Warsh Arrives as AI Spend Splits the Magnificent Seven

Corporate Overview

The final week of January brought earnings season into full roar, and the verdict is unsettling: Big Tech's artificial intelligence arms race is alive, expensive, and divisive. Microsoft cratered 10% after cloud growth slowed. Meta soared 9% despite guiding AI capex to $135 billion. Apple delivered record iPhone sales but underwhelmed. Tesla rallied on robotaxi plans. Four Magnificent Seven members, four radically different investor reactions—and a Fed chair nominee who may or may not bail them out with lower rates.

Daly Asset Management is built around one principle: independent thinking, data-driven allocations, and zero tolerance for high-fee mediocrity. We're systematic, transparent, and we don't bet the farm on hope.

Stock of the Week: International Business Machines (IBM)

Ticker: IBM | Sector: Technology | Market Cap: ~$175B | Yield: ~3.5%

IBM surged 8% in extended trading following fourth-quarter results that demolished expectations. Revenue jumped 12% to $19.69 billion versus the $19.21 billion consensus, powered by 14% software growth, 21% infrastructure gains, and steady 3% consulting expansion. Earnings per share hit $4.52, crushing the $4.32 estimate.

While the Magnificent Seven wrestle with AI spending anxiety, IBM is quietly monetizing hybrid cloud and Red Hat. The company has gained 30% over the past year, riding enterprise demand for AI infrastructure that doesn't require building hyperscale data centers from scratch. IBM is the anti-glamour AI play: unsexy, profitable, and increasingly relevant as CFOs scrutinize capex.

Valuation sits at reasonable multiples relative to its cloud-focused peers, and the dividend yield provides downside cushion. In an environment where Microsoft's cloud miss sent shockwaves through tech, IBM's consistent execution stands out.

Risks: Legacy business drag persists. Consulting growth remains tepid at 3%. If enterprise IT budgets tighten amid recession fears, IBM won't be immune. Competition from AWS, Azure, and Google Cloud in hybrid infrastructure is fierce.

Verdict: A tactical value bet on enterprise AI adoption without hyperscaler risk.

Market Snapshot (Week of January 23-30, 2026)

*As of Thursday, January 29, 2026 close

Small caps ripped as the Russell 2000 extended its January outperformance, gaining 14 straight sessions over the S&P 500 earlier in the month. Yields rose following the Fed's hawkish pause, while gold plunged over 7% Friday on profit-taking after hitting an all-time high of $5,608 on Thursday.

Market Commentary

Mag Seven Earnings: The AI Capex Reckoning

This was the week Big Tech's artificial intelligence moonshot met Wall Street's

reckoning. Microsoft reported Wednesday, and investors torched it—down nearly 10% on slowing cloud growth despite beating on revenue ($81.3B vs. $80.2B expected) and earnings. Azure grew 39%, but guidance suggested deceleration. Capex is projected to hit $99 billion this fiscal year, a 60% jump, and CFO Amy Hood warned that FY2026 capex growth would exceed 2025's pace—reversing prior guidance. Markets wanted returns. They got a bill.

Meta went the other way: +9% after reporting $59.9B in Q4 revenue (+24% YoY) and guiding 2026 capex to $115B-$135B, the high end well above expectations. CEO Mark Zuckerberg doubled down on "personal superintelligence," while noting 30% productivity gains from AI coding tools. Tesla beat on earnings and unveiled plans to expand robotaxi testing to seven U.S. metro areas in H1 2026. Apple reported Thursday with strong iPhone sales but failed to ignite enthusiasm.

The message is clear: hyperscalers expect to spend over $470 billion on AI infrastructure in 2026, up from $350B in 2025. The market will tolerate this—but only if you show tangible revenue conversion. Microsoft stumbled. Meta rallied. Execution is everything.

Fed Holds, Warsh Nominated, Independence Tested

The Federal Reserve held rates steady at 3.5%-3.75% on January 28 as expected, but the 10-2 vote featured dissents from Governors Christopher Waller and Stephen Miran, who preferred a 25bp cut. Chair Jerome Powell struck a balanced tone, noting the economy is on "firm footing" with inflation "somewhat elevated" but job growth "low." He made clear: the Fed is making decisions meeting-by-meeting, with no pre-commitment to cuts.

Then came Friday's bombshell: President Trump nominated Kevin Warsh to succeed Powell as Fed chair in May. Warsh, 55, served as a Fed governor from 2006-2011 and is known as an inflation hawk who opposed ultra-loose policy post-2008. Yet he's recently advocated for rate cuts, calling the Fed's "hesitancy to cut rates" a "mark against them" in a July CNBC interview. Markets view him as credible but not a Trump lapdog—critical given the ongoing Justice Department probe into Powell over Fed headquarters renovations.

Republican Senator Thom Tillis has vowed to block confirmation until the DOJ investigation is resolved, creating a political standoff that could delay Warsh's ascension. The 10-year Treasury yield climbed to 4.26% by Thursday, reflecting market skepticism that rate cuts are imminent. Fed independence is under siege, and Warsh inherits a minefield.

Oil Rallies on Geopolitical Risk Premium

WTI crude surged to $65.30 by Friday, up over 10% for the week after climbing as high as $66.50 mid-week, the highest level in four months. Drivers: Trump deployed a naval armada to the Middle East with threats against Iran, Kazakhstan production disruptions from power outages cut 900K bpd, and a severe winter storm slashed U.S. output by 2M bpd. API data showed inventories fell 0.25M barrels versus expectations for a 1.45M build, while the dollar's drop to four-year lows made crude more attractive to foreign buyers.

Oil is on track for its best monthly performance since July 2023. Analysts still expect oversupply to cap gains, with WTI averaging $58.72 for 2026 per Reuters polls. But geopolitics trump fundamentals in the short run.

Gold's Wild Ride: Record High, Then 7% Crash

Gold raged to an all-time high of $5,608 per ounce on Thursday before plummeting over 7% Friday to close near $4,906, marking its strongest monthly gain since the 1980s at +15-17%. The rally was fueled by dollar weakness (four-year lows), geopolitical uncertainty (Iran tensions), and Trump's tolerance for a weaker greenback. Friday's selloff was pure profit-taking after the parabolic move.

Central bank buying and haven demand remain structurally supportive, but gold's pullback suggests the market got overextended. Bitcoin, by contrast, crashed through $85,000 support to as low as $81,000 on Thursday before stabilizing around $82,700 Friday, down nearly 8% for the week. The digital gold narrative broke as ETF outflows hit $1.1B and capital rotated into actual gold. Analysts warn of a potential slide to $70K-$75K if support fails.

Tactical Map: Where to Lean In

• Small-cap value over mega-cap tech: The Russell 2000's 14-session win streak signals rotation toward domestically focused, rate-sensitive names. With the Fed on pause and Warsh unlikely to cut aggressively, small caps offer better risk/reward than AI moonshots.

• Enterprise software over hyperscale capex: IBM's +8% pop shows there's alpha in companies monetizing AI without building $100B data center empires. Look for hybrid cloud, cybersecurity, and SaaS plays with positive free cash flow.

• Energy on pullbacks: Oil's geopolitical premium won't last forever, but structural under-investment in supply combined with OPEC discipline supports $60-$70 WTI. Avoid chasing here; wait for dips below $62.

Theme to Watch: The Fed's Independence Crisis

Kevin Warsh's nomination isn't just a personnel change—it's a stress test of central bank independence. Trump's DOJ probe into Powell, combined with public demands for 1% rates, has created the most fraught Fed transition since Paul Volcker. If Warsh caves to political pressure and cuts rates with inflation still above 2.5%, the dollar's reserve status comes into question. If he resists, Trump escalates. Either way, volatility spikes. Position for higher term premiums in Treasuries and continued dollar weakness.

Forward View: February 3-7, 2026

Key data next week:

• Monday, Feb 3: ISM Manufacturing PMI (10:00 AM ET) — Watch for signs of contraction

• Wednesday, Feb 5: ADP Employment Report (8:15 AM ET), ISM Services PMI (10:00 AM ET), JOLTS Job Openings (10:00 AM ET)

• Friday, Feb 7: Nonfarm Payrolls (8:30 AM ET) — The big one. Consensus expects ~70K after December's weak 50K print.

Payrolls matter most. If hiring remains anemic, the Fed's "solid pace" narrative cracks, and Warsh inherits an economy already slowing. S&P 500 support sits around 6,850; resistance at 7,050.

Final Words

The week laid bare Big Tech's AI gamble: spend hundreds of billions, deliver returns, or watch your stock crater 10%. Warsh's nomination signals a Fed under siege, with independence hanging by a thread and markets pricing higher-for-longer rates. Gold's 7% Friday face-plant after touching $5,600 proves nothing rallies forever—not even safe havens. Stay skeptical. Stay systematic. And remember: the best offense against overpriced assets is a disciplined allocation model that doesn't need the Fed to bail you out.

Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence or consult with a financial advisor before making investment decisions.