Stocks Closed Lower Yesterday, CPI Inflation Report On Deck This Morning Stocks closed lower yesterday across the board. The headlines pinned it on AI disruption. I think it's just normal profit taking after sharp gains. Nonetheless, disruption fears have been a recurring theme over the last few weeks, especially for software. But let me repeat what I wrote before: AI is not the death of software, it's an enhancement of software. Remember the phrase "software will eat the world"? That was by Marc Andreessen back in 2011. Actually, his quote was "software is eating the world." But over the years, it morphed into 'will' eat the world, in popular parlance. Either way, now some people think AI will eat software. And they are likely right. But again, that's not the death of software, it's an enhancement. And the modern extension of that phrase should really be 'AI will eat software, and software will eat the world.' The original phrase meant that software will be the dominant layer of value creation in every industry. And it has become that. AI, however, will soon become the dominant layer of value creation. But not to the demise of software. But to its betterment. Because AI is the next layer on top of software, or becomes the intelligence inside the software, which then accelerates software's dominance across every industry. Jensen Huang recently addressed this very topic and said that, "there's this notion that the tool in the software industry is in decline, and will be replaced by AI...it is the most illogical thing in the world, and time will prove itself." And I agree. Make no mistake, there will be disruption, as there is with any new technology or innovation. The strong shall survive. But that's different than killing off industries. And while there will be some casualties, AI will create many winners by elevating existing companies, along with new ones being created with different products and services. Today we'll get the Consumer Price Index (CPI) retail inflation report for January. The consensus is calling for the headline number to be up 0.3% m/m, in line with last month, while the y/y rate slips to 2.5% from last month's 2.7%. The core rate (ex-food & energy) is expected to be up 0.3% m/m vs. last month's 0.2% pace, with the y/y rate easing to 2.5% vs. last month's 2.6%. Earnings season continues. Yesterday, after the close, Arista Networks posted a positive EPS surprise of 9.33%, and a positive sales surprise of 4.81%. That translated to a quarterly EPS growth rate of 26.2% vs. this time last year, and a sales growth of 29.0%. They also guided Q1 sales estimates higher by 5.69% above the consensus. They were off -3.94% in the regular session, but soared more than 20% in after-hours trade. Applied Materials also reported after the close and posted a positive EPS surprise of 8.68%, and a positive sales surprise of 1.79%. That equated to a flat quarterly EPS growth rate, and a sales growth of -2.23%. They also upped their revenue guidance, putting Q2 up 8.51% above estimates. They were down -3.38% in the regular session, but jumped by 12% after-hours. We'll get more earnings today with another 135 companies set to report. Note, the market is closed on Monday for Presidents Day. Recent volatility is only being exacerbated with a 3-day long weekend ahead, and a looming partial government shutdown likely on Saturday if Congress can't pass a DHS funding bill by tonight. Trading resumes on Tuesday as normal. In the meantime, have a great 3-day long weekend. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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