TOP STORY
📉 AI Stocks Drag Down the Market After Broadcom Earnings

✨ The markets hit a new all-time high on Thursday after the Fed announced it’s long-awaited interest rate cut, but the gains were reversed Friday with most of the market ending the week in the red:

• The S&P 500 fell -0.63%

• The Nasdaq 100 fell -1.62%

• The TSX rose +0.69%

🤖 AI stocks seemed to be to blame, with an 11% drop in Broadcom on Friday, a 14% drop in Oracle over the week, and even another 3% drop in Nvidia which is now down 15% from it’s all-time highs a month ago.

🤿 So before we dive into the other stories of the week (like weed stocks soaring and Paramount’s surprise $102B hostile bid for Warner), let’s quickly break down what’s going on in the AI sector…

📉 Broadcom Falls 11% After Margins Dip

😰 The biggest driver of the drop this week was Broadcom ($AVGO), which as a reminder, builds the network and connectivity for data centres (the hidden hardware many AI clouds run on).

⚠️ Despite projecting Q1 revenue above Wall Street estimates, the company warned that growing sales of lower-margin custom AI processors were squeezing profitability.

🫣 While margins only fell from 79% to 76.9% (and sales soared 74% from last year), the drop has investors worried that the semiconductor industry could be returning to the old semiconductor dynamics - when products were relatively undifferentiated, competition was intense, and margins were thin.

📉 Oracle Falls 14% As Quarterly AI Costs Rise Above Expectations

🤖 Adding to the ‘AI angst’, Oracle $ORCL (which is a infrastructure and cloud provider), reported capital expenditures of $12B in its most recent quarter, 3x more than the $4B it spend last year. It also upped it’s full-year target spending from $35B to $50B.

💰 While revenue jumped 14% from the previous year to $16B, and it’s AI segment ‘Oracle Cloud Infrastructure’ jumped 68% to $4.1B, the much bigger jump in AI spending has led many investors concerned about Oracle’s growing debt (which we covered a few weeks ago here)

📉 All this led to Oracle’s biggest stock drop since January, and perhaps more concerning, the cost of insuring Oracle’s debt against default (as measured by its credit default swap pricing), climbed to its highest level since January 2009.

🫧 So What?

😬 All this means the ‘AI trade’ is facing a lot more pressure. In the words of one portfolio manager:

😰 Continued worries of whether all the AI spending will pay off, fears about growing debt and circular deals, aggressive shorting from Michael Burry, and now concerns about margins have all added to fears.

✨ But while many are scared, many more believe these fears are overblown.

📈 Seeking Alpha writer Bohdan Kucheriavyi points to the scale and growth of big techs spending, as company’s like Amazon, Alphabet, and Meta continue to increase their capital expenditures quarter after quarter, saying:

🛡️ Even among the losers this week like Broadcom, many analysts are coming to their defence, with one Bernstein analyst saying:

📊 In any case, as I’ve said before - drops like this are a good time to re-evaluate your portfolio and make sure it truly reflects your risk tolerance. While AI stocks and tech fell this week, companies in the financial, health care, and industrials received a boost - so investors who were well diversified didn’t get hit as hard.

💡 It’s a good reminder that even though tech has massively outperformed this year, that won’t always be the case, with Ellerbroek summing that up nicely:

🍀 And speaking of sectors that outperformed this week, one sector was very much in the ‘green’ this week (pun-intended)… weed stocks, with companies like Tilray and Canopy Growth soaring over 50% this week.

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SMALL-CAPS
📈 Weed Stocks Soar After Reports of U.S. Deregulation

🎢 Cannabis stocks have long been seen as “meme stocks,” ever since the pandemic when shares of Tilray Brands ($TLRY), Canopy Growth ($WEED) and more spiked up huge, only to crash by over 90% over the past 5 years.

📰 But this week, bombshell news revived the industry after The Washington Post reported that Trump could be issuing an executive order as soon as Monday that could dramatically loosen federal restrictions on the drug.

🚀 The news sent many of the largest weed stocks flying (with TLRY jumping 66% and WEED up 49%), with the CEO of Tilray Brands (one of the largest weed companies) saying:

💬 If enacted, this change would mark a dramatic change in the industry. So what does it all mean?

🎯 What This Means

📊 In the U.S., drug scheduling ranks drugs based on usefulness and potential harm, and it follows a system up to five. The higher the classification, the lower the risk:

⬇️ This new classification would bring marijuana from a Schedule I down to a Schedule III, massively changing the stigma around the drug.

💰 According to The Canna CPAs, cannabis companies pay a massive 40-70% effective tax rate compared to 15-25% for normal businesses, mainly because of an exclusion from tax credits. A rescheduling would completely remove this, allowing shops to deduct business expenses from their federal taxes like any other company.

🏦 On top of that, due to it’s Schedule 1 status, banks and other lenders (which are federally regulated) won’t loan cannabis companies money. A change like this would permit banks to serve the sector.

📅 Ed Groshans, a Senior Policy and Research Analyst at Compass Point, says if Trump’s cannabis order were to be enacted, the Drug Enforcement Administration would finalize a proposed rule for the reclassification by summer 2026.

🏆 Only a ‘Partial Win’

📈 The U.S. cannabis industry is nearly $40 billion in size, projected to grow to $70 billion by 2030. And while the news seems like a win for the industry, some experts say the rescheduling is only a “partial” win.

🧩 The biggest problem is the industry’s fragmentation, operating on a state-by-state level, not federally regulated with a nationwide framework like alcohol.

🗺️ That means no cross border regulation or trade, leaving any cannabis company wanting to scale nationwide having to apply for separate licenses, build separate cultivation networks, and navigate 10-20 different frameworks in every single state.

💸 This results in higher operational costs, large amounts of capital expenditures, and plenty of legal obstacles to get through.

⚠️ A Word of Caution

💭 So does this mean you should invest all your money in cannabis stocks? Well, not exactly…

🎪 Cannabis stocks have a long history of exploding on headlines and collapsing just as fast. We’ve seen this time and time again with small caps as a whole: optimism causes a quick rise in price, valuations spike, and then reality breaks the cycle… eventually.

📉 The reality for cannabis stocks is that even if marijuana is rescheduled, profits won’t magically appear. Like we mentioned above, many of these companies continue to experience hurdles broadly, and that’s on top of cash burn, loads of debt, and frequent capital raises (issuing more shares, diluting shareholders) to stay alive.

🇨🇦 We can even look back to Canada’s cannabis legalization in 2018, and how in the months leading up to it, weed stocks all surged on expectations that a high-margin industry would be born overnight. But as always, reality hit and shares fell 90%+.

⚠️ Quick news always pumps stock prices of small caps, but that doesn’t change the fundamentals of the businesses or the likelihood of the news being true. A sustained irrational boom usually ends in a bust, so invest with caution!

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IN OTHER NEWS
🗞️ Other Key Headlines This Week

🎬 Paramount Launches $108B Hostile Bid for Warner Bros

• In a surprise turn of events from last week, Paramount Skydance ($PSKY) launched a hostile takeover bid for Warner Bros. Discovery ($WBD), offering $30 per share in cash, valuing the company at roughly $108 billion. This comes just days after Warner Bros. agreed to a merger with Netflix ($NFLX) in a deal valued around $83 billion for its streaming and studio assets (which we covered here).

• Paramount’s offer covers the entire company, including cable networks and news brands like CNN, while Netflix’s deal specifically excluded those assets. The company (Paramount) argues its all-cash deal gives shareholders better value and a faster, more certain path to regulatory approval compared to Netflix.

• Warner Bros.’ board still favours the Netflix deal, but Paramount bypassed the board and went directly to shareholders via a tender offer (a “hostile takeover”)

• The offer is backed by equity from the Ellison family and RedBird Capital, plus $54 billion in committed debt from banks like Bank of America and Citi. The ongoing battle could drag into 2026, with possible legal and regulatory hurdles, or higher counter-offers from either Paramount or Netflix. Netflix fell another 5% this week on the news.

🧘‍♂️ Lululemon Jumps 10% After CEO Steps Down

• Lululemon Athletica ($LULU) announced this week that CEO Calvin McDonald will step down effective January 31, 2026, after nearly 7 years leading the company, officially ending his tenure.

• Calvin leaves the company during poor U.S. sales, rising competition, and criticism from Lululemon founder Chip Wilson, who publicly questioned the company’s current strategic direction. 

• CFO Meghan Frank and Chief Commercial Officer André Maestrini have been named interim co-CEOs, and Board Chair Marti Morfitt has expanded her role to executive chair during the leadership transition.

• Investors were ecstatic over the news, with Lululemon’s stock jumping ~10% on the announcement, alongside better-than-expected quarterly results and a new expanded share buyback program.

📉 Robinhood Falls 10% Following Poor Trading Metrics

• Robinhood Markets ($HOOD) shares fell roughly 10% during trading this Friday, after weak operating data for November 2025 showed a drop in funded customers and trading volumes across its equities, options, and crypto offerings.

• The data showed equity trading volume collapsed about 37% month-over-month, options trading by 28%, and crypto activity down 12%. The main reason for the drop being broader tech and crypto sell-offs, and with weakness in these markets, it often weighs down Robinhood’s trading-driven revenue model.

• Despite this, Robinhood has put up strong year-to-date financial performance with planned expansion efforts into prediction markets, with the company still up a massive 203% year-to-date.

• Analysts still remain positive long-term, and many other financial institutions continue to maintain ratings and price targets above current levels, while a few, like Cantor Fitzgerald, trimmed their targets.

🚗 Waymo Surpasses 450,000 Weekly Paid Rides

• Waymo, the self-driving taxi service subsidiary of Alphabet ($GOOG) (aka Google) has now surpassed 450K weekly paid rides, nearly double the ~250K weekly rides reported back in April of this year.

• Waymo has expanded its service into multiple major U.S. cities this year, with millions of total trips completed to date. It expects to expand to the UK and Japan by 2026, and is in talks with Canadian officials to expand to Canada. The company hopes to achieve 1 million weekly rides by end of 2026.

• Investor Ross Gerber from Gerber Kawasaki Wealth & Investment Management, says Waymo’s ramp has directly challenged Uber’s ($UBER) ride-hailing dominance, and that Waymo’s growth and ~$200M annual revenue run rate threatens its mobility business.

• Analysts at Wells Fargo even estimate that Waymo could capture ~10% of U.S. ride-hailing trips by 2030. But still, Uber CEO Dara Khosrowshahi doesn’t seem too worried, believing that a hybrid future of human drivers plus autonomous vehicles is more likely. (Uber is currently working on developing its own autonomous fleet.)

FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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