The Weekly Beacon June 27, 2025

We will be giving some macro-economic market updates on a weekly basis. No equity recommendations will be given in this commentary and we encourage you to contact us if you have questions regarding our observations.

Whitefish Point Light Station

Located on the southern shores of Lake Superior, Whitefish Point is the oldest continually operating lighthouse on Lake Superior. There are more than 200 shipwrecks in the area, and today the lighthouse is home to the Great Lakes Shipwreck Museum. Learn about the perils of maritime travel and the safety and security that the lighthouse’s beacon provides.

Presque Isle Lighthouse

This 1873 lighthouse’s original plan was to be built entirely of cut stone bricks, but it proved to be cost prohibitive. So, it was built five bricks thick from the ground up. While the outside of the tower is square, the interior is actually circular with a 78-step spiral staircase. Enjoy views of the shores of Lake Erie from the 30-foot tower.

*Feel free to send us your photos of Lighthouses to be featured in our weekly market observations.

Google

Barron’s recently wrote, “Google Search Is Fading. The Whole Internet Is at Risk.”

In the 21st century, individuals often turn to the internet for health-related inquiries before consulting a physician, with searches on symptoms like “chest pain” or “high fever” being commonplace. Notably, search engines account for a significant portion of traffic to major websites, with Wikipedia, Tripadvisor, and Yelp seeing substantial online visits originating from search results.

The landscape of internet search is undergoing a dramatic transformation as artificial intelligence (AI) tools like ChatGPT and Perplexity gain traction with users seeking instant, summarized answers. Traditionally, search engines—especially Google—acted as central gateways to the internet, directing vast amounts of traffic to websites across industries. However, as AI-powered tools improve in speed, reasoning, and accuracy, users are increasingly bypassing traditional blue links and relying on conversational interfaces to get the information they need. In response, Google has integrated its own AI-generated summaries, called “AI Overviews”, at the top of search results. These summaries reduce the need for users to click on external websites, leading to noticeable declines in web traffic across multiple sectors.

According to data from Similarweb and Semrush, sites in travel, finance, media, education, and e-commerce have seen significant year-over-year drops in traffic from search. For instance, TripAdvisor’s referrals fell 34%, Schwab.com’s dropped 14%, and Starbucks saw a 41% decline. Even companies with strong digital presences, like Netflix, experienced notable losses.

Digital publishers like Business Insider, which rely heavily on Google traffic, have been hit particularly hard—cutting staff and restructuring operations to cope with the changes. Educational platforms like Chegg have also suffered, losing nearly all of their market value as Google’s AI-generated answers retain users who would have previously clicked through for homework help.

While Google remains the dominant player in search, with an 89% U.S. market share, its monopoly status has come under legal scrutiny. A U.S. district judge recently ruled the company a monopoly in general search services and advertising, and potential remedies are being considered. Meanwhile, platforms that are less reliant on traditional search traffic—such as Airbnb, DoorDash, Uber, and social media apps like Pinterest and Instagram—are weathering the transition more effectively. These companies benefit from direct user engagement through mobile apps, reducing their dependence on referral traffic from Google.

Reddit stands out as both a beneficiary and a participant in the shift. It has seen a surge in search visibility and has partnered with AI companies, including OpenAI, to license its user-generated content—highlighting how high-quality, human-created data is becoming increasingly valuable for training AI systems. Reddit is also developing its own AI-powered search engine to compete in the evolving ecosystem.

On the infrastructure side, Nvidia is emerging as the biggest winner from this AI-driven transformation. As demand for reasoning-intensive models grows, Nvidia’s high-performance chips are powering the data centers behind services like ChatGPT, enabling a new wave of AI capabilities that require vastly more computational power than earlier models.

Ultimately, while Google is adapting and has the resources to pivot effectively within the AI landscape, much of the rest of the internet is grappling with a decline in traffic, relevance, and revenue. As users shift from searching to “asking” AI, the traditional web model—built on clicks, page views, and referrals—is being upended, forcing companies across sectors to rethink how they reach and retain audiences in a post-search world.

Cruise Operator Carnival CCL

jumped 6.9% after reporting fiscal second-quarter earnings that beat analysts’ estimates and raising its fiscal-year guidance. Carnival said advanced bookings for 2026 were in line with 2025’s record levels and at “historically high prices.”

Apropos of the first article on Artificial Intelligence (AI) a business colleague of mine and I spent a grand total of 30 seconds to come up with this valuation and investment thesis on Carnival Corporation (CCL) with the help of perplexity.

Disclaimer: MacNicol & Associates Asset Management holds shares of Carnival Corporation across various client accounts.

10-Point Investment Thesis for Carnival Corporation (CCL)

Record-Breaking Financial Recovery

Carnival has achieved its strongest operational performance in nearly two decades, with Q2 2025 results showing record revenues of $6.33 billion (beating estimates by 1.93%) and adjusted EPS of $0.35 (beating estimates by 45.8%)^[1]^[2]. The company exceeded its 2026 SEA Change financial targets 18 months early, with adjusted ROIC reaching 12.5% and adjusted EBITDA per ALBD hitting highest levels since the early 2000s^[3]^[4].

Superior Pricing Power and Demand Visibility

The company demonstrates exceptional pricing discipline with net yields (in constant currency) up 6.4% year-over-year in Q2 2025, outperforming guidance by 200 basis points^[4]. Customer deposits reached a record $8.5 billion, with 2026 bookings already at record pricing levels and aligned with 2025’s strong booking pace^[3]^[1]. Over 80% of full-year capacity is already booked at historically high prices^[5]^[6].

Aggressive Balance Sheet Deleveraging

Carnival has made substantial progress reducing its pandemic-era debt burden. Net debt-to-EBITDA improved to 3.7x from 4.1x in Q1 2025, with total debt reduced to $27.3 billion^[7]^[8]. The company refinanced $7 billion of debt in 2025 at favorable rates, delivering $145 million in annualized interest savings while maintaining liquidity of $5.17 billion^[3]^[8]. Credit rating agencies have upgraded Carnival, positioning it just one notch below investment grade^[7].

Strategic Destination Investments Driving Differentiation

The $1.5 billion Celebration Key private destination, opening July 2025, represents a transformative vertical integration strategy^[7]^[9]. With 1,400 sailings already booked through 2027, this exclusive destination can generate $200+ million in annual incremental revenue while reducing reliance on third-party ports and enabling premium pricing^[9].

Compelling Valuation vs. Peers

At a forward P/E of 11.71x, CCL trades at a 37% discount to the leisure industry average (18.52x) and significantly below peers like Royal Caribbean (15.51x)^[6]. The stock’s P/E ratio of 14.93x is 14% below its 10-year historical average of 17.42x^[10]. Price-to-book value of 3.79x compares favorably to Royal Caribbean’s 9.57x and Norwegian’s 6.12x^[11].

Margin Expansion and Operational Efficiency

Carnival achieved record Q2 2025 operating margins with EBITDA increasing 26% year-over-year to $1.5 billion^[1]^[2]. The company demonstrated strong cost discipline with cruise costs excluding fuel rising only 3.5% (200 basis points better than guidance) and fuel consumption improving 6.3% per ALBD through efficiency initiatives^[7]^[9].

Strong Free Cash Flow Generation

The company projects 2025 free cash flow of $1.2 billion, with Q2 2025 generating over $1.54 billion in FCF representing 23.4% of revenue^[12]. This strong cash generation supports continued debt reduction and potential capital returns, with FCF margins expected to average ~19.35% going forward^[12].

Favorable Industry Dynamics

Global cruise capacity is forecast to grow 6.5% in 2025 and 6% in 2026, with the industry reaching 44 million passengers by 2033^[13]. Carnival’s market-leading 37% share of the $72.5 billion global cruise market positions it to benefit from this secular growth trend, while limited new capacity allows for sustained pricing power^[14]^[15].

Institutional Confidence and Analyst Support

Institutional ownership stands at 70%, with major holders including Vanguard (9.7%) and BlackRock (5.8%)^[16]. Analysts project a 20.3% upside with an average price target of $27.67^[6]. Seven analysts recently revised earnings estimates upward, reflecting growing confidence in the company’s trajectory^[1].

ESG and Sustainability Leadership

Carnival’s Celebration Key features advanced sustainability credentials including desalination systems and native habitat restoration, aligning with growing ESG investor focus^[9]. The company’s fleet optimization program retiring older, less efficient vessels supports both environmental goals and operational efficiency improvements^[17]

Valuation vs. Peers Analysis

CCL offers the most attractive valuation profile among major cruise operators, trading at significant discounts on most metrics while demonstrating superior earnings recovery momentum^[6]^[10]^[18].

Dorsey Wright Point & Figure Technical Analysis

Current Technical Profile

Moving Average Score: 100/100 (Strong Bullish)^[19]
Technical Rating: 7/10 with excellent momentum signals^[20]
RSI: 72.24 (approaching overbought but showing strong momentum)^[21]
All major moving averages (5, 20, 50, 200-day) showing bullish signals^[21]^[22]

Point & Figure Methodology Applied to CCL

Using Dorsey Wright’s supply and demand framework, CCL demonstrates:

Bullish Column Patterns: The stock has established multiple “double top” breakout patterns (X columns exceeding previous X columns), indicating sustained buying pressure and demand dominance^[23]^[24].

Relative Strength vs. Peers: CCL shows positive relative strength against both the broader market and cruise sector peers, with the stock outperforming the S&P 500 by 5.8% over recent periods^[25]^[9].

Support/Resistance Levels:

Resistance Zone: $26.78 (recent breakout level)^[20]
Support Zone: $25.07 (consolidation base)^[20]
Current Price: $25.70 (above key support)^[22]

Technical Momentum Signals:

Recent “Pocket Pivot” signal indicating institutional accumulation^[20]
MACD showing bullish crossover at 0.67^[22]
Price trading above all moving averages with expanding volume^[21]^[22]

Point & Figure Outlook

The technical setup suggests CCL is in a classic Dorsey Wright “consolidation before breakout” pattern, with:

Strong underlying demand evidenced by higher lows
Reduced volatility creating coiled spring effect
Institutional buying pressure building
Breakout above $26.78 resistance could target $30+ levels based on Point & Figure count methodology^[20]

Risk Management: Stop-loss below $25 support zone would invalidate the bullish thesis, though the probability of downside appears limited given the strong fundamental backdrop and technical momentum alignment^[20].

*see footnotes at the end of this issue

‘South Park’ Creators Say Skydance Is Blocking $2.5 Billion Deal

Here’s a more detailed summary of the situation involving South Park creators and Skydance:

Trey Parker and Matt Stone, the creators of South Park, have accused Skydance Media of obstructing a lucrative deal—worth up to $2.5 billion—that would extend their partnership with Paramount and enable a major streaming package. Their current production agreement with Paramount expires in 2027, and negotiations had advanced to exploring a new streaming home (HBO Max, Netflix, etc.).

In a legal letter sent recently, the duo’s lawyers allege that Skydance actively “contacted both Netflix and Warner Bros. Discovery to interfere” with the negotiations, effectively undermining the deal structure previously discussed .Paramount’s proposal reportedly included splitting U.S. streaming rights between HBO Max and Paramount+—each bringing in around $1 billion over ten years, contingent on generating dozens of new episodes.

Skydance, which is in the process of merging with Paramount, maintains that it has the contractual authority to approve all material deals as a condition of the acquisition agreement. However, Parker and Stone argue that this level of involvement crosses the line into “interference”, especially since Skydance’s parent deal is still pending regulatory approval and has already faced delays.

With tensions rising, the dispute underscores deeper uncertainty about the future of South Park and highlights how ownership and control battles during corporate mergers can significantly impact creative partnerships and multi billion-dollar media deals.

MacNicol & Associates Asset Management

June 27, 2025

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The Weekly Beacon June 27, 2025