Saying the technology sector has had a mixed start to earnings season would be an understatement. The rise of artificial intelligence is still the tide driving tech, but a chip shortage and doubts about AI's impact on the software sector are creating as many losers as winners.
Microsoft was hit by a double-whammy of skepticism about AI spending and souring sentiment toward software, driving a $357 billion loss in market value on Thursday. Its choice to allocate some chip resources toward internal purposes rather than its Azure cloud-computing business proved costly. Investors instead flocked toward Meta Platforms and its comparatively clean story of AI driving user engagement and advertising revenue.
Meanwhile, memory-and-storage companies such as Sandisk, Western Digital, Seagate and Micron Technology are booming amid overwhelming demand for their products. Analysts at LPL Financial noted that the software sector is now trading at its largest discount to semiconductors since 2021.
While, traditionally, tech investors have been wary of chasing cyclical businesses such as memory chips, the hopes of an AI supercycle have turned sentiment on its head as investors look for companies poised to benefit immediately from hardware spending. Even Apple, which has largely sidestepped the AI spending debate, can't escape entirely as its impressive iPhone revenue was offset by worries about surging memory prices.
Still, some of the recent trading feels frothy rather than driven by fundamentals. Software company ServiceNow looked harshly treated by a 10% drop for earnings that beat expectations. Meanwhile, cybersecurity company Cloudflare got a short-lived boost of nearly 20% for a somewhat indirect association with viral AI assistant Moltbot (formerly called Clawdbot), before giving back almost all its gains.
From a situation where the rising AI tide was lifting all boats, now it's buoying some tech stocks while leaving others stranded. For investors, it's worth checking whether there might be some value in the wrecks and being wary of those sailing close to the wind.
-- Adam Clark
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Trump Picks Warsh to Head the Fed
President Donald Trump announced Kevin Warsh as his nominee for the next chair of the Federal Reserve, in a social media post Friday. It ends months of speculation over who Trump would pick to replace Jerome Powell.
-- The president settled on Warsh after interviewing several candidates for
the job. Others included top White House economist Kevin Hassett,
BlackRock executive Rick Rieder, and current Fed governor Christopher
Waller.
-- Warsh, 55, is a former Fed governor who now works for investor Stanley
Druckenmiller's Duquesne Family Office. He has said he supports the
president's desire to cut interest rates.
-- Trump's pick is a fellow at Stanford University's conservative-leaning
Hoover Institution. He was an economic advisor to President George W.
Bush, who nominated him for a seat on the Fed's board. He served from
2006 to 2011. In 2017, Trump considered Warsh for the chair job that
ultimately went to Jerome Powell.
-- Warsh is likely to face questions from senators about his independence
from Trump. The president has said that lower interest rates are a litmus
test for the next chair.
What's Next: Powell's term as chair expires May 15. He is entitled to stay in his seat on the Fed's Board of Governors through January 2028 but earlier this week declined to answer questions about whether he will.
-- Matt Peterson
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Senators Reach a Deal to Avert Government Shutdown
Democrats reached a deal with the White House to avert an extended government shutdown. Senate lawmakers rushed to pass it Thursday evening, but it's unclear how quickly House members vote on it as the deadline for government funding to lapse approaches early Saturday morning.
-- Trump said lawmakers have come together to get the vast majority of the
government funded through September, and temporarily extend funding for
the Department of Homeland Security, which became a flashpoint after
Border Patrol agents killed a second person in Minneapolis last weekend.
-- The deal would pass five of six spending bills that have cleared the
House already and extend DHS funding for two weeks while lawmakers hammer
out proposed restrictions on immigration enforcement. Democrats started
talking about carving out DHS funding last weekend as the contours of a
compromise emerged.
-- Minority Leader Chuck Schumer said Democrats wanted reforms to pass DHS
funding, including requiring Immigration and Customs Enforcement agents
to remove their masks and to require judicial warrants for searches and
arrests. Majority Leader John Thune said Republicans were open to some of
the changes.
-- Trump, eager to avoid the disruption caused by last fall's federal
shutdown, which ended up being the longest in history, urged lawmakers to
agree to the deal. "Hopefully, both Republicans and Democrats will give a
very much needed Bipartisan 'YES,'" he said.
What's Next: The House is in recess this week, meaning lawmakers have essentially no time to avoid at least a short government-funding lapse for some operations beginning at 12:01 a.m. Saturday morning. But unlike the 43-day shutdown last fall, this lapse is likely to be short.
-- Joe Light and Janet H. Cho
***
Apple's Earnings Beat Spurred By iPhone's Best-Ever Quarter
The iPhone propelled Apple's revenue higher and helped it notch expectation-beating results. With sales of $85.3 billion, it was the iPhone's best quarter ever, said CEO Tim Cook, driven by "unprecedented" demand. The quarter's down note was high operating expenses driven by research and development.
-- Apple posted adjusted earnings for the crucial holiday quarter of $2.84 a
share on revenue of $143.8 billion. But it had mixed results from other
segments. Services revenue rose 14%, but other Apple products saw sales
fall 2%, with Mac sales down 7%.
-- There's no clarity on whether iPhone prices would increase because of
rising memory costs. During a conference call, Cook said he wouldn't want
to speculate on whether higher prices were needed to offset those costs.
Cook told analysts that rising memory costs would affect second quarter
gross margin.
-- Memory costs are rising as demand outpaces supply because of the rapid
buildout of artificial intelligence infrastructure. But Apple's guidance
for second-quarter revenue, gross margin, and operating income were well
above Wall street expectations. Revenue is projected to rise 13% to 16%
in the March quarter.
-- China presents a lot of risk to Apple. Its sales can have a large effect
on companywide revenue, and even after years of supply diversification
efforts, most Apple devices are still assembled in China. But China sales
beat expectations in the first quarter, at $25.5 billion.
What's Next: The only country that can match China in scale is India, and Apple has been turning that way for years. Now about 15% to 20% of iPhones are made there, which has helped Apple weather President Trump's tariff storm. A sixth Apple Store in the country will soon open.
-- Adam Levine and Angela Palumbo
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Visa Cites Strong Consumer Spending for Earnings Beat
Visa reported better-than-expected earnings and revenue for its fiscal first quarter, boosted by resilient consumer spending and a strong holiday season. The payments giant said it expects earnings and revenue growth to continue in its current second quarter and for the full-year 2026.
-- Visa reported adjusted earnings of $3.17 a share, up 15% from the
year-ago quarter. Net revenue of $10.9 billion also increased 15% from
the year-ago quarter, driven by growth in payments volume, international
volume, and processed transactions.
-- Visa and Mastercard have been under pressure since President Trump
proposed a one-year, 10% cap on credit-card interest rates. But Congress
would need to weigh in on that idea, and many lawmakers have said there
could be negative outcomes, like a reduction in credit for households.
-- Mastercard also reported better-than-expected quarterly earnings of $4.76
a share and revenue of $8.81 billion, up 15% from a year ago. Mastercard
expects 2026 adjusted net-revenue growth at the "high end of low double
digits," on expectations of healthy consumer and business spending.
-- Visa and Mastercard are still awaiting court approval of a settlement
they agreed to in November to lower the fees merchants pay when shoppers
pay with credit cards. The agreement would resolve a 2005 lawsuit that
merchants filed against the payments companies and issuer banks.
What's Next: For full-year fiscal 2026, Visa expects net revenue growth, operating expense growth, and diluted earnings-per-share growth in the low double-digits. Analysts expect Visa to report full-year 2026 earnings of $12.81 a share, on revenue of $44.48 billion.
-- Janet H. Cho and Nate Wolf
***
Satellite Maker York Is Latest IPO in the Space Sector Boom
Defense companies hope President Trump's $151 billion Golden Dome missile defense plan will lead to massive piles of cash for them. Now another start-up, York Space Systems, is looking to profit from Wall Street's fascination with the project and is the latest initial public offering in the space sector.
-- York priced its initial public offering at $34 a share, for a $4.3
billion valuation. The company also boosted the size of the stock sale,
from 16 million shares to 18.5 million. The stock opened at $38 Thursday
afternoon but finished the day 1% below its IPO price.
-- There is considerable hype about the Golden Dome. Shares of Redwire, for
example, surged nearly 30% earlier this week on the news that it was
added to the growing pool of eligible vendors for the defense program.
York was named as a potential contract awardee in mid-December.
-- There are currently more than 2,000 applicants for funding, with other
much larger private companies that are also thought to be 2026 IPO
candidates, including Anduril and Elon Musk's SpaceX. Already public
companies like Palantir Technologies, Lockheed Martin, and L3Harris
Technologies are in the mix.
-- York's IPO comes amid immense enthusiasm surrounding space companies. The
Procure Space exchange-traded fund, which trades under the ticker symbol
UFO and owns Planet Labs, Rocket Lab, and EchoStar as top holdings, is up
more than 20% this year alone and has nearly doubled over the past 12
months.
What's Next: There is a strong indication that SpaceX's IPO will be in June, when the planets Jupiter and Venus align, the Financial Times reported, though SpaceX didn't respond to a Barron's request for comment. June is also Elon Musk's birth month.
-- Paul R. La Monica and Al Root
***
-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Callum Keown
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(END) Dow Jones Newswires
January 30, 2026 07:27 ET (12:27 GMT)
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