1/27/2025

Good Morning.

Purdue Pharma and the Sackler family have agreed to a $7.4 B settlement for its role in the opioid epidemic for manufacturing OxyContin. Purdue Pharma filed for chapter 11 bankruptcy in 2019. This one of the costliest bankruptcy cases ever and will deliver funds to victims, at risk communities, and preventive care.

Vanguard's S&P index fund, VOO, has reached $626B in assets. With record inflows of $116 B in 2024 the ETF is on track to be the largest in the world passing State Street’s SPY (Bloomberg).

In today’s newsletter we will cover: 

• Markets 

  • Recap 

  • Earnings / Tech Earnings

  • Netflix Earnings 

• Trump announces $500 B investment in AI

• Crypto Report: Key Events in Digital Asset Regulation and Politics - January 2025 

• Deal of the week: Black Stone invests in power plant

• What to look out for this week!

Markets 

• Equity markets advanced throughout the week, with the S&P 500 reaching a record high for the first time in 2025. 

• WTI crude oil prices dipped following former President Donald Trump’s announcement to pressure Saudi Arabia and OPEC into reducing prices.

• Initial jobless claims saw a slight uptick, largely attributed to wildfires in the Los Angeles area. Despite this, claims remain near historic lows, highlighting the strength of the labor market.

• Looking ahead, investors are focused on next week’s earnings reports from mega-cap tech companies and the Federal Reserve’s rate decision, both expected to significantly influence market direction.

Earnings / Technology Earnings: 

• With 14% of S&P 500 companies having reported earnings so far, the season is off to a strong start. Financials have taken the lead, showcasing improved margins and solid consumer resilience, signaling a positive outlook for the broader market.

• Next week, the spotlight will turn to big-tech earnings, with Microsoft, Meta, Apple, and Amazon set to release their results. Analysts project profits for the "Magnificent 7" to surge over 20% in Q4, significantly outpacing the 12% growth anticipated for the broader S&P 500.

Netflix (NFLX) Earnings: 

• Netflix reported earnings on Jan 21 coming in above estimated for EPS and Revenue. 

Highlights  

• For the year, revenue grew 16% and operating margin expanded six points to 27%. Operating income exceeded $10B for the first time in history. Q4, revenue increased 16% year over year, helped by 19M paid net adds, while operating income rose 52% year over year. Finished 2024 with 302M memberships.

  • Squid Game season 2 is on track to become one of our most watched original series seasons, Carry-On joined Netflix's all-time Top 10 films list, the Jake Paul vs. Mike Tyson fight became the most-streamed sporting event ever and on Christmas Day they delivered the two most-streamed NFL games in history.

Trump Announces $500 B U.S. infrastructure private project  

Trump unveiled the Stargate Initiative, aimed at growing U.S. artificial infrastructure. It is a private infrastructure deal that is promising to invest over $500 in the infrastructure necessary to support AI. It is spearheaded by OpenAI, SoftBank, Oracle, and other tech giants. The build out of infrastructure includes data centers, growing power capacity, and more necessary technologies to support the rollout of this critical technology. This proposed investment is not funded by the U.S. and will require the private sector to raise funds. However under the Trump administration reduced regulation regarding AI capabilities and power consumption, in addition to other supportive measures will aid this plan.

The companies have agreed to invest an initial $100B primarily in U.S. data centers and other necessary infrastructure, many of which are already under construction. The additional $400B is proposed to be implemented within the next five years. OpenAI Ceo Sam Altman will oversee operations and work on growing AI capabilities. Oracle Cto Larry Ellison will be part of leadership in this effort. 

SoftBank Ceo Masayoshi Son plays a critical role in this investment and will lead the financing efforts. He is the Ceo and founder of SoftBank, a multinational investment firm based out of Japan with approximately $300 B in AUM. He is known for his investments in Alibaba, Fortress, ARM, and notable partnerships with Apple. 

After this announcement there has been considerable doubt how SoftBank will finance this U.S. project. Elon Musk and additional leaders in finance are questioning whether the large sums of money can come to fruition. A primary point of concern is it is hard to see how this investment will benefit SoftBank investors. It would likely require SoftBank to sell current assets at a discount and then require considerable capital expenditures. All of which could fail to materialize gains for stakeholders in SoftBank. However Masayoshi Son is known for his high risk all or nothing investment philosophy. 

He is currently in talks with larger lenders who could help him raise the billions necessary. This includes contacting Apollo and Brookfeild. Billions will need to be raised in debt financing and the pressing question of profitability is very important. OpenAi, one of the largest players in AI is operating at loss and many companies have yet to see returns on massive investments in the technology. It will likely be up to direct lenders, who are perfectly situated for this type of deal because of the large amount of underlying assets which could be securitized and sold off to others. Unlike publicly traded companies that can operate at a loss, lenders will require plans for profitability and being paid back in full with a premium.

Crypto Report: Key Events in Digital Asset Regulation and Politics - January 2025 

Jan 23, 2025: 

SEC Rescinds Guidance on Safeguarding Crypto Assets (SAB 121): The SEC's Staff Accounting Bulletin (SAB) 122 rescinds SAB 121, which required recognizing a liability and corresponding asset for safeguarding customer crypto assets. This would eliminate the requirement for companies to recognize assets and liabilities for safeguarding customer crypto assets, simplify compliance, and encourage broader adoption of cryptocurrency-related services. (For more details, refer to the Ledger Insights report here.) 

President Trump Signs Executive Order on Digital Assets: An executive order titled “Strengthening American Leadership in Digital Financial Technology” would create a working group to develop a federal regulatory framework for digital assets, including stablecoins. The order prohibits central bank digital currencies (CBDCs) in the U.S. and revokes prior policies deemed restrictive to innovation (For more details, refer to the Ledger Insights report here.)

Cynthia Lummis to Chair Senate Banking Subcommittee on Digital Assets: Senator Cynthia Lummis (R-WY), a prominent advocate for blockchain and digital assets, was appointed chair of the Senate Banking Subcommittee on Digital Assets. Senator Lummis, known for her progressive stance on digital finance, has introduced Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act detailing the creation of a strategic national reserve for Bitcoin in July 2024. The subcommittee is set to address key issues such as consumer protection, stablecoins, and the promotion of digital asset innovation.

Jan 21, 2025:

SEC Crypto 2.0: Acting Chairman Uyeda Announces New Crypto Task Force: The SEC under Acting Chairman Uyeda’s leadership has launched a new, dedicated crypto task force that continues its efforts to monitor and enforce compliance within the rapidly evolving digital asset

space. The task force focuses on identifying fraudulent schemes, ensuring investor protection, and addressing regulatory gaps in cryptocurrency markets (For more details, refer to the SEC press release here.)

Link to full report: A Transformative Week for Crypto and U.S. Financial Policy By Willam Le.

Deal of the week: Blackstone invests $1B in power plant

Blackstone has agreed to buy Potomac Energy Center for $1 B. The investment is being made by a fund dedicated to investments in energy production . The gas fired power plant was previously owned by ARES. It is uniquely situated in Northern Virginia where 25% of U.S. data center capacity is estimated to be located. Data center energy demand is expected to double by 2030 (Goldman Sachs). This investment is not unique and is part of a growing trend of investors placing big bets on the energy consumption by data centers. In addition, it's important to note that this investment is not a renewable energy source. Previously investors, especially mega funds shunned carbon producing businesses but changes in sentiment and a lack of supply mean investors are no longer shunning carbon emitting businesses.

 (Potomac Energy Center)

What To Look Out For This Week!

Monday: AT&T earnings 

Tuesday: Boeing, Royal Caribbean: Earnings 

Wednesday: 

• FOMC interest rate decision, Powell press conference

• Microsoft, Meta, Tesla: Earnings  

Thursday: 

• GDP Q4

• Apple, Visa, Mastercard, Blackstone: Earnings 

Friday:

• Personal Consumption Expenditure (PCE) December 

• ExonMobil: Earnings

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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