Despite retail buying the dips, the market is definitely struggling with all the implications of AI. That is why the market is down this month. Investors are freaking out about software and don't need much of an excuse to sell. Data about the consumer remains very mixed. The lower-end consumer is definitely suffering, but the upper end is holding up the overall data, at least so far. The PE multiples on medical insurance stocks have collapsed, but so have the business models. It's going to take a lot longer for these companies to fix their problems.
Hi, this is Steve Eisman and this is another edition of the weekly wrap for the week ending Friday, February 13th, but recorded after the close on Thursday, February 12th. On this week's wrap, I'm going to cover the following: One, mixed data about the consumer. Two, the AI fears that have infected the software group spread to other sectors this week. Three, the Molina results show that the problems in health insurance are widespread and not confined to just UnitedHealth. Some highlights from earnings, and we will end with two mailbags: one about how to measure risk, and the other about why Charter, in my view, is a good investment while PayPal is not, even though both appear to be cheap stocks.
The lesson from last week is that retail continues to buy every dip. The market was down almost 2% last week through Thursday, but climbed almost that amount on Friday. Buying the dip will work until it doesn't, and that won't happen until there is an actual widespread recession larger than the current recession pummeling the bottom of the K-shaped economy. Yet, despite retail buying the dips, the market is definitely struggling with all the implications of AI. Because of the explosion of AI capex, even the profitable hyperscalers like Google will have no cash flow this year. Also, while we are seeing several AI product announcements, it is just unclear whether the returns will justify the hundreds of billions that is being spent. That is why the market is down this month, and I'm sure investors will be wrestling with these AI issues for the foreseeable future.
Moving on, data about the consumer remains very mixed. And a further sign that all is not well with the US consumer: December retail sales were flat versus expectations of 0.4% growth. Treasury yields rallied on this news, which is good for homebuilder stocks. And yet the very next day, the jobs data came out and it showed that the US added 130,000 jobs in January, which was better than projections. And on that news, Treasuries sold off. So, the news about the health of the consumer is just not clear. The lower-end consumer is definitely suffering, but the upper end is holding up the overall data, at least so far. I expect the consumer to be supported by the refund checks they are about to get because of Trump's big beautiful bill. That effect could wear off by the second half of this year.
In the weight loss drug wars, Novo Nordisk announced on Monday that it is suing Hims & Hers Health, symbol HIMS, for making copycat obesity drugs, even though HIMS scrapped plans to sell a version of the Wegovy pill. Novo is suing anyway because HIMS sells copycat injections. And on this news on Monday, Novo Nordisk climbed 3% and HIMS fell 16%.
Prior to this week, investors focused on the threat to the software industry from AI. But that panic extended further this week. On every day of this week, a different group got hit. First hit was insurance brokers. OpenAI approved an insurance provider AI app, and investors took that news as a potentially existential threat to insurance brokers, many of which were down 10% on Monday. I'd just point out that insurance brokers provide complex services to commercial insurers, and the OpenAI app was for personal insurance. But in this environment, investors shoot first and ask questions later, if they ever ask questions at all. In an environment like this, a group burned with bad news can stay rejected.
Next up were retail brokers and wealth managers. The tech platform Altruist announced a new tax planning tool powered by AI. And on Tuesday, Raymond James corrected 9%, LPLA declined 8%, and Schwab went down by 7%. Again, it's shoot first and analyze later. And on Wednesday, AI fears struck the commercial real estate services sector with CBRE and JLL both down 12%. And on Thursday, logistics stocks got pummeled amid fears of AI disruption. CH Robinson was down 15%. Every day is an AI adventure.
Apollo Global reported on Monday. The results showed all the issues of private equity. On the positive front, EPS beat and fee revenue is better than expected. The firm raised $42 billion in the fourth quarter and total assets reached $938 billion. On the negative front, the firm remains delayed in returning capital to investors in its flagship private equity funds because of the weak exit environment. But there were also no signs that the bad publicity surrounding private credit is impacting Apollo's business. The company originated $97 billion in loans in the fourth quarter and $309 billion for all of 2025, an increase of almost $100 billion versus 2024.
Lest anyone think that the medical insurance problems that we have discussed are confined to UnitedHealth, Molina reported disastrous results late last week. The company missed. There's no way to put this. They missed everywhere, including reporting a loss of $2.75. That's a loss of $2.75 for the fourth quarter. The medical loss ratio was higher than expected in every category, including both Medicare and Medicaid. The trajectory in earnings for Molina is terrible. In 2025, Molina earned $11, down 51% versus 2024. And it looks like 2026 will be a down year as well, with the consensus looking for an earnings per share decline of 13%.
Yes, the PE multiples on medical insurance stocks have collapsed, but so have the business models. It's going to take a lot longer for these companies to fix their problems. Molina is down 27% just this year, and over the last 12 months, the stock is down over 50%.
Problems in the software sector continued. S&P Global reported Tuesday. Now, most people just think of S&P as the company that owns the S&P 500 index and that has a virtual duopoly on the bond ratings business with Moody's. However, S&P has major proprietary software businesses where it provides different types of market intelligence and proprietary databases to clients all over the world. So, it's partially a software business. Due to the overall decline in the software sector because of AI fears prior to Tuesday, the stock was down 15% this year. The earnings report was not good. The company's revenue met expectations, but earnings per share did not. Earnings per share was $4.30 versus $3.77, a nice 14% increase, but it missed by 3 cents. Worse, the guidance was weak. It is expecting revenue growth of 6 to 8%, which is a touch light compared to consensus and slightly less than the 2025 revenue growth of 8%. And 2026 EPS is projected at 10%, but that is a bit shy of consensus.
None of this weakness in projections has anything to do with AI, but investors are freaking out about software and don't need much of an excuse to sell. The stock was down 10% on Tuesday, and in sympathy, Moody's was down 7%. The decline in S&P shows the power of the negative software narrative, and that narrative continues. S&P has on occasion provided disappointing guidance. However, because of the strength of the franchise, when that would happen, the stock would go down, but not by a lot. Tuesday's decline shows how much investors are panicking about software companies.
T-Mobile reported. T-Mobile is the best company within the cellular group of three companies: T-Mobile, AT&T, and Verizon. However, competition has heated up with Verizon becoming aggressive on pricing. T-Mobile used to be the discounter that kept taking market share, but now Verizon is the discounter, and that is starting to show up a little in T-Mobile's numbers. T-Mobile's earnings per share slightly beat and revenue growth was fine. However, the company added fewer wireless subscribers than analysts expected.
Robinhood reported. The company has done a fabulous job gathering clients and assets during these boom years. However, a not insignificant portion of its customers invests in crypto, and the decline in crypto is hurting. The company missed on earnings, revenue, and net new assets. Those are all the important metrics. Prior to Wednesday, the stock was already down 24% this year and was down an additional 9% on Wednesday. One of the issues is that the 2026 PE is over 30 times, while its biggest competitor, Schwab, has a 17 times PE. With such a disparity in multiples, there is no margin for error. I'd also point out that this week crypto resumed its decline, so I doubt Robinhood will go up until at least crypto stabilizes. When that will be, I have no idea. And the same should be true for Coinbase.
Coinbase reported Thursday night. Revenue was down 22%, and the company missed earnings per share as well. Here too, as long as crypto prices keep going down, so will the stock price of Coinbase, which is down 38% so far this year.
Hi, Steve Eisman here. Going online without ExpressVPN is like forgetting to mute yourself on a Zoom meeting. Do you really want your co-workers to hear you say something embarrassing? What is ExpressVPN like? It's like tinted windows for your internet connection. You can see out, but they can't see in. Wouldn't you want the same privacy online? Why does everyone need a VPN? Because all your traffic flows through their servers, internet service providers, including mobile network providers, and they know every single website you visit. And in the US, ISPs are legally allowed to sell that information to advertisers.
ExpressVPN reroutes 100% of your traffic through secure encrypted servers. So, your internet service provider can't see your browsing history, thereby making it extremely difficult for third parties to track your online activity. I've used ExpressVPN to protect my data, and you should look into using it, too. Plans start at just $3.49 a month. That's only 12 cents a day. ExpressVPN works on all devices, phones, laptops, tablets, and more, so you can stay private on the go. For US customers, select plans include Identity Defender, a new suite of tools to get your data removed from data brokers, alert you when your data appears on the dark web, and even insure you against data theft. Secure your online data today by visiting expressvpn.com/eisman. That's expressvpn.com/eisman to find out how you can get up to four extra months. expressvpn.com/eisman.
There's been a negative trend this earnings season involving tech companies that have benefited from AI infrastructure spending. Prior to this week, both AMD and Amphenol reported great earnings and revenue, but their guidance did not exceed whisper numbers. As a result, both stocks went down double-digit percentages on that earnings report. That trend continued this week. Cisco reported Wednesday night. Earnings per share and revenue beat. Cisco's revenue grew 10%, which for Cisco is heroic. However, the March quarter guidance only met analyst expectations, and the stock was down 7% after hours. On the other hand, Arista, Cisco's largest competitor, reported Thursday night, and the stock was up nicely after hours. Why? Because not only did Arista beat on earnings per share and revenue, but unlike Cisco, it gave very strong one-Q guides.
And now for the mailbag. Two mailbags today. The first is from Ben who asks, quote, 'As somebody who has been fortunate to make good money, I am now needing to manage that money, and I want to manage it through the rest of my life. I am learning to manage a portfolio, assess risk, evaluate trade ideas, and handle the psychological aspects of holding a material portfolio. How do you manage and measure your portfolio? What metrics for risk do you find valuable? How complicated do you make portfolio management? Your advice and insights would be extremely helpful. Thank you for what you are doing. Your weekly wrap and masterclass videos are simply fantastic. I have learned more from you about the market than from years of reading and listening to other commentators. Cheers.' Very kind comment. Great question.
Now, when you run institutional money like I have, you can find many different tools to manage and measure risk. Back then, I subscribed to services provided by companies like MSCI that would take my portfolio, whether it was long, short, or long-only, and stress test it. They would simulate what would happen to my portfolio in various draconian scenarios like another Lehman meltdown and show how the portfolio would do. These were not cheap services. But to be perfectly blunt about it, I never found these stress test services particularly helpful. After all, what did they tell me? If my portfolio was long-short, the stress test would show how the portfolio would do, but that would depend on how short I was. I did not need a stress test to tell me that. And if I was long-only, I would lose a lot of money in the stress test. No kidding.
What I have found is that the best and most pragmatic way to measure risk is to examine the betas of each position in the portfolio and the resulting beta of the entire portfolio. Now, what is beta? It's a measure of how a stock normally does when the market goes up or down. The beta of the S&P 500 by definition is 1.0. So a beta of 1.5 means that on a day when the market goes up or down 1%, a stock with such a beta will go up or down 1.5%. So let me create a simple portfolio of five stocks that each have a 20% weighting to show how this works. And we're going to put this on the screen for those of you who are watching. The five stocks are Goldman Sachs, Nvidia, Google, Netflix, and Eli Lilly. Given the 20% weightings of these five stocks, I'm 100% invested.
Now, I get the betas off of Bloomberg, but if you don't have access to Bloomberg or a similar service, you can just ask Google for the beta of any stock. And I would ask for the three-year beta. That is the typical data point that investors use. As a general rule of thumb, growth stocks, especially tech growth stocks, have high betas, and staples have low betas. So let's see how this portfolio looks on a beta-adjusted basis. Of the five stocks, four have betas above the market, and only Lilly has a below-market beta. Take Nvidia. It is a 20% position but has a beta of 1.84 times. So on a beta-adjusted basis, it is a 37% position. 20% times 1.84. On a beta-adjusted basis, this entire portfolio, as we show on the screen, is 121% invested.
What does that mean? If you did not perform this exercise, you would think that you were only 100% invested. But in reality, because of the high betas of most of these stocks, you are effectively 121% invested. Now, there is nothing necessarily wrong with that. Maybe you like all these stocks and are willing to live with the volatility, but examining the betas of your stocks helps you understand what risks are inherent in your portfolio.
The second mailbag concerns my investment thesis about Charter Communications that I discussed last week. I received several comments about the fact that Charter has $94 billion in long-term debt, but a market cap of only $30 billion. And I also received a question from Dez who asks, quote, 'On last week's weekly wrap, you described PayPal as a broken business and then described your thesis for buying Charter Communications. Are these companies so different? Both operate in competitive markets, have low to declining revenue growth, strong cash generation, and buy back a lot of shares. Charter's story is that it's stabilizing its subscriber loss and revenue. PayPal's story is that revenue is still growing, branded checkout can be fixed, and Venmo is a catalyst. Both companies now trade at a very low PE ratio. Can you help this retail investor understand how you see these two companies so differently?'
Thank you, Dez, for your question. Now, with respect to Charter's $94 billion in debt, of course I would prefer that the company was less indebted. The debt-to-EBITDA ratio is 4.2 times, which is not terrible. The company has promised to take that down to three and a half times this year. So, it will be buying back some debt with its cash flow. Now, the company could choose to use its cash flow to buy back more debt. But given the cheapness of the stock, my preference is for the stock buyback.
I think that the PayPal story is in much worse shape than it appears from Dez's question. First of all, Venmo is not going to save this company. Of PayPal's $35 billion in 2025 revenue, only $1.7 billion came from Venmo. At best, Venmo is barely profitable. The major problem for PayPal is that Apple Pay and Google Pay are just better products. I think that PayPal will continue to lose market share, and I don't see any obvious fixes, and any fixes are going to require major investments.
By contrast, Charter's competitive position is much stronger. Yes, it faces intense competition from its wireless competitors, but it has just upgraded its systems and has the ability to bundle products. In thinking about the two companies, I think Charter is going to move from declining revenue to slightly increasing revenue, while PayPal runs the risk of further deterioration. Charter, in my view, is an improving story with a massive increase in cash flow versus PayPal, which runs the risk of oblivion. If I was running PayPal, I would be looking to sell the company to someone with stronger hands.
This last Monday, we welcomed back Lakshmi Ganapathy of Unicus Research, a firm specializing in shorts. We touched on several topics but mostly focused on how beneath the surface the US consumer is suffering. So check it out. And this coming Monday we will drop an interview with Columbia professor Daniel Guetta, who is an expert in the field of AI and large language models. About a month ago we posted an interview with Gary Marcus, who is a critic of the entire LLM scaling model. And because this is such an important topic, I decided to seek a second opinion. Professor Guetta agrees with Gary Marcus on certain points, but is much more positive on LLMs and AI. So, I 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. Also, signing up for our newsletter is the best way to support our channel. 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.
