6 Hidden Suppliers For The AI Boom; Microsoft's OpenAI Gains; Amazon and UPS Layoffs As Recession Indicators?

Summary

Chit Chat Stocks: "6 Hidden Suppliers for the AI Boom; Microsoft's OpenAI Gains; Amazon and UPS Layoffs as Recession Indicators?"

Date: October 31, 2025
Hosts: Ryan Henderson (A), Brett Schaefer (B)

Episode Overview

This Power Hour episode dives deep into developments amid earnings season, focusing on Big Tech reports and their implications. The hosts analyze the latest results from Netflix, Visa, SoFi, and other payments companies, then shift to a standout researched segment spotlighting "hidden" companies powering the AI infrastructure boom. The episode also covers the Microsoft/OpenAI deal, macroeconomic signals from Amazon and UPS layoffs, and draws on lessons for investors seeking strong businesses amid noisy market headlines.

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Key Discussion Points and Insights

1. Fiserv’s Tumble: A Lesson in “Value Traps”

[02:11 – 09:19]

• Background: Fiserv’s stock plunged 43% on its slowest organic growth in five years, a strategic overhaul, and low guidance.
• Quote (A, 04:01): “Fiserv’s recent results have increasingly relied on short-term initiatives...as opposed to building long-term relationships by prioritizing business that both meet our clients’ needs and comes with high recurring revenue.”
• Observations:
  • Markets sniffed out trouble before earnings; high buyback yields often signal underlying problems.
  • Comparison between “stitched together” acquirers (Fiserv) and home-grown platforms like Adyen/Stripe.
• Lesson: Caution urged when investing in acquirer-businesses without clear integration or “playbook”.
• Brett’s Take (05:24): "It bores me to sleep... I'd like to make money on companies that actually interest me."

2. SoFi’s Relentless Growth and Cautious Optimism

[09:19 – 17:35]

• SoFi’s Numbers:
  • Members grew from 1.2M (2019) to 12.6M (2024), adding 1M in latest quarter, outpacing Ally Financial’s total base.
  • Deposits reached $33B within three years of getting a banking license.
  • Personal loans are the fastest-growing originations; delinquency rates steady, but risk exists if recession hits.
• Quote (A, 14:23): "They asked [CEO Noto] about [PayPal + OpenAI], and he said, 'We're launching products, not press releases.' I love that quote."
• Discussion:
  • Both hosts express excitement for SoFi’s flywheel effect and cautiousness about rapid loan growth in a potentially perilous lending environment.
  • Valuation: Price/book ~5x, PE ~57–72x; hosts suggest stock may be fairly valued now, but long-term is promising.
• Concerns: High lending growth and exposure to personal loans bring risk during downturns.

3. Netflix: Strengths, Vulnerabilities, and the State of Streaming

[17:35 – 27:59]

• Earnings/Stats:
  • 17% YoY revenue growth—fastest since June 2021.
  • Successful scaling of ad tier; aiming to double ad revenue in 2025.
  • Trading at approx. EV/EBITDA 37x.
• Key Insight (B, 19:55): Netflix is gaining overall TV time but is losing streaming-specific share to YouTube.
• Quote (A, 25:22): “They’ve done a phenomenal job… every big crossroads they’ve come to, they’ve done a pretty good job evolving the platform.”
• Discussion:
  • Netflix’s future growth likely driven more by advertising, additional features (gaming, live/talk shows), further price increases than by subscriber growth.
  • Password sharing crackdown seen as a success and industry trendsetter.
  • The duopoly is framed as YouTube vs Netflix—not Warner Bros/old media conglomerates.
• Brett’s Take (23:54): “Charts of YouTube taking time spent from Netflix…would be a big concern for me if that continues.”

4. 6 Hidden Suppliers Powering the AI Boom (“Picks and Shovels” Thesis)

[28:30 – 46:52]
Ryan compiles a researched list of “infrastructure” companies benefiting from massive data center/AI buildout. All have seen rapid stock appreciation, but hosts debate if they’re now too risky given runups.

The Six Companies:

1. Amphenol — Power distributors, cables, sensors for data centers; “boring” but posting 53% revenue growth, a 20-year high.
2. Quanta Services — Designs/installs transmission and distribution lines; first call for new data center buildouts. Quote from CEO (A, 32:30): “If we’re going to lead…the world, you have to have power. And we are right in the middle.”
3. Arista Networks — High-speed switches/routers and specialized data center operating software; called “the toll booth of AI.”
   • 2012 revenue: $193M → 2025: ~$9B; 34–37% CAGR.
4. Vertiv Holdings — Cooling and power solutions for data centers; stock went public as a SPAC, now a ~20-bagger.
5. Micron — Memory chips (DRAM) essential for GPUs, which require 5–6x more DRAM capacity than non-AI workloads.
   • Quote (A, 39:30): “Our HBM performance has been strong...robust demand, tight DRAM supply, and disciplined execution have significantly strengthened the profitability of the rest of our DRAM portfolio.”
6. Comfort Systems — Construction/services for making data centers “livable” (mechanical, electrical, plumbing contracting); another “20-bagger.”

Risks and Debates:

• Brett’s Concern (37:04): “I'd be so scared to buy any of these…the bottom could fall out by 90% if it’s like the telecom bubble.”
• Both highlight cyclicality of hyperscaler capex and the risk these firms face if demand sharply declines.
• Quote (A, 41:40): "These businesses will be better off, most likely...20 years from now because of the AI boom. There is likely to be a slowdown in demand, but that doesn’t kill them.”

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5. Visa as a Macro Indicator

[46:52 – 53:06]

• Visa Q4 Highlights:
  • 12% YoY net revenue, 9% volume growth, 50% net income margin.
  • Repurchased $18B of stock (~2.6% of market cap).
• Insight:
  • Visa (and Amex) serve as real-time indicators of consumer health and macro strength.
  • At ~28x PE, both agree Visa is too expensive now but is on the recession-buy watch list.
• Quote (B, 49:34): “One of the best competitive advantages ever.”
• Ryan’s View (53:01): “Buying Visa for me is like admitting defeat on active investing...the cat’s out of the bag.”

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6. Microsoft’s OpenAI Deal and the Structure of Big AI Partnerships

[53:06 – 60:01]

• Details:
  • OpenAI spins out a for-profit arm; non-profit holds 26%, valued at $130B.
  • Microsoft owns $135B stake (~27%), maintains IP rights through 2032, and secures $250B in Azure commitments.
  • OpenAI aims to IPO by 2027 and can now aggressively raise funds.
• Analysis:
  • Quote (A, 55:50): “It seems to benefit [Microsoft] in plenty of different directions...kind of being subsidized by venture capital in a way.”
• Prediction (A, 57:09): “I bet they do not go public by 2027... At some point it’s going to be like the WeWork situation.”
• Brett Adds: Latest round investors likely not to see expected returns; reminiscent of late-stage Uber rounds.

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7. Layoffs at Amazon, UPS, and Target: Recession Indicator?

[60:10 – 64:52]

• Facts:
  • Amazon cutting 30,000 corporate jobs (still hiring aggressively for tech/science projects like Kuiper).
  • UPS eliminating 14K corporate and 34K operational roles; Target trimming 1,800.
• Debate:
  • Is this news a sign of consumer spending trouble, or just post-pandemic “efficiency” resets?
  • Quote (A, 61:23): “It feels weird to lay off 30,000 corporate employees right before the supposed busiest time of the year for Amazon...this is sort of a bad indicator.”
  • Both hosts lean “cautiously pessimistic” about what this signals for holiday demand.

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Notable Quotes & Memorable Moments

• On Fiserv's Strategic Overhaul:
  “That’s when you know things are going bad. That’s like when the manager gets relieved of duty on the sports team.” — B, [03:45]
• On “Picks and Shovels” for the AI Boom:
  “We talk about the boom in AI infrastructure spending… this is sort of the modern gold rush and there will be beneficiaries besides the hyperscalers.” — A, [30:06]
• On SoFi’s Brand:
  “They have just nailed it in terms of attracting customers and being an attractive brand to younger people trying to build wealth.” — A, [11:16]
• On Microsoft/OpenAI:
  “Having the tie-up here is just a nice way of basically not having to build this internally and not having to front the expenses.” — A, [55:50]
• On Netflix’s Resilience:
  “Netflix has been doubted time and time again. I’m so scared of doubting them because of their track record.” — B, [27:59]

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Timestamps of Key Segments

• [02:11] Fiserv’s Earnings Mess and Payments Industry Analysis
• [09:19] SoFi’s Explosive Growth and Caution on Lending
• [17:35] Netflix: Competitive Landscape & Revenue Mix Evolution
• [28:30] The Six Hidden Suppliers Fueling the AI Boom (Picks & Shovels)
• [46:52] Visa as a Macro & Recession Play
• [53:06] Microsoft’s Deepening OpenAI Ties & AI IPO Speculation
• [60:10] Layoffs at Amazon & UPS: Signal for Consumer Weakness?

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Final Thoughts

The episode is a sweeping tour through the winners (and potential traps) in both tech and infrastructure, with an emphasis on finding underappreciated ways to bet on the AI mega-trend—while remaining wary of cyclicality and hype. Classic businesses like Visa and new school players like SoFi are judged not only on growth, but staying power, risk, and realistic valuations.

Hosts’ Parting Wisdom:

• Don’t chase value or growth without understanding business quality and risk.
• In AI, “picks and shovels” companies may be the big winners—until the gold rush slows.
• Watch macro signals (like layoffs) closely, but resist reactive trading.

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As always, this podcast does not constitute investment advice.

Transcript

[A]

Welcome to Chit Chat Stocks, a podcast that helps you discover your next great investment. I'm your host, Ryan Henderson and I am joined as always by my co host, Brett Schaefer. Today we've got our weekly Power hour episode where we talk all things financial markets. It is the heart of earnings season. Today, big tech is reporting, or at least most of the big tech companies. So this is when we have the most news, plenty to talk about and we have plenty of topics for this week. Of course There are more OpenAI partnerships. There is earnings. We've got Netflix, Visa, SoFi, PayPal and plenty of others. And I've got a little fun topic for the listeners as well. I dug into some of the some of the most critical suppliers to the data center space, the picks and shovels providers to the data center build out. So I'll go through some of those as well. But before we get into it, first off, please, if you enjoy these episodes, give us a review. It always helps. And we also have a newsletter which is totally free, so go ahead, check that out. We put plenty of good charts and information up there. But without further ado, Brett, how has earnings season treated you so far?

[B]

Not bad. Haven't had much reporting. I want to ask you, how does it feel to be back two weeks off doing a live show again, talking earnings? Was there anything you were itching to talk about that you couldn't last week? Netflix earnings. A little. Of course, people in our newsletter chat were making fun of the fact that OpenAI seems to be announcing stuff just in your face every week. So we have to talk about it. We will be talking about the Microsoft OpenAI deal. I'm assuming it's not that, but is there anything you want to talk about the most?

[A]

I did a decent amount of work on this data center suppliers, but maybe we can save that for later on in the episode. Netflix earnings. Fascinating. Visa earnings. Frankly, boring and predictable, but still, what a business. And then so far, macro indicator.

[B]

Always my favorite consumer. Mac macro indicator.

[A]

Yeah, there, I mean there's a lot to talk about, especially in the payment space. We've seen a lot of payments companies report so far. So PayPal reported yesterday, SoFi reported SoFi's quarter looked pretty good. And Fiserv reported this morning the stock is down 43% before the market open.

[B]

I don't even check what the markets are doing. What, what happened? Yeah, we actually had a little message in the group chat. Yeah, the stock's down so much someone wanted us to talk about it. What happened? What's the deal.

[A]

So from what I can tell I haven't gone through the entire conference call. But Pfizer, this is one of those where it seems like the street was ahead of everyone else. And you see this all the time where there's a slight decline in some of the fundamentals, there's cautious management guidance and all of a sudden the stock is hitting like five year lows. The valuation looks super cheap on a trailing basis and you see people thinking oh, value play, value play, value play. But really the street probably knew something most investors did not and this quarter showed that. So fiserv reported its slowest organic growth in five years. They cut their full year guidance and then they launched a strategic overhaul with a new cfo, new co presidents and three new board members.

[B]

Oh, the strategic overhaul you got, that's when you know things are going bad. That's like when the manager gets relieved duty and on the sports team we're not gonna. I'm not going to be doing the offense anymore. Someone else can call the formations.

[A]

Yeah, apparently this is supposed to be a total company reset. So here's one quote from the conference call that I saw. Fiserv's recent results have increasingly relied on short term initiatives. These initiatives place too much emphasis on pursuing in quarter results as opposed to building long term relationships by prioritizing business that both meet our clients needs and comes with high recurring revenue. As a result we have made the decision to to deprioritize these short term revenue and expense initiatives which of course has some near term impact on our growth and profitability. For those unfamiliar, fiserv is sort of a hodgepodge of payments processing businesses. They've been an acquirer over the years and I think we've kind of seen especially lately a divergence between the stitched together payments processors and the built from the ground up payments processors like Adyen and Stripe. And we've seen sort of a divergence in results and I think you're seeing it from the customer perspective. It can be cleaner to just go with a one one stop shop solution like a striper add in as opposed to some of these other stitched together businesses. But I don't know the business super well so I might be.

[B]

On this one. It bores me to sleep. Honestly. I'm glad, I'm glad I'm not interested because it's down 40%. That's for a company like this. This sounds. I would not believe you if you said this was possible now. An Adian, sure. But Pfizer, I thought they were supposed to be steady, Eddie.

[A]

Yeah. They have had I think like decades of double digit earnings per share growth. So this is ob. This is like a, a major turning point and this is their largest drawdown in 35 years. They are down 70% from all time highs. I, I saw a lot of people talking about the buyback yield. They have been a big repurchaser which, that's when like I, I love buybacks but when the buyback Yield is above 10% there's typically a reason. So I found that like the best share cannibals where you get like better than expected earnings per share growth because they're buying back tends to be a lower current buyback yield. But you know, it's steady and progressing. So anyway, that's kind of a side tangent but after their 70 drawdown, Pfizer stands at a 68 billion dollar market cap roughly they do $6 billion in annual operating income. So price to operating income is around 10 times that. If this is a major reset, how's the balance sheet?

[B]

How's the balance sheet?

[A]

I'm pretty sure it's like 20 or $30 billion in net debt because enterprise values almost above 90.

[B]

Okay. Not terrible as. What's the meme? Not great. Not terrible. The Chernobyl meme. Yeah. Well, it could be by I just. What excites me about this company now? Nothing, sorry. People can make money on this. I'd like to make money on companies that actually interest me and if that means there's an opportunity to buy this boring business, so be it. Someone else can do it. But I have, you know, I have absolutely zero interest in any, any of these type of businesses. Not, not necessarily like the adding of the world, but these legacy payment processors and all the good stuff. All right, let's talk about one that the listeners. Unless you do have something to add there.

[A]

I just want to add it. Like unless you are a, like a Constellation software where you buy these businesses and you just let them operate independently. I tend to be wary of the like opportunistic acquirers where it's not like a stated part of your strategy. You don't have this blueprint to like buy and then integrate and like it's just like you kind of buy businesses to fix holes in your current like product suite that I don't like because it's, it's the quickest way to, to enter a market. But it always leads to problems down the road and I think you're seeing that now. Adyen chose to build from the ground up, build their solutions from the ground up. I think at any point they could have gone out and acquired companies to basically bolster their product offering and instead they said, no, I want to build these solutions on our own because it's easier to diagnose issues later on. It's easier to you own the infrastructure. You're not like it wasn't built 20 years ago by developers that are no longer with the company. And anyway, I be cautious with these opportunistic acquirers. I would say.

[B]

All right, Ryan, talk of Pfizer is putting me right back to sleep. Let's talk about a company that people are very interested in. I am. I wouldn't say I have egg on my face. I was never bearish on them, but unfortunately never got bullish at the right time. Maybe it's still now and that is sofi. It's one that you put some good notes together on. We have some comments in the chat here. I'd say for we're recording this Wednesday morning this week. Thank you. For everyone that's joining, we have new comment that says I think a new listener favorite book on the shelf behind you both. I see the Rule Breaker investing there. Yes. And for anyone that hasn't listened, I think our number one listened to episode of all time now is the David Garner interview. Go listen to that. I thought we asked him some fantastic questions. I'll answer that one and say an underrated book behind me is the Toyota Way a kind of history on how Toyota became dominant in manufacturing and how everyone essentially learned from them. Ryan, do you have an underrated investing or business book behind you?

[A]

I honestly wasn't sure what all was behind me.

[B]

They're just for looks for the show. Those are the ones that just have good color schemes.

[A]

I'd say probably the most evergreen and the one that actually applies to me the most is the Rule Breaker Investing from David Gardner but also our friend Alex Morris Unscripted is back there and that obviously has plenty of timeless quotes and advice from two of the greatest investors of all time. So I'd, I'd add that one as well. But let's jump to SOFI earnings. Look, yeah, I missed the boat on this one. Maybe the opportunity is still in front of us, but I'm disappointed because this was obviously it's competitive online banking is, is now more competitive, I think than it's ever been. But they have just nailed it in terms of attracting customers and being sort of an attractive brand to younger people trying to build wealth members they had 1.2 million members at the end of 2019. 1.2 five years later, they have 12.6 million members. So it's been staggering growth. And this quarter they added more members than any other quarter in their history. They added almost a million members this quarter alone. Over the last 12 months, they have added 3.2 million members. For context, Ally Financial has, has like 3.4 million total retail depositors. Now, a retail depositor that's worth more members does not have an exact correlation to like deposit growth.

[B]

Well, Ally has 5x the deposits, but SOFI is catching fairly quickly and should catch them within 10 years if Ally doesn't grow like they are today.

[A]

Yeah, so SoFi got its banking license late 2022 I believe, and within three years they've gone from zero deposits to 33 billion, which is pretty impressive growth. And loan origination volume. I guess here's maybe the part that I want, I don't know if I worry about, but they're getting this flood of capital from depositors. They're getting this flood of money and the biggest category of loans that they're offering is personal loans, which in a world where, I don't know there's a recession or something like that, I think there's probably higher variability in the delinquency rates in that sort of just overall lending category. But loan origination volume grew 57% year over year. Most that growth is coming from personal loan growth. The delinquency rates stayed pretty consistent compared to last quarter. So the results look good. Obviously there's some risk anytime you quickly grow a lending business because things look good until they don't. But I think the results across the board were really impressive. Here there was Anthony Noto's CEO went on to CNBC and after the earnings and they asked him about PayPal and OpenAI's partnership. I don't know if you saw this, but two of the most press release happy companies of all time, OpenAI and PayPal announced a, a combined press release.

[B]

Still wait for that Mercado Libre partnership to gel with PayPal. You know, eventually it'll, it'll bear fruit.

[A]

Anyway, the, they asked him about it and he said we're launching products, not press releases. I love that quote because one, PayPal is just a press release machine. They love partnerships and press releases. And it seems like SoFi is showing real growth, real traction with customers, deposits and on the lending side. So things look really good right now. If I'm a SOFI shareholder, I would, I would be happy with where they're at right now.

[B]

Can you predict? And a load of right here at our friends at Fiscal AI use our link. Get 15% off any paid plan, I bet. Well, not to tease it, But I'm almost 100% certain they will be doing a Black Friday sale. So within the next month, slash, you know, cyber, Cyber Monday, whatever you call it, get ready. There's gonna be a nice discount for you out there and we recommend using our link to get that extended discount. All right, what do you think their forward PE is and what do you think their current price to book value is?

[A]

I think price to book is like four times.

[B]

Close five. Five.

[A]

Okay.

[B]

Pe.

[A]

I don't know because I don't know how much they're earning or where they're at.

[B]

72. 72. I feel like they're probably under earning a bit since they're reinvesting. If you normalize it to what they could probably earn, I guess we're pretty close to fair value now. That might sound egregious for someone that is a value investor, but I'm just saying, like if the PE can get a little bit lower, I'm actually seeing a different reference here that someone says 57, but again, you know, it's forward estimates. So it depends on what estimates you're using. The stock's at 31 in 2022 and 2023. You could get it for five. So that was where the great opportunity was today. Would I still be holding? Of course. I mean, seems like a fantastic growing business. But is it a buy today? Probably not now.

[A]

Yeah, it's.

[B]

Sorry, do you have anything else on that?

[A]

It's such a. It kind of sits on both sides of the fence for me because on. In terms of consumer applications, I want a. You want exactly what you're seeing with SoFi. Massive membership growth. There's even somewhat of a flywheel effect. More people using SoFi, they tell other people they're launching all these products, they're offering cards, they're. They're kind of generating revenue in a lot of different ways. But on the lending side, when I'm looking at a bank, I get really uncomfortable with rapid origination lending, origination growth because I don't know what the net interest margin or the delinquency rates are going to be like five years from now. It depends what kind of categories they're in. But especially personal loans. I it. I'm both really optimistic about the consumer side and shaky on the banking side.

[B]

Yeah, you can never get a hundred percent confident. I mean, it's a new bank, fast growing bank, stuff like that. It's not new bank which is its own company. And we do have a great interview coming up with Dave Ahern covering new holdings as well as people are asking in the newsletter chat to discuss Argentina and Cap Airports Corporation America Airports. We will have an interview with Ian Bizek coming up in November to discuss all that Latin America, get the update and all of everything that's happening there. I'll go to maybe one of my topics since Ryan has had two to start. We didn't get a chance to discuss Netflix earnings last week with Travis where we had I think a lot of good topics and we covered a lot of stuff within his portfolio which I thought was fascinating. Very, very interesting opportunities out there. But I wanted to discuss Netflix this week even though they reported last week. I'll go through some of the number 17 year over year revenue growth. This was the highest level of percent revenue growth since June 2021. The advertising tier is scaling and Netflix is gaining share of TV time spent. Here's a quote from I think it's the investing Letter We've come a long way in building our advertising business in less than three years. In that time we've gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets and we will continue to grow from here, building out our ad sales and operations team and enhancing our capabilities for advertisers, including launching our own first party ad tech stack. They're on track to double ad revenue in 2025. Stock now trades at maybe I should update this because I put that in a week ago. I said a week ago it was trading at an EV to EBIT of 38. We're at an EV to EBITDA 37 now. So it's probably about the same. The question I have, and maybe you can agree or disagree on this take, and this is in context of so within overall consumption of TV media, Netflix is gaining share because that's a lot of the linear is still declining. I think that's still 40% or maybe even half of consumption in the United States and higher in other areas, lower in other regions around the world. But if you look within streaming, YouTube is taking share of time spent. There's some great charts about this and Netflix is seeing declining share of time spent within streaming video. And my take on this is that all of these services from the tech players are going to have to necessarily combine but become more like each other. Where Netflix, you know, we're seeing this with the podcast licensing they're doing to put kind of talk shows on their service. Netflix is going to be trying to become more like YouTube. Who is going to become try to become more like Spotify. Who is going to be tried to become more like YouTube. Who is trying to become more like Netflix? I know that is a kind of a tongue twister but do you get what I'm saying here Ryan and do you agree or disagree on Netflix's excuse me path going forward?

[A]

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[B]

Podcasts or talk shows are their biggest growth driver.

[A]

Yeah, I just don't, I don't know if it's. To me it doesn't feel like that's a targeted initiative from YouTube as much as people migrating to that platform. 100% is they're not pouring money into exclusive licenses with podcasters or anything.

[B]

No, no.

[A]

But they're just go there directly.

[B]

Well that's, I mean that's not their business model but they are catering and building tons of tools and I'm sure investing millions, hundreds of millions of dollars in the back end stuff for that you and we have a comma here mentions YouTube Music YouTube Premium. YouTube Music has the podcast connections what too? I mean you've seen all about podcasts at pretty much every event or every speech or every talk they give. It seems to be their number one thing along with sports and stuff on the tv.

[A]

Yeah, I, I see it a lot more the other way. I, I see it a lot more where every podcast event talks about how everyone needs to be on YouTube. Every people are just going there because YouTube has the audience. It doesn't seem like YouTube's gonna receive. No matter which way media heads, people will head to YouTube. I think that's just. They've got the audience. But either way, I mean with regards to Netflix, is it cheap? I could see how it works out from here, but I just to me it's a bigger business. Like it's already reached global scale. So the majority of revenue growth, or sorry, earnings growth is going to have to come from lower content costs as a percentage of revenue in price increases, mixed price mix increases, or at higher ad load. But I'd be surprised if subscriber growth was too, too high moving forward. I can't. They don't report it anymore.

[B]

I guess they don't share anymore. Yeah, the bane of fiscal AI for not giving you that chart anymore to post on the fiscal AI Twitter account. So you look at the growth drivers, they need to get I think a little bit uncomfortable where okay, one, the advertising, they hit the mark on that and it's doing well. And you could probably see that consistently scale over the next decade and probably grow faster than their underlying legacy business. And then you look at sports, which is a bit tough. They're doing some live events, some one off events, but they're definitely going into that because they see that that's a huge part of the market and they have to go after it. Even though historically the return on spend is much tougher than other areas. And then you have things like gaming and then you have things like live talk shows and all these other things that are maybe not within Netflix's core wheelhouse that they're trying to add on to convince people to stay, get churn rates down and increase that pricing power. Yeah, I wouldn't buy here. It's not my favorite. I think the charts of YouTube taking time spent from Netflix and them basically taking market share and Netflix is decreasing within streaming time spent. I think that's something investors in Netflix need to worry about. I'm sure they're tracking this, but it would be a big concern for me if that continues. Where's your pricing power?

[A]

Yeah, I mean they have done a phenomenal job over the years. Every like big crossroads they've come to, they've done a pretty dang good job like moving to sort of a new medium. Not medium, but evolving the platform. So you said it. Advertising for the longest time they were ardently against it and they rolled it out In a really successful way. And they've also done it in a way where as long as they have good content, I think you have pricing power on the ad free plan because people will want to get away from ads. And then on the flip side, the password sharing crackdown seems to have been a success. I remember a lot of people being very worried about that. It made all the sense of the world. And now you see a whole lot of other platforms following suit.

[B]

There's a lot of takes on Netflix. People have either very bullish or very bearish. Takes a lot. I remember when they entered gaming and people thought that that was going to disrupt Xbox and PlayStation and it hasn't. But that doesn't mean that, you know, they probably had negative. They probably lost money on that initiative. But hey, it's fun to test out. Maybe. Maybe it has a future for them.

[A]

Yeah, we got some question here. Thoughts on the Warner Brothers discovery buyout to create a scaled competitor with Netflix. Would that degrade Netflix's pricing power or just create a rational duopoly? I think people subscribe to Netflix for the ongoing content, not the old catalog for the most part. Like, I hold my Netflix subscription not because they have a whole bunch of old content that I gotta get to, but because they constantly release things that I want to watch.

[B]

I've never had good thoughts here. I only have it now because T Mobile gives it for free. I wouldn't have it. I don't know. It's the one I think the duopoly is. The duopoly is YouTube and Netflix, not Warner Brothers.

[A]

Yeah, no. Yeah.

[B]

It's a new world.

[A]

I would much rather like if you were betting on one of the platforms independently. I think I would feel more comfortable owning YouTube. I. I think the upside for that business is higher. But obviously you can't buy them independently. It still remains a phenomenal business. I just think it's very. I think it's closer to maturity than people maybe give it credit for.

[B]

Maybe, maybe. But Netflix has been doubted time and time again. I'm so scared of doubting them because of their track record. It's like doubting Amazon. They just keep chugging along, chugging along and finding new growth opportunities. All right, let's get to your. What you put into a lot of research here. It's six hidden suppliers powering the AI. Boom. Why did you want to do this? What are the criteria? And then just get into your list.

[A]

The reason I wanted to do this was because I hear so much talk. We talk about it seemingly every single Week on this Power hour where we talk about the boom in AI infrastructure spending and you see it every single quarter. Mark Zuckerberg says we're going to build data centers the size of Manhattan people. You're seeing it in the capex spend from hyperscalers and it's all going towards these massive data centers.

[B]

And we're recording before these people, the, these companies have conference calls this afternoon. We had some listeners here say that they wanted us to predict whether capex is going to grow or decline. Maybe that'll be a good tease to talk about these six companies. This, this very, this is almost a coin flip, I would say. But Ryan, what do you think the aggregate CapEx guide, is it going to go up in 26? Are they going to guide for up in 2025? Just in general, do you think it's going up compared to 2025, excluding Oracle? Because they're, they're crazy.

[A]

Sorry, do I think capex will be higher in 2026 for the big, for.

[B]

The big four, Microsoft Meta, Amazon Alphabet?

[A]

Yes, I think it will be higher, but I don't, I don't know what the tone will be. And if they raise guidance from their already raised guidance.

[B]

So the second derivative is going to slow down there. Yeah. So we don't know, we can't predict what the stock is going to react on, but I'd agree. I think it's almost certain, given what they're saying, that CapEx is going to be higher. I mean, look at that. Microsoft open AI deal. $250 billion. That's, that's quite sizable.

[A]

Yeah. And so I guess the, the goal here was this is sort of the modern gold rush and there will be beneficiaries. We're already seeing it. Obviously there will be beneficiaries that are not the hyperscalers there will be. To use the picks and shovels analogy, and for anyone that's unfamiliar, sometimes we, I think we spit out that analogy and people don't know what it means. In the, during the sort of California gold rush, people moving out west to go strike gold, find gold, there were a whole bunch of prospectors that went out there, wanted to get rich. A lot of them did not get rich, but the companies or the merchants that made the most money were the people selling the critical supplies for all the people going out to find gold. That, that was the quote, unquote, picks and shovels providers. So who are the picks and shovels providers for data center spending? I found six. There's probably more I might have missed Some I before we get into these, I'll say the cat's kind of out of the bag on a lot of these. It's shown up in the results, it's shown up in guidance. The stocks are, have all done very well for each of these, but I'm going to go through them. The first one for me is Amphenol. They we've talked about them before for a one of the largest manufacturing businesses in the world. I think a surprising amount of people don't pay attention to them. They make like point to point cables, power distributors, sensors. It is sort of a boring business. But they are reporting pretty much their highest revenue growth in two decades right now despite being like substantially bigger than they were in the past. 53% revenue growth. This is one of the largest manufacturing businesses in the world because data centers are turning to them during these build outs. They need Amphenol and yeah, it's just seen a massive acceleration. So Amphenol is one of the critical suppliers. The second one here, this might be the one I'm most attracted to. And I talked to John Rotanti about this. He said this company is the first call. As soon as a hyperscaler or whatever decides we're going to make a new data center. They call Quanta Services. It's one of the first companies they call. So they are one of the largest designers and installers of electric transmission and distribution lines. So basically there's been a big strain on the electric grid from this. We've seen all the commentary about how energy prices are going up for people because data centers are consuming so much power. And in order to get power to this data centers they need quanta. So they will literally call. They will call quanta, plan it out, map it out, see if it's feasible to have a data center in certain locations, see what it's going to require. Here's a quote from Qanta CEO. He says if we're going to lead the country in the world, you have to have power. And we are right in the middle of the infrastructure structure. Brett, maybe you can pull up some of the charts from these companies because you're going to see pretty much every single one. You're going to see an acceleration in revenue over the last 12 months.

[B]

I was going to ask revenue. All right.

[A]

I think Quanta has like an absurd backlog figure too if I'm not mistaken. But yeah, anyway, Quanta is transmission lines, Amphenol is cables and sensors. And then the third one here, admittedly I don't know, I'm going to use some terms here that I don't know if I know very well, but it's Arista Networks. They make high speed switches and routers as well as specialized operating software that connects servers and storage system within data centers. So people call them apparently the toll booth of AI. Since basically like so much data is moving that it has to be. It has to be fast, it has to be reliable and it needs to have super low latency. None of that would be possible if it weren't for Arista Networks. Yeah, you're showing. What do you got there? Quantum.

[B]

It's quanta. It's quantum. Yeah, I'm moving to, I'm moving on for you to Arista next.

[A]

It's and, and I actually, I think the insider ownership on Arista Networks is incredible. Let's see if I can pull this up. I think this is the one where the founder still owns like 90% of the company. Let me double check this. I know this doesn't make for great audio. No, okay. I got this wrong. I think I was thinking of a different company.

[B]

Someone else. Hey, look at, look at this 2012-2025 estimate. But I mean we're almost there. Revenue has gone from 193 million to close to 9 billion and growing. A 37, 34% annual revenue, annual growth rate. It's quite impressive.

[A]

Yeah. And it seems like every one of the companies on this list has had a pretty good go of it lately. But yeah, Arista, it's been a decade of just higher and higher demand for their switches and routers and operating system. The last three here, this one is Veritiv Holdings. They are basically powering and cooling solutions. So with, with the data centers, the one thing you see pop up time and time again is that there's a whole bunch of cooling providers. So Veritiv's not the only one. But because GPUs require a lot of power, they generate a lot of heat, that heat needs Cooling solutions. And Veritiv is one of the leading providers. I think they have like a. Let's see if I can find it. Liquid cooling, some sort of liquid cooling technology that has been in high demand as of late. Also fairly recent to public markets, if I'm not mistaken. Which is kind of surprising given how big the business is already. But there's been, there's been a couple things with all of these businesses. They have, not only have they seen massive demand, but they've also seen significant operating leverage because there is so much demand that they're raising Prices for, to provide their services. And it's just been, I'm sure that there's going to be a pullback at some point on spending from these providers. And I imagine with most of these companies there's a lot of upfront revenue. There's probably some maintenance revenue as well because you obviously have to maintain the systems, the transmission lines, whatever, if you're any of these companies. But there is probably a lot recognized up front.

[B]

I'm gonna be honest, I'd be so scared to buy any of these. So scared.

[A]

Yeah.

[B]

The bot revenue could be down 90% if, if people are right that it's like the telecom bubble. Yeah.

[A]

I mean these data centers have to be maintained. So if you're, if you're, if you have a big services component to your business, like I think Quanta Services specifically has a huge portion of their revenue. That's, I think they're going to be in a good position and a lot of them.

[B]

What if they mothball the data centers?

[A]

What do you mean?

[B]

Like they're, like, they don't get used. They shut them down.

[A]

I think at some point someone's going to come along and pick them up. It would be, I mean, you think. I don't think it's going to be as bad as telecom. Like that was what, 15 years of overbuilding. I just, I have doubts that it's 15 years overbuilt already.

[B]

Wow. Maybe not there yet. Maybe, maybe by the end of next year we have the trillions in dollars spent you mentioned Vertiv. I think they were actually a spec because the price was at $10 for a long time. If we look at their stock chart, it looks like they went public during the SPAC boom. $10 SPAC merger price and they're at 200 today. So it's been a, I know the math is not exact there, but about a 20 bagger in five years. Pretty darn good.

[A]

Yeah. All right, last two here. This one very well known. Micron. So here's what I understand. GPUs also require a memory system and they require memory chips. Apparently they require five to six times more dram, which is moving memory. They require five to six times more DRAM capacity than traditional servers. So Micron, one of the largest DRAM chip providers in the world, them and SK Hynix, I think are the two biggest, maybe Samsung as well. They have seen a huge surge in DRAM demand. So here's a quick quote from their CEO. It says our HBM performance has been strong and robust demand tight DRAM supply and discipline execution have significantly strengthened the profitability of the rest of our DRAM portfolio.

[B]

This is one for people that don't know is dynamic random access memory. So dynamic ram. I wanted to look that up. It's essentially for, for part of the. We're not experts on this but it's you know, similar to the RAM on your own computer. But you know, they're selling it in data centers.

[A]

Yeah, from what I. There's NAND and dram. One of them is considered moving memory and DRAM is considered sort of the, the memory chips needed for GPUs. This is probably the one I'd be the most concerned about because if GPU demand declines, they are basically a byproduct or they are a layer on top of that, which would also mean demand declines for Micron unless I am totally off on that. But they've seen a huge surge in moving memory chips because of the growth of data centers and the need for GPUs.

[B]

They've historically been a very cyclical stock. A lot of drawdowns, a lot of tough periods, but they're one of the only players left.

[A]

Yeah, last one here. This one actually interests me as well. Comfort Systems provides mechanical, electrical and plumbing contracting services. In other words, they are the company that makes the industrial buildings actually livable. So more of a construction company.

[B]

Yeah.

[A]

Yes. I assume there's some like services element to it but if you can, you know, if you're the plumbers of data centers. But yeah, basically they are sort of a construction provider and then the, the big three hyperscalers are their three largest companies by far.

[B]

They have had a. They're another 20 bag over five years. 88% total return CAGRADE over the last five years. Not bad. If you could find comfort systems five years ago.

[A]

It's. So here's the issue is I don't feel really comfortable owning any of these given how much of a jump there's been in demand. But, and this doesn't matter now, but we talked about this on our show yesterday, the ama and that's going to come out later. These businesses will be better off, most likely, unless they're investing into it and they ruin them, sort of create their own demise. These businesses will be better off 20 years from now because of the AI boom. They're going to have a whole bunch of cash. They're able to reinvest it. It's to me that's like the Amazons of. Well, maybe not the Amazon but whoever the picks and shovels providers were during the dot com era. There's. There is for sure. Well maybe not for sure. It's likely that there will be a slowdown in demand, but that doesn't kill them. Like if the AI boom never happened, I think they're, they would be in a worse position than having all this demand come through.

[B]

All right folks, before we move on we need to tell you where we get our financial data. Fiscal AI Fiscal AI is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts on our podcast and you'll see it in our newsletter. This is our one stop shop for stock research. They've got up to 20 years of financial data on all companies globally including company specific segment and KPI data. That means Amazon AWS revenue, SoFi's total members, Google's paid clicks growth and literally millions of more data points. They've also got earnings call transcripts, ownership data, company specific research reports and much more. If you want complete financial data at your fingertips then you need to check out fiscal AI. And if you use our link fiscal AI chitchat, you will get 15% off any paid plan. Again, that is fiscal AI chitchat. The link will be in the show notes.

[A]

Do any of these excite you?

[B]

I might say being more nervous about that. I think Cisco either is barely or below its.com price which is the company you are describing. And I would remember when we studying studied Peter lynch and he said if a company starts accelerating its revenue growth and growing at extreme rates it can be difficult because you need to have a management team that can deal with this and it can be quite hard for a business that's growing quickly. You can get less efficient, you stop worrying about things. And we've seen this with Silicon Valley companies all the time. I much rather have a business. What's Munger's quote? I just hate to be the quote guy but Munger said I want to own a business that never gets overvalued. Just steady eddy growth consistency over and over and over. There could be major downsides to this. What if they lever up? What if they have just insane inefficiencies? What if they again do 15 years of demand in five and then you have nothing to do for 10 years. Do you fire everyone that you hired because you have twice the employees now? I mean what, what happens?

[A]

I think this is businesses, they had businesses prior to the data center explosion. You look at Arista Networks. It's not like this is a business that just emerged from the data center boom.

[B]

Like, I know, but what, are you going to fire 70% of your employees?

[A]

Probably not.

[B]

Okay, then you're going to be extremely unprofitable. If the bottom falls out.

[A]

I think, I think there's more recurring revenue to some of these businesses than, well, maybe not all of them, but like Quanta, Arista Networks, they. I think they both break out a services line that's meaningful to the business. Let's look at Arista Networks. If you, if they have a large services component.

[B]

Yeah, that's definitely something to look at. Is like, all right, what if this is recurring and what if this is one time spend? Like if you look at the companies such as Super Microcomputer, you go, okay, well, they're just. That's a tough one. That's. They might be the quintessential one that I'm kind of describing here. If the bottom falls out, they could be in real trouble.

[A]

Yeah. I'm not seeing how much is from services for Quanta, unfortunately, but we'll see if I can. I mean, services is in the name. So I've heard it's largely services businesses. Largely services business. But yeah, I do think you're right. The demand is likely to fall here and they are pricing it. It seems like the investment community is pricing in all of the commentary from the hyperscalers that we're going to be building, $7 trillion or whatever that estimates are for the next up to 2030. And if that happens. Yeah, there's going to be plenty of cash flow for these businesses.

[B]

Okay, let's talk Visa. Ryan, you ready for some macro talk?

[A]

Sure.

[B]

All right, so they reported yesterday and I like looking at them just in reality for consumer spending, a little bit for business spending. But if you look at North America and global just consumer spending, they are going to be, since they do over $15 trillion in payment volume, they can be a fantastic indicator with the government shutdown and the loss of some of the statistics stuff for inflation. Have you seen this, ryan, that like 35% of inflation inputs now are just pure estimate. That's another rabbit hole that we don't have time to go down on investing power. But looking at Visa might be a better indicator of consumer spending and consumer health. And then combine that with banks and you can kind of get a good look at things. So let's go through the numbers. Net revenue up 12% year over year. Payments volume grew 9% year over year. For reference, Amex grew 8%. So about the same. Probably depends on what decimal you're Using I'm sure it's fairly similar. Total cards grew 6% to 4.9 billion. Now some people have multiple cards. So again that's not 4.9 billion people for the full year which this is the end of their fiscal year. 50% net income margin, $18 billion spent on repurchases this year, 2.6% of the current market cap is this. One people a lot of people are asking about the thoughts on consumer health in relation to these layoffs. And two, is this the perfect stock to buy when inevitably not saying it's going to happen tomorrow but at some point the market crashes.

[A]

Yeah, maybe just because it's inflation protected and it's very profitable. But I still don't love the valuation on Visa if unless I haven't checked it in a while. So I'm checking it right now. Let's see, EV to EBIT I think is a fair multiple for them.

[B]

Yeah, or PE 28 times.

[A]

You're probably getting 10% EPS growth would be my guess.

[B]

That's what they're about, growing. Yeah, I think they had some one time stuff but yeah, today look, not buying especially.

[A]

It just bores me. It just bores me.

[B]

Yeah.

[A]

Macro indicator, sure. Yes, yes. And it's good business but I just.

[B]

Like worrying about the best. One of the best competitive advantages ever.

[A]

The size of it.

[B]

Well like you can payment volume. Why I put the repurchase number in there is if you can get them at a cheap enough price, it can be similar to the Amex in 2023 where you have such a good buyback yield that even if growth isn't as impressive because of their size, hey, that can be a phenomenal return. Never sell stock for your portfolio.

[A]

Yeah, I mean I think it has been for pretty much everyone. It has, if I'm not mistaken, actually underperformed the market. Going to double check this right now.

[B]

Maybe five years could be true.

[A]

Total return last five years S&P 500 which granted the S&P 500 has had a very good five years is up 123%. Visa is up 93%. My thing is like why would I own Visa instead of American Express? I like American Express better.

[B]

I agree, I agree. I mean both aren't too cheap today at similar valuations I'd maybe lean Visa just because they've been the better grower and they're more efficient. But look, they're not at the same price. Amex is cheaper, the gap is narrowed. I think both of them are one that if the price gets down to a reasonable multiple. Let's say 10 to 15 times for Amex, maybe 15 to 20 for Visa. Those are ones I would just buy without thinking in a recession.

[A]

See, that's my issue is okay, yes, all stocks are down. Whatever. Like let's say all stocks drop 50%. I would love to buy Visa at. I would feel very, very comfortable and it would be an easy decision to buy Visa in a massive drawdown. My thing is that like it's buying Visa for me is like admitting defeat on active investing.

[B]

It's like, no. What that's.

[A]

Yes.

[B]

That's not a good way to put.

[A]

It because the cat's out of the bag. This is the biggest network effect business in the world. Everyone knows it.

[B]

I.

[A]

Other than Meta.

[B]

I. Well, it's got a better network effect than Meta now since it's not social media anymore. But I disagree. I disagree. I disagree. It's not giving up on active investing. It's just that seems to be a bit, that seems to be a bit of a stretch. I get where you're coming from, but Ryan, you, Alphabet and Amazon.

[A]

Yes, but I bought, like I said, I didn't buy them at 29 times earnings. The. If this got cut, if this got cut in half, I would feel comfortable buying it. Yes, very much so. But buying an already obviously good business at a 2 1/2% buyback yield when Treasuries are at 4 or whatever doesn't like that's not that attractive to me. And it's.

[B]

No, but you gotta keep the watch list up. Yeah, yeah. Keep track on the business.

[A]

Yes, yeah, yeah, no, I, I'm on board with the business being high quality but I, it feels to me like anyone buying here is doing so like on autopilot. Like there's probably a lot of index funds that own this, that just buy it blindly because oh, it's a good business, whatever. It's been a good business for 30 years. I'm just gonna buy it. I don't care about the price.

[B]

I agree with that. Yeah.

[A]

That to me it's like I might as well index.

[B]

I mean I'm not. Yeah, yeah. I'm not thinking of buying whatsoever at these prices. Let's talk about Microsoft and OpenAI. We have to. Since Microsoft shot up to on this news, I think Nvidia went through 5 trillion. Microsoft went through $4 trillion. I'll maybe as a quick shout out, the two founders of Microsoft and Nvidia, the two largest companies in the world. Do you know what schools they went to, Ryan? At Least one of the co founders of Microsoft one our alma mater, Washington State. And do you know where Jensen Wong graduated from an undergrad? Oregon State University. Shout out to PAC 12, huh? Yeah. Almost $10 trillion in market value from the good old Pacific Northwest. Well, let's talk about Microsoft and OpenAI. They OpenAI officially spun out its for profit arm where it has this. I was confused at first why they're doing this, but I guess they want to funnel money, some, some money from the business to a nonprofit, which I guess is fine if you just have a separate stock. They just have a ownership stake in the for profit corporation. So it's non profit. Holds an equity stake worth $130 billion and that is a 26% stake in the company. It's worth 4,500 billion dollars 47% is held by current former employees and other investors. So those employees are worth quite a bit of money. Microsoft holds a stake valued at $135 billion. Good on Microsoft. I mean it's been probably a 10 beggar for them. Quote, the OpenAI foundation will make an initial $25 billion commitment to work to accelerate health breakthroughs and technical solutions to AI resilience. AGI now has to be verified, but an independent expert panel because that's part of the contract with Microsoft utilizing OpenAI's tools. That's also again, you know, it depends who's defining AGI. Here's another one that's important. Microsoft has IP rights for both models and products extended through 2032 and IP rights now for the consumer hardware that OpenAI is developing. Lastly, OpenAI has contracted to purchase an incremental $250 billion of Azure services. Where it's going to get this money, I'm not sure, but that's not Microsoft's issue. Would you invest in the OpenAI nonprofit or excuse me, for profit arm, not the nonprofit. I would probably Microsoft stock deserve this bump. Maybe I can answer first on the Microsoft part. They seem to be crushing it with this deal. It's kind of a win win situation for them. They huge stake, huge Azure commitments, all these IP rights. They're just doing great with this OpenAI relationship.

[A]

Yeah, it seems to benefit them in plenty of different directions. And having the, I don't know, having the tie up here is just a nice way of basically not having to build this internally and not having to front the expenses like they, they're kind of being subsidized by venture capital in a way. Like if they have. If VCs are pouring money into OpenAI and a lot of that spend just goes to Azure services or a lot of the innovation that OpenAI does on its models benefits Microsoft. They're one of the first customers to benefit type of thing. It's. It. It seems like a nice position to be in for Microsoft.

[B]

Okay. I have other ones, but I want to finish on this. OpenAI plans to IPO by 2027. And they said that. And I don't know if this is going to make you excited or nervous. They said that with this reformation, they can now finally be aggressive with fundraising. That's what essentially what they were saying. Yeah. So it's going to get worse.

[A]

Okay, maybe we can timestamp this. I bet, I bet they do not go public by 2027. At some point it's going to be like the we work situation. Obviously there's a little more validity to this business model than we work. But it was all hyped up. Everyone thought it was going to be a huge IPO market soured on their losses. I think OpenAI is going to release their S1 and then they're going to delay their IPO because people.

[B]

We're not even released as one. Yeah. Okay, hot take. I'll. Yeah. Timestamp this. Someone, if they go public, someone can come back and remind Ryan on this because we'll probably forget. Forget about this moment.

[A]

Yeah, yeah. The. I think whoever is involved in the latest rounds of OpenAI's funding will lose a ton of money. Private funding, it reminds me of. Or at least it'll be dead water. But remember, like, Uber had that massive V private round before going public at a huge valuation with SoftBank.

[B]

Yeah.

[A]

It was underwater for like five years. Maybe that's what VCs expect. But in a late round investment. But it's. I don't know, I just. It feels like this is bound to flop. There's so much hype right now. And as soon as that S1 comes out, I think people are going to see whatever, $20 billion in revenue and then you're like, wait, 20? And keep in mind, the forward guidance for this year, I think was 13 billion in revenue for OpenAI. Let's say they're at 20 billion next year, maybe more. The valuations on these things are already absurd. If that's the sales in whatever.

[B]

However, yeah, they have $500 billion market value. Look, the initial investors, the initial outside investors, they've been diluted down to like 1% or less, which is still billions of dollars. But it reminded me of the social network situation. Hey, we got some new investors coming on there. Microsoft and SoftBank. We need a lot more money and you know they're gonna. Yeah, I mean they're winning away capital intensive business. I guess that's what happens.

[A]

I'm sure they have pro rata like a lot of these. I think most funding rounds you get like pro rata rights or whatever. So you can invest in all the following ones to like top off your current stake.

[B]

These funds probably just didn't have the money. They just Microsoft, they needed $10 billion so.

[A]

Exactly. But when you're raising 10 billion it's like oh, okay, topping off our stake is not an option here. But at the same time your stake is smaller of a much larger pie.

[B]

Yep. All right, we have dealer's choice. Ryan, DoorDash short report or Amazon and UPS layoffs. What do you want to talk about?

[A]

Well, I was going to say PayPal and OpenAI's partnership but I'm tired of talking about OpenAI. So let's do Amazon and UPS layoffs.

[B]

All right. So these happen both this week. I don't feels like a bit of a coincidence that it's two of the biggest delivery companies for consumer spending. That would maybe make me nervous about retail spending. Although do we invest on this type of stuff? No, we're long term investors. We have a multi year time horizon. Amazon is laying off 30,000 people in corporate. According to my sources, aka friends at the company, they already laid out half this week and despite this, they're hiring a ton for this might not be music to your ears, Ryan. In things like Kuiper and other places that are their big tech research places, they're accelerating hiring for the science projects which may or may not work out. UPS is laying off 14,000 in corporate and 34,000 operational roles on top of this is much smaller. Target is taking out 1800 corporate roles. Is this news or noise? With consumer spending, obviously you don't celebrate layoffs but thinking objectively from an investment perspective. Any thoughts here?

[A]

Yeah, I really don't know what to think because on the one hand this could be. I remember when Amazon announced their layoffs in 2022. Everyone was like this is a sign. Demand is screwed. And it ended up just being like a contraction that was needed. Yeah, I could see this being more of the same but at the same time going it feels weird to lay off 30,000 corporate employees right before the busiest, the supposed busiest time of the year for Amazon. So I don't know, it makes me feel like this is sort of a bad Indicator but I'm not against Amazon prioritizing their research projects quote unquote. I actually think Kuiper could be a promising business for them. It's going to be super capital intensive but if, if they are able to. If they're able to emulate or copy SpaceX and Starlink.

[B]

Got to get it out there though. They just seem to be slow versus.

[A]

The first couple launches. Right. Or first launch but it's, it's.

[B]

We'll see. It does have potential for sure.

[A]

Yeah. And those ones. It's also beneficial to their own business like having whatever Internet connection and remote areas for deliveries or what I'm sure there's ways that it can benefit themselves beyond actually offering it to customers but I would be worried like I guess not worried but I think this is a bad sign for the E commerce side going into Q4, going into the Christmas season to lay off 30,000 people.

[B]

Maybe ups 30,000 operational people which is non corporate. Yeah.

[A]

Yeah. And it's not like I saw people. Some people saying it's like no it's. They're just being replaced by the robots. Like it's all automation. This is not, this is corporate. This is not warehouse employees and these are supplemental roles to like a lot of those corporate employees are probably tied I imagine to the E commerce business. Whether it's management, managing teams at those warehouses, whatever it is. I assume a lot of them are tied to the E Commerce side. So yeah, I guess call me a little bit worried.

[B]

Yeah, I'll say. Yeah. What should I say? Not cautiously optimistic, cautiously pessimistic. I think I'll lean that if we're gonna go corporate speak. Slight, slight nervous on this one. We'll see what the numbers play out as but we'll. I don't know may. Maybe this just means Amazon's profit margins are going to keep expanding but the timing on this feels suspect.

[A]

Did they say whether or not this was specific to a certain.

[B]

No, it was widespread and they said that there's just. They still to have too many middle managers.

[A]

I'm okay with that.

[B]

And from what I've heard they over hire.

[A]

That there's. Yeah, there's a little. A few too many people just managing people.

[B]

And that's a great way to end the episode. All right Ryan, anything before we get out of here? I guess we want a few minutes long.

[A]

No, I think that's gonna do it. We didn't get to Philip Morris earnings. Maybe we can go back and talk about that in a week or two but hopefully people enjoyed the episode. Good luck to everyone this earnings season. May the odds be in your favor.

[B]

Yeah, all right. That's a, that's a good way to end it. As a disclosure, we are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them at held them in the past May and may buy, sell or hold them in the future. Thank you everyone for tuning in. We typically do these live on Thursdays at 5pm Eastern Time next week. We are not doing anything live. We have pre recorded the Ask Us Anything episode that will be coming out Friday morning. So look out for that on the YouTube page, Spotify or Apple Podcast or wherever you get your podcast. Thank you everyone for tuning in once again and we'll see you next time.