A.I Developments, Federal Reserve, Economics and More

The Prudent Speculator Weekly Commentary is expertly curated every week as a valuable resource for stock market news, investing tips, business insights, and economic trends as it relates to value stock investing. In this week’s Market Commentary, we discuss A.I. Developments, Federal Reserve, Economics and more. We also include a short preview of our specific stock picks for the week, the entire list is available only to our community of loyal subscribers.

Executive Summary

Trades – One Sale in One Account

Week – Soldiers Beat Generals and Value Tops Growth

Metrics – Financials, A.I.-Related Tech Stocks & Our Value Portfolios

A.I. Developments – Outlooks from ORCL & AVGO Disappoint Traders

Fed – 25-Basis-Point Rate Cut; Two More Expected in 2026

Econ – Mixed Numbers; Fed’s GDP Growth Outlook Improves Slightly

Earnings – Solid Growth Still the Forecast

Volatility – Ups and Downs but Long-Term Trend Has Been Up

Sentiment – Main Street Has Become More Bullish

Stock News – Updates on ADBE, APD & JPM

Week – Soldiers Beat Generals and Value Tops Growth

While we could have done without Friday’s red ink, it was our kind of trading week with the S&P 500 Equal Weight index gaining 0.76% for the full five days, while its capitalization-weighted counterpart dropped 0.61%, and the Russell 3000 Value index advanced 0.68%, versus a 1.43% skid for the Russell 3000 Growth index. Value stocks often have performed well this time of year,

with the recent rally aided mightily by the Financials sector, where earnings multiples on the names we own generally are very reasonable and dividend yields are relatively high,

Metrics – Financials, A.I.-Related Tech Stocks & Our Value Portfolios

those gains offsetting some significant profit-taking on this year’s highly lucrative A.I. Trade,

and offering a reminder that it is always a market of stocks and not simply a stock market.

A.I. Developments – Outlooks from ORCL & AVGO Disappoint Traders

And speaking of Artificial Intelligence, there were two big earnings reports out last week that were very good for the latest period, but the outlooks provided evidently did not live up to some of the more optimistic expectations. To be sure, this isn’t the first trip south for our A.I. holdings, but we sleep well at night, given the sizable profits we have already booked via our partial-sale program and the fact that the financial metrics for our portfolios on the whole very much remain in the Value camp.

Cloud service provider Oracle (ORCL – $189.97) had another dreadful day, pushing the loss from September 10 to more than 42%. While the drop is steep, perhaps surprisingly, the shares have still risen 15% this year as investors mull over the fiscal Q2 results, and readers will remember that this is one of the A.I. names we locked in portions of our winnings on the day the stock peaked.

In the quarter, ORCL earned $2.26, up from $1.47 a year ago and massively ahead of the $1.64 estimate. Revenue was $16.1 billion, up 14% year over year. Cloud (IaaS+SaaS) revenue was $8.0 billion and Software revenue was $5.88 billion. The adjusted operating margin was 42%, 1% lower than the same period last year and 0.2% behind the consensus.

Founder Larry Ellison said of A.I., “The Oracle Cloud includes all the top AI models, OpenAI ChatGPT, xAI Grok, Google Gemini and Meta Llama. Oracle’s new database, an AI data platform, plus the latest versions of Oracle applications enables all of those AI models to do multi-step reasoning on your database and application data, while keeping that data private and secure. All our database and application customers want to do this, because for the first time, they get a unified view of all of their data. AI models can respond to a single inquiry by reasoning across all your databases, all of your applications. By treating all of your data holistically, the combination of AI models plus the Oracle AI database and AI data platform breaks down the walls that isolate and fragment your data. The Oracle AI data platform makes all your data — all of your data accessible to AI models, not just Oracle databases and Oracle applications, the data in Oracle databases and Oracle applications, but data from other databases. Cloud storage from any cloud, even data from your own custom applications are accessible to AI models using the Oracle AI data platform. Using our AI data platform, you can unify all your data and reason on all of your data using the very latest AI models. This is the key to finally unlocking all the value and all your data. Very soon through the lens of AI, you will be able to see everything happening in your business as it happens.”

While the quarter was stellar, in our view, the outlook didn’t seem to impress anyone given that ORCL had to push out some of its expansion plans due to supply and capacity constraints. The company’s backlog is, no doubt, large, but we are left to wonder how quickly ORCL can move its order book to actual revenue. Importantly, with so much debt being issued to pay for A.I. infrastructure, we think it’s a fair question to ask if demand will falter before Orcale is able to capture those dollars. Simply, the company must manage the transition period of rapidly building out A.I. infrastructure capacity while maintaining profitability targets. Given the charge ahead for other Tech stocks, ORCL is now a smaller position and one we must evaluate as a bring-up candidate. Our Target Price for ORCL now is $323.

Shares of semiconductor titan Broadcom (AVGO – $359.93) fell 10% on Friday after the report of fiscal Q4 results. Although the quarterly numbers themselves weren’t bad ($1.95 of EPS on $18 billion of revenue), the outlook failed to impress analysts, who apparently were wanting to see much more.

CEO Hock Tan explained, “In our fiscal 2025, consolidated revenue grew 24% year-over-year to a record $64 billion, and that’s driven by AI semiconductors and VMware. AI revenue grew 65% year-over-year to $20 billion, driving the semiconductor revenue for this company to a record $37 billion for the year. In our infrastructure software business, strong adoption of VMware Cloud Foundation of VCF, as we call it, drove revenue growth of 26% year-on-year to $27 billion. In summary, 2025 was another strong year for Broadcom, and we see the spending momentum by our customers for in AI continuing to accelerate in 2026.”

He continued, “Here’s what we see in 2026. Directionally, we expect AI revenue to continue to accelerate and drive most of our growth and non-AI semiconductor revenue to be stable. Infrastructure software revenue will continue to be driven by VMware growth at low double digits. And for Q1 ’26, we expect consolidated revenue of approximately $19.1 billion, up 28% year-on-year and we expect adjusted EBITDA to be approximately 67% of revenue.”

The chipmaker’s A.I. backlog stands at $73 billion, which is a tidy sum. However, analysts wondered if gross margins will hold up given the company’s push to customize A.I. chips. Additionally, the actual dollars flowing from A.I. customers is a bit murky, with analysts now suspecting that the company’s fifth XPU customer probably isn’t OpenAI, while Anthropic was confirmed to be the fourth. Certainly, there’s plenty of room for things to go better than expected and Mr. Tan is a shrewd operator so we wouldn’t want to bet against him or AVGO. Even after the whack, shares are up more than 55% this year and our Target Price has been hiked to $450.

Fed – 25-Basis-Point Rate Cut; Two More Expected in 2026

No doubt, the biggest news out last week was the Federal Reserve’s decision to reduce its target for the Fed Funds rate by 25 basis points to a range of 3.5% to 3.75%,

with Jerome H. Powell & Co. focused more heavily on the maximization-of-employment part of their dual mandate,

even as the quarterly economic projections offered saw a slight uptick in GDP growth forecasts and stable unemployment estimates.

Chair Powell walked a fine line in his comments,

but concluded, “We’re well positioned to wait and see how the economy evolves from here.” Still, the Fed Funds futures market is betting on two more rate cuts over the next 12 months,

with an accommodative Fed historically a positive for equities in the near term.

Econ – Mixed Numbers; Fed’s GDP Growth Outlook Improves Slightly

Of course, the latest set of economic stats were mixed with a better-than-expected read on small-business optimism,

and job openings,

offset by a jump in the latest week in first-time filings for unemployment benefits.

Earnings – Solid Growth Still the Forecast

Nevertheless, the expectations for overall corporate profit growth improved last week, with the long-term evidence showing that equity prices have followed earnings higher over time,

Volatility – Ups and Downs but Long-Term Trend Has Been Up

though not without plenty of bumps in the road along the way,

Sentiment – Main Street Has Become More Bullish

not to mention more than a few disconcerting headlines.

We realize that stocks have had quite a run since the April Bear Market lows,

and optimism on Main Street has been rising,

which 38 years of data suggests could lead to lower-than-usual, but still positive, returns in the short-term,

so we remain braced for downside volatility, but we continue to think the kinds of stocks we have long championed have room on the upside, given the lower-than-normal, but still solid, returns over the last 10 and 20 years for the Value indexes.

Stock News – Updates on three stocks across three different sectors

Keeping in mind that all stocks are rated as a “Buy” until such time as they are a “Sell,” a listing of all current recommendations is available for download via the following link: https://theprudentspeculator.com/dashboard/. We also offer the reminder that any sales we make for our newsletter strategies are announced via our Sales Alerts. Jason Clark, Chris Quigley and Zack Tart take a look at earnings reports and other market-moving news of note out last week for more than a few of our recommendations.