Forever Blossom
"Mistakes fade away; winners can forever blossom." - Warren Buffett
Summary: The economy remains resilient and the Fed is in no hurry to lower rates, but the traditional macro economy continues to feel like the third string of the current capital markets zeitgeist behind the ups and downs of the Trump administration and AI. Will it stay that way?
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Macro
The U.S. economy remains resilient
"We still feel that the economy is performing well. The labor market is strong. Our payment trends that we see with our clients are robust. Inflation has obviously impacted certain of our clients, but it seems to be ebbing a bit, which is favorable. It's a very resilient economy out there, as everyone here knows." – US Bancorp (USB 0.00%↑) Head of Finance John Stern
“The economy is strong and resilient” - CoStar Group (CSGP 0.00%↑) CEO Andrew Florance
U.S. customers remain resilient
"U.S. customers remain resilient, exhibiting behaviors that have been largely consistent over the past year. As always, people are looking for value and they want to save time." – Walmart (WMT 0.00%↑) CFO John Rainey
“And I still see a very resilient consumer who has room to run really in that space” - Norfolk Southern (NSC 0.00%↑) CEO Claude Elkins
“So I would say the macro backdrop, particularly as it relates to the consumer, is relatively stable” - Global Payments (GPN 0.00%↑) CFO Cameron Bread
The Fed is in no hurry to lower rates
"There is still more work to be done to bring inflation closer to our 2 percent goal. I would like to gain greater confidence that progress in lowering inflation will continue as we consider making further adjustments to the target range. We need to keep inflation in focus." – Federal Reserve Governor Michelle Bowman
International
China's economy continues to stagnate
"What is happening, it's, I would say, a quite traditional economic crisis in China on the consumer market. We have a low consumer confidence that has been driven by a negative wealth effect, as you know, on real estate and on the stock market to a certain extent, also, probably due to the level of unemployment with the youth. So that has put quite some pressure on the middle class, on the high-end middle class. So the aspirational customer of China, which is the billboard of Chinese consumer, has been impacted by this downturn in the economic environment of China." – Kering SA (PPRUF) CEO François-Henri Pinault
"Soft market conditions persist in China, making further progress difficult. Anti-Western sentiment in the Middle East continues, and we've seen slowing market consumption in the Asia, Middle East, Africa region, including India." – Procter & Gamble (PG 0.00%↑) CFO Andre Schulten
"I mentioned China is kind of flattish. I think we'll probably talk about China a little bit more here, but China has kind of been moving sideways for us is probably the best way to say it." – Ingersoll Rand (IR 0.00%↑) VP Finance Vikram Kini
"Domestic demand has fallen off, but it's been supplemented by export volume. So it will remain what we think likely 1 million unit volume. Pretty limited upside with obviously the exception that I think everyone is waiting and watching to see as to what extent any stimulus measures that might get implemented here over the back half of the year coming out of the March Congress and in response to the geopolitical dynamics." – Cummins (CMI 0.00%↑) VP of Corporate Strategy Jeffrey Wiltrout
Stimulus policies haven't been successful yet
"We are seeing the different kinds of stimulus policies rolling on in the past few months, like monetary easing, fiscal stimulus, and trading policies. While we believe that these measures will eventually benefit the economy, they need some time to flow through. Given that our advertising business is highly correlated with small and medium enterprises, who are particularly sensitive to macro conditions, plus a persistently challenging competitive landscape, we haven't really seen any improvements in Q4 yet." – Baidu (BIDU 0.00%↑) EVP Rong Luo
China’s travel sector is stabilizing though
"In Greater China, where RevPAR was down 4.8% for the year, as I explained at the last trading update, year-on-year comparatives were especially tough in Q3 with RevPAR down 10.3% as we lapped a particularly strong leisure performance in summer 2023. Normalization then occurred as we progressed through the remainder of the year with RevPAR easing to 2.8% down in Q4. Occupancy was actually up in the fourth quarter and for the year was pretty much flat." – InterContinental Hotels Group PLC (IHG 0.00%↑) CFO Michael Glover
Financials
An M&A boom hasn't yet materialized
"I think that coming out of December and into January, people expected that there would be sort of a huge amount of M&A activity, and we would start sort of with all the engines gunning, right? I think all of us would say that hasn't exactly happened. But I think the underlying client sentiment is what's most important." – Truist Financial (TFC 0.00%↑) Chief Wholesale Banking Officer Kristin Lesher
Sentiment is still strong though
"Market sentiment is definitely improving. There's a lot of just enthusiasm for this economy in terms of pro-growth, pro-business, these sorts of things from our clients. We are hopeful, and we do see modest improvement in pipelines and things like that. And we're hopeful that that translates into loan growth, particularly in the second half of the year." – US Bancorp (USB 0.00%↑) Head of Finance John Stern
"I don't think that maybe the first quarter will be a good test. Right now, I'm expecting things are going to start picking up maybe the second quarter and then so on, probably the second half of the year will become stronger. If the Trump administration policy moves forward in a positive way, then I expect that the economy should be stronger, and then people should have more confidence to invest. And therefore, there will be more demand for banks like us." – East West Bancorp (EWBC 0.00%↑) CEO Dominic Ng
Insurance companies are retaining more risk even as losses rise
"As a reminder, in 2024, insured loss from natural catastrophes was approximately $145 billion, the sixth costliest on record, and this compares to the average for the last 5 years of $140 billion. With the increased retention and increased catastrophe activity, much more of the risk is now being retained by insurance companies. In 2023 and 2024, primary insurance carriers are estimated to retain approximately 90% of the insured loss from natural catastrophes, with the reinsurance industry absorbing 10%. Contrast this with the period prior to 2023, when reinsurers would often share a significantly higher proportion of the insured loss, with the distribution of losses between insurers and reinsurers at approximately 50-50 on average." – American International Group (AIG 0.00%↑) CEO Peter Zaffino
Insurance likely only covered 20% of the economic losses in CA wildfires
"Insured loss estimates for the California wildfires are currently coalescing around $40 billion, with some estimates from credible catastrophe experts reaching as high as $50 billion. The economic loss is estimated to be in excess of $250 billion, producing a protection gap of as much as 80%. Contrast that to the top 10 largest insured catastrophe events on record, where insurance has typically covered 40% to 50% of the economic loss. As a point of reference, insurance covered approximately 50% of the economic loss from Hurricane Katrina, the largest natural catastrophe event this century. The California wildfires demonstrate the increased loss from secondary perils and the magnitude of tail events that are not captured well in modeling." – American International Group (AIG 0.00%↑) CEO Peter Zaffino
Consumer
Walmart's comps were not that bad
"Walmart U.S. comp sales increased 4.6% including e-commerce sales growth of 20% with ongoing share gains across categories... Grocery remains a standout category with mid-single-digit growth, and we saw mid-teens growth in health and wellness due largely to GLP-1 sales, which contributed about 0.1 to the segment comp, consistent with prior quarters. We're encouraged by the improvement in general merchandise, where we had low single-digit comp sales growth for the second consecutive quarter, including strength in hardlines, toys, home, and fashion." – Walmart (WMT 0.00%↑) CFO John Rainey
Higher-income households continue to drive Walmart’s market share gains
"We're seeing higher engagement across income cohorts, with upper-income households continuing to account for the majority of share gains." – Walmart (WMT 0.00%↑) CFO John Rainey
Travel demand remains strong
"Our fourth-quarter room nights exceeded the high end of our prior expectations and grew 13% year-over-year." – Booking (BKNG 0.00%↑) CEO Glenn Fogel
"In addition to the positive trends in leisure travel, we are seeing improving strength in our business travel. In 2024, business travel represented approximately 40% of our overall mix, reflecting the success of our revenue-intense strategy. In fact, our business transient segment grew 14% year-over-year in the fourth quarter." – Choice Hotels International (CHH 0.00%↑) CEO Pat Pacious
Demand for stadium concerts remains strong
"We are seeing continued strong demand. We're seeing sell-through rates at the stadium level higher than any previous year. We look at one stat: in the first week of sales, we're selling through over 75%, and that's much higher than last year. So we're seeing consumers buying up those stadium dates faster than ever, up year-over-year or any comparable base. So no slowdown at all." – Live Nation Entertainment (LYV 0.00%↑) CEO Michael Rapino
Consumers are buying more fragrances
"In fiscal '24, fragrances were the fastest-growing category in prestige beauty across the U.S., Europe, and China. ...Consumers of all age groups are using around four different fragrances regularly, which is a significant change from a decade ago when they had one signature scent." – Coty (COTY 0.00%↑) CEO Sue Nabi
Food inflation persists
"Our focus on bringing down pricing through rollbacks continues despite pockets of food inflation in areas like eggs, bacon, and ground beef. Like-for-like pricing in general merchandise and consumables was deflationary, while food remained inflationary in the low single digits." – Walmart (WMT 0.00%↑) CFO John Rainey
Weak housing fundamentals are pressuring the furniture industry
"The environment in which we operate continues to be volatile, and the fundamentals within the furniture and home furnishings industry continue to be challenged, with existing home sales near 30-year lows and steep mortgage rates... According to recently released U.S. Census Bureau data, the furniture and home furnishing industry grew 5% during our fiscal third quarter." – La-Z-Boy (LZB 0.00%↑) CEO Melinda Whittington
Elon doesn't want to partner with Uber on self-driving
"We would love to have Tesla’s content on the network. There are about 150,000 drivers now who drive Teslas. Two weeks ago, I got into a Tesla Uber, and the driver was using FSD. I asked him when he uses it, when he doesn’t—he said it’s great, it kind of takes the edge off. Some drivers don’t like it, some do. So for us to turn those Teslas into autonomous Teslas when they are superhuman safe would be terrific. I’ve had conversations with [Elon Musk]. At this point, they want to build it alone. So, to some extent, in Austin, we and Waymo will be competing with Tesla when they launch. Life is long, but we would love to partner with them." – Uber (UBER 0.00%↑) CEO Dara Khosrowshahi
Technology
Satya Nadella isn't too worried about overbuilding compute
"And by the way, one of the things is that there will be overbuild. To your point about what happened in the dotcom era, the memo has gone out that, hey, you know, you need more energy, and you need more compute. Thank God for it. So, everybody's going to race. In fact, it's not just companies deploying, countries are going to deploy capital, and there will be clearly... I'm so excited to be a leaser, because, by the way; I build a lot, I lease a lot. I am thrilled that I'm going to be leasing a lot of capacity in '27, '28 because I look at the builds, and I'm saying, 'This is fantastic.' The only thing that's going to happen with all the compute builds is the prices are going to come down." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
Compute is the key competitive advantage
"So I think there are two places where I can say with some confidence. One is the hyperscalers that do well, because the fundamental thing is if you sort of go back to even how Sam and others describe it, if intelligence is log of compute, whoever can do lots of compute is a big winner. The other interesting thing is, if you look at underneath even any AI workload, like take ChatGPT, it's not like everybody's excited about what's happening on the GPU side, it's great. In fact, I think of my fleet even as a ratio of the AI accelerator to storage, to compute. And at scale, you've got to grow it." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
He is focused on inference revenue
"But by the way, the classic supply side is, 'Hey, let me build it and they’ll come.' That's an argument, and after all we've done that, we've taken enough risk to go do it. But at some point, the supply and demand have to map. That's why I'm tracking both sides of it. You can go off the rails completely when you are hyping yourself with the supply-side, versus really understanding how to translate that into real value to customers. That's why I look at my inference revenue. That's one of the reasons why even the disclosure on the inference revenue... It's interesting that not many people are talking about their real revenue, but to me, that is important as a governor for how you think about it." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
Count Alibaba among those who are rapidly investing in AI
"The AI era presents a clear and massive demand for infrastructure. We will aggressively invest in AI infrastructure. Our planned investment in cloud and AI infrastructure over the next three years is set to exceed what we have spent over the past decade." – Alibaba Group (BABA 0.00%↑) CEO Eddie Wu
Alibaba is seeing an explosion in inference demand
"Our AI-related revenues achieved over 100% growth, three-digit growth for the sixth consecutive quarter. And customer demand for AI and related products continues to grow. In fact, that growth is turning out to be much higher than our original expectation. And what we've seen in particular from the Spring Festival, Chinese New Year onward is an explosion in demand for inference. In fact, around 60% to 70% of the new demand that we're seeing now is for inference. So we expect that with this rapid expansion in demand..." – Alibaba Group (BABA 0.00%↑) CEO Eddie Wu
Most people think the models are becoming commoditized
"What I can tell you is the trends that we're seeing today, as I said, the gap between different foundation models today is narrowing. I think that going forward, you can expect to see a lot of demand around post-training. So thinking of models like OpenAI, DeepSeek, the reasoning models as well as the reasoning model of Qwen that we will be releasing shortly, a lot of the demand will be around post-training to customize those models, adapt them to different sectors, different use cases, to adapt them to private data sets. And I think that there's huge market potential for that kind of post-training." – Alibaba Group (BABA 0.00%↑) CEO Eddie Wu
OpenAI's CFO doesn't think that they are at risk of being commoditized
"I think we are so far from being a commodity industry. We are talking about human-level intelligence, not bare metal compute. First of all, our numbers prove that there is a reinforcement cycle here as we get better and better at innovating, this is how you stop yourself from becoming a commodity. ...I think people are thinking with a bit of the mindset I saw when cloud computing first started. There was a view that, 'Oh, this will be a commodity, it's just bare metal.' Today, AWS has 38 percent operating margins—that is not a commodity business. The other piece here that keeps you well away from being a commodity is that not many companies, in the end, will be able to invest to keep up the scale and pace of innovation. We have managed to punch well above our weight to become effectively a hyperscaler, both in terms of the compute we're buying and the way we're investing in it. And again, that stops you very quickly from becoming a commodity." – OpenAI CFO Sarah Friar
OpenAI has 80% market share in AI-generated products
"As of today, OpenAI has roughly 80% of the market share of every Gen-AI product. OpenAI has 400 million active users per week now, which is 2× compared to several months ago. It's growing so fast!" – Softbank (SFTBY) CEO Masayoshi Son
Masa is also not concerned about the ROI
"Some people talk about the 'Deep Seek Syndrome,' saying, 'You're overspending, you're spending $500 billion, you're overspending! You can save so much more by spending less.' But I think they are looking at it the wrong way. How much percent of GDP will be replaced by a billion-dollar smart system? I would say at least 5% within 10 years. That 5% is $9 trillion—or if it's 10%, it's $18 trillion. So, somewhere between 5% to 10% of today's GDP will be replaced by this superintelligence. Well, if that's the amount of return, you shouldn't be scared of spending a few trillion dollars. If the return is $9 to $18 trillion per year, why should you save? Why should you try to be efficient? For what? I don’t get it. Just a little difference makes a huge return on your market share." – Softbank (SFTBY) CEO Masayoshi Son
Is quantum computing coming?
"So, when quantum computers become useful, what some milestone you have to hit. The magic number is 100 qubits. So, we all learned a thing called GPUs last year. Everybody wants to know about GPUs. We also have to learn a new terminology called QPUs, Quantum Processing Units, and 100 qubits is that magical number where it becomes more powerful than a classical computer of any type, in any combination. So, think of this being a complement to classical computing, it doesn't replace it. It complements it where classical computing cannot really perform. And we do expect to hit a 100-qubit machine by the end of 2026 or early 2027, which really will then link into the IPO of this business because that's a milestone everybody is looking at." – Honeywell International (HON 0.00%↑) CEO Vimal Kapur
"After a nearly 20-year pursuit, we’ve created an entirely new state of matter, unlocked by a new class of materials, topoconductors, that enable a fundamental leap in computing. It powers Majorana 1, the first quantum processing unit built on a topological core..." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
Industrials and Transport
Companies are preparing for tariffs
"We are seeing definitely, particularly in our North American business, recent activity from U.S. customers looking to reorient supply chains, taking account of maybe future environments for tariffs wanting to bring business back. We've had new inquiries coming as a consequence of the discussions about the de minimis exception, this process ending." – GXO Logistics (GXO 0.00%↑) CEO Malcolm Wilson
"We talked a little bit about it last week that we reduced our inventory held at our international plants by more than 30%, and we're continuing to focus on getting that down because the last thing you want is a bunch of finished inventory that just suddenly became 25% more expensive just with the passage of time. So we're trying to be as lean as we possibly can in working with our logistics partners to move things across, which we've done." – General Motors (GM 0.00%↑) CFO Paul Jacobson
"We have been actively working to mitigate tariff cost pressures over the past five years by successfully diversifying our countries of origin. In fiscal 2024, China accounted for approximately 18% of the products we sold, down from approximately 25% in fiscal 2023 and approximately 50% in fiscal 2018. In the fourth quarter of fiscal 2024, China accounted for approximately 16% of the products we sold. We expect our diversification strategies to continue to meaningfully reduce our reliance on China in 2025 and beyond." – Floor & Decor (FND 0.00%↑) CEO Thomas Taylor
The Trump administration is injecting uncertainty and volatility
"I think everybody is just kind of in a wait-and-see mode, but that's kind of where we're at. I mean, you have one day a tariff is announced and then 24 hours later, it's paused and delayed. And so I just think the domestic and global economy is not set up to react on some of these tariff things instantaneously. These are big operations that just don't have the ability to pivot that quickly. And so I think—we're hearing some anecdotal one-offs, like I mentioned, people are just kind of thinking about it and wondering where it's going to land and what they can do about it. But we're just going to have to play it out some more and get some finality on it and see what people will do. This will take some time to adapt to those tariffs." – J.B. Hunt Transport Services (JBHT 0.00%↑) CFO John Kuhlow
There's cautious optimism for an industrial recovery
"Industrial market conditions remain challenged. We're cautiously optimistic to see three months of sequential improvement in PMI with January at 50.9%. However, we believe it's prudent to be cautious with our enthusiasm until additional evidence of a sustained market recovery is clear." – Genuine Parts (GPC 0.00%↑) President William Stengel
J.B. Hunt believes the freight recession is nearing its bottom after 31-32 months of downturn
"I think we're at 31, 32 months of dealing with this freight recession. And so I do feel like we're at the bottom. I do feel like we're at an inflection point. And just ready to grow and work on our margins and get out of this cycle that we've been dealing with for the last 2.5-plus years." – J.B. Hunt Transport Services (JBHT 0.00%↑) CFO John Kuhlow
Global demand for U.S. defense technology remains strong
"The U.S. Defense and Aerospace Industry is the clear leader in all of this. And so we will be able to have the ability, first of all, to have demand for what we do. And secondly, to pivot when we need to, we have that capability, too. So coming back from Munich, every Defense Minister, every Prime Minister I talked to asked us, 'How can we get what you make faster because it's the best in the world?' And that demand is going to be there." – Lockheed Martin (LMT 0.00%↑) CEO Jim Taiclet
"First, we see an environment where the threat is complex, challenging, and elevated. Second, we see an administration that is asking our allies to increase their spending on defense and protection of their sovereign territories and an expectation that the U.S. would do the same." – Northrop Grumman (NOC 0.00%↑) CEO Kathy Warden
Materials & Energy
Datacenters represent a large percentage of incremental electrical demand
"We've updated our data center contracted capacity. We now have approximately 40 gigawatts in various stages of contracting as of December 2024, which compares to around 21 gigawatts as of July 2024, an increase of 19 gigawatts or 88%." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
"The economic development pipeline from large electric load customers, including data centers and large manufacturers, represents over 50,000 megawatts of potential incremental load by the mid-2030s. Data centers alone represent roughly 80% of that potential load." – The Southern (SO 0.00%↑) CEO Chris Womack
But electrification is larger than just datacenters
"So this isn't just about base load growth for things like data centers. If you look at the U.S., there isn't an ISO or a region in the U.S. that doesn't have reserve margins coming down because of the electrification of things beyond data centers, whether it be cars, whether it be home heating, whether it be new fabrication factories that are being built. So the macro dynamics are much, much broader than just data centers. And although the early stages of investing into the installed base or the transactional fleet has happened, I'd emphasize we still see it as the early stages. There's a lot more growth that's going to come from the customer base because every 100 megawatts in many different spots, they're going to take right now." – GE Vernova (GEV 0.00%↑) CEO Scott Strazik
Real Estate
There may be some green shoots in commercial office
"One thing you really saw come through in the fourth-quarter leasing—and we're seeing in the pipeline as we look out into the first quarter as well—is just the willingness and ability of tenants to make decisions and to commit to longer term, to know what their plans are, to be able to really make decisions around that. So I think that's part of the really healthy dynamic we need to see recover in order to feel more confident about how the pipeline transpires over the course of this year." – Kilroy Realty Source (KRC 0.00%↑) CFO Angela Aman
"The market continues to strengthen, vacancy rates continue to decline, and rents are certainly, for the best spaces, I think, returning to close to peak levels. So, we signed a significant lease in Times Square last year. There's activity in that submarket." – Vornado Realty Trust Source (VNO 0.00%↑) President Michael Franco
"I think that we are starting to see more lending opportunity in commercial real estate. There are some areas in commercial real estate where I think there's some attractive stuff to do today. We're not obviously leaning into office and some of those other areas, where I think we're doing a great job of managing the exposure that we have. But across all of our corporate commercial businesses, we're looking for balance sheet growth." – Truist Financial (TFC 0.00%↑) Chief Wholesale Banking Officer Kristin Lesher
Nuggets of Wisdom
It's hard to make a winner-take-all business in B2B
"I remember even in the early days when I was getting into Azure, Amazon had a very significant lead and people would come to me, and investors would come to me, and say, 'Oh, it's game over. You'll never make it. Amazon, it's winner-take-all.' Having competed against Oracle and IBM in client-server, I knew that the buyers will not tolerate winner-take-all. Structurally, hyperscale will never be a winner-take-all because buyers are smart. Consumer markets sometimes can be winner-take-all, but anything where the buyer is a corporation, an enterprise, an IT department, they will want multiple suppliers. And so you got to be one of the multiple suppliers." – Microsoft (MSFT 0.00%↑) CEO Satya Nadella
It doesn't matter where you went to school
"One further point in our CEO selections: I never look at where a candidate has gone to school. Never! Of course, there are great managers who attended the most famous schools. But there are plenty such as Pete who may have benefitted by attending a less prestigious institution or even by not bothering to finish school. Look at my friend, Bill Gates, who decided that it was far more important to get underway in an exploding industry that would change the world than it was to stick around for a parchment that he could hang on the wall... I was lucky enough to get an education at three fine universities. And I avidly believe in lifelong learning. I’ve observed, however, that a very large portion of business talent is innate, with nature swamping nurture." – Berkshire Hathaway (BRK.A) CEO Warren Buffett
Learning from mistakes matters more than avoiding them
"I'm a dreamer, I'm a gambler, and very often, I bet on the wrong horse—like WeWork. But you know, I learn. I learn from my mistakes, and I would like to continue my spirit of challenging... If I make a mistake by challenging too much, I don’t regret it. I would just say, 'Oh, I wasn't smart enough,' but I'm still challenging. If I regret by not challenging, that’s when I really get upset with myself. So at the very least, I want to continue this. Someday, I will make a hit." – Softbank (SFTBY) CEO Masayoshi Son
"Sometimes I’ve made mistakes in assessing the future economics of a business I’ve purchased for Berkshire – each a case of capital allocation gone wrong. ...I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage. A decent batting average in personnel decisions is all that can be hoped for. The cardinal sin is delaying the correction of mistakes or what Charlie Munger called 'thumb-sucking.' Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be." – Berkshire Hathaway (BRK.A) CEO Warren Buffett
"Mistakes fade away; winners can forever blossom."
"I’ve also had many pleasant surprises in both the potential of the business as well as the ability and fidelity of the manager. And our experience is that a single winning decision can make a breathtaking difference over time. (Think GEICO as a business decision, Ajit Jain as a managerial decision, and my luck in finding Charlie Munger as a one-of-a-kind partner, personal advisor, and steadfast friend.) Mistakes fade away; winners can forever blossom." – Berkshire Hathaway (BRK.A) CEO Warren Buffett