufacture and produce tens of thousands of autonomous weapons systems addressing the urgent needs of the United States and our allies," according to a company press release. Venrock Partner Nick Beim explains, "I think there's a boom in the global defense industry generally. We've got wars in Europe and the Middle East. China has adopted a very aggressive military posture toward Taiwan and is trying to leapfrog US military capabilities by investing in tech. And so broadly, the defense industry is booming."

This post was written by Melanie Riehl

Video transcript

Hello and welcome to ask me for a trend.

I'm Josh Lipton and for the next half hour, we're going to be breaking down the trends of today that will move stocks tomorrow.

There is a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve.

Here's some of the trends.

We're gonna be diving into the whipsaw week that was stocks ended today in the green.

All three major averages were slightly on the week but recovered significantly from Monday's steep.

Sell off the S and P 500 saw its best and worst day in more than a year during that five day stretch.

Plus the state of streaming.

Both Paramount and Disney reported profits in their respective streaming units for the first time this week, but that hasn't translated into record gains for the stocks.

Take a closer look at the biggest names in the streaming space next.

And defense tech company Andrew industry secures 1.5 billion in its latest funding round.

The latest in a string of start ups that have benefited from a surge in investments flowing into defense tech this year, we're going to discuss the sector's state of funding later on in the hour, investors hearing from a slew of media names this past week, both Disney and Paramount reported profits out of their streaming businesses for the first time ever.

Join me.

Now with more on the state of the industry is Matthew Dogan Morningstar, senior equity analyst, Matthew.

It is good to see you.

So it feels like a good time to make take AAA breath here.

Uh Matt, you know, we, we got a lot of reports from some streaming services.

Uh Disney and Warner Brothers, Discovery and Paramount, you know those names, Matt, you know, the sector, you read through the reports, you listen to the conference calls.

What were your big takeaways?

Matt, where, where are we in the great streaming wars?

Well, all these companies other than Netflix are continuing to make progress, but they are just not there not mature.

Um The difference with them and Netflix a decade or less ago is that they have these other legacy businesses that they're managing and so they're not getting the past from Wall Street um as streaming continues to grow and is not yet a mature or good business necessarily.

Um They're seeing their other business decline, so they need that to turn.

Um But with that said, we're pretty optimistic generally about how things have been going in the streaming space.

Certainly, as you mentioned, losses have come down quite a bit and are turning to profit um in some cases, in a way that we think will be sustainable from here forward, like we've seen a turning point.

Um and they continue to generally add subscribers grow revenue per subscriber.

They're making it a better business, but it takes time.

And in the meantime, their other businesses continue to struggle and that's why the stocks we think are, are remaining under significant pressure.

And so they, they are getting, you know, they get into the black profitability matt just since you get your take, I've heard some analysts, um, throw, I guess you would say cold water on that because they say, well, they're getting, they're getting into profitability here, but they're doing it because they're through raising prices and cost cutting.

It's not through investing and creating and delivering really the kind of great content you need.

What, what's your response to that sort of skeptical take?

I think it goes back to these being broader businesses.

And so, um, they do have, uh in each of these cases, the firms you mentioned they have studios, they are continuing to put out content.

Yes, they've cut costs in some places.

But um, we don't think that they're producing too little content right now.

We think that they need to figure out the best way for distribution and to us, the thing that needs to get figured out or needs to evolve more is just looking at these businesses as, um, as a whole, rather than these separate segments where you have the traditional television or film, the linear business.

Um, and television certainly, um, with streaming and as they can both reach consumers as one and as the business or businesses are looked at as one, we don't think that it'll look as severe as far as, um whether, whether, um, costs are coming down because the content budgets at most of these firms have remained pretty high.

Actually, let me ask you about, I got a five year old at home.

I'll be honest, all she watches is youtube constant youtube.

How much of a competitive threat does that pose to some of the companies, the streamers in your coverage universe?

Well, youtube, uh along with Netflix is by far the most watched uh streaming service.

So, uh it is a, a, a competitor for share of time, but that doesn't mean that, um, that we see it as, as a really big threat because generally it's different types of content.

And so certainly, and especially the younger generation is gravitating more towards youtube.

Uh We still see it as a different type of viewing experience and, um, and something that fits within, within broader media.

Final question, another name.

I know, you know, very well, Warner Brothers Discovery got their print.

What, what is the future of that company?

Matt do you think, uh I mean, is a possible break up coming?

We do think that's possible mostly because the company and the stock has struggled so badly.

So, although we don't necessarily think it's necessary, we certainly think that it could generate interest because of what it has been going through.

But we think the bigger thing is that whether it is outside interest with, with an activist coming in or the company splitting up, we think that it needs to at least partner in the form of bundles or otherwise with some of the other companies to help drive its business forward and help it make that transition a little bit better.

Matt, great to have you on the show today.

Recapping a lot of these prints.

Appreciate it.

Thanks the S and P 500 NASDAQ cap and a major comeback on Wall Street, nearly wiping out the week's losses in a wild turnaround.

Yahoo finance his very own, Jared Blick re joins now with more on the trading day takeaways, Jared.

Thank you, Josh.

What a week and guess what?

Investors still love.

Tech B of A crunched.

The numbers and tech has now seen inflows for six straight weeks.

So this week's uh notwithstanding the volatility that we saw didn't really affect the market.

At least the tech trade and the flows that we're talking about that much had a lot of effects on the market.

So this is a semiconductor space over the last five days, lots of green and video is red.

But what impresses me is that we were able to eke out uh some gains here and even some outside is gain in gains in a lot of these names.

Intel down 8% Super Micro 18.

So there were some big losses, but a lot of the losses are just earning stories are not really wrapped up in.

Uh the, the volatility and the trade that went on here is software you're gonna see probably more green than red if we go to the equal weight.

So my point is, I mean, you look at the sector action, I was noting this 30 minutes ago, there are no big numbers here.

1.6% to the downside of materials, industrials up 1.3%.

These are small numbers.

So you're watching the flow is any other, any other trends?

We should be watching bonds overseas.

So let me show you what Michael Hartnett's team over at B of A showed or found this week in flows high yield bonds.

We're seeing a lot of outflows most since October 23.

So the credit risk now that's, that's a different type of risk in the bond market.

Investors don't want that.

They're not liking bank loans.

So that's another credit risk tips.

Seeing the largest inflows since April 22 that tells me that investors are worried about inflation.

Why would that be, you know, the fed is going to cut rates maybe by 50 basis points.

So that's where that comes from.

Nobody likes European stocks, nothing new there.

Financials biggest outflow since November 23 could have some things to do with the curve going on right there and then text six weeks of inflows.

That's kind of back where we started.

So that, that about caps the weeks and flows here.

Give me Jared Biffy point number two.

You bet bonds, bond yields are bouncing back.

And so let's take a look at the yield curve here.

I have a handy dandy purple is where we are.

Now.

The pink is where we were a week ago.

And you can see we're a bit higher here.

Now, this may seem strange why are bond yields higher when we're talking about the fed lowering rates?

That's because they were coming from depressed levels last week.

So let me just show you what happened with the 10 year T note yield over the last few weeks.

And in fact, I'll just bring up a chart of the year to date price action in the 10 year.

Uh, hard to see that.

So let me put the line on.

There you go.

So this is what happened this week, but this big drop, that's what happened last week.

And let's forget, let's not forget that the BO JB OJ the Bank of Japan, it was last week that they uh that they raised interest rates over in Japan.

So I think that dynamic explains that.

And when you're watching the bond market, right, Jared, what are you watching for, you know, possible sign of distress.

I'll tell you what I'm looking at.

The 30 year, here's the 30 year recently touched four down here almost intraday.

I believe it did.

That's at the very bottom.

You can see that's where it started the year.

If 4% cracks in the 30 year, that kind of brings on the recession scenario.

So that's when we're worried about the fed, cutting 100 basis points because things have hit the and that's what we do not want to happen.

So 30 or 4% that's what I'm watching there.

All right.

Final point.

Jared the return.

Yes.

Yes.

So, uh let's go back to Monday.

This was when we had the biggest drop in the effects carry trade.

We've gone over this a few times.

Um So I'm not gonna go over it again, but it was the biggest disruption, the biggest deleveraging event in the Kerry trade since March of 2020.

That's what caused all of this.

And again, it has to do with the difference, difference in the US and the Japanese interest rates.

Japan's all the way down here us is all the way up here.

Um So I think, you know, there is a possibility that this reignites next week.

I, I was gonna ask you as we end of the week and I was hoping you to say this is all over, right?

Rearview mirror.

Don't have to worry about it.

You know, I'm a little bit concerned that it could reignite last uh next week.

Here's a year to date and this is a really big drop in currency terms.

I'm gonna zoom and I'm gonna go over the last 10 days and here we have uh 146 is kind of emerging as a key level.

That's like right down here, you can see that we've uh kind of broken this trend line.

So we've had, we don't have downside momentum yet.

But if we develop downside momentum, excuse me, and that would be below 146 then the real level we gotta worry about is 141.

If that goes next week, we're gonna see more, more turmoil in the markets.

That simple Jerry Booker.

Thank you, buddy.

Excellent.

Stick around.

We're asking for a trend right on the other side, Andrew Industry is making big news this week.

The company raising $1.5 billion is now valued at 14 billion.

Our next guest has been investing in defense tech for more than 10 years.

It's a board member at the Council of Foreign Relations to talk more about the space and how investors are thinking about it right now.

We're bringing in Nick by partner at Venrock Nick.

It is great to see you kind of bigger question, bigger question to start uh Nick, which is venture investors now, clearly more interested, more excited Nick about that defense tech space wasn't always like that, but it is now.

What changed, Nick?

Yeah, I think there's several changes.

First.

I think there's a boom in the global defense industry generally.

Uh we've got wars in Europe and the Middle East.

Uh China has adopted a very aggressive military posture toward Taiwan and is trying to leap frog us military capabilities by investing in tech and so broadly, the defense industry is booming second.

And probably most interestingly, it's becoming clear that the character of warfare is changing significantly due to emerging technology.

So I think the future of warfare will be much more driven by A I software and autonomous systems at the edge than by the traditional mil military platforms that are used today.

And, and that leads to the third change, which is, I think venture backed companies are now best positioned to provide these critical systems, better positioned than the traditional military supplier.

So you've got venture investors very eager to invest in the next Ander Punier or SpaceX.

And that's become a hot space, these venture backed start ups though Nick, you know, ultimately, you're, you're competing against these big entrenched giants.

I mean, you think Lockheed Martin, north of Grumman, how do they do that effectively?

It's not easy and the playing field is by no means level.

Um But I would say generally the traditional primes are hardware and services companies.

And if you look at the private sector at how many hardware services companies really got great at providing A I or software.

The answer is extraordinarily few.

It's very difficult, it's very difficult to attract the talent to do that.

And if your core DNA is in hardware, it can often be very good to be great at software, be great at A I venture back.

Uh start ups.

On the other hand, are mostly software and A I these days they're able to attract world class talent in these areas.

So what I think you're going to see more often is partnerships between the traditional primes and venture backed start ups because I think that's what the defense department wants.

These venture backed start ups, you know, some of them could get acquired, some of them, um could try and test the public markets.

Right.

IP O do you think there's certain kinds of defense tech start ups that are better suited to make, um, make that public market debut that you think would be better received by public market investors?

That's a great question.

And I do, I think there are generally two types of defense start ups.

There are those that sell just to defense customers and there are those that are dual use that sell to defense customers and the private sector.

I think that latter group is much better suited to the public markets because they have much more predictable revenue and a much broader customer base.

They don't have the customer concentration of defense only.

And it's interesting if you look at some of the big successes to date like SpaceX and Palant here.

And another company called Data Miner that I'm involved with.

They got their start in the military and they got very large based on military contracts and then they were able to build, build out very significant private sector businesses enroll is really looks now to be defense only.

Um And I know it's interested in, in exploring the public markets, but I think generally the dual use companies will have a better time with it.

So, so the, you know, it's interesting, Nick, we're talking here about how, you know, modern warfare, the nature of modern warfare is changing, right?

Of course, tanks, you know, battleships critical, but you know, much a greater focus on A I and autonomous systems.

How well is the government, the US government positioned to capitalize on that shift?

I think it's headed it harder in the right place, but it's very hard and it takes a long time to change the system.

So my personal view is that the government needs to be much more aggressive in adopting emerging technologies and particular in adopting commercial technologies which have uh evolved much more rapidly than those in the defense arena.

Uh There are a number of new reforms and acquisition and in other areas and they're starting to change.

But I, I don't quite see the level of urgency that I think we ultimately need Nick.

Such a, a fascinating conversation.

Great to have you on the show today.

Thanks so much.

Thanks for having me.

Well, if you're going to future proof your portfolio and you, you need to know what is coming up next in the latest edition of our video series, next airing on Monday.

We're giving you a glimpse at the future of technology.

Austin based robotics company apron is using high powered chips and GP us to teach their humanoid robot Apollo through a process called tele operation.

So go ahead and open up that right hand, pressing down on the joystick.

I'm getting a crash course in machine learning, taking control of the humanoid robot Apollo from Austin based optronic.

Am I giving it too much force?

No, no, no, that was perfect.

So it's a process known as tele operation by every movement processed as data to create a mental model for Apollo.

Artificial intelligence is supercharging its development fueled by Nvidia's ecosystem built on vast amounts of data allowing humanoids to learn human tasks in record time.

The holy grail for is what we call zero shot learning or the ability to show the robot what to do and it can do it the same way that you do that task.

Tesla's optimist is leading a growing market backing from big tech companies like Amazon and Microsoft have set new records for funding this year and it's about to get even bigger with humanoid robots taking their first steps into the real world.

The latest edition of our series.

Next airs Monday afternoon.

Be sure to visit the Yahoo Finance home page home page for more.

Stay tuned for more.

Ask me for a trend on the other side.

Bad news used to be good news for stocks now.

Good news is good news.

Finance is Joshua Shafer joins me now with a closer look.

Josh.

Hey Josh.

Yes, we're taking a closer look at how stocks have been reacting to economic data as economic data has been rather in focus over the last couple of weeks.

So this is just the S and P 500 here.

But Michael K it's over at Piper Sammler put a little trick on it for us to help us explain how data has been driving this.

So what you're looking at again in purple is the S and P 500 in white blue is the Bloomberg economic surprise index.

So as this is coming down, that means economic data is surprising economists to the downside it's coming in weaker than expected.

So sort of the trend to highlight here was you can see for a large part of this year it was coming down but stocks were going up.

The reason for this was the narrative was us economic growth needed to slow a little bit.

It was coming in too hot.

That was a concern for inflation.

Now economists are feeling more confident about inflation in narrative has shifted.

So right here in this little shaded area you can see here is just when we've had this shift really.

In the past two weeks, you had economic data specifically this week with jobless claims coming in better than expected.

And that is when we got that bounce in the S and P 500.

So the key takeaway here being going into a big data week.

Next week, we have CP I inflation, we have retail sales.

The market is likely going to be rooting good economic data even if that means that we might price in less fed rate cuts for this year right now, people want to be reassured that the US economy is not headed into recession.

So any signs of growth has been considered good by the market, at least at this juncture right now.

All right, Josh, you mentioned some of that data we're gonna get next week dig into retail sales a bit.

What, what are the expectations there?

Yeah, retail sales gonna be an interesting one, Josh, because it jumped pretty big in June.

Uh The control group is up about 0.8% which was a large jump for retail sales only expected to increase about 0.2% here in July in that release next week.

And I thought Michael Gapen over at Bank of America had sort of a good framing on this.

He said, well, if the market wants growth, it might not get it with this print, but it might be ok.

When you take the big jump in June, combine it with a smaller jump in July that creates an overall OK picture for consumption.

But I guess maybe just a reminder that when this number comes out Thursday morning, you always need to read a little bit more into it.

Right.

It's gonna be an immediate reaction on that number, but you kind of have to zoom out and see what the trend is with the consumer.

And unless this report really disappoints to the downside, economists feel OK about where the economy is tracking right now for the third quarter.

All right, Josh, thank you.

Meanwhile, another activist reportedly taking a stake in Starbucks, Yahoo Finance's Brooke Dipalma is here with the details.

Brooke.

Good afternoon, Josh Wall Street Journal, just breaking this story that Starboard value now has a stake in Starbucks.

And it's important to note here.

This is now the second activist investor that has been on Starbucks back a few weeks ago.

Elliot investment management also uh had a stake or rather took a stake in Starbucks.

And what we know here is that Starboard value does or recently secured board seats at Outback Steakhouse parent company, Bloomin brands.

In addition to that, the company has stakes and match group and is also playing an active role in a potential CEO out at auto desk.

And what we know here is that Starbucks, this is just one of the many struggles that Starbucks has had in its back.

It is facing flagging sales here in the US as well as overseas in China.

Their second largest market.

The journal is saying by the way, the size of the hedge funds stake and its exact demands could not be learned.

But let's say, you know, they start rattling the cages.

What what changes could they possibly propose and ask for?

Yeah, when I spoke to an analyst on the street a few weeks ago, when this news broke about E and investment management, what they really said here is they're really looking for uh a new reset on value perception.

They're really looking to turn around sales in China.

And what we heard on the call from Lakshman R. Sim and the CEO there is that they confirm that they are having conversations with um with Elliot Investment Management.

They confirmed that those conversations have moved things forward.

They also announced that they will have potential partnerships in China.

But really investors here are really looking to turn things around here.

They're saying, can you franchise China after we've seen uh sales, you know, decline there, can we reset value perception?

How Starbucks just got it too expensive?

Do they not have a handle on how expensive that it has become?

Another way is they really want to look to enhance the consumer experience.

We know that they've been facing, you know, operational throughput, they want their service to be faster.

They also want them to make the drinks faster.

And so these are some of the many concerns that Wall Street has that investors have.

And now these two activists investors have and all in the background, you have the former CEO Howard Schultz three time CEO also putting pressure on the new CEO Lakshmi Nara Simon, who took the helm last April.

And so it's been quite a year and all in the background you have that although lower noise, but there still is some noise.

A lot of union is a lot of big names and big personalities.

Brooke.

Thank you so much.

Appreciate it.

That is a wrap on today's ask for a trend.

Be sure to come back Monday at 4:30 p.m. Eastern for all of the latest market, moving stories affecting your wallet.