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Chit Chat Stocks
4 Best Founder Led Stocks (How They Beat The Market) -- SPOT, META, NVDA, WISE
01:02:24
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- [00:01]
Ryan Henderson
Welcome to Chit Chat Stocks. Before we get to this episode, we want to talk about our friends at Interactive Brokers. Interactive Brokers is the professionals gateway to the world's markets. Interactive Brokers offers Commission starting at $0 on U S listed stocks and ETFs with low commissions on other products and there are no added spreads, ticket charges or account minimums. Clients in over 200 countries and territories trade stocks, options, futures, currencies, bonds, funds and more on 160 global markets from a single unified platform. Clients earn interest rates of up to 3.83% on instantly available cash and pay margin rates up to 53% lower than the industry. You can also earn extra income on your lendable shares and IBKR's powerful award winning trading platform helps every level investors succeed from beginner to advanced on mobile, web and desktop. When placing your money with a broker, go with a broker you can trust. Make sure your broker is secure and can endure through good and bad times. We use IBKR here at Chit Chat Stocks because it is a phenomenal platform for international investing and you can use them too by heading on over to IBKR.com Interactive Brokers is a member of SIPC.
- [01:17]
Brett Schaefer
Welcome to Chit Chat Stocks.
- [01:18]
Ryan Henderson
On this show, hosts Ryan Henderson and.
- [01:21]
Brett Schaefer
Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast.
- [01:29]
Ryan Henderson
Anything discussed on Chitchat Stocks by Ryan.
- [01:31]
Brett Schaefer
Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode. Welcome into the Chit Chat Stocks podcast. My name is Brett Schaefer and joined as always by Ryan Henderson. We have a fun, fun episode. Today we are talking 4 top founder led stocks. We are going to try to learn in this special episode why founder led stocks do well. What is the magic behind founder led stocks that can turn into 10 baggers, 100 baggers and all of that good stuff. But I'm going to kick it over to Ryan and he's going to describe and introduce this episode. Before we get into the different companies, why they're successful and what makes them tick.
- [02:21]
Ryan Henderson
Yeah, and there's kind of got to distinguish between I guess two things here. There's founder led and owner operator. I think generally the two have similar incentives. But when I think about founder led, I wanted to talk about why we're doing this episode. So you see this all the time and for anyone that's not, I guess familiar with why founder led businesses are important, I think for me what I see is that Organizations perform at their highest level when there is one ultimate decision maker. And obviously you want that person to be capable, rational, highly competent and willing to let other people make important decisions also. But when every decision needs votes or some committee to decide on it, I think it really slows things down. You start as employees, you start spending time thinking about getting people on your side, how to make your idea seem like the best, when all you should really care about is the merits of the actual idea. And the thinking at the executive level needs to be which idea will result in the best long term outcome for the business and not which idea or which person is going to help me keep my job. When 99% of your wealth is tied to the equity of a business, which is often the case with founder led companies, the natural focus becomes the long term potential of the stock. So whatever the idea is, whatever decision you're weighing, the underlying motivator never changes. It's the long term potential of the business for shareholders. That is the alignment you want and that is typically the alignment you get with founder led companies, as opposed to the fifth or 20th CEO in a long line of mercenary CEOs. So, and I, I've kind of felt myself leaning and gravitating more and more towards these founder led companies over time. So Brett, you've picked two, I've picked two. We're going to go through the performance of these companies, some case studies and what makes them so exceptional. Let's start with your first stock. What do you have?
- [04:42]
Brett Schaefer
Okay. I would have chosen a stock from my personal portfolio. I do have a few founder led companies. Coupang, remitly, Airbnb Interactive, brokers to an extent. Those are examples that I would have used, but we've talked about those before. Now, a company we've followed for many years that's founder led that we haven't talked about for a long time. This is my first stock. It is Spotify, an application you may be using to listen to this episode right now. Since its IPO in 2018, it has produced a 24% compound annual growth rate for shareholders. Close but I don't think at a 10 bagger yet. I think it's probably at about a 5 bagger since debuting, but it's still a fairly new company to public markets. We'll go through what the company is, I think most people are aware, but we'll just get down to the basics. Spotify is a music and audio streaming platform founded in 2006 by Daniel Ek and Martin Lorenzen. Today Ek owns 6% of the stock Lorenzen owns close to 10%. As a side note, is Lorenzen a future Steve Ballmer candidate holding more of the stock, even though he's not actually part of the operations today versus the guy actually running the company? Possible. I think he's kind of a never sell guy. Similar in that vein, Ek remains the CEO to this day. So he led the company in 2006 as we sit here approaching 2026, 20 years later, he is still running the company. You have the alignment with the founder, CEO and ownership group of the company. And when Ryan talks about the alignment financially, I think you also want to look for founders that are aligned culturally or mission. Mission focused. Where there are some founders that seem to be building and looking to sell. Nothing wrong with that. That's part of the business world. You get a nice offer, you might want to do that and ride to the sunset. But there are some founders out there. I'm reminded of Zuckerberg, Bezos or the Google guys that seem to have a drive to want to build the best products, just dominate an industry, win at all costs. And I see that with EK in music streaming, in audio streaming, where even though he's been a billionaire for many, many years, he still wants to. And he seems to have a grievance against some of the platforms like Apple, Google, what have you. And he wants to show that an upstart like Spotify can come and win the industry with innovation. So why has Spotify been successful since its ipo, for one. And you can find all these charts at the newly named Fiscal AI. We can look at the growth of the business since 2016. Spotify's total monthly active users have grown at a 24% annual rate from 91 million to $678 million. If you look at the newsletter we're going to have along with this episode, we have a chart from Fiscal AI, which again is the rename from Finat IO 91 million monthly active users in 2016, 678 million in the last 12 months are the latest update. Total revenue has actually grown quicker at a 26.6% annual rate since 2016, going from $2.1 billion to $18.6 billion. And I think that's translating the Euros at the latest USD rate. So again they report in Euro. So there's a little bit of foreign exchange that can impact that in the short term. So the growth has been phenomenal. But you have to ask, okay, well, why has the company grown so quickly? I believe there's a couple reasons. One and this, these all relate to the founder. Being there is riding the wave. This first one is pretty simple. They created the music streaming industry, they aggressively tried to attack the podcast industry and both are taking share from linear Legacy Radio. There's a rising tide lifting every player in the space. Spotify can take advantage of it and they were have the ability to have an intense focus on this core category. This is another one with the founder led management, not management leadership. Unlike competitors in big tech who have services that compete with Spotify, their sole goal is to win in audio streaming. Apple, Amazon and Google's of the world, they have the right to win because they have distribution, they have all sorts of scale, they have a much larger balance sheet and yet they don't because they don't really care about making the perfect product. Spotify, its founder Ek and the founding team, or the team that has been there close to or since the beginning, they care about making the perfect product for audio streaming and increasing consumption on the platform. That brings us to our third one is the ability to focus on the long term. Spotify has a North Star of increasing consumption hours on its platform. It can just keep and stay dedicated to this North Star without management getting bogged down in short term bonus targets, short term revenue stuff because Ek, the founder is still leading the company and he understands this is what's going to create long term value and allow them to grow their revenue and earnings at a high rate. Now maybe we'll stop there before we get into the stock performance. Ryan, any thoughts on Spotify and Ek the founding or not the founding and just the founder led nature of this operation?
- [10:20]
Ryan Henderson
Yeah, it reminds me a bit of Netflix, which could have been a contender for one of the stocks in this episode had Reed Hastings not stepped away from the day to day operations recently. But there's things that Spotify does, there's things that in the same way as Netflix where you are focused on improving engagement and consumption and not purely some sort of financial metric and because you know that over time that's going to make a difference and it'll ultimately help pricing power and reduce churn and stuff like that. But if all you cared about was the financial metrics you might not be able to do, you might not be able to invest time and money into that because those are kind of long term type focused bets. You see that with Spotify. Now I like what you said about basically focus like it's one of those things that's hard to put your finger on in financial markets broadly because you look at Something and it's like, well, why can't, I don't know, why can't Apple copy it? Why can't Apple just do it? They have endless resources.
- [11:38]
Brett Schaefer
Yeah, blah blah, blah.
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Ryan Henderson
And you see it time and time again where the company, company that has sheer focus on that singular product wins. It's all those little things that you talk about. You get more. The entire organization is dedicated to one thing as opposed to being a fraction of Apple where maybe you're not getting the best engineers at Apple dedicated to your product, you're not getting as much time from executives, you're not getting much as much thought or as much resources as you might like. And it's just the company that's more focused ends up winning out. And you see that with Spotify. And it definitely helps to have a founder that can prioritize the long term in order to build the best in class product.
- [12:27]
Brett Schaefer
Yeah. And another example this is when the stock suffers. So Spotify stock, they went in an 80% drawdown. 2022 investors really well, this is my opinion as a shareholder at the time. They didn't understand the business activists and consultants and all of the. The vultures may have started circling, looking to switch things up, but with Ek and Lorenzen in voting control, they were able to keep their gaze focused on the long term. Now why is Spotify stock winning today? As we kind of wrap things up here into the future, I mean, look, the discussions around the stock can feel intense. The company was once going out of business in 2022. I would say it never was, but that's what people were talking about at the time. And it is now a profit machine as that seems to be the narrative. Although margins have just switched a little bit, in reality nothing really changed about the underlying business. Besides X discipline in hiring and then research and development, the union economics of the music and audio business remain the same. It's steadily improved over time as they've added more promotional tools. But we don't need to get into the nitty gritty today. Ek realized they had too many people working on their size of a company and instead of going through endless meetings on the matter and all this type of stuff, you might get at a bureaucratic organization. He was really, I think, inspired by his friend Mark Zuckerberg, able to take action, cut off all the unnecessary level of workers that they hired in 2020 and 2021 where they again, you feel bad for people that get fired, but they hired too many people for the size of the business and they had to get Rid of them unprofitable moonshots such as the car hardware streaming device that they canceled. And on top of that, they started raising prices on music streaming subscriptions after years of waiting. So they didn't raise prices at all in the United States since launching. They finally did so. And I think again this shows the long term thinking of the founder that could have easily raised prices years ago, but that would have put them at risk of having less of a competitive edge in gaining customers versus Apple Music. Now he wanted to wait to get to scale first. And he can act with Spotify's users locked in with people, you know, with the business for over a decade. I'm someone who's used them for over a decade. They're not going to want to switch now with so many features on the platform. And at the same time with price increases, you know, greater amounts of gross profits flowing down to the bottom line and reduction in operating expenses. We saw operating margin go from negative 12%. What would that have been in January 2016? Well, it actually fell to about negative 10% in December of 2022 to positive 11% over the last 12 months. And then people realized that the business was actually viable and the stock went up by about 10 times. It's about it. Yeah, but X, X operation, they haven't changed their mindset. They still have the same long term goal and that ability to focus on the long term is still intact even with the stock already up 10 times.
- [15:40]
Ryan Henderson
Yeah, this is the beauty of a founder being in control. You can simply move faster and that means you can move faster on the innovation front, but it also means you can move faster when you need to reduce your workforce. You don't have to be paranoid about losing your job. Same with when a stock drops, how many people it. It's so common that you see executives, the stock drops 80%. An executive gets removed from a company when it might be totally out of their control. And I would say hindsight, Spotify shareholders are better off having X still there making the decisions to reduce the workforce and get profitable and get lean than for them to have hired some mercenary CEO. And I think you probably would have had a lot of activist pressure had like you said, Ekan Lorenzen not having full control.
- [16:43]
Brett Schaefer
Okay, let's get to your first stock. Ryan. It's a company we've already mentioned, a friend of Spotify's Daniel Ek Meta platforms company everyone may be too familiar with today and an interesting business stock that has recovered quite nicely over the last few years. Take us through their Founder led journey and why you think the stock has. Well, you'll give the numbers done quite well.
- [17:11]
Ryan Henderson
Since its ipo, this is probably one of the first companies that comes to mind when you think of founder led businesses today. Meta, formerly known as Facebook, was founded in 2004. I think by four co founders. There might be a fifth now that gets added in here as well. But the, the four were Mark Zuckerberg, Eduardo Saverin, Dustin Moskovitz and Chris Hughes. None of the founders except for Zuckerberg still work at the company. There has been. This is a story that's been told many times. There was a movie made about it which Zuckerberg says kind of has some mistruths, if you want to call it that.
- [17:49]
Brett Schaefer
But the company make him look great?
- [17:51]
Ryan Henderson
Yeah, absolutely not. But the company was originally called thefacebook.com and the concept was simple. It was a website where college students could post information about themselves, exchange messages and befriend one another online. Zuckerberg was in school when he started the company and it has been fascinating to see how he has evolved over the years because you look at him today and I don't know if he's just had like the best three year press tour of all time, but people think he's like such a great CEO now and such a visionary. When three, four, five years ago people were saying he should be fired and you think about kind of the last decade, everyone was like, what is this? We've got a kid at the CE in the CEO role. I mean he, he, when he, for the first two years of the company he wasn't even legally able to drink. I imagine he's one of the only CEOs that's ever been in that spot. Now I'll talk about some of the controversies over the years because there certainly has been some and I would say some of the reputational damage that has been done to Zuckerberg or was done 10 years ago was probably self inflicted. And we could talk about what that was. But let's talk about the numbers real quick. Facebook went public in May of 2012. Now when I think Facebook or Meta, my instant thought is this has been a phenomenal investment. It has. But it's worth keeping in mind this was one of the biggest IPOs in market history and the company actually hit a market cap of $104 billion in the early days of trading.
- [19:35]
Brett Schaefer
So went out about 25 times sales. Yeah. Quite expensive.
- [19:39]
Ryan Henderson
Right. And look, they've done really well since that point in time. But you probably think this is like a 50 bagger or 100 bagger since it's IPO. Like if someone said I invested in Meta and it's ipo, my thought is, wow, you must be rich. It's a 18 bagger. So it's done all right. I mean 25 compounded annual return is exceptional, especially considering the premium they got at ipo. I think oftentimes you see companies that it's kind of the kiss of death when you have an extreme valuation at IPO because you kind of know there's going to be some pain in the short term. And even Facebook Meta had that. I think the first year and a half of them trading they were anyone that bought an IPO was underwater, but they've gone through and were more than able to fulfill that valuation. And it's actually I went back through the S1 and it was fun to look at because some of the numbers were mind blowing. I think they went from 153 million in revenue in 27 to 3.7 billion in 2011. That was pre IPO. Obviously they're generating much more now, but it was just rapid growth and you saw huge operating leverage as well. But while the results were good, looking back now and I think the stocks at basically all time highs, close to it, the journey certainly had its controversies and drawdowns, much like Spotify. And in fact, if it weren't for Zuckerberg's ownership in the business, you could probably argue that he wouldn't even be the CEO today. So let me remind you of something. I'll go to the controversies, but before we do, I do want to remind everyone because this always seems to blow my mind. Mark Zuckerberg is 41 years old. He is younger than Brian Chesky, he's younger than Daniel Ek. The list goes on and on. There probably are not a lot of CEOs today of big public companies that are younger than Mark Zuckerberg. He started Facebook when he was 19. So naturally when you have someone that young leading the company, there are going to be some issues. So let's talk about some of those. The first one, Face Mash. So this technically had nothing to do with Facebook, but during his sophomore year in college, Zuckerberg started a prank website called Face Mash that allowed men to do sort of a bracket style tournament on the most attractive women on campus. And as you might expect, this tainted his reputation in the eyes of many people and probably had a lot of people viewing him in not such a positive light. And then second sort of controversy was Unconsented user tests. So in 2012, Facebook ran psychological tests on 70,000 unconsenting participants by removing certain words from users news feeds to test how that affected their reactions to post. Obviously this made people a lot of quite angry and this was, I imagine this was kind of the beginning of the distrust for Facebook that was pretty pervasive for I'd say the better part of the last decade. It's probably died down a bit now, but it was quite an issue from basically 2012 to 2023. The conspiracy theory fiasco. In 2016, Facebook made changes to its algorithm that deprioritized journalist posts and instead prioritized the posts of family and friends. That had a bit of an unintended consequence in that it kind of led to conspiracy theories catching major traction and even eventually resulted in Pizzagate. Now I'm going to go through two more.
- [23:26]
Brett Schaefer
I think that might be worse now.
- [23:28]
Ryan Henderson
But you know, yeah, it could be. Zuckerberg had like a whole apology video that he posted online for this as well. And I think you can go back and watch it now. Probably the biggest issue or the biggest controversy was Cambridge Analytica. This was a political consulting firm that was able to access the data of up to 87 million Facebook users and reportedly influenced many people's political votes. Actually many people credit this data breach, if you will, to having helping Trump get elected in his first term. Facebook apparently failed to protect the user data and was fined $5 billion. This was I would say sort of the peak of distrust for Facebook. And then the last one here, which is, I don't know if I necessarily pin this on Zuckerberg, but content moderation. So Zuckerberg and Facebook exempted certain noteworthy figures, Cuff cough Trump from content removal even if it violated their terms of service. This was obviously very controversial, but it's been sort of addressed over the last, I'd say three years. And it also kind of coincided with COVID and just an extreme political environment to begin with. Anyways, that's all to say investors have certainly had their doubts about Zuckerberg over the last decade or two. However, Zuckerberg owns 13% of Meta's total equity, 61% of the voting power thanks to their dual class share structure. And I'd argue this has made him somewhat untouchable from any sort of removal given the power he has. And I remember there was like a long period where Scott Galloway was calling for like Zuckerberg to be removed. There was a lot of people calling for it. Shareholders I think would be looking back. They're probably pretty happy to have him. Like I said, I went back through the S1 and in 2007 Facebook had 153 million in revenue. All of that I believe was advertising revenue. Unless they had some other Stream back then. 18 years later, Meta now generates $166 billion in advertising revenue. Yeah, it's a wild 100x in advertising revenue and that's not off that small of a base. Like 153 million in revenue to start is wild. Anyway, suffice to say it's been a nice ride for investors. So I've been talking somewhat pessimistically about Zuckerberg over the last 10 years, but what obviously the results have been stellar. So what has made Meta Zuckerberg special? What has led to sort of that perfect, I guess, founder led formula that's led to great growth and it's much the same way with Daniellek. I think Zuckerberg's time at Meta has been a great example of how fast an organization can move when the founder is still leading the company. Even in this case at this extreme size. Not everything works out. Cough, cough Metaverse. But the company is able to experiment with long term upside projects because you have someone who isn't reliant on short term results. Think about, remember him saying like I think I can't remember the exact quote but I, I think this is going to be of historic importance was I think the quote when he was talking about the Metaverse spending and he could.
- [26:59]
Brett Schaefer
Be vindicated over the next 10 years. You never know. Those Meta Ray Ban glasses are getting some traction. But yeah, again spending $50 billion and not seeing much in results so far. A lot of investors would see that as a waste of money.
- [27:12]
Ryan Henderson
Yeah. How many mercenary CEOs or people. Let's maybe mercenaries. A mean term someone coming in that is not a founder would have experimented to that depth. They would not just give a lot.
- [27:25]
Brett Schaefer
Of lip service to it.
- [27:27]
Ryan Henderson
Yeah, they would not go to that length or that depth on investing in projects. I think the acquisition of Instagram is probably a good example. In 2012, Facebook bought Instagram for $1 billion. That sounded obviously that seems crazy now, crazy cheap. But at the time the company had 13 employees. It was 13 employees, probably like no revenue and it seemed outrageous. But for him, I think he knew what he could build with it and what he wanted to build with it and the potential, I guess synergies in terms of the advertising stack with Facebook at the time and he was willing to bet big on it and he has the majority of the voting power. So those decisions ultimately are made by him. Long story short, I'll kind of sum things up here. It's hard to know what makes Zuckerberg special today because obviously in the early days he was a technical founder, so he was able to build awesome products and features and that's kind of what resonated and probably what made him stand out. But I doubt he's still writing code today. Maybe he's what they call vibe coding every once in a while, testing products.
- [28:42]
Brett Schaefer
Yeah, he's not the product officer anymore.
- [28:46]
Ryan Henderson
So what makes him special? I thought these words from Susan Lee met a CFO were very insightful. She says Mark is really good at giving feedback, like really world class at it. It's very timely, it's very direct and it's very respectful. It's never mean, it's never belaboring some point. But you cannot be mistaken after you have received the feedback. I thought that was an interesting quote because at this size, I think the, at this size, I mean 1.8 trillion dollar market cap company. The primary role of a CEO is setting the strategic direction of the company, setting the tempo, speed, urgency. And I think in order to do that you, you have to be an effective communicator. And it's hard to be an as effective of a communicator as you want to be if you're just trying to get people to like you or get people to be on your side or you want a board that loves you because you're afraid of losing your job or you know, subordinates that love you so they talk highly of you and kind of praise you and you know, you maintain your spot. He can give as candid a feedback as he wants to help the business grow because ultimately he knows that a, his job is safe, but all he cares about is sort of the merits of the idea and getting to an organization that's bigger generates more cash.
- [30:11]
Brett Schaefer
And I think you can add that he can set the priorities from spending or time spent among employees and what your priorities, projects are going to be. For example, for him, he has the mission of building the next hardware platform, the next operating system for computers, you know, the one after the smartphone, if there's going to be one who knows if they're going to win. But he has that goal. And then now his second goal is to this one. I don't know if they're winning, but his goal is to win an AI and I think at all costs. Given some of the recent stuff we've seen around them, Aqua hiring people trying to get as much talent under their organization as possible. And this is a primary, primary priority for maybe the number one priority for them right now is I think to catch up to Alphabet and OpenAI in AI. And yeah, I think if you were someone like now I know people love this company, Apple, you have a little slower response to the AI revolution where someone like Spotify who's done a lot of AI tools meta, who's trying to become another one of the big players in the space and doesn't seem to have lost yet, while Apple is maybe lost entirely. You have Zuckerberg able to drive that boat and hopefully create some, keep that momentum going and create some value for shareholders.
- [31:40]
Ryan Henderson
Yeah, it's crazy to think that he could have a good 30 to 40 years in front of him as the CEO as assuming he continues to love doing the work. You think so? Yeah.
- [31:54]
Brett Schaefer
30. 30. Yeah. That does seem like a long time. What has it been about 20 years so far? I don't know if anyone can be for that long. It just drains you. Maybe he'll step back from, from something like that, do a more Mark Leonard role eventually, but I doubt some, anyone can be the head of a company for that long. You're just, you're just too tired. It's like being a president.
- [32:17]
Ryan Henderson
Yeah. Especially under that sort of, that specific company. There's a lot of pressure that comes with it. I want to talk about a new sponsor. Sound the alarms. Be you. Be you. We have a new sponsor alert. This is actually the perfect episode to be mentioning them because today's episode is brought to you by the Inside Owner Index. The Inside Ownership 100 is an index measuring the performance of shares owned by Insiders. The S P500 index has long been the gold standard for index investors. But now there is a simple and more effective methodology than market cap weighting. The IL100 offers more exposure to the most innovative companies and less to bureaucratic boardrooms. By weighting stocks based on the value of inside ownership, the IL100 systematically overweights companies with high inside ownership and underweights those with low inside ownership. The simple methodology has produced a 2% per year alpha against the S P500 since 2005. This is a product that we were super excited to feature here on the show given just how much we care about owner operators. So if you're interested in learning more about the IO 100 index or seen its components, head on over to Inside Ownership.com or you can watch the YouTube video that we've linked to in the description that outlines their methodology. Again, that's inside ownership dot com. Check it out. All right, let's shift gears to your second stock, Brett. Nvidia. Take us through. Obviously this is kind of the hottest name today, but let's go back through some of the founding and some of the lessons that got them here.
- [34:01]
Brett Schaefer
Little known company, Nvidia. Yeah, let's talk about them. 36.6% annual total return since the IPO in 1999. It was founded in 1993 and is still being run by founder Jensen Huang today. Just goes by Jensen. So I'm just going to call him his first name, not trying to disrespect him or anything. That's just what people call him. As if you invested $10,000 in Nvidia at the IPO, it would be worth $38.3 million right now. Not bad. Although I don't think anyone held except for Jensen himself. Now, throughout the entire journey, Nvidia has been run by Jensen of the big technology players. Founded in the 1990s, I guess he was a little bit later, you know. Well, actually they went public in 99, but were founded in 1993. Of this crop of Amazon's, Google's, Nvidia's, he is the only founder still running his company today. I'd say Zuckerberg is close, but that was a little bit later into the 2000s. Now, Nvidia may be the best example so far of a founder having a vision of the future, sticking with a strategy even though it looks financially stupid for over a decade and eventually being handsomely rewarded. And I want to talk through that story. We're not going to dive into Nvidia's full history, but I can recommend the book called the Nvidia Way. I'll link to it in our newsletter. You can also just search it on Google and it goes through the full story. But Nvidia began its journey as a computer chip designer by working in the video game market. It built a chip coined the graphics processing unit, or gpu, which separated it from the terminology of the central processing unit or cpu. It kind of gave them a distinction when talking about the brand. And it processes tasks in parallel instead of in sequence, like a traditional cpu. At its most simplest for anyone that's not technical with this stuff, it allowed graphics to process faster on video games. Now the video game market is lucrative, but limited in size, especially if you're just making the graphic. The GPUs for that. You're just capturing a small part of that entire supply chain. Jensen and the team though, believe that GPUs in parallel processing could be applied to more computing processes. And they wanted to make the best and most advanced GPUs computer chips out there. Now to begin, they invented CUDA in 2006. Now note there that this was 2006, a long time ago that they started this journey to where they boom today. Now cuda, its most basic, is just a software program that helps developers optimize the usage of a GPU for any task they can come up with. I'm sure there's a lot more advanced terminology we go through. Any listener, I'm not going to get technical and if I said something that is slightly incorrect, don't worry about it. This is what Nvidia has to say about CUDA today. We're constantly innovating. Thousands of GPU accelerated applications are built on the Nvidia CUDA parallel computing platform. The flexibility and programmability of CUDA have made it the platform of choice for researching and deploying new deep learning and parallel computing models. And again, they started this journey in 2006. This brings up machine learning, artificial intelligence, parallel computing. In the early 2010s, Nvidia noticed that researchers were utilizing CUDA for AI. There were also green shoots, you know, showing new advances in AI, such as image detection, self driving vehicle technology. Google was buying DeepMind in 2014. I think that may have also been around the time when the DeepMind team beat a human in the game called Go. And then at this junction of the company, Jensen decided from I think my I read the Nvidia White earlier this year, but this is my best recollection, recollection that they needed to push AI as the next leg of growth for the company. And this is back in the early 2010s. Now if we look at a quote from the book, I thought this was very insightful into Jensen's strategy. Quote Former marketing executive Kevin Kruel recalls meeting Jensen on the street outside of the Neural PS conference in Barcelona, Spain in 2016. Neural PS is an academic conference held in December where machine learning and neuroscience experts represent their latest findings. Kruel knew Jensen wasn't scheduled to speak and asked him what he was doing at the conference. Jensen replied, quote, I'm here to learn. Nvidia's CEO has not had not assigned someone to attend and take notes on his behalf. He had shown up himself so he could observe the recent developments in artificial intelligence. I think this story highlights why Jensen is a winning founder you have intelligence, insatiable drive to win and playing the right game, sticking in the right field, which eventually we'll see was AI. I also think it's funny that he was wondering why a busy CEO was at this conference. And then Jensen just goes, obviously I just want to learn. It's like he has nothing better to do. But again, this is the CEO of the company going to a random conference in AI to try to learn and become the most knowledgeable player in the space and to see what products Nvidia should build for these customers. I remember anecdotes from the story from the book about Jensen being on vacation and basically being on the phone with a bunch of people watching his kids at the pool. However, if you were an investor in Nvidia at the time, and maybe Ryan can show this chart. If not, it's in the newsletters from Fiskel AI. Their revenue from 2007 to 2015 didn't really budge. It was investing heavily in its AI ecosystem, trying to expand beyond gaming. But the results were really not showing up. Earnings weren't much higher than 202007 either. So revenue earnings 2007 to 2015, you kind of go, well, this is just an average semiconductor company losing to Intel. Now we're going to break in and make it to the mainstream. Now moving a few years later, sales did start to pick up. Revenue more than doubled from 2015 to 2018. But that was because of a different reason. One of the first cryptocurrency bubbles or booms. If you're a very good fan of the industry, don't hate me. Cryptocurrency miners saw that Nvidia GPUs were the best way to mine things like Bitcoin. Nvidia, I don't think planned on this happening, but hey, people wanted to buy their products and they did. Investors are nervous. At the time, the company was seeing, you know, one time boost in this highly cyclical market and it may have had minimal long term viability and you saw a little bit of a boom and bust there. Now if we go back to the segment and KPIs from 2019, the majority of Nvidia's revenue was still from gaming, which is where this cryptocurrency revenue was showing up. And yet 2019, the company kept investing behind the AI vision because they knew eventually or they had high conviction that they should stick with this plan. Jensen believed that machine learning and other forms of AI were the future of computing, and he didn't deviate. And long story short, I Think people know where this story ends as we sit here today, Nvidia is the top three most valuable company in the world by market cap worth $3.5 trillion. And it was the bet on AI that finally paid off in the last five years. In 2014, Nvidia's data center revenue, which you can think of AS cloud and AI sales, was $317 million. Intel still dominated the cloud. Nvidia had invested for years in this segment. This with little financial success. But they didn't throw in the towel. In 2020, data center revenue hit $6.7 billion. In 2025, Nvidia generated 132 or sorry. Over the last 12 months to, you know, the beginning of 2025, Nvidia generated $132 billion in data center revenue. The bet worked fantastically. And Nvidia's dominance in AI computer chips today began close to 20 years ago with the start of CUDA. They built over a decade, they spent over a decade building the software and hardware infrastructure to dominate the advanced computer chip market which is getting used heavily in the AI and cloud computing services. You cannot have done so if you had a rotating committee of mercenary executives worried about short term earnings targets, executive compensation and how Wall street would react to all this spending. Let's take intel as a comparison. Even just a decade ago, intel was significantly larger than than Nvidia. It dominated the personal computing market, had a large cloud computing business with its CPUs. It had more money, more scale, better known brand, better customer relationships, built its own computer chips, which may have turned into a disadvantage today, but that's another story. Intel had $53 billion in revenue in 2012 versus $4.3 billion for Nvidia. Today. Intel is still generating $53 billion in revenue. Nvidia's has soared to $148.5 billion. I think that shows the difference between rule by committee, no strategic direction versus founder led. To sum it up, what was Jensen's vision? He believed that the most advanced computer ships with parallel processing. And again there's probably more to it. I just don't know much about it. For intelligence computing would win. I'm not so sure I could have understood whether it was a good bet in 2010, but anyone within the semiconductor space with its within their circle of competence probably could. And then it just takes patient capital and understanding. You're betting on a good horse here. Now Ryan, that was a lot discussion questions that maybe if you have any follow ups to reaction to it, would you have Been able to hold Nvidia? When do you think about holding a founder led company versus dumping a loser? How do you balance that after looking at this this episode of Chit Chat Stocks is brought to you by Blue Chippers Club. The club was started by two friends of ours with the goal of building a tight knit community of stock focused investors. You can break down your portfolios, pitch stocks, receive feedback, talk to other people about their stock ideas, get insights for your own portfolio and participate in weekly calls with other investors. We love this idea. We wanted role models when we first started to get into investing and we think that joining Blue Chippers Club can really help you level up as an investor. Bounce ideas off other people, talk with us, talk with many other investors that have joined the network. 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- [44:35]
Ryan Henderson
All right folks, if you are a regular listener to Chitchat Stocks then you know that we use Finat IO daily. Finchat is the complete financial data platform for stock focused investors. They have robust financial data on more than a hundred thousand stocks globally, including company specific segment and KPI data. So you want to see Amazon's revenue from advertising. Finch has got it. How about Netflix's subscribers by region? Yep, they've got that too. And they just added Morningstar research reports for all subscribers. So if you are subscribed you can now get all the latest Morningstar high quality research reports on more than 1500 stocks globally. If you're interested, head on over to Finat IO Chitchat. All new users automatically get two weeks of Finat Pro for free. But if you want to extend to any paid plans, our link will get you 15% off. That is finat IO chitchat. The link will be in the show Notes. To answer your first question, would I have been able to hold Nvidia? No. The the thing with all these other founder led companies is you saw they were investing for the long term, but you were seeing the progress for the most part. In the short term there might have been little financially here and there.
- [45:52]
Brett Schaefer
Revenue growth?
- [45:54]
Ryan Henderson
Yes. Like you go look at Meta's total revenue over the last 20 years, it's going to be generally up and to the right pretty much the whole time. Nvidia from 2007 I think to 20 what 13 there was no revenue growth and it was all pretty much centered on gaming at that point there I think you were right. You said Jensen Huang out of the list of founder led or Founders that are still leading companies today had the clearest vision and probably the most stubborn vision of the the CEOs out there. Because I, it would have been hard not to get shaken out or discouraged on that thesis if you saw seven years of revenue going nowhere. Now obviously he looks like a genius today and he is. But yes, I think that intel example versus Nvidia is like the, that's the perfect dichotomy where intel had. If you invested $10,000 in intel in the dot com at right 25 years ago, I think you have like you'd have $5,000 today. And their CEOs have been getting paid handsomely along the way. Obviously if you invested alongside Jensen Huang, he's gotten paid handsomely along the way too. But you would have made, I think it's been the best performing one of the best performing stocks of the last 25 years.
- [47:37]
Brett Schaefer
Right. And intel back in the day was founder led. They kind of have a complicated story but essentially they were founder led for a long time and they dominated the market. They had a strategic vision. They had, they, you know, wanted to make Moore's Law possible for multiple decades and now they have a vision that seems to change constantly where Nvidia's has stayed consistent. We want to make the best processing chips for gaming cloud, data centers, AI.
- [48:06]
Ryan Henderson
Do you think Intel's fate would have been different had they had a founder for the last 25 years? Do you think they would have shifted to this GPU focus earlier?
- [48:17]
Brett Schaefer
Maybe, but it's hard to tell. Eventually company gets so old like there's no one alive from that time. So I think that's a tough question because if they were founded 25 years ago, they wouldn't have started out in the position dominating the industry as one of the largest companies in the world. But I think it would have helped if you had a technical founder that understood the semiconductor market better and what was going and I think a lot of people at intel understood this. They just didn't have the long term mindset the hour.
- [48:46]
Ryan Henderson
They didn't have the control to make long term bets like that. The to your second question, when do you keep a holding a founder led company versus dump a loser? I think it's really tough because you could just say well when there's no progress after five years, you know, maybe you should ditch it. But you could have done that for Nvidia and you would have lost a lot of money. Opportunity cost wise the ideally you found, you find some other KPI. Maybe it isn't total Revenue, whether it's engagement, whether it's active users, whatever the valuable KPI is for that business, you track that. Nvidia would have been pretty tough, I think to find like that singular KPI that would have predicted this AI revolution.
- [49:42]
Brett Schaefer
I guess at least 10 years ago. Data center revenue.
- [49:46]
Ryan Henderson
Yeah.
- [49:46]
Brett Schaefer
But earlier now you still would have made a lot of money investing 10 years ago.
- [49:52]
Ryan Henderson
True. I don't know. But here's the thing is I think if you take 10 founder led column early stage, whether obviously early stage, you can only get so early in the public markets typically. But 10 founder led early stage companies, you do not need everyone to perform well. So I, I think when to hold versus dump a loser. I would default to just consistently holding. Now if you just. Yeah, if you get to the point where you just don't trust the founder slash CEO, that's a different problem. But Right. Yeah. Don't they lose their financial metrics?
- [50:35]
Brett Schaefer
Right. And eventually it'll be small enough. Yeah. You don't just keep doubling down on a company. All right, we're going to, we're going a little long, so let's try to get to the final stock here. Ryan, this is one that is potentially a fine or a company in the stages of, you know, Ryan owns it. This is one that you might like today is instead of a case study, hopefully this one can be a bit more of a real time analysis for the listeners. Ryan, what is the stock and why do you like it?
- [51:04]
Ryan Henderson
Yeah, so I wanted to do two different types of stocks for this episode. I wanted to do one that was a great case study which I think Meta is and that still might have a lot of promising prospects. But I also wanted to do one that I think could become a great case study in the future. In other words, a stock that is founder led, but I also think is attractive at today's price. The company is wise. Wise was founded formally transfer wise, but it's been wise for a while. They were founded in 2011 by Crystal Carmen and Tavette Henrikis, both older than Mark Zuckerberg, funny enough, founded seven years after. But the genesis for the company was actually born out of. It's kind of, I don't know, one of those almost fake sounding stories which was like we just noticed this problem and we found a granular solution that could be scaled up, but that's exactly what it was. So here's a quote from the website. They're both from Estonia Tevet, who was the first employee at Skype, lived in London but got paid in Euros. Christo worked for Deloitte, also lived in London, got paid in pounds, but he had a mortgage in euros back in Estonia. So basically, to summarize, both Tevet and Christo were paying transfer fees independently because they were transferring it with their banks. So they had an idea. Every month, Hinricus put euros into Carmen's Estonian account and Carmen put Pounds into Henrik, his Henrikus's English account. Both got the currency they needed almost instantly and neither paid a penny more for exchange rates or other fees. This is pretty much how the business still operates today, but on a much larger scale. So by having local banking licenses, Wise has built liquidity pools across many global currency corridors. This enables them to avoid foreign exchange markets altogether for most transactions processed on its platform. There are a couple really important benefits from this. So first one, they can transfer money at a lower cost than competitors. As of the latest quarter, wise charged customers 53 basis points on cross border transactions on average. For reference, according to the World bank, the average Digital remittance cost 4% in the fourth quarter of 2022, and actually saw recent data that said 6.5%. So maybe somehow they've gone up, but this is. It could also be different corridors that they're referring to. This is the most obvious advantage and it's one that they actively advertise. So they want the world to know that Wise is the cheapest solution for most corridors. And it has been a big reason why they've been able to reach 9.3 million active customers. I think that's up from like 2 million four years ago, roughly. But the growth in terms of active customers has been fantastic, both for individual customers as well as businesses. We're seeing more and more businesses processing or paying out, whether it's customer suppliers or want to be customers, suppliers, workers, contractors, whatever it is, cross borders, they're using Wise to do so. They've got a chart on fiscal AI with the cross border take rate over time and it's come down, it's gone from basically 70 basis points or 75 basis points in March 2020 to 53 basis points today. And that is something they are, that, that's like a part of their mission. They want to drive cross border transfer fees to zero if they can, which I know sounds crazy because it's like that's the majority of their business today or the majority of their revenue, but they can build a business outside of it, which we'll talk about in a second. The second big benefit for with having sort of this digitally savvy model of local banking licenses where you're basically just changing the accounts. So local liquidity pools and you're just adding one to one account and subtracting one from another is you're able to deliver those transfers faster than your peers. So they aren't actually obviously moving money across borders. They're just adjusting the balances in local accounts. Which means WISE can give customers their money much quicker. This is a big deal for customers who also spend out of their accounts. According to Wise, 64% of their transfers arrive in less than 20 seconds and 95% in less than a day. This leads into my third big benefit here, which is customers can spend abroad for cheaper. So when you travel to another country and you use your credit card, there are typically some hidden fees. The alternative for a long time was either like getting cash so so trying to find someone to give you the local currency and cash. But guess what, that's expensive too. So Wise created a debit card. This allows customers to easily spend money in whatever currency they're using using the Wise card. And Wise will use its digital infrastructure behind the scenes to transfer that money cheaper. This also provides another revenue stream for Wise and, and that it's been diversifying over time. So I think roughly 50%. Yeah, just about 50% of their revenue today is from cross border transactions. That's down significantly over time despite revenue overall growing. But I guess the question and sort of the crux of this podcast in general, why is it an advantage to be founder led here? And it kind of got me thinking. I cannot think of any case where a company became the low cost provider without having an owner operator at the helm. Can you think of any single instance where a company became the low cost provider in their industry with a mercenary CEO?
- [57:10]
Brett Schaefer
I mean that, that silence speaks volume. Nothing comes to mind. I am reminded of Amazon where if you want to drive low cost and efficiency and push the boundaries of what's possible, it's better to have a founder. It's also Nvidia where the most advanced stuff keeping on the cutting edge. It takes that mission led focus as opposed to someone that's doing it just as their day job.
- [57:39]
Ryan Henderson
Yeah, it's. I mean I tried pouring through it and I was thinking about like Costco today obviously still the low cost, one of the low cost providers. But that's sort of a just the stickiness of the founder initially. Same with Walmart. They obviously wanted to be a low cost provider in the early days and they've kind of maintained that advantage. But I don't Think I've ever seen a company become the low cost provider while having a mercenary CEO. And a big reason for that is they can't take the hit because it'll affect their personal compensation. So.
- [58:13]
Brett Schaefer
Right, you're sacrificing short term earnings. Yeah, exactly.
- [58:16]
Ryan Henderson
Crystal Carmen, who is one of the founders, is the CEO of WISE today. He currently owns 18% of the Class A shares, 47% of the Class B. So his voting power would effectively be more than 50. But they have a voting cap in place that limits his voting power to be basically slightly below 50%. So fair to say he is very aligned with shareholders and I imagine his primary financial motivator is the long term performance of Wise's equity. Henrikus, the other co founder, is no longer involved, but he still owns a big chunk of the Class B. Anyways, there is this massive long term opportunity for whoever can be the low cost international transfer provider. Because if customers send money and they spend money with you, there quickly becomes many ways in which you can earn adjacent revenues. You can get swipe fees, interest income on balances held in their accounts, transfer fees. Still, even if you continue to drive down the average take rate, you can still grow that nominally as well. And then you can also license your digital infrastructure. So you've built out this low cost way of moving money around the world. Or actually when I say moving, I put that in air quotes because they're not actually doing that. And banks use it. Banks use the Wise API all the time and it's a growing business for them as well. So if you look at who Wise is competing against, most of those, most of their big competitors don't want to lower their costs. It's often a cash cow for their business. So whether it's legacy banks, PayPal, Western Union, almost all of these companies have been around for a long time. They don't. They have a CEO who is not the founder and they cannot sacrifice the short term hit by lowering their prices because it'll impact the company's earnings, it'll impact their personal compensation. So there's just no incentive for them to lower costs. That's why I kind of maintain the idea that I don't know if a mercenary CEO has ever driven a company to be the low cost provider in their industry. The other reason here is that it's just not their primary business. For some of these competitors, PayPal it is. But if you look at like banks and the correspondent banking system and sending wires across borders, that's like a nice to have. But they're not going out thinking like I want to be the big international money transfer business. They want to be a bank. And so there's the, the element of focus there as well. I'll kind of leave it at that. But having a founder in this case is a really powerful economic incentive, especially in an industry where you're competing against a whole bunch of mercenary CEOs and businesses that have frankly been around for a long time and are kind of ripe for disruption. So hopefully Wise can be a case study in some years to come.
- [61:07]
Brett Schaefer
Good example of the innovator's dilemma as well. Other companies don't have the vision to innovate, so it's intel too versus Nvidia. Wise is going to consistently have this advantage to try to steal market share because they have a lower cost and someone could try to copy them, but they haven't because they don't have that strategic long term vision. All right, I think that does it for this episode. Make sure to check out our special sponsor for this episode, our friends at. Oh gosh, I want to get the exact name right. The Insider Ownership 100. Check out the link in the show notes. Thank you once again to them and all of our sponsors. Interactive Brokers, Blue Chippers Club, Fiscal AI. Let's hit the disclosure and get out of here. We are not financial advisers. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guest may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone for tuning in and we'll see you next time.
- [62:18]
Ryan Henderson
Foreign.
- [62:24]
Brett Schaefer
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