If it feels like your portfolio has been run over this week by a Mack truck, well, I'm here to say two things. One, it may be Thursday, but the trading week is still young. So, hang in there. And two, if you own a lot of software stocks, ask yourself why. Because the selloff is getting darn ugly. I'm Yahoo Finance executive editor Brian Sozzi and this is Opening Bid live from Yahoo Finance's New York City headquarters.
Here's what else is on my mind right now. Qualcomm's guidance stunk and the sell-off is deserved. The company calling out weakness in the smartphone market in large part because of the global memory chip shortage. Execs say this dynamic could persist into 2027. An outlook like this should have been teed up by management 3 months ago. Bottom line here, come on guys, do better.
The next tech giant in line for a reality check from me is chip player ARM Holdings. ARM also serving up some less than savory guidance blaming memory chip shortages. Keep in mind that ARM designs the architecture that forms the basis of a large chunk of the smartphone chips in the world today including Qualcomm's. That leaves it with the prospect of subdued royalty sales as mobile processor sales essentially stall.
Similar to what I just said about Qualcomm, ARM execs should have done a better job guiding investors to these challenges. Instead, investors in both companies are left completely holding the bag today. And I know you want me to lay into Alphabet for shocking the hell out of everyone by calling out up to $185 billion in capex spending this year. Note, the street was around $120 billion on the high end. Here's what CEO Sundar Pichai had to say on this shocker.
Obviously you know our capex spend this year is an eye towards the future and you have to keep in mind some of the time horizons are increasing in the supply chain etc. So we are constantly planning for the long term and working towards that.
And I said it was Pichai, it's Pichai, but I'm not going to lay into Alphabet for one simple reason: the fundamentals of its business are so strong that you could justify this level of spending. Check out these two random numbers I yanked from the earnings call transcript which you can read for free now on Yahoo Finance. Just go to Alphabet's ticker page. In October, YouTube viewers watched over 700 million hours of podcasts on living room devices, up 75% from a year ago. YouTube is dominating media consumption. Also, the company has 8 million paid seats of Gemini Enterprise, which it launched just 4 months ago, and the Gemini app now has over 750 million monthly active users. These are huge numbers that should have OpenAI quaking in their boots. Like this, just shaking, quaking.
Opening Bid round table. Let's bring them in here. Lots to get to. Michael Ward of Jones Trading, chief market strategist, alongside Yahoo Finance reporter Anz Feray. Anz, I'm going to start with you here on this one. A lot of these tech stocks, these software stocks getting absolutely beaten up, but there was a lot of, like I just mentioned, there was a lot of good components to what Alphabet had to say last night.
Great components to what Alphabet had to say. I mean, you mentioned some of them. The Gemini app having 750 million users, their cloud growth. There was so much good in this report that they had. I mean, yes, the investors are concerned about capex. That's one of the concerns that may be weighing on the stock, but nonetheless, I mean, if you take a look at what Alphabet has announced, it is another blockbuster quarter when it comes to growth. So yes, there's this bifurcation, the software stocks that have been selling off, but then you have to look at an Alphabet and yes, the investors may be concerned about capex, that's one of the things that they're concerned about. They're also concerned about software and what it will do to the industry. I think there are some concerns within this AI theme that we're seeing and the question is, you know, is this a bubble? Is it too soon to be talking about these things and what are some of the catalysts that could pop the bubble in the future.
And it is, and I didn't even mention in my intro, I didn't want to create essentially a real-time research report. I didn't even get into what they were doing in the chips business which is supporting I think that really strong cloud backlog that they served up.
100%. Their chip business, their search growth, their cloud growth as you just mentioned. And you have to also take into account that this stock has done so well this past year. I mean, this is, if you're looking at the Mag 7s and you're saying which are the winners, I would say that Alphabet is the one and it's the strong one. And going into AI in the future, it looks like it's the winner in AI as well.
Mike, my man, good to see you as always, enjoy reading your work. Shouldn't this report by Alphabet, really good from top to bottom, really good earnings call anyway you slice it, shouldn't this be the report that stops this selloff in software?
Yes and no. I mean, I agree with both yours and Anz's take. You know, Alphabet is the winner. Google's the winner in AI right now. They are the one to watch out for. The capex is just them defending their position. The line on the conference call that caught my attention was when the CFO said that about 50% of their coding is being done by AI agents. And to me that just reinforces the alarm the market has had about AI agents over the past week or so.
Mike, that is a damn good point. I have to admit, I'm going to tell you right here, I missed that one. I did not see that. But yes, and you know what, that brings up a good point that essentially fuels, should might fuel more of a, I guess, more selling pressure on these software stocks. It's so hard, I was talking to Tom Sausnau about this yesterday, to find the bottom.
Yeah, it's almost like this productivity is sort of feeding on itself because you heard about this in their conference call about the productivity of engineers, but you also heard with Meta as well and their productivity growth when it comes to their engineers. And I think Meta mentioned 30% output, an increase of 30% output. So I mean, to that point, yes, this shows that there is massive productivity that is coming from AI. So what does it mean for companies like the software companies? And I would also take it one point further that you have seen some companies that have been announcing layoffs and you have to think to yourself, are they cutting out because of AI and also cutting out because they need to fund AI as well.
It's a really good point. And Mike, amidst all this software selling pressure, one stock that's doing well, maybe because they have no AI, it's Apple.
Yes. And they're partnered with Google, right? They decide not to spend all that money on investment in capex and then they partner with Google who at the time, you know, there were a lot of questions six months ago about the search antitrust and whatnot because AI was going to displace them. And then all of a sudden they clear up the search issues with the Department of Justice and now they have the best AI model out there right now. So, they've really navigated 2025 extremely well and that's why the stock has performed so well over the past six months.
Tell us what you would be looking for, Mike. Is there some form of a secret stock market indicator people need to look at and apply it to some of these software stocks if they want to get in on some of these names that are down 30, 40% from their highs? Like what should they be looking at?
So I mean, the software space, especially over the past decade where we went to the SaaS cloud structures, you know, you have these very predictable annual recurring revenues that investors love. Investors love them, the private equity guys love them, so they've really piled into this space. But also that predictability has resulted in higher premium multiples for that group. So I agree with the take that not everyone's going to be disrupted here. And many of these very large software companies are going to adapt and they're going to be fine. The problem is there are new risks out there, there is disruption risk to some members. So that risk premium has to increase which in turn means the PE multiple has to come down. So over the past 25 years the S&P 500 software group has had an average PE of about 27. I mean, the past few years it's pushed 35 and 40. So I think we need to get down to that level for investors to really start looking. And again, you have to be careful because I mean, one of the key takes out of the Mag 7 earnings in the past week is Google has overlap with both Meta and Microsoft. And Meta and Microsoft, you see two different reactions. Meta, where AI is very synergistic with advertising and that's obviously Google's bread and butter business. Whereas Microsoft is falling more into the camp of they're looking at investing in AI agents because they're worried about, you know, or their SaaS growth, their cloud growth was a little weaker. So, it's an interesting dynamic there, but I think the whole group needs to just derate to a lower multiple and then investors start looking again.
Mike, someone that is looking at the plumbing of the market, what is more important to you right now? Updates from the likes of an Anthropic or even an OpenAI on what technology they are working on or not working on, or is it economic data release?
Well, right now the economy seems to be in a good place. We have what looks to be good GDP growth with, as we talked about in this conversation, AI is driving productivity. So I think the inflation numbers are going to continue to trend down. So it's more to me it's a valuation story. I think we've been in a bubbly environment or a bubble environment to say, and I think you have to be very selective in the stocks you're looking at. What I'm seeing recently is investors are now hearing this, going into staples and things that have a reonomy element to them because they've been under-loved for years and two, you know, you're stepping away from this volatility and this disrupt risk.
And as outside of software, my day started looking at, I got a, I forgot who it was from, full disclosure, I forgot who it was from, bullish note on Coinbase and that is a tough call to be making on a day or really after a few days of massive selling pressure on Bitcoin. Similar to software, I can't see where the bottom is here.
No, it's difficult to tell where the bottom is, but I will say that 10X Research, which is one of the firms I've been following, and they've been pretty spot-on over the last year. They are expecting a bottom to come sometime this summer around FIFA, around the World Cup. And they might be 25,000 before that, Leo. Yeah, that's because they talk about the massive amounts of holders in Bitcoin ETFs and some of these holders that would have probably sold at more elevated levels and they are underwater with their holdings right now. And you are looking at Bitcoin that breached about 70,000 earlier. It's just above 70,000 but the support was really around 73, 74,000. So the idea is that if it breaks that support then you are looking at more selling pressure ahead. And I mean, this is one of their calls is pretty scary. I mean, if you keep selling they're saying that it could go down to around 50,000 by the summer and that would be sort of the buying opportunity. Of course there's little mini rallies within a bearish trend but nonetheless even the bulls are talking about this bearish trend that you are seeing in Bitcoin right now. I mean, Mike, why not Bitcoin 10,000? This is not like a stock that's generating cash flow. Why not 10,000? Why not 5,000? And would you call what we're seeing, is this a new crypto winter?
I would definitely call it a new crypto winter. I believe MicroStrategy's president called it a crypto winter a few weeks ago or a month ago or so. But Brian, I agree with your point. There is no way to fundamentally value Bitcoin. And as far as the action past year, obviously the election was a big catalyst as an asset and there was a lot of people popping into the space, but the digital asset treasury companies, all the Strategy copycats there, they're the ones who, they were the primary buyers driving up the prices of cryptocurrencies in the past year and they're selling shares of their stocks to, like, diluting their shareholders in order to buy this crypto. And what's happened now is they've proven that they had no expertise in their purchase prices because they're all underwater on those purchases. So I think the market's going to stop funding these purchases. So the major player, the major buyer in the market is not there anymore and probably should never come back.
