Stock analysts who cover cyber-security firms such as Palo Alto Networks and Check Point spent the weekend digesting the latest development in artificial intelligence that promises to destroy commercial software.

The AI startup Anthropic, which makes the “Claude” series of large language models, on Friday announced a new product offering, “Claude Code Security,” which will automatically find bugs in computer code and propose fixes.

The Anthropic announcement follows the announcement of similar tools in recent months from OpenAI and Google, so that all three of the top AI model makers now have some kind of security-tool offering.

The stocks have taken a little bit of a hit since Friday’s announcement. Palo Alto shares are down two percent on Monday at $145.34; Check Point is down two percent at $155.43; Zscaler shares are down ten percent at $143.76, following a five-percent drop on Friday; Cloudflare is down almost nine percent at $161.34; JFrog is off six percent today at $35.55, but plunged on Friday, losing almost a quarter of its value.

On Thursday, following an upbeat earnings report in the morning by software maker NICE Ltd., I spoke in the afternoon with CEO Scott Russell. The shares were enjoying a NICE bounce of about thirteen percent as we spoke, rising to $111.55.

My main question for Russell was about the ongoing terrible nature of the software cohort of stocks. Unlike 2021, when it seemed every single software stock got the thumbs up, investors today are deeply sour on the whole group.

Russell’s view is that eventually investors will pick individual companies and stocks as winners and losers in the AI race.

“In 2021, there wasn’t the open question around what is that forward revenue going to look like,” says Russell, meaning, what will revenue look like for any software company years down the road.

He’s right: there wasn’t a massive existential threat back in 2021, before ChatGPT arrived.

Thursday’s earnings reports continued a trend of strength in infrastructure linked to artificial intelligence, including BE Semiconductor and chip-equipment vendor Onto Innovation. Despite strong reports, both stocks sold off given that their shares had been way, way up heading into the reports.

By contrast, software and services companies are either trading down, such as Weave Communications and LegalZoom, or are seeing a mild jump in stock price after lagging since the start of the year, such as Five9, OpenDoor, Workiva, Appian and Bandwidth.

BE Semi’s ordinary shares traded on the Amsterdam exchange sold off by eight percent on Thursday despite a very positive report in the morning. It was the first time the company’s sales topped expectations after four quarterly misses. The shares subsequently rose four percent in Friday’s Amsterdam trading, and the American Depository Receipts were up five percent on Friday in New York trading, at $214.88.

I wish I had something shocking to report, but the first batch of this week’s earnings reports are sadly predictable: chip and chip-related names are doing great while software is doing not so great.

Shares of chip giant Analog Devices are higher Wednesday, and shares of chip-equipment maker Camtek were trending higher at the open, though they have since declined. Both stocks have had big gains already since the start of the year.

In contrast, shares of software makers Palo Alto Networks and Similarweb are going sharply lower.

For Analog Devices, which reported this morning before market open, the one-point gain today, to $342.42, is more muted than the past two quarters’ jump in price. But the basic message is that sales and profit trends continue to reinforce a multi-quarter recovery in the company’s very broad and diverse chip market. 

That is confirmation of what we heard last month from peer Microchip about favorable trends for analog chips, and subsequently from that other analog chip giant, Texas Instruments.

It’s no secret that we are in a terrible moment for crypto-currencies. The price of Bitcoin is down twenty-three percent this year, and down thirty-one percent in twelve months. Coinbase, the standard bearer for “investing” in crypto’s growth, is down thirty-nine percent in the past year. 

The two most prominent recent initial public offerings of crypto firms, Bullish, the seven-billion-dollar Bitcoin trading exchange, and Circle Internet Group, the creator of the “USDC” stablecoin, are down fifty-five percent and twenty-nine percent since their respective IPOs.

And Monday, the latest hopeful, BitGo Holdings, received its first coverage from Street analysts after a more-than-forty-five-percent decline from its IPO on January 22nd to a recent $10.22.

“Those are the kinds of things people have been trying to figure out with large language models in general, is how to give them a brain, basically.”

“The problems of the grid that we solve are going to be persistent for a very long time. And we're in a unique position to take advantage of that.”

“If a JP Morgan or a United Airlines is down for hours because their observability solution isn’t working, was that really worth the cost of deploying a vibe-coded startup’s observability system?”

There’s a ritual now in the AI Trade, which is, guessing which well-heeled customers are the next giant customers for a given vendor.

Shares of networking vendor Arista Networks are up almost eight percent Friday morning at $145.20 on speculation that the company will add another two big customers this year. Sales at the moment are dominated by Microsoft and Meta, which have each for a long time been more than ten percent of Arista’s annual sales.

CEO Jayshree Ullal Thursday evening indicated that there’s potential this year to add two more customers of the same significance.

Amit Daryanani of Evercore ISI thinks the two potential unnamed customers might be Anthropic and Oracle. Rosenblatt Securities’s Mike Genovese thinks it will be Oracle and Alphabet’s Google. Raymond James’s Simon Leopold thinks it will be either Elon Musk’s xAI (now part of his SpaceX) or Oracle.

Wednesday morning’s earnings reports are pretty lousy for software names, especially Shopify, the e-commerce software and services giant, whose shares are down thirteen percent in spite of the fact that the company announced a new two-billion-dollar buyback authorization.

When a stock sells off despite a big buyback, that’s bad.

Indeed, one bull, Arjun Bhatia of William Blair, who has an Outperform rating on the shares, is bemused. “The reaction is surprising, and does not reflect the strong growth fundamentals this quarter,” he writes.

“Perhaps the only item that stuck out in the report was Shopify’s first-quarter FCF margin guidance of low to midteens,” he writes, though he thinks that should not be enough to sink the stock.

Although it sometimes seems like Micron Technology has to go up every single day — up forty-seven percent in three months — it doesn’t, actually. Tuesday, it was down over two points at $373.25. That is in spite of more good news for Micron Tuesday about the raging price of memory chips.

The current short supply of DRAM, what has been dubbed a “supply shock” that is driving prices sky high, is still not fully appreciated, writes Deutsche Bank’s Melissa Weathers on Tuesday. She reiterates a Buy rating and raises her price target on Micron to $500 — another thirty-four percent higher from here — based on her expectation DRAM supply tightness will last through 2028.

“We see DRAM tightness continuing through 2027 into 2028, though we see some relief in 2027 as new supply comes online,” she writes.

It’s all good news Tuesday morning for earnings winners Datadog, chip-equipment maker Entegris, Spotify, and Austrian specialty chip maker ams-Osram.

Entegris a continuation of the good news we’ve seen of late in everything chip-equipment-related, and ams-Osram continues the semiconductor bull run. Spotify is a bit of a specialty case, having topped expectations for users (“MAUs”) amidst what has been a very spotty, ahem, track record for user stats.

Datadog is especially interesting because of the ongoing slump in software stocks. The stock’s jump today follows seven percent gain for competitor Dynatrace yesterday (discussed in this week’s podcast.)

The stock is up sixteen percent Tuesday, at $132.45, though still down three percent for the year and down ten percent in the past twelve months.

The giddiness about Datadog amidst a very weak software market is evident in the headlines from the Street this morning. “Irrational pessimism collides with reality,” writes Brian White of Monness Crespi Hardt, who reiterates his Buy rating and $225 price target. 

Following up on last week’s discussion of the software “apocalypse,” or, as Bloomberg calls it, the “SaaSpocalypse,” this week in earnings brings several software stocks of note, including Hubspot, Datadog, and JFrog.

The week has started off very mixed, with shares of Monday dot com down 22% at $76.10 after the company missed with its quarter and year outlook. The proximate cause is a hard time selling to small and medium-sized businesses, what’s known as the “self-serve” segment of Monday’s sales.

Analysts were optimistic, however, about the company’s move “up-market,” selling to larger enterprises.

The plunge today brings Monday’s decline to 48% since the start of the year and 71% in twelve months.

Last week had plenty of nice news for data centers and the AI trade, particularly from hardware. (See the table at the bottom of the post for the rundown of this week’s reports.)

Let’s talk first about chip designer Monolithic Power Systems, which is a key provider of power management in racks of Nvidia chips, among other things, had good news for the data center industry. The company added to this year’s outsized gains by rising six percent on Friday to $1,229.82, after Monolithic’s Thursday report topped expectations for the seventh quarter in a row, and management offered a sales outlook for this quarter with higher-than-average upside, six percent above estimates.

The third of the business that’s for AI and server computers and such, “enterprise data,” was up twenty percent, and  CFO Theodore “Bernie” Blegen raised his outlook for this year.

On the conference call with analysts, Blegen, without formally forecasting, remarked, “You know that I like to stay pretty conservatively profiled when I make an estimate. So, I'd probably say that whereas last quarter, I talked about a range of between 30% and 40%, maybe I can increase that to a floor of 50% growth for 2025.”

It’s back to the races for artificial intelligence-linked stocks on Friday after Thursday evening’s report by Amazon echoed the strong AI infrastructure spending intention we heard on Wednesday from Alphabet’s Google.

Shara of Nvidia closed up eight percent on Friday at $185.41, Broadcom rose seven percent to $332.92, Micron Technologies gained three percent to $394.69, and Arista Networks ended up seven percent at $137.49. All four still ended the week flat to down.

For Amazon and Alphabet, it’s only bad news, as profit expectations are plunging on the massive spending.

Amazon pledged Thursday to spend as much as $200 billion on capital investment this year, most but not all of it in the Amazon Web Services unit, most of it for running AI. That number is tens of billions more than analysts had expected.

As a result, the average estimate for Amazon’s free cash flow for this year, according to FactSet, has swung from $37 billion before the report to negative $4.7 billion as of Friday.

We’re in the second full week of earnings season, and what is dominating the headlines is less the reports than a broad sell-off in software stocks, which has now lead to weakness in the artificial intelligence-linked names that had been working such as chip vendors.‍ ‍

Software has been in a terrible spot for three years now, but this week, everyone is obsessed with what Bloomberghas dubbed the “SaaSpocalypse.”

One indicator is a 19% fall in the IGV, the iShares mixed tech-software ETF, the leading software exchange-traded fund, year-to-date. Individual names are down sharply, such as Salesforce, of 28% this year, or Atlassian, down 35%. Only a handful have seen any gains, including Zoom Video.

Shares of Advanced Micro Devices are plunging Wednesday, down seventeen percent at $201.12, despite what should be a victory lap after a decent earnings report Tuesday night. 

AMD appears to be a casualty of souring sentiment on the artificial intelligence trade generally. It’s also prompting a broad sell-off of peers such as Nvidia and Broadcom, and, in fact, the entire semiconductor group is weak, including chip equipment names, with Lam Research, for example, down ten percent.

The Tuesday quarterly was very compelling, with AMD topping consensus for revenue by half a billion dollars, or, six percent. Profit per share of $1.53 also easily cleared the average $1.32 estimate. Operating profit reached a new record.

You could say the sell-off is just profit taking, after a more-than-doubling of AMD stock in twelve months, and a thirteen percent rise since the start of the year. 

But it’s also about a reckoning. After giving some very ambitious prognostications in November, at the company’s annual “analyst day” event — the kind of event where rosy promises are made — AMD CEO Lisa Su is today dealing with a bit of fallout, which is the very elevated expectations about how AI will play out.

Monday’s earnings include a return to favor by beaten-down Palantir, and another strong showing in chip equipment by Teradyne.

Palantir had fallen out of favor in the run-up to Monday night’s report, falling seventeen percent since the beginning of the year, and four percent over the preceding six months, but is up seven percent in late trading, at $158.05, on its customary beat-and-raise report.

Revenue came in five percent above consensus for the December quarter, and the outlook for this quarter was for a fifteen-percent beat. That represents a speed-up in revenue growth this quarter to seventy-four percent from seventy percent last quarter.

The full-year view, moreover, for $7.2 billion of revenue, give or take, is almost a billion dollars higher than analysts were modeling. The free cash flow projection for this year of $4 billion, give or take, was also nearly fifty percent higher than expected.

I’m a bit late in catching up with Nextpower, formerly Nextracker, which had a favorable report Tuesday evening that drove the stock up thirteen percent on Wednesday.

Shares also got a lift from the company’s first-ever share repurchase authorization, half a billion dollars over three years. That’s equivalent to three percent of the market cap.

Nextpower is the largest vendor of what are called “tilt trackers,” a precision electromechanical device that shifts the orientation of the solar panels throughout the day to make them catch the most rays possible.

Since November, when it rebranded the company, Nextpower has been expanding into related product categories. For example, it now sells “inverters” that manage power conversion in solar systems. That puts the company into some competition with, for example, Tesla’s energy business, which I talked about a little bit in yesterday’s Tesla article.

What I find most interesting about Nextpower, other than stellar results in Tuesday evening’s report, is its perspective on the electrical grid.

I have to admit I have spent this week being choosey about earnings coverage, paying less attention to the reports of Meta Platforms and Microsoft and Apple. That’s because what is happening among infrastructure makers is just so much more interesting. 

Take the case of SanDisk, which is up twenty-four percent in early trading on Friday, at $663.50, an expansion of the seventeen-point move Thursday night, after the company blew away expectations by the widest margin since it separated from Western Digital last April. 

Revenue of $2.5 billion was thirteen percent above the average estimate. Profit per share was also sharply higher, $5.20 versus the consensus $3.03.

And the forecast for this quarter’s revenue is fifty-seven percent higher than the consensus, $3.9 billion versus an expected $2.4 billion. 

This is the kind of surprise that happens not that often. It’s like May of 2023, when Nvidia’s forecast for revenue offered the most upside anyone could remember.

Among Thursday’s earning winners, Lam Research’s report showed business continues to soar on all the artificial intelligence chip demand, and related parts. The stock closed up over three percent at $248.17, and helped to lift shares of peers such as KLA and Applied Materials.

This is the second major chip-equipment positive this week, following ASML’s report Tuesday morning. 

Price targets were zooming, the highest I saw being $325 from Mehdi Hosseini of Susquehanna Financial.

The key positive is Lam raising its outlook for the entire “WFE,” or, wafer fab equipment market, the general catch-all term for the equipment industry. Lam now says the market will rise to $135 billion, around twenty-three percent growth from what Lam says was probably $110 billion for the industry last year. 

Competitor KLA, reporting this evening, and also offering an upbeat report and outlook, is saying something similar, “in the mid-$130 billion range” for 2026, according to its shareholder letter. KLA noted that “The industry outlook for calendar 2026 has strengthened over the past few months.

Among Thursday’s earning winners, Lam Research’s report showed business continues to soar on all the artificial intelligence chip demand, and related parts. The stock closed up over three percent at $248.17, and helped to lift shares of peers such as KLA and Applied Materials.

This is the second major chip-equipment positive this week, following ASML’s report Tuesday morning. 

Price targets were zooming, the highest I saw being $325 from Mehdi Hosseini of Susquehanna Financial.

The key positive is Lam raising its outlook for the entire “WFE,” or, wafer fab equipment market, the general catch-all term for the equipment industry. Lam now says the market will rise to $135 billion, around twenty-three percent growth from what Lam says was probably $110 billion for the industry last year. 

Competitor KLA, reporting this evening, and also offering an upbeat report and outlook, is saying something similar, “in the mid-$130 billion range” for 2026, according to its shareholder letter. KLA noted that “The industry outlook for calendar 2026 has strengthened over the past few months.

The stand-out this morning is fiber-optics maker Viavi Solutions, soaring by thirteen percent to $23.82, after Wednesday evening’s results and outlook topped expectations — the fourth quarter in a row the shares have rocketed on the report.

What’s adding an extra bounce to things today is the company’s plan to cut five percent of its workforce, about 180 people.  The company expects to save $30 million annually by doing so. CFO Ilan Daskal said in prepared remarks the move was to “better align workforce and resources with our current business needs and strategic priorities.”

IonQ’s CEO, Niccolo de Masi, was kind enough to chat Wednesday morning about the company’s announcement Monday it is buying semiconductor contract manufacturer SkyWater Technology for $1.8 billion.

De Masi’s main pointed, repeated several times, is that SkyWater is a unique asset as being both a “secure” facility for manufacturing, as it is located in the U.S., as well as having the expertise specifically in fabricating a variety of parts for quantum for a dozen or more customers, including superconducting parts for companies other than IBM, which has its own factories, and quantum annealing chips for D-Wave Quantum.

“This gives us effective leadership as the U.S. quantum foundry of choice,” said de Masi. He noted the “tailwinds” of the administration of U.S. President Donald Trump that is emphasizing domestic manufacturing.

“We can build under tight lock and key, and we can make sure we are the leading partner for the DoW [Department of War,” said de Masi. “We can know we are building something that was not copied and ripped off.”

Earnings reports Tuesday evening and Wednesday morning are seeing the payoff of very broadly positive trends we’ve been watching, including the artificial intelligence build-out.

Wednesday morning’s jump in shares of ASML in pre-market trading, and the big after-hours gains for Texas Instruments and Seagate continuing into Wednesday morning, each come with the expected positive developments but with a little extra wrinkle to make things even more upbeat.

We had good news for Corning and Amphenol as well Wednesday morning. However, with their shares up twenty-five percent and twenty-three percent this year, I suspect the good news was not good enough for the highest expectations. As a result, they’re selling off on the news.

The week that ended January 23rd saw stocks fall fractionally for the major indices, Nasdaq and Standard & Poor’s 500, and a one-percent fall for the TL20 group of stocks to consider, and the names that sold off the hardest suggest the divide between artificial intelligence infrastructure and everything. 

Names hardest hit last week include Snowflake, Nutanix, Samsara, and Palo Alto Networks.

The “gold rush” companies, those selling the “picks and shovels,” analogous to any prospecting period such as The Great Gold Rushin 19th Century America. That includes Nvidia, Micron Technology and Arista Networks. 

The companies that are not explicitly gold rush companies, such as Snowflake, are not enjoying the same gains, which is true for most of the software group, for a long time now. 

The sense that we are in unprecedented times — that artificial intelligence changes everything, that we are on the cusp of discovering the quantum mysteries of the universe — has prompted many easy-money moves among high-flying equities.

Such a move came again on Monday morning from IonQ, one of the triumvirate of quantum computing companies along with D-Wave and Rigetti. The company announced it is spending $1.8 billion in cash and stock to acquire publicly traded SkyWater Technology of Bloomington, Minnesota, for $35 a share. SkyWater, which came public in the spring of 2021, is a boutique contract chip makerthat is best known for fabricating the quantum chip used by D-Wave Quantum.

‍The deal was not far above SkyWater’s close on Friday of $31.32, as SkyWater stock has been on a tear, up 72% since the start of the year — much better than the five-percent gain for IonQ in that time.

In its press release, IonQ said buying SkyWater will speed up IonQ’s roadmap for the number of “qubits,” the quantum equivalent of a traditional transistor. Specifically, IonQ has been telling the Street it will have 200,000 “physical” qubits in 2029, as was featured in a slide deck at a Bank of America conference in November:

Shares of Intel sank by about five percent in late trading after the company beat with its fourth-quarter revenue but offered a forecast for this quarter roughly three percent below what the Street has been modeling.

Intel shares have been incredibly strong heading toward this report, up a hundred and forty-nine percent in twelve months, and forty-seven percent just since the start of the year. Hence, it is not surprising to see a sharp sell-off on the lackluster forecast.

Intel tends to sell off on its January earnings reports, so, this is perhaps typical. Also, the company has missed with its revenue forecast in three out of the prior four quarterly reports, so, that’s also par for the course.

We’re in the first week of tech earnings, with Netflix reporting as I record this. The week just ended, the week of the 16th of January, was one with good news for the artificial intelligence trade. We’ll come to all that in a moment.

On Monday, I posted a dissection of all the AI expectations. I went back to that infamous JP Morgan report from November, the one that projected $5 trillion in spending on data centers over the next several years.

I dug into the background material, which includes historical data and projections from The International Energy Agency, a multi-governmental policy research group based in Paris, which is overseen by the Organization for Economic Cooperation and Development.

Intel is on tap to report earnings Thursday evening, after the closing bell. The stock has been stellar up till now, rising a hundred and forty-nine percent in the past twelve months at Wednesday’s close of $54.25.

The stock tends to sell off hard on earnings: the last five Januarys, the shares have sold off an average of eight percent following the fourth-quarter earnings report. And last year, the shares sold off following three of four quarterly reports, by an average of six percent.

But, there’s reason for hope: Several people are seeing rising prospects.

Tuesday, Seaport Research analyst Jay Goldberg raised his rating to a Buy from Neutral, with a price target of $65, writing that the company stands to regain share in consumer and enterprise PCs this year as its newer CPU, “Panther Lake” goes on sale. Panther Lake is for notebook computers, and it’s significant as it returns manufacturing to Intel’s own factories, specifically, the Chandler, Arizona, factory known as “Fab 52,” whereas previously Intel laptop chips had been made by Taiwan Semiconductor.