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CNBC
29 minutes ago
- CNBC
CNBC Daily Open: Alphabet spends more on AI — but also earns more from it
Investors can have a reputation of being penny pinchers. For one, they tend to push up share prices on layoff announcements because of the associated cost savings. Accordingly, when a company reports slow revenue growth or an increase in spending, it's more often than not punished in the stock market. After the bell on Wednesday, Alphabet said it would be spending $85 billion on infrastructure as it expands its artificial intelligence strategy this year. That's $10 billion more than it forecast in February — which had already overshot the $58.84 billion estimated by Wall Street. Alphabet said it was raising expenditure because of "strong and growing demand for our Cloud products and services" — of which revenue in the second quarter jumped 32% from a year ago. Despite the increased spending — which is no small amount — the Google parent saw its shares rise as much as 3% in extended trading, though it's pared some of its gains. In other words, investors seem confident — albeit slightly — that the investment in AI can finally be properly monetized and translate into higher revenue. A penny saved might be a penny earned, but a penny invested properly can be a pound in return. Donald Trump will visit the U.S. Federal Reserve on Thursday. This is the first time in nearly two decades that an American president will be making an official trip to the central bank, and marks a symbolic move on the Fed's independence. Alphabet's second-quarter earnings beat expectations. However, the Google parent also said that, this year, it would be investing $10 billion more than previously announced in capital expenditures related to artificial intelligence. Deutsche Bank tops earnings forecasts. Net profit attributable to shareholders reached 1.485 billion euros ($1.748 billion) in the second quarter, compared with a 1.2 billion estimate from Reuters. The Nasdaq Composite closes above 21,000 for the first time. The S&P 500 and Dow Jones Industrial Average also rose on Wednesday. Asia-Pacific markets mostly climbed Thursday. Japan's Topix, a broad-based index that tracks all domestic firms, hit a record high. [PRO] There's a buzz around 'neoclouds.' Investors like these companies, which specialize in artificial intelligence cloud computing, because they're more cost-effective for clients than traditional hyperscalers. But risks are starting to appear. Asia is fast becoming a hot spot for private credit as the region's funding gap widens The private credit industry is ramping up its focus on Asia-Pacific, drawn by a combination of evolving capital markets and expanding funding gaps as traditional bank lending pulls back. Private credit assets under management in Asia rose from virtually zero in 2000 to $62.3 billion in the first quarter of 2024, data provided by Pitchbook showed. That expansion has accelerated particularly in recent years, with AUM more than doubling to over $62 billion in 2024 from $34.3 billion in 2017.
Business Insider
40 minutes ago
- Business Insider
Spotify Stock (SPOT) Bulls Gear Up Ahead of Q2 Earnings Reveal
Momentum is firmly behind Spotify Technology (SPOT), the world's leading music streaming platform. The stock has surged nearly 115% over the past year, including a gain of over 50% in the first half of 2025 alone. It's a dramatic reversal from the lows of 2022, when questions around profitability and weak gross margins cast serious doubt on the company's long-term prospects. Market data shows that since September last year, Spotify has left the S&P 500 (SPY) in the rearview mirror. Elevate Your Investing Strategy: Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. Spotify's renewed focus on profitability has clearly resonated with investors, and its strong execution has led to a meaningful re-rating of the stock. With Q2 earnings set for release next week, expectations have come down slightly compared to the start of last quarter, in line with more cautious guidance. That lower bar could work in Spotify's favor—if it delivers even modest beats across key metrics, the current momentum could easily continue. Valuation-wise, the stock isn't cheap. But for a high-growth business with expanding margins and a clear path to improved earnings, I believe there's still meaningful upside. That's why I continue to rate Spotify as a Buy. How Spotify Reinvented Its Story Not so long ago, back in 2022, Spotify's stock had crashed about 75% from its 2021 highs. At the time, investors were losing patience with the company's persistent losses, despite massive revenue growth. Costs were ballooning due to big bets on podcasts, and gross margins were stagnant as expensive music licensing consumed a large portion of revenue. But over the last two years, there's been a massive re-rating in SPOT's stock. Spotify posted its first quarterly profit in 2023 and its first annual profit in 2024. Gross margins, for example, have climbed from around 25% at the end of 2023 to over 31% today. With a shift in narrative from pure growth to 'profit matters,' Spotify cut staff costs, trimmed back costly podcast shows that weren't paying off, and focused on higher-margin content and more selective investments. Additionally, gross margins received a boost as podcast and advertising monetization began to mature. The macro backdrop also helped, as optimism returned to markets in 2024, and more precise margin targets gave investors more confidence that Spotify could finally deliver on its long-promised goal of achieving 30–35% gross margins. All of this has made SPOT stand out compared to many of its still-unprofitable peers. That said, Spotify is set to report its Q2 earnings under a particularly low bar over the last three months, after analysts revised their EPS estimates down from $2.46 to $2.34 —although revenue expectations have actually risen, from $4.85 billion to $4.97 billion. This is mainly because Spotify's own guidance for Q2 calls for slower MAU growth of 11 million, compared to 13 million in the last quarter. At the same time, margins are expected to remain flat at 31.5%, and there could be up to $100 million in negative currency impacts. So on one hand, this looks like a more cautious move by the company—although Spotify's track record is mixed here, as it tends to be more aggressive when setting long-term margin and profit targets. In my view, the slowdown in MAU growth reflects the sheer scale of Spotify's existing user base—now at 689 million. At this size, acquiring new users becomes increasingly expensive, as the most accessible markets are already saturated. Growth from here means reaching harder-to-penetrate regions, which typically requires more aggressive and costly marketing. Rather than chasing user growth at all costs, Spotify's decision to accept a slower pace signals a strategic shift toward margin preservation. I see this as a smart move, especially as the company matures and the focus naturally shifts from pure expansion to sustainable profitability. Going forward, the real lever for growth isn't user count—it's revenue per user (ARPU). That's likely to be a central theme in the upcoming earnings report. If Spotify demonstrates a clear focus on boosting ARPU—through upsells, cross-sells like audiobooks and ads, price increases, or premium tier bundles—it should reinforce investor confidence and support the bullish case. A Reality Check on Spotify's Premium Multiple Perhaps the most significant challenge to this thesis is that S potify currently trades at an EV/Sales ratio of approximately 7.8x and an EV/EBITDA ratio of around 70x—that's more than 300% and 500% higher than the industry averages, respectively. These multiples are what the market would have expected for a high-growth stock, but this is for a business that's already showing signs of slower growth. But digging deeper, it's worth stress-testing how realistic (or not) these multiples are. Spotify has explicitly guided for a long-term consolidated gross margin target of 30–35%—for context, its current gross margin is about 31.5%. Consensus revenue estimates for Spotify in five years from now are about $32.9 billion—that's roughly 60% growth from 2025 projections. If we assume today's OpEx of $3.5 billion stays flat (just for simplicity), EBIT would land around $8 billion five years from now, assuming margins reach 35% in year five. Using the sector's average EV/EBIT multiple of 18x, or a premium 20x for Spotify, the implied valuation would come in around $160 billion—versus today's $142.6 billion market cap. That's only about 13% upside from here. The point of this exercise is to demonstrate that the market is already pricing in moderate success on margin expansion and cost discipline—but not a significant upside beyond that. Hitting these targets consistently won't be easy for Spotify, but it's also not out of reach. Is Spotify a Buy, Hold, or Sell? The consensus for SPOT is moderately bullish. Of the 25 analysts covering the stock, 17 are bullish, seven are neutral and only one analyst is bearish, according to TipRanks data. SPOT's average stock price target is $762.25, implying almost 14% upside over the coming year. Spotify Rated as a Buy Ahead of Earnings Announcement Heading into earnings, I'd say the odds are firmly tilted in Spotify's favor. Despite the stock's impressive rally, there's still a reasonable margin of safety built into the long-term investment case—based on assumptions that are relatively grounded, which is rare for a growth name like this. In my view, the recent downward revisions to Q2 expectations actually reinforce the idea that Spotify is making the right strategic pivot toward margin expansion. That shift could be a key driver of long-term profitability. All things considered, I continue to view SPOT as an attractive Buy at current levels.
40 minutes ago
Texas AG claimed three homes as primary residence. Democrats are being probed for similar issue
WASHINGTON -- Texas Attorney General Ken Paxton and his wife, Angela, are longtime owners of a $1.5 million house in a gated community outside Dallas. In 2015, they snapped up a second home in Austin. Then another. The problem: Mortgages signed by the Paxtons contained inaccurate statements declaring that each of those three houses was their primary residence, enabling the now-estranged couple to improperly lock in low interest rates, according to an Associated Press review of public records. The lower rates will save the Paxtons tens of thousands of dollars in payments over the life of the loan, legal experts say. The records also revealed that the Paxtons collected an impermissible homestead tax break on two of those homes, and they have routinely flouted lending agreements on some of their other properties. It is a federal and state crime to knowingly make false statements on mortgage documents. It's also against the law in Texas to collect a homestead tax break on two separate properties. Violating the terms of a mortgage could allow lenders recourse to seek full payment of a loan, according to legal experts. The mortgage revelations are likely to become fodder in the Republican primary for a U.S. Senate seat in which Paxton is seeking to topple the incumbent, John Cornyn. The situation is further complicated by the Trump administration's criminal pursuit of Democrats over similar issues. President Donald Trump has accused two of his political foes — Sen. Adam Schiff of California and New York Attorney General Letitia James — of committing mortgage fraud, though legal experts say the circumstances are less serious. The Democrats have long been objects of Trump's ire for having led various investigations into his conduct as president and as a business executive. Paxton, himself, has weighed in on the investigation of James, saying he hoped authorities would look into her conduct. 'I hope that if she's done something wrong, I hope that she's actually held accountable,' he told supporters last month. The Justice Department has launched a criminal investigation of James, FBI director Kash Patel told Fox News in May. The department received a criminal referral for Schiff last week from the Federal Housing Finance Agency, its director William Pulte confirmed in a social media post. Neither the Justice Department nor the FHFA responded to an inquiry about whether they may investigate Paxton, too. James' attorney, Abbe Lowell, urged the Trump administration to investigate Paxton instead. 'If this administration was genuinely interested in rooting out fraud, it appears they should stop wasting their time on the baseless and discredited allegations against the New York Attorney General James and turn their attention to Texas,' said Lowell, a prominent Washington attorney whose past clients include Hunter Biden, Ivanka Trump and Jared Kushner. In a statement, Marisol Samayoa, a Schiff spokeswoman, blasted the criminal referral as 'a transparent attempt' by Trump 'to punish a perceived political foe who is committed to holding him to account.' She added that Schiff disclosed to his lenders that he owned another home that was a principal residence and sought guidance from an attorney. It is unlikely that Paxton, a staunch Trump ally, will face the same federal scrutiny as James and Schiff. It's equally doubtful that Paxton will face much legal trouble in Texas: His office is one of the primary agencies tasked with investigating allegations of mortgage fraud. Ken Paxton and his spokesman did not respond to multiple requests for comment. Angela Paxton, who is a state senator in Texas, did not respond to requests made through her office. Documents reviewed by the AP show the Paxtons hold mortgages on three homes — one in suburban Dallas, two in Austin — that are each listed as their primary residence. The designation comes with a considerable financial upside. Interest rates on primary homes are significantly lower than those for mortgages on secondary homes or investment properties, saving buyers tens of thousands of dollars — if not more — over the life of a loan. Making a case against Paxton would require "establishing both that Paxton was aware of the contents of the mortgage document, and also that he was actively aware at the time that he signed it that this was not going to be a primary residence,' said Jennifer E. Laurin, a professor at the University of Texas Law School in Austin. Legal experts say it is possible that the Paxtons' lenders prepared the documents and that the couple did not carefully review them before signing. Even if that were the case, some legal experts say that Paxton, as an attorney and Texas' top law enforcement officer, ought to have known better. 'If he filled out lender documents knowing that they were false, then that is a false statement to obtain a mortgage on favorable terms. That would be actionable,' said Arif Lawji, a veteran Texas real estate attorney. 'He's the chief enforcement officer. You have to be accountable for stuff you do that's wrong.' Low interest rates are not the only perk the Paxtons secured, records show. In 2018, they simultaneously collected homestead property tax breaks on their family's home in suburban Dallas, as well as on a $1.1 million home in Austin, property records and tax statements show. A homestead tax break is a property tax reduction that a homeowner is only eligible to collect on one property that is also their primary home. The suburban Dallas home is where the Paxtons' family has long resided. It's where Ken and Angela Paxton are registered to vote. It is located in the state Senate district that Angela Paxton represents in the Legislature, which Ken Paxton held before his election in 2014 to be attorney general. It's also where Ken Paxton's Senate campaign website until recently said he lived. Lawji said the Paxtons' simultaneous collection of two homestead tax breaks appears to be a more clearcut violation. That is because one must obtain a form and submit it to taxing authorities to receive such a tax break, making it an 'intentional act,' he said. The tax break was worth several thousand dollars, a fact that confounded real estate lawyers. 'Why would you try to do all of this,' Lawji said, 'when you are the attorney general? That's a bigger question to me than the money, when you are AG and have to enforce this law.' Separately, land records indicate the Paxtons may have violated the terms of at least two mortgages on other houses they own. The mortgage on a home in College Station, Texas, says the property is for the Paxtons' exclusive use and cannot be rented out. Doing so would be grounds for terminating the mortgage, the document states. The home has been listed for rent on real estate websites on-and-off since at least 2022. Ken Paxton also holds a $1.2 million mortgage on a '5 bedroom luxury cabin' in Broken Bow, Oklahoma, that is for rent on Airbnb and other short-term rental sites, records show. The property's mortgage stipulates that it cannot be rented out. Representatives for Stifel Bank, Cornerstone Home Lending and Benchmark Mortgage, which issued the mortgages in question, did not respond to requests for comment. Paxton's real estate dealings are in many ways distinct from those of James and Schiff, the Democrats targeted by the Trump administration. The investigation of James centers on forms she signed in 2023 while helping a niece buy a home in Virginia. One form stated that James intended to occupy the home as her 'principal residence.' But in other documents, the New York attorney general made clear she had no intention of living there. An email to the mortgage loan broker two weeks before she signed the documents stated the property 'WILL NOT be my primary residence.' 'As I've said from the beginning, if prosecutors want to know that truth about Attorney General James' mortgage applications, we are ready and waiting with the facts,' said Lowell, James' attorney. For over a decade, Schiff owned homes in Maryland and California, the state he represents, that were both designated as his primary residence. In 2020, then a congressman, Schiff designated his Maryland property as a second home — a step Paxton has not taken. Paxton's real estate dealings are not the first time he has drawn scrutiny for his conduct while in office. Before his election as attorney general, Paxton, then a state senator, admitted in 2014 to violating Texas securities law and paid a fine. He spent roughly 10 years under state indictment on securities charges while serving as attorney general. The charges were eventually dropped in 2024. Other alleged misdeeds in office led to his impeachment by Texas' GOP-controlled House in 2023. He was acquitted in a trial by the Senate. Angela Paxton did not cast a vote in his impeachment trial and recently filed for divorce, citing Ken Paxton's infidelity and other 'recent discoveries.' She did not elaborate. What ultimately unleashed the impeachment push was Paxton's relationship with Austin real estate developer Nate Paul, who pleaded guilty this year to one count of making a false statement to a financial institution. In 2020, eight top aides in Paxton's office told the FBI they were concerned the state's top law enforcement official was misusing his office to help Paul over the developer's unproven claims about an elaborate conspiracy to steal $200 million of his properties. The House impeachment managers accused Paxton of attempting to interfere in foreclosure lawsuits and issuing legal opinions to benefit Paul. They also alleged that Paul employed a woman with whom Paxton had an affair in exchange for legal help and that the developer paid for expensive renovations to the attorney general's home in Austin. That would be the same house that he declared in mortgage documents was his third primary residence.
