Software Stocks Melt Down, Palantir Beats, Energy up 12% - The Compound and Friends Recap

Podcast: The Compound and Friends

Published: 2026-02-03

Duration: 1 hr 7 min

Guests: John Gray

Summary

The episode discusses a significant shift in market dynamics with the downturn of software stocks due to AI disruption, Palantir's strong earnings report, and the robust performance of the energy sector. The hosts also explore the broader implications of these changes on investment strategies.

What Happened

The episode opens with a discussion on the dramatic sell-off in software stocks as AI technologies enable companies to replace costly software solutions, impacting giants like Adobe, Atlassian, and Salesforce. This shift is causing private equity firms heavily invested in SaaS companies, such as Blackstone, to reassess their strategies.

Michael Batnick and Downtown Josh Brown detail how only 24% of the stock market's recent returns are from the top 100 mega cap names, with the remaining 76% coming from the bottom 400. This marks a significant departure from the previous year, where the top 100 contributed 88% of returns, indicating a broader market participation.

Palantir's earnings report showcases a remarkable 78% increase in earnings and a 70% surge in revenue, positioning the company to potentially reach $10 billion in revenue by 2026. With a solid cash reserve of $7 billion and a target of 56% operating margins by 2026, Palantir is exceeding market expectations.

The episode highlights the energy sector's strong performance as the best-performing sector in the S&P 500, up by 11.9% year-to-date. Companies like Exxon and Chevron have shown significant gains, with Exxon seeing its stock rise from $118 to $144, demonstrating the sector's resilience and potential for growth.

Homebuyers are increasingly purchasing properties at a discount, with 62% buying below the original listing price, marking the highest proportion since 2012. The average discount stands at 8%, reflecting a cooling housing market and increased buyer leverage.

The hosts touch on the impact of AI on consumer staples, with companies like Pepsi and Coca-Cola benefiting from efficiencies brought by AI. This trend is contributing to growth in this sector, as evidenced by Walmart joining the $1 trillion market cap club.

The episode also examines the disruption risk posed by AI, as noted by John Gray from Blackstone. He emphasizes how AI is prompting companies to rethink their investments, especially as new AI-driven tools heighten competition and change traditional business models.

Lastly, the downturn in the rental market is discussed, with asking rent growth down 1.4% year over year and the national multifamily vacancy rate at a record high since 2017. This shift reflects broader economic changes and challenges in the real estate sector.

Key Insights