Another earnings season, another AI winner.

Palantir reported a strong fourth quarter yesterday afternoon, beating expectations after revenue soared 70% year over year, while its profit margin expanded to 57.5% as demand for its AI platforms accelerated across government and commercial clients. The company signed $4.26 billion in contracts this quarter, including more than 60 deals, and forecasts revenue will climb more than 60% this year.

Shares rose 6.84%, making Palantir one of the few software winners on the market today.

Software feels the heat

In a software sector that’s been limping along, Palantir is strutting. The stock has rebounded sharply from its November trough, its worst month in two years, even as many peers continue to struggle.

Software stocks have lagged the broader market since early January as investors reassess how quickly AI could reshape the enterprise software market. The core fear is that AI agents may take over functions long provided by traditional vendors, a worry that sharpened after Anthropic introduced Cowork, an AI agent designed for enterprise use, and Claude Code, which has made stunning strides in coding work once dominated by software companies.

While pessimism can account for the recent software selloff, things aren’t looking too good under the hood, either. According to Bloomberg data, 71% of S&P 500 software companies have topped revenue estimates this earnings season—well below the 85% beat rate seen across the broader tech sector.

Against that backdrop, it’s no wonder that Salesforce is down 25.85% YTD, while ServiceNow has fallen 28.36%, and Adobe is off 22.3%.

The disruption spreads

The selloff deepened today after Anthropic revealed its latest Cowork update, which included a legal plug-in that allows the AI agent to review legal documents and track compliance issues.

The release revived concerns that core enterprise services could be disrupted sooner than expected, and shares of legal software data companies slid in response—before the selloff expanded across the software industry. Experian dropped 5.96%, Thomson Reuters declined 15.67%, Atlassian sank 7.65%, and LegalZoom lost 19.68%, just to name a few stocks that had a tough day.

The divergence between Palantir and its software counterparts underscores a key point to keep in mind: this isn’t a market blindly chasing AI hype. Investors are rewarding companies that can turn AI into durable growth and wider margins, while penalizing those exposed to disruption or slow to adjust. Palantir is on the right side of that divide—for now.—SY

🟢 What’s up

• Walmart rose 2.94% to hit a $1 trillion market cap, fueled by growth in its digital businesses and continued customer gains.
• Merck climbed 2.18% following strong earnings and revenue tied to oncological, respiratory, and cardiometabolic treatments, despite softer vaccine sales.
• Teradyne jumped 13.41% on a strong fourth quarter with $1.08 billion in revenue, its first billion-dollar quarter since 2021.
• Rocket Companies gained 8.42% as management pointed to a surge in mortgage loan volumes.
• PepsiCo rose 4.93% after a Q4 beat, thanks to improved organic sales across the business.
• AES rose 9.23% amid reports that BlackRock’s GIP unit and EQT are weighing a joint bid for the power producer.
• Homebuilders Lennar Corp rose 3.43% and Taylor Morrison Home Corp popped 3.13% on plans for a large-scale “Trump Homes” program aimed at easing the US housing affordability crunch.

What’s down

• Pfizer fell 3.34% after reporting lower Q4 sales as demand for its Covid-19 vaccine and antiviral treatment continued to fade.
• PayPal plunged 20.31% following the announcement that CEO Alex Chriss will step down, naming former HP chief Enrique Lores as his successor.
• Novo Nordisk sank 14.64% after the drugmaker warned that sales growth will slow this year, citing lower US prices and the loss of exclusivity for Wegovy and Ozempic in several international markets.
• NXP Semiconductors slipped 4.51% even with higher fourth-quarter sales and a positive growth outlook.
• Pandora, the world’s largest jeweler, dropped 9.62% after Jefferies analysts downgraded the stock from Buy to Hold, warning that volatile silver prices could pressure margins.

Josh D’Amaro is the new ruler of the Magic Kingdom—but heavy is the head that wears the Mickey-eared crown.

D’Amaro will become the new Disney CEO on March 18, while current CEO Bob Iger will remain on the company’s board. D’Amaro hails from Disney’s vaunted Experiences business—which includes theme parks, resorts, and cruises—and was one of the few bright spots in the company’s earnings report earlier this week, as our frenemies at Morning Brew wrote today.

This isn’t the first time Disney has selected the head of its parks division to lead the company. Iger was CEO for 15 years before handing the reins to the chairman of Disney parks, Bob Chapek, but shares tumbled during the Chapek era, spurring a comeback for Iger in late 2022. Business has steadied in the years since, though the stock has risen a mere 5% in the three years since Iger returned, while the S&P 500 has soared about 71% during that same time.

D’Amaro faces numerous challenges: Recent park attendance numbers have remained flat, and most revenue growth in its Experiences business is coming from price increases—at the exact time that many Americans are feeling financially constrained. The company’s Sports segment took a $110 million hit last quarter following a public spat with YouTube TV. And its Entertainment division is still struggling to transition from legacy TV to the streaming era.

Disney’s search for a new CEO has been a roller coaster that would put Space Mountain to shame, but it has finally ended. Now we’ll see if it’s happy ever after for shareholders.—MR

What’s the only thing that can top the biggest IPO of all time? The biggest merger of all time.

Yesterday, Elon Musk announced that his rocket company, SpaceX, has acquired his social media company, xAI, and the two are now one massive enterprise. The deal gives SpaceX a $1 trillion valuation and pegs xAI at $250 billion. SpaceX is still trying to go public later this year in what is expected to be the biggest public debut in market history.

The new company’s humble goal will be to “form the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet, direct-to-mobile device communications and the world’s foremost real-time information and speech platform,” according to the announcement on SpaceX’s website.

TLDR: They’re building data centers in space, obviously.

Tesla swerves into orbit

With all this talk about Elon’s empire, you might be wondering where his crown jewel, Tesla, fits in. Fear not: Tesla is woven into the already uber-complicated web of corporate finance.

Tesla disclosed a $2 billion investment in xAI during its Q4 earnings call, and according to Wedbush analyst and Tesla bull Dan Ives, that could just be the beginning.

“Musk wants to own and control more of the AI ecosystem and step by step the holy grail could be combining SpaceX and Tesla over the next 12 to 18 months in some form to give the connected tissue between both disruptive tech stalwarts looking to lead the AI Revolution,” wrote Ives in a note today. Ives has a $600 price target on Tesla, the highest on Wall Street.

To Ives and other Tesla bulls, the idea of Musk pulling off his vision for a gigantic AI mega-company is bullish news. But other analysts aren’t quite as optimistic. After all, Tesla trades about 200x estimated 2026 earnings, while SpaceX is closer to 400x, according to Barron’s, creating a serious valuation discrepancy. Closing that gap may require Tesla to issue more shares, diluting current shareholders.—LB

• The Switch has officially become Nintendo’s best-selling console of all time.
• Cat fight: AI titans Nvidia, OpenAI, and Oracle really, really want you to know they’re getting along just fine.
• Amazon is cutting even more corporate jobs.
• There’s new data showing that the “K-shaped” economy is getting even more pronounced.
• X offices in France were raided by prosecutors as part of an investigation into its data practices and allegations that the site displayed child pornography.
• The government shutdown is over, but the Department of Homeland Security—which includes ICE—is only funded through the next week.
• Some optimism to wrap up your day: Famed investor Ray Dalio warns that we’re “on the brink” of a capital war.

Economic announcements: A week of labor market data might be hamstrung by the postponement of the US jobs report this Friday, but tomorrow’s ADP employment report will still give us a timely look at private payrolls

Earnings reports: Alphabet, Eli Lilly, AbbVie, Novartis, Novo Nordisk, Uber, Qualcomm, UBS, Boston Scientific, ARM, CME Group, GSK, and Snap

Everything else: Get a heaping helping of nostalgia when The Muppet Show returns to airwaves tomorrow on ABC and Disney+