Silver collapsed Friday, a decline of 26%. Bitcoin declined an amazing 24%. This is panic selling and forced liquidations. The AI LLM competition has become an arms race. How is OpenAI going to compete with Google when the capex numbers just keep getting bigger and bigger? If venture investors ever get nervous and turn off the money spigot, OpenAI is done. After this Google report, if I was a venture investor in OpenAI, I would be petrified.
Hi, this is Steve Eisman and this is another edition of the weekly wrap for the week ending Friday, February 6, but filmed on Thursday night, February 5th. Here's a list of the topics I'll be covering. One, the crazy volatility in silver. Two, the sharp decline in cryptocurrencies. Three, the devastation of software stocks. Four, I'm going to discuss two companies that reported late last week, Charter Communications and Meritage Homes. I bought both stocks recently, and I will discuss my investment thesis for both companies. And five, I'll then discuss the major earnings reports of the week. This was not a good week for tech stocks as investors have grown increasingly nervous about the amount of AI-related capex. But before we get to the wrap, I have a personal announcement. As most of you know, I was diagnosed with breast cancer last summer. It's been a long haul, but as of Wednesday of this week, my treatments are over and I'm well on the road to recovery. Over these many months, I've received hundreds of kind emails wishing me well. So, I'd just like to thank you all for your wonderful messages.
I also want to take a moment and thank my wife, Valerie Figen, without whom this podcast would be impossible — from the business side to all the editing that she does. And I want to thank her for all her support during these many months of treatment. One more thing before we start the wrap. We record the wrap after the close Thursday night because it takes time to edit the wrap and to have it ready by the close on Friday. Now, normally not much occurs on Friday, so we do not usually miss anything. But last Friday, some very important stuff occurred and we will discuss that right now. In last week's wrap, we focused on the explosion in silver prices, which had climbed from $72 at year end to $115 as of Thursday night, an increase of over 60%. I discussed the reasons for the increase in silver at length. And I recorded the wrap Thursday night. As luck, or bad luck would have it, silver collapsed Friday, declining from $115 Thursday night to $85 Friday, a decline of 26%.
And on Monday, silver declined another 5%. What happened? Too many levered speculators piled into silver at the peak, and when it started to go down, they got margin calls and were forced to liquidate. On Tuesday and Wednesday, silver rallied, climbing to $88. However, on Thursday, silver declined sharply again, down 16% and closed at $73.50, thereby giving up almost all its gains for 2026. One more point here. The people who have been advocating investing in cryptocurrencies have long argued that Bitcoin and other cryptocurrencies are versions of digital gold. In other words, they are hedges against the debasement of fiat currencies or government currencies. Now, gold and silver have acted as such hedges, but crypto has in my view completely failed to show that it is a hedge. As gold and silver climbed in January, cryptocurrencies declined, which just leads me to conclude that cryptocurrencies are just a way for investors to speculate about speculating. Just notice that on Tuesday, the stock market was down and tech stocks got crushed. Gold and silver were up and all cryptocurrencies were down again. Cryptocurrencies seem to act in lockstep with tech stocks rather than as hedges against fiat currencies. This week alone, as of Thursday, Bitcoin declined from $84,162 to $64,000, a four-day decline of an amazing 24%.
This is panic selling and forced liquidations. Because of the decline in cryptocurrencies, companies like Strategy, symbol MSTR, that invest their balance sheets in cryptocurrencies have seen their stock prices get crushed. Strategy reached a peak of $450 last summer. It closed Thursday at $106, down over 75% from the peak. It is down over 29% just this week. This was another big week for earnings, but the big news of the week was really not earnings. The big news was the continued obliteration of software stocks. Now, we've spoken about this before on prior wraps. The entire software group got rocked this week. Of course, these days it does not take much to hurt software stocks. Last week, ServiceNow reported great numbers. They were genuinely great. And the stock went down 10% anyway and took the entire software group with it. Investors are just petrified that AI is going to destroy existing software franchises. On Tuesday, Anthropic released new legal automation tools. That announcement by itself took down the entire software group again, with Salesforce and ServiceNow down 7% and 8% respectively on the day. Salesforce is down 28% just this year and ServiceNow is down 33% this year. Now, given how much software stocks declined last year and are now down this year, it's tempting to think about buying some of them. But how do you buy stocks in a group that go down on good news and go down on bad news? The decline in software stocks also infected the private equity group, as many private equity companies have large private credit exposures to software companies. For example, Blue Owl and KKR were both down 10% on Tuesday. I'll have more to say about private credit and its exposure to software companies in a future wrap. Because of the pain in software stocks, but also because investors are getting increasingly nervous about AI capex levels — more on that later. As of Thursday, the S&P 500 is down 200 basis points this month and NASDAQ is down around 400 basis points this month. For the year, the S&P and NASDAQ are now down for the year.
Before we get to this week's earnings, I want to focus on two companies that reported late last week. I own both stocks. They are new positions and I want to share my investment thesis for both. This is not me pounding the table. Everyone should do their own work. This is my opinion about why I like both of these stocks. First up is Charter Communications, symbol CHTR. This is a new position for me. I bought it in January. I've spoken about the cable group in the past and not in a positive way. The problems of the cable sector are well known. Cable companies keep losing video and broadband subscribers. They are losing video subscribers as more customers cut the cord, and they are losing broadband subscribers because of intense competition from wireless competitors like T-Mobile, Verizon, and AT&T. The narrative has been bad for years and as a result, a sector that institutional investors owned happily for many, many years has been left for dead. Charter reached a peak of $821 in September 2021 and is now $223. The 2026 PE is a pathetic five times. So why did I buy the stock? I would first point out that I never ever buy a stock just because it looks cheap. Stocks are cheap for a reason. That Charter is quote-unquote cheap and has a low PE does not impress me. Without a story or a change in fundamentals, cheap stocks just stay cheap. But other things do impress me. The company has gone through a major capex period to upgrade its systems. It spent $11.7 billion in capex in 2025. The company projects that it will spend $11.4 billion in 2026 and that capex drops off to $9–12 billion in 2027 and $7.5–8 billion in 2028 and 2029. According to MoffettNathanson, the boutique research firm, Charter's free cash flow per share trajectory looks like this on the table that we're putting on the screen. For those of you who cannot see the table, Charter's free cash flow per share will climb from $32 in 2025 to potentially $121 in 2029. From $32 to $121 in five years. The future growth in free cash flow is not a revenue story. It's simply the result of the decline in capex coupled with a massive buyback program. Free cash flow yield means free cash flow per share divided by the stock price. Traditionally, when the free cash flow yield climbs above 20%, it tells you that investors suspect a company could go bankrupt. Charter is not going bankrupt. In fact, as we shall see in a moment, things are getting better. Anyway, assuming the 2029 free cash flow estimate of $121 per share is correct, the 2029 free cash flow yield is an insane 54%. Another way to look at it is that the stock is valued at less than two times 2029 estimated free cash flow. And what is Charter going to do with this free cash flow? They told us on last week's conference call they are mostly going to buy back stock. In five years and at roughly current prices, Charter could literally buy back 50% of the company. I'd also point out that the PE is also starting to look silly. The 2026 EPS consensus estimate is $42.83, up 18% versus 2025. Here too, because of the decline in capex and the large buyback, 2029 EPS could get as high as $100. So the 2029 PE is 2.2 times. I'd also point out that the free cash flow and EPS numbers I've just provided are not just MoffettNathanson's. The consensus is only slightly below them. And yet, despite these powerful numbers, of the 25 sell-side analysts who cover the stock, only six are recommending it, with the rest split between hold and outright sells. Why? Because again, the narrative of cable has been so bad for the last several years. I like this stock for three reasons. First, the valuation is so low that the stock is valued as if it is going bankrupt, and it is not. Second, management will be buying back roughly half of the company over the next five years or so. And finally, and most surprisingly, fundamentals actually got better this quarter. Yes, Charter continued to lose broadband customers in the fourth quarter, but trends got a bit better. In 4Q, it lost 119,000 broadband customers versus 177,000 last year and versus the 130,000 expected. It continues to grow mobile customers at a nice 428,000 this quarter. And remarkably, really remarkably, it actually added 44,000 video subscribers versus losses for the last several quarters. Seems to me the revenue side of the business has stabilized and might show some very low single-digit growth later this year. This is no longer just a value stock. It's a value stock with a story. A value stock needs a story to work, and Charter has a story.
The other stock I bought in January is a homebuilder, Meritage Homes, symbol MTH. This is a small-cap stock with a market cap of only $5 billion. Now, generally the rule of thumb about homebuilders is that you buy them at tangible book value or below, with a tangible book value of $74.55. Right now, MTH trades at 1.0 times tangible book value. Now, I discussed the homebuilders in prior wraps as a potential trade given President Trump's affordability push. And so far that has not worked out, as his Greenland threats cause Treasury yields and therefore mortgage rates to climb. MTH reported last week; the numbers were okay but not great. But what can you expect given the housing market? The key here is that for the first time MTH is aggressively buying back its stock at a valuation of 1.0 times tangible book value. That makes a great deal of financial sense. They spent $150 million in the fourth quarter and have promised to buy back $550 million in 2026. This means that by the end of 2026, shares will be reduced by 11%. If President Trump's affordability programs ever have an impact, the earnings of this company will act like a coiled spring. By the way, there was some interesting housing affordability news this week. Apparently, the public homebuilders are working on a plan to develop quote 'Trump homes' that seek to address the housing affordability crisis. The proposal apparently calls for builders to sell entry-level homes into a pathway-to-ownership program financed by private investors. I'm sure more details will emerge. And let me also point out that Meritage is largely an entry-level homebuilder. So, if — and it's a big if — this plan ever goes through, MTH would be a major beneficiary.
Before we get to this week's earnings, there was some interesting robotaxi news. Google's Waymo raised $16 billion at a valuation of $126 billion. Now, Tesla's market cap is $1.6 trillion. No one puts much value on the electric vehicle business. This Waymo valuation does not help the argument that Tesla should be valued on its future robotaxi and robotics businesses. Now, let's turn to earnings for this week. First up is Palantir. The company beat on earnings per share and revenue. Growth remains explosive, with 4Q revenue growing by 70%. The company forecast 2026 revenue of $7.2 billion, which is far higher than the consensus estimate of $6.3 billion. This is a great company. The only problem here is that the PE was once over 150 times. So when sentiment shifts, the stock can get clocked. Palantir reached a high of 207 in November and closed below 150 on Monday. Growth stocks like this tend to periodically have intense corrections. Now, because of the strong numbers, Palantir surged 11% after hours Monday. However, because of the decline in the overall software sector on Tuesday, Palantir did not stay up 11% and closed up only 7%. But since Tuesday, however, the stock has declined with other software stocks and is now well below where it was before it reported.
Next up is PayPal. And in case anyone thought differently, it is now clear to everyone that this is a broken company. I interviewed Ken Suchoski, the payments analyst at Autonomous, a few weeks ago. And what became quite clear during the interview is that investing in the payment space outside of Visa and Mastercard is fraught with peril. Companies like PayPal and Block did incredibly well during COVID because every merchant needed an online payment system. Since then, the group has suffered as every player is creeping into the space of its competitors. With respect to PayPal, the problems run even deeper. There was a time when PayPal was the best method for online payments. No longer. Apple Pay and Google Pay have built far better mousetraps, and PayPal has not only lost market share, but investors question the need for its very existence. PayPal reported Tuesday; the results were awful. Revenue missed. It was $8.7 billion versus expectations of $8.8 billion. EPS missed too, at $1.23 versus expectations of $1.28. Even worse, the guidance was atrocious. It expects earnings per share to decline in the low single digits to perhaps up slightly, versus expectations of up 8%. Again, this is a broken company with no obvious fixes. For the second time in three years, the CEO was fired. A new CEO will take over on March 1st. PayPal was down 20% on Tuesday and is down 32% this year alone. But to understand how horribly the stock has done, let's go back to COVID. The stock reached an all-time high of $318 in July 2021. It is now $40, a decline of 87%.
Disney also reported this week. The numbers were okay. Revenue and earnings per share each beat by a little, but the stock declined by 7% anyway. Why? I think this is just one of those cases where no one really cares. Disney has two major businesses: the theme parks and media. And media has the legacy side and the streaming side. Other than the Warner Brothers takeover last year, no one has made consistent money in legacy media in years. Disney earnings per share is supposed to grow 12% in 2026, which is certainly fine. And the 2026 PE is an inexpensive 16 times. However, investors like a story, and there is no clear one here. By the way, for the second time in only a few years, Bob Iger is stepping down. The new CEO is Josh D'Amaro, the head of the parks division. Chipotle reported Tuesday night and its problems persist. EPS beat by a penny and revenue beat by a bit, but same-store sales growth remains negative, and it expects same-store sales growth to be only flat this year. The downbeat outlook shows the chain's ongoing struggle to provide value to increasingly budget-conscious consumers. AMD reported Tuesday night. Earnings per share and revenue both topped expectations. For the March quarter, AMD expects $9.8 billion in revenue versus official expectations of $9.3 billion. However, given that AMD is an AI story, some investors were hoping for much more than $9.8 billion in March quarter revenue. Prior to reporting, AMD was valued at a 2026 PE well in excess of 30 times, and the stock was up over 100% over the last 12 months. Stocks like that can't disappoint in any way. So, the stock was down 17% on Wednesday.
Eli Lilly reported Wednesday and proved once again that at least for now, it is winning the weight-loss drug wars. Lilly reported earnings per share of $7.54 versus expectations of only $6.67, and revenue of $19.29 billion versus expectations of $18 billion. It expects revenue growth of 25% this year, considerably higher than expectations. The stock was up 7% on Wednesday. And then Google reported Wednesday night and showed how fickle investors can be about the same data point. Google beat handily on both revenue and EPS, and there was nothing wrong with the earnings or the guidance. What made investors nervous, however, was the AI-related capex guidance. Google said that it intends to spend $180 billion in 2026, which is double what it spent in 2025 and versus the $120 billion that analysts were expecting. As a result, Google's 2026 free cash flow will be minimal. For most of last year, investors looked at strong AI capex numbers and bought the hyperscalers. The narrative, however, has changed, and investors are now nervous about ever-increasing capex. Google's stock was down after hours. Now, the company that should be really nervous about Google's huge capex guidance is OpenAI, which is private. The AI LLM competition has become an arms race. How is OpenAI going to compete with Google when the capex numbers just keep getting bigger and bigger? Now, Google can still fund these expenditures because it is a hugely profitable company. OpenAI burns cash and has to raise money to compete. If venture investors ever get nervous and turn off the money spigot, OpenAI is done. After this Google report, if I was a venture investor in OpenAI, I would be petrified.
Qualcomm also reported Wednesday night. And here the ramifications of this report were negative. On the positive side, Qualcomm beat slightly on both revenue and earnings per share. However, its March guidance was weak. Revenue guidance was $10 to $11 billion versus the $11.1 billion expected, and earnings per share was guided to $2.45 to $2.65 versus the $2.89 that's expected. So, guidance is weak across the board. Why? The shortfall is related to the global memory chip shortage. AI data centers are taking memory chip production capacity away from smartphones and other devices. Qualcomm smartphone customers buy memory chips and pair it with Qualcomm's processors and modems. Since these customers can't get enough memory chips, they are delaying buying products from Qualcomm. Qualcomm stock was down 10% after hours Wednesday. For similar reasons, Apple's stock went down when it reported last week. And finally, Amazon reported Thursday night and the market did not like it. Amazon missed slightly on earnings per share but beat marginally on revenue. Like Google, it boosted capex numbers. Amazon forecast 2026 capex at $200 billion versus the estimate of $146 billion. The stock was down 7% after hours. Again, I want to point out how narratives can change. Last year, hyperscalers went up when they announced robust capex projections. Now they go down.
Because there was so much to cover this week, there will be no mailbag. This last Monday, I posted an interview with Jason Trennert, founder and CEO of Strategas Research. Our discussion ranged from a potentially improving economy to the impact of populism on the market to the current broadening of the market away from just tech. So check it out. This coming Monday, we will drop an interview with Lakshmi Ganapathy of Unicus Research, a firm specializing in shorts. We touched on several topics, but mostly focused on how beneath the surface the U.S. consumer is suffering. Hope you tune in. Be sure to check out our website, realeismanplaybook.com. There you can easily access all our episodes as well as the financial literacy masterclasses. If you haven't already, please consider subscribing to our YouTube channel so you can receive these weekly wraps along with our podcast and the financial literacy masterclasses. Subscribing is the best way to help the channel, and we greatly appreciate your support. And that's the wrap. See you real soon.
This podcast is for informational purposes only and does not constitute investment advice. The hosts and guests may hold positions in stocks discussed. Opinions expressed are their own and not recommendations. Please do your own due diligence and consult a licensed financial adviser before making any investment decisions.
