What We Learned This Week

Profit Over Perks: Southwest posted a strong earnings report this week, and from a profitability standpoint, its controversial business model changes are clearly working. The airline delivered solid results and projected a sharp increase in profits next year, sending the stock meaningfully higher. That outcome comes after a period of intense criticism, as Southwest moved away from long-standing policies like open seating and free checked bags in favor of assigned seats, premium cabins, and added fees. The backlash was loud and immediate, with loyal customers arguing the airline was abandoning the very differentiators that made it unique in a crowded industry.

The strategic risk was real. Those customer-friendly policies limited Southwest’s ability to capture high-margin revenue but also created strong brand loyalty. Removing them raised concerns that customers could easily defect to competitors. What seems to have happened instead is more nuanced. By adding features travelers already expect from airlines like Delta and United, Southwest has become a viable option for higher-yield passengers who are comfortable paying for upgrades and baggage. At the same time, many longtime customers appear to have been stickier than feared, in part because there’s no obvious alternative offering the old Southwest model. The result is a broader customer base and improved revenue potential. It may dilute some of the brand’s original charm, but from a business perspective, the shift is proving to be a net positive.

Execution Pays: GM capped off what was a standout year for the automaker, heading into its fourth-quarter earnings as the best-performing U.S.-listed auto stock. In fact, it marked GM’s strongest stock performance since emerging from bankruptcy in 2009. The drivers were both internal and external, but execution was the differentiator. Strong cost controls and disciplined inventory management allowed GM to protect margins, keep dealer lots well supplied, and avoid excessive discounting. Demand held up throughout the year, with consumers responding well to the company’s core brands across Chevy, GMC, and Cadillac. That combination translated into solid cash generation and meaningful shareholder returns through dividends and buybacks.

The fourth-quarter results reinforced the narrative. GM again beat expectations and pointed to continued strength into 2026, while increasing both its buyback authorization and dividend. Tariff impacts for 2025 also came in better than expected, landing below the low end of prior guidance, and current trade policy is shaping up as a relative advantage versus foreign competitors. The stock jumped another 9% on the news, capping a year of performance that’s been unusually strong for a legacy automaker not named Tesla. A lot has gone right across the sector as companies were forced to become leaner and more disciplined. With much of the EV-related write-downs now behind them, GM appears well positioned to continue delivering (assuming demand holds and execution stays tight).

AI Story Continues: As earnings season picks up, the message from big tech remains largely the same: AI spending is accelerating, and investors are still largely on board. Meta was the clearest example this week, announcing plans to spend as much as $135 billion on AI next year, more than double its 2025 outlay and well above expectations. Despite the sticker shock, the stock jumped more than 5%, reinforcing the idea that markets are still rewarding scale and ambition in AI. For now, the prevailing view is that this level of investment is necessary to stay competitive, and companies willing to spend aggressively are given wide latitude.

That said, investors are starting to differentiate between players. Microsoft’s earnings highlighted a more nuanced reaction. While the company remains deeply embedded in the AI race through its stake in OpenAI and widespread integration across its products, concerns are emerging around second-order effects. As AI becomes more capable, questions naturally arise about how it may disrupt traditional software usage, including core Office workflows. While the data doesn’t yet show material damage, Microsoft’s growth came in a bit softer than expected, and the stock dropped roughly 7% on the report. The takeaway isn’t that AI is suddenly a negative, but that the market is beginning to look past blanket enthusiasm. We are likely entering a phase where AI spending alone is no longer enough, and where execution and business model impact will start to separate winners from losers more clearly.