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- [00:00]
A
Foreign. Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode. Welcome into the Chit Chat Stocks podcast, a podcast to help you find your next great investment. My name is Brett Schaefer and as always, joined by Ryan Henderson. A little behind the scenes, we're trying a new recording strategy for anyone watching the video. I'm actually using my phone for the camera. Hopefully when we do the power hours, my video will be much better. Now we have. We don't need to go through all the details, but let's just say we may have some grievances against intel and their lack of capabilities in 2025.
- [01:06]
B
For listeners here, let me just say Brett has had about a month of technical difficulties and we could not figure out what the problem was, lo and behold, and he went to Argentina. So there was a whole bunch of questions raised primarily by me of the Argentine Internet speed. No, it is good old Intel's fault and.
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A
Exactly, exactly.
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B
But it solved.
- [01:34]
A
I have a new computer and we wouldn't have thought it would have been the processing power on that. It kind of was, which is unfortunate, but we have it solved. The film might even be a better filming technique. We're talking today. Let's get into the podcast. We're going through six stocks for 2026. Essentially, Ryan and I are picking three stocks either that we own today on the watch list, potential short candidates. We have a mix and a collective mix of all sorts of companies that we generally like for 2026. We'll go back and forth. We'll choose some of these. I think we had. We picked three stocks each. We're gonna go through about 10 minutes each to propose why it should either be on investors radars whether we think it's going to be a buy at Some point in 2026, whether we think it's a buy. Now, it could be something that is not necessarily cheap today, but there could be some development out there that we think could. Okay, hey, it might dip 20% on the next earnings report if something like that happens. We might step in and make some purchases here. I'll let Ryan talk. But first, some housekeeping items. Again, as always, give us a review on Apple or Spotify or wherever and subscribe to the show on YouTube. I will tease that we have the emerging MO stock research service. Go subscribe to that in the Show Notes. I will have my best buys for 2026. Maybe some stocks that we talk about on this podcast, but some more on that newsletter that'll be coming out here shortly, by around the first week of January, the last week of December, depending on what the just how it works out there. And then lastly, this is very important for any listener of the podcast. This is something you can do entirely for free. We are doing a 2026 stock market competition along with our picks on this episode. It's pretty easy. All you're going to have to do is again sign up for the free tier of the Emerging Votes Stock Research service. The link is directly in the Show Notes of this episode. There is going to be a chat in the Substack app. I think you have to download the app to use it. Join the chat. There will be a thread that I will start that essentially allows anyone to make a pick. You can make one pick on there. I'll put any rules down. It's going to be one stock starting January 1st. Whoever can get the best stock is going to win some sort of prize. We haven't decided yet what it's going to be, but I think chit chat, stocks, merch, maybe in any ways you're at least going to have bragging rights, potentially some other prizes down there. So go join. It'll be fun. I think it'll spark some really, really fun discussion. But we're going along in the intro here, Ryan, maybe take through any of the rules I'm missing and we can have you go first. What's your first stock on your six stocks to buy for 2026?
- [04:21]
B
No, I think you covered the intro well. A little tease here for listeners. There is a short on this list as well, which I don't think we've ever actually done an episode where that was a top investment decision from us and said so publicly. So I'm going to tease it there, but I'll leave it at that. My first company that we're going to be talking about today is a stock I've been buying recently. It is Airbnb. Airbnb has nearly 10 million listings on its platform, and I would somewhat controversially argue that Airbnb is a monopoly, at least in the United States. A lot of people love to hate Airbnb and there seems to be a general trend among I don't know if it's the investment community or people that.
- [05:19]
A
Have maybe it's ages. It's like a boomer millennial thing. Yeah.
- [05:23]
B
Someone has a bad Airbnb experience and then they become bearish about the stock. It's very common. It's like, well, you know, you can't control the experience. Yes, that, that is the downsides potentially of a marketplace like it is not a hotel. But we're going to go through its growth versus the major hotel chains, and I think the evidence will become quite clear that it presents a better consumer value proposition. But they have truly carved out a market of their own in the United States. And the reason I would call them a monopoly is that roughly half of Airbnb's listings, I think more in the United States, are exclusive to the Airbnb platform. If you go to Booking holdings, most of the listings on bookings are listed everywhere, and not everywhere, but only 17%, I think, according to a quick Gemini search, are. Are exclusive on bookings. So they aren't listed on any other platforms. So they have very unique supply. And ultimately, I think that's what's going to drive the business in the long run. And I mentioned it, but they've carved. They have carved out a market in alternative accommodations here in the United States. And I can't see why the growing demand for alternative accommodations that we've seen over the last decade would stop anytime soon. So to put some numbers on it, and I put this might be one of my favorite charts, honestly, that I've ever made on fiscal. It is a comparison of Airbnb versus the three major hotel chains, Marriott, Hyatt and Hilton. Brett's sharing the screen here, but it's. In 2017, Airbnb was generating $2.6 billion in revenue. That was less than Marriott. That was less than Hyatt. That was less than Hilton. All three of the major hotel chains were generating more revenue than Airbnb in 2017. Today, Airbnb is generating 11.1 billion. I actually think it's higher. That was the 2024 figure, which is almost more than all three of the hotel chains combined. So they have. This is like streaming versus linear tv. They have truly, I think, created a category of their own.
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A
I help out a lot. I got a lot of GPV coming, coming to them as a. I mean, just think if you want to. It's not for everyone, but if you want to work and travel, Airbnbs are significantly better. Now, is it better for every vacation? No, but it is better for a growing amount of vacations, and maybe they can incrementally make it better for almost every vacation over the next decade. Or two.
- [08:13]
B
Yeah. I mean, what was like, if you look as a consumer, and I know some people might not agree with this, maybe they do it differently. Maybe they've got so many hotel points they're stuck and they choose just their own hotel. But most people, especially people with families or people that are going somewhere with friends, they are checking Airbnb. They're checking Airbnb to see if they can find an accommodation, depending on where they're going. And probably that has either completely replaced hotels in some cases, or they're at least comping it against hotels. And if it's a stay longer than a week, I would bet that you're almost exclusively looking on Airbnb or VRBO or booking holdings in other countries. But in the United States, Airbnb has a very unique supply. So I really like Airbnb. The Airbnb model, I think it's unique. I think there's a wide and expanding moat. More than 50% of the revenue also comes from outside of North America, and that figure should continue to climb. I don't think they've necessarily hit saturation here in the United States, but you're going to see much quicker listings growth from their international markets, Europe, Asia, South America as well. New customers. And then the thing I like about this model is, and Brett, maybe there's a particular on whether or not I'm using this term correctly here, but this is a really powerful network effect, in my opinion. And maybe it's powerful marketplace, whatever you want to call it.
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A
I think in this case, they actually do have a network effect, because you have to ask the question, is every incremental host on the platform, does that make the experience better for every other 1 incremental host and 2 incremental customer on the other side? And I think that's true.
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B
Yeah. I don't know if, like, more hosts makes the platform better for other hosts, but it certainly makes it better for people looking for stays. And every time someone else, someone new, looks for a stay, it's makes the platform better for hosts. So, yes, they have both sides of the marketplace growing and both benefit each other. That, to me, is very powerful. Right now, they're generating 23% operating margins, despite reinvesting a lot at the moment in some what I would call speculative initiatives, frankly. But I see no reason why those operating margins can't grow over time. For reference, Booking holdings has 33% operating margins, and Airbnb generates a much higher percentage of their bookings directly through the app. Instead of paying for ads on Google So in theory, Airbnb should be able to have higher operating margins than booking, not just matching their level as they scale. My projection is that they can grow booking volume by 12% annually over the next five years. That might be aggressive, maybe not. A lot of it hinges on the international expansion and it also sometimes depends on travel demand. Sometimes you see a slowdown. But I think for the most part, I suspect 10 to 12% bookings growth is reasonable. And then I would bet that, well, maybe I shouldn't say this. They have the potential for revenue growth to outpace bookings growth if they start to implement ads. And there's other things they can do as well that they can drive value beyond just booking fees. But if they start to implement sponsored listings on the platform, that's going to be just cherries on top when it comes to my estimates. So let's assume they don't because Brian Chesky has kind of been on the fence about whether or not he would add sponsors sponsored listings to the platform. Let's say they don't. Revenue grows by 12% a year. Operating margins hit 30% in five years. Maybe that doesn't happen in five years. You can kind of mess with the numbers as you'd like. That would mean they'd be generating 6.2 billion in annual operating income. They've got a $72 billion enterprise value today, so that's just over 10 times 2030 earnings or operating income. But keep in mind they'd be printing cash over that time so they could either buy back shares, they could accumulate it on the balance sheet so the enterprise would come down. So I'm being ultra conservative there. I'm usually looking for less than 10 times 5 year out earnings. But for what I think is a very high quality business with an emerging moat. And in this case it's very easy to measure the emerging moat. Are listings growing and they talk about it frequently on conference calls. If listings are growing, the moat is widening, in my opinion. I'm willing to pay a little extra and that's the case. And I'm very comfortable owning it here.
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A
I do like you using the term emerging moats the Ryan because it is one that I'm going to be regularly covering in the emerging moats universe just on that newsletter. I agree wholeheartedly here. It's one that the stock's run up a bit over the last, I think two months or so and if it dips again if we see some better pricing action, that's one that I would definitely be looking to adding to my position in 2026 or when I deposit more money into my account. Let me use that too. Unless you have anything else on Airbnb before we close out Ryan?
- [13:50]
B
No, I want to ask you if. Because I know you're. I don't know if it's a actual long or a psychological long, but it's top five holding.
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A
Five holding for me.
- [14:03]
B
If Airbnb did not work out as an investment over the next five years, why do you think that'd be the case?
- [14:10]
A
Expense management. And three things come to mind immediately. Expense management, which leads to like less just cash flow conversion. True cash flow conversion that they can turn to buybacks, return to shareholders. The share count actually hasn't come down that much over the last few years, even though they plowed money into the buyback. Kind of like that to change where it's been a bit of a buyback to nowhere. The second thing is a total bust on these new services and experiences. I think it's likely not going to be a total bust, but I could see it being underwhelming. That's not what I'm too concerned about. What I think I'm really concerned about is what we'd maybe call tepid growth, where you outline 12% growth. I think that's reasonable. I think that is something they can hit. But if it's 5%, we're probably not going to get a very good return. And then if in the short run, I think clearly if there's a travel recession, this is a discretionary company and they will get hit more so in the temporarily that could impact the business. Honestly over the long term, I think the downside for this type of business since it has such a wide moat is more of like it kind of maybe underperforms the market treads water which really given the valuation today, it makes me comfortable taking it as a larger position in the portfolio.
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B
Yeah, I think those are all fair risks. What is your number one stock? I'm looking at it now. It's an old flame of ours. You want to go through it.
- [15:46]
A
If you're a regular listener to chitchat stocks, then you know that we love investing in international stocks. And no brokerage compares to interactive brokers, otherwise known as ibkr. When it comes to international trading, you can easily trade assets worldwide using a multi currency IBKR account in 160 markets, 36 countries and 28 currencies with low fees. Compare that to your existing brokerage and its limited trading ability and high fees on foreign exchange, there truly is no comparison trade stocks, options, futures, currencies and bonds globally with IBKR's unified brokerage platform. I wouldn't use any other brokerage for my investing needs. Switch to IBKR and level up your international trading game today. If you're interested in checking them out for yourself, head over to IBKR.com Interactive Brokers is a member of SIPC. That's right, Sprouts Farmers Market, one that I recently did a write up on on the Emerging Moats newsletter. It's the first pick. Here it is coming back onto my watch list and actually I did as a full disclosure, make a investment into the stock I think either in November or earlier this month. It's not a large position, but I got back into it after many years of having it on the watch list and really it's because the Stock has fallen 55% in 2025 from high has pretty much fallen straight down this year. Trades Shares now trade back in EV to ebit, which for any listener that doesn't know that term, that's enterprise value, essentially close to market cap but netting out cash and debt divided by their earnings before interest and taxes, which is essentially operating income. And their EV to EBIT is down to 14. Now the natural organics attributes based grocery store, it still has room to grow its revenue I think at a 10% plus rate and earnings per share at a 15% plus rate over the next five years, if not 10. Now we need to dissect a few things to get to see how I get to those numbers, but we need to discuss the revenue growth opportunity. They currently have 464 locations with its highest density regions in Southern California, Arizona, Texas and Florida. They still have room to expand their store account there, but not as much as other areas around the country or places where they don't have any locations at all. They've started moving slowly up the east coast and then into the New York area. They're planning to move into the Midwest soon. I think they maybe are moving into Chicago here shortly and they have a goal of hitting a rate of 10% annual unit count growth. They've fallen short of that, but they think they're going to hit it in 2026 and which I tend to just believe because they had the real estate pipeline. It takes two to three years to actually find a location and then get a store open. I think there is likely room for at least 1,000 of these grocery stores around the country. I think it's probably more likely that saturation is closer to 2,500 locations you have to ask, okay, well there's Costco, there's Amazon, there's Walmart, there's the Kroger's of the world. Why do sprouts succeed? Because it is differentiated from the ultra cheap grocery chains, the basic goods places which you would say is a Kroger or the dozens of equivalents out there. And they also have enough of organic or healthy food focus compared to Amazon, Costco or Walmart where you get that shopper. It's not going to be the primary grocery store for everyone. It might be a secondary grocery store similar to a Trader Joe's. It is targeting around what they estimate is about 20% of the US population that is one wealthier, focused on health and focused on specific dietary needs. And what they want is that at a reasonable price. Now Sprout's comp store sales growth tells us that the rest of the revenue story. In fact if you pull up the quarterly comp store sales growth chart on fiscal AI I'd say use the link in the show notes, we'll get you a discount on any subscription there. It really tells the entire story of the stock since the pandemic. When new leadership came in, Sprouts was able to right the ship on their comp store sales growth. Both improving this while improving EBIT margin. So previously they were kind of doing heavy discounts. A lot of stuff wasn't working. But the new leadership came in, they basically got the current strategy that I outlined above and they were able to hit the their comp store sales growth goal of around 3% which is what they have outlined long term however late last year. So 2024 and early 2025 I think due to improved marketing, a little launching of this loyalty program, better treasure hunt items, maybe they're doing well in some of these new areas. Their comp store sales growth accelerated to you know, from 3 to 4% up to 12% and they said it was as high as 13% in one month. That is going to lead to very very strong stock outperformance is why the Stock went up about 10x in a couple years and just absolutely took off in late 2024. Now let's come back to earth. They comped well. So they're lapping the numbers from last year which is leading to low guidance in Q4, 2025 and the first half of 2026. Stock fell on the news. But I don't really think it hurts the long term trajectory of the brand. I think if you look at a two year comp chart they're going to be doing like 7%, 2024, 7% this year and maybe 3% in 2026. I think that's totally fine, especially when it's going to be growing in line with inflation with a stable EBIT margin. And I think there's reasons to believe they can keep building up this brand using or not using and getting decent comp store sales figures of kind of that maybe 2 to 5% over the long term. They can keep pushing the brand of organic attribute which is like vegetarian paleo, keto, that type of stuff and then healthy food at a reasonable price. They have improved their local supply chains to make distribution fresher and unique by partnering with local farmers. So that differentiates themselves from the Krogers of the world. And they've started to roll out a loyalty program to drive further growth. They are winning with the attribute based diets. The new leadership team has done a lot of the quote unquote blocking and tackling which is simple stuff to improve, shrinking, which is theft for people that don't know and then just store efficiencies with things like self checkout. So that all leads me to believe that they can do 10% plus revenue growth through these unit count expansion plus an average of a 3% comp store sales growth annually. Now when it comes to margins, if they keep growing comp store sales at the same level as their input costs, they should have stable to growing EBIT margin with increasing operating leverage on their overhead cost. But if you go back to my original thought, I believe they can get 15% plus earnings per share growth and that becomes from taking this maybe stable to slight margin 10% plus revenue growth and adding in this hefty buyback program that not all net income is going to buybacks because they need to keep reinvesting to open new stores. However, all excess cash flow is going to be used to repurchase shares unless the stock ends up working really quickly from here and they traded an unreasonable price again last 12 month free cash flow is pushing $500 million on an $8 billion market cap. Just do that yield. It's pretty good. If sprouts farmers market keep taking down its shares outstanding, we should be able to see 15% plus shareholder returns simply from its earnings per share growth with no consideration to multiple expansion. I think it's probably fair. They probably deserve to trade it 15 times at maturity right now. I think they probably deserve to trade it 20 to 30 times. You know, why am I watching this stock in 2026? Well it's one I already own and the other two stocks is one I'm short and one I'm on on my watch list. But I think if they see some bad comp store sales for the first half of 2026, that could lead to some more stock price deterioration. If the guidance is slightly weak to what they are thinking, yeah, maybe you know that that could hurt them in the near term and I'd want to maybe buy some more shares. So it's high on the watch list for now. Took another position and I definitely like the stock for this year at least. As I mentioned here, the first half might be bad, but I think once we get to the second half things will be normalized outside of the abnormal 12, 13% comp growth period.
- [24:17]
B
Yeah. I don't know what people were expecting. It seems if you think that you found a grocery store that's going to maintain 12% comp store sales and grow their store base, that should be your whole portfolio. Especially at this price.
- [24:35]
A
Right. I mean Costco does like six. Right. And they're just the best in class.
- [24:39]
B
Yeah. I think it's a unique concept. It's a simple enough business to understand. Logistically it's complex to have a massive nationwide grocery chain. But I could see how this easily works out for shareholders. I think comp sales, I agree. Should I see no reason why they couldn't be 3 to 5% when we annualize it over the next decade. If we're looking back, I could see that happening. The one area where I see them maybe underperforming is store count expansion.
- [25:19]
A
But.
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B
I'm okay with that. I would much rather they grow store count 7% or 6% and they maintain quality as opposed to growing so fast they fall forward over their skis which so far they've deferred to maintaining store quality. Part of that's because of supply chain issues. But I think I'm okay with it.
- [25:43]
A
Yeah, that's not the end of the world. I mean it's going to slow down earnings per share growth, but totally understand that sentiment. Let's go to your second stock here. It's one that you say slightly been pounding the table on. It's considered an AI loser. It's one that's turned into a bit of a battleground stock. Ryan, why don't you introduce your second company here, Adobe. Yeah.
- [26:08]
B
And one more thing on sprouts farmers market real quick. It is the opposite of Airbnb. There's. It's not consumer discretionary grocery spending is quite resilient even in tough times. So you're get even if you have a recession or a pullback, I think generally you're still going to see people go into the grocery store. But my second stock, you mentioned it, it's. It shockingly has become a battleground stock because I would argue for the better part of the last two decades, it's been considered like a bulletproof compounder. The company is Adobe right now. The narrative around Adobe reminds me, or it feels like the narrative that was surrounding Alphabet in early 2025. Maybe not as stark, but there seems to be a collective belief that Adobe will be disrupted by AI. And it primarily comes from two angles. So the first one is text to image or text to video models, making the need for video and photo editing software obsolete. Adobe's Creative software suite, there's a lot to it if you buy the whole bundle, but a big part of it is video photo editing and some of the workflows around that. So. And the second one I should say is startups, and I shouldn't even call them startups anymore. But most notably Figma and Canva putting a dent in Adobe's Creative software moat. Those are kind of the two risks. One of them is an AI risk. I would say Adobe and Fig, or Figma and Canva. That's not really an AI risk per se, because if the idea is that text to image and text to video obsoletes the need for photo editing, then Figma and Canva would be at risk as well. But let's address the first one. Basically AI obsoleting the need for video and photo editing. I think this is pretty unlikely. You can create some cool stuff with Mid Journey. I've had a Mid Journey subscription for a while and Midjourney for those that don't know, is like you type it in, it puts out the image you want. It's what if you're familiar with quarter the Transcript audio platform on mobile and I guess it's on web as well, they use Midjourney for all their creatives and they do a good job. But it's the first step. I think it gets you 90% of the way there. I think it helps for inspiration and I think it is really useful. But still the Last Mile lives on a video or photo editing tool. I could not create the final product that I wanted on midjourney. Maybe I'm bad at it, but I still had to go use photo editing software. So the last mile still remains an issue. We had this conversation a year ago and it was like AI is going to replace photo editing. But the last mile is currently the problem. We're a year forward now and last mile is still the problem. And I think it's hard to get there. And you probably witnessed this when you watch like an AI video. If you're scrolling your feed and you see an AI video on social media, the moment you perceive like there's something off, right? Like you can tell it's AI somewhat quickly. If you want to go from making people believe that it was completely manually created as a or edited, touched up and not just AI, it takes something beyond just the models themselves. The other part is I don't see this changing for enterprise customers anytime soon. Which is the majority of Adobe's customer base. Just to be clear. Adobe's customer base enterprise. Adobe's revenue base, Enterprise. There is like if you're just a solo creator and you just need something spun up quickly and it's not that controversial, you're not in a marketing department, whatever, maybe you're an admin at a high school or whatever and you want to post an animation for one of your players, you can spin that up with AI, your job's not at risk for that. If you're in the marketing department at an enterprise company, it's different. So I think they're going to be okay. And then, not to mention Adobe is partnered with most AI models, so you can use your preferred model within Firefly if you're choosing to do that. And then you've got all the workflow tools right around it. And they actually are seeing a lot of their customers adopt that. So they're kind of integrating it well, in my opinion. And then as for the second threat, figma and Canva, this is one where I don't really know what to think because I'm a Canva user, I'm a FIGMA user and I think they're both really good tools. So canva, let's take this one first. Canva is an awesome tool. It's great for small businesses, great for solopreneurs. It seems like an easier tool to adopt for someone who's maybe not used to it didn't go to marketing classes in college, whatever. Isn't used to the Adobe suite. It's kind of lower barriers to entry and that's kind of why they've won, at least on the smaller business side of things. They are now a three and a half billion dollar revenue business. So it's big. However, Adobe is still crucial within enterprises. I already mentioned this. They enterprises need the interoperability between Tools and different departments. And a company often relies on multiple Adobe products. So you see this, I saw this basic, I don't know if it was fake or not, but someone was saying his CFO came to him and was like, I need you to audit our subscriptions this year. And survey, survey the survey, all the departments, what software do they use, all that stuff. And he said, no, I'm not surveying it. And he deleted the spreadsheet, canceled the cards. And then he says the first ones that people come to me with, whoever comes complaining the quickest, as soon as people complain, I'll resubscribe. And this might have been fiction, but I think it illustrates a point. And if people don't mention it for three or four months, we don't need that software. He said immediately when he canceled it, the marketing department came running for Adobe, the sales department came running for their CRM and then there was some HR software that no one talked about and they inevitably canceled the subscription. It could have been bs, like this was an anonymous account. But it illustrates a point the you, when you are in a marketing department, you live on this software, you live on Adobe and you get used to it and there's huge switching costs, especially with creative software. I think it's the same with Autodesk, you don't want to retrain on something else. As for Figma, Figma has actually sort of one. I shouldn't say one because Adobe XD still gets used, but it's more of a point solution. So people that don't know Figma, it's sort of a user experience user interface design tool where it really helps go from design to development. So apparently developers really love it. It makes the process much more seamless. And it's a good tool, it's leader in the industry, but it's smaller, it's less than a billion dollars in revenue. And then I was thinking like Canva was founded in 2013, Figma was founded in 2012. What has happened since that point? Well, over the last four years. Just the last four years, not the last decade. Over the last decade, Adobe's doubled its revenue and more. But over the last four years, Adobe has added $6 billion in new digital media revenue. They've added two Canvas in revenue in the last four years. If these were true, like substitutes, they want to add an additional $6 billion in revenue. I know some people are going to say, oh, they're mortgaging their moat, they're raising their prices. That would have hit them. That for sure would have hit them. If There wasn't high switching costs with these products and Canva was a true substitute. They wouldn't have doubled their revenue over the last decade. So the, I guess the problem I have and the problem I run into is I'm a big believer in Canva. I really like the tool. I'm a big believer in Figma, really like the tool. I think they all have promise, but I think the switching costs for Adobe are enormous and right now they traded an EV to EBIT of 17 times, which is basically the lowest in I think since the great financial crisis. I think they had a lower multiple, but I see a path for them to continue to grow. Revenue more than 10% a year. I see a path for operating margins to continue to expand. It seems to me like it's kind of not necessarily a home run, but it's a slam dunk and sort of a one foot hurdle here where you're going to get above market returns and it doesn't feel like you're taking a ton of risk to do it.
- [35:55]
A
I think that was fantastic. Summary I will note I have on fiscal AI here pulled up the shares outstanding chart and since September 2022 it's declined. Shares outstanding have declined at a 3.3% annual rate. Given the rate of their buybacks, we maybe could see that up to 5 to 6% depending on how it all shakes out over the coming years. So you kind of have that buyback unlike say an Autodesk or maybe even a Salesforce or what have you, all those other ones out there in the enterprise software space that might be cheap. Even when he talked about money.com Adobe has that consistent history of share repurchases and I think given the lower share price today, you know, it's just the math works out it's going to be more attractive. So that could help if even if you don't get a multiple RE rating, it's even better over the long term.
- [36:50]
B
All right folks, before we move on we need to tell you where we get our 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 in our podcast, 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 the largest company specific segment and KPI data set on the Internet. That includes metrics like Duolingo's daily Active users, Oracle's backlog, Rocket Lab's revenue per launch and Literally millions more data points. They've also got earnings call transcripts, ownership data, equity research reports, and much, much more. If you want complete financial data at your fingertips, you need to check out Fiscal AI. And if you use our link Fiscal AI Chitchat, you will automatically get two weeks of Fiscal Pro for free, no card required. If you you want to upgrade, our link will also get you 15% off. Again, that's fiscal AI chitchat. The link will be in our show notes.
- [37:54]
A
If you regularly listen to Chitchat stocks, then we know you love analyzing individual companies. We do too. That is why I, Brett Schaer, co host of the show, decided to start writing the Emerging Moats stock research service. Emerging Moats produces regular stock research reports on companies with emerging competitive advantages, regular updates on stocks I own and on my watch list, and has full transparency to my portfolio transactions and returns. I cover under the radar Emerging moat companies with prior research reports on Oscar Health, Kraken Robotics, the real brokerage and much more. Emails will be sent out on a weekly basis. Explore the service today and find your next great stock by going to emerging moats.com the link will be in the show notes.
- [38:37]
B
Yeah, at this point they're spending all of their free cash flow and then some on share repurchases. Literally. I think it's been like 110% roughly of their free cash flow has been allocated towards buybacks over the last 12 months. And it's happening at record low multiples. So it's not like they're just doing this blindly. I actually think they're doing it. I think it's a good use of capital. And I could see a world where the CFO is looking at, the management team's looking at their business and thinking like, we continue to add more customers, we continue to add more seats and our enterprise users are, I bet their churn's like their full logo. Churn is probably less than like 2% a year at max. It's gotta be like servicenow levels. And I bet they're wondering like, what the hell are people thinking? Like, let's just buy back. And I actually appreciate that. So we'll, I mean, we'll see. I could be wrong, but let's, let's move forward.
- [39:41]
A
We are going behind the timer here. I'll go through mine. My second stock here, it's a stock I've never owned. It's one I found generally to be too expensive for my value investor brain. But now stock is only up 15% in the last five years and the business has been compounding away at a very, very, very nice rate. I think it is now an interesting opportunity to potentially start a position in 2026. Stock is Mercado Libre. People know the, what would you call it? The Amazon and PayPal/Venmo of Latin America. Would that be the way to describe it? It's Amazon plus.
- [40:20]
B
Used to be the ebay, now it's.
- [40:22]
A
Used to be the ebay. It's a mix of both. Now they're moving into a lot of different things. First, I'll say what you think about the business is exactly, exactly what it is. Anecdotally it is the premier e commerce player at least in Argentina and a few other places I've been. Nobody talks about a competitor. But a few other things I'll talk about because people, people understand why Amazon has a wide competitive advantage of white wings. But I'll talk about why in Latin America specifically compared to the United States, maybe East Asia, there are a few things that can give it a moat, an edge moat wise compared to the other analogous businesses. One is there's the difficulty of delivery infrastructure versus other areas like the United States. Addresses are more difficult, roads are more difficult. There is no UPS generally. Trust me, I figured this out firsthand. Trying to get something delivered, it's, it's much, much more difficult. Second is the lack of big box retailers in, in person. You are not competing with Costco, you're not competing with Walmart for the most part, you're not competing with Best Buy. They're much easier competitors to get a better value proposition versus. And third is layering on the FinTech in Argentina. Every single, pretty much every single merchant uses a Mercado Pago pay machine for merchants. And it is also a way to just send money without using a debit or credit card which feels to me like quite an entrenched business in this economy. Look, I think Mercado Libre, without going into the details of what makes a vertically integrated e commerce business a wide moat. I think it is clearly a wide moat business today. One, you know there are political concerns such as what happened to their business in Venezuela a few years ago. They had to pull out of the market. It was probably dumb to enter that market in the first place when you knew that it was a crazy socialist government. But there are, they also have that risk in other places. I mean Latin America has general political uncertainty. You're seeing a huge wave of more conservative business friendly governments in the country. But five years from now it could totally flip or sorry, in the region in multiple countries. You also have some competition from Nubank on the financial services side. That's a long term concern I think and probably their biggest competitor by a long shot within FinTech. But with 600 million people I think there's room for multiple winners here. And they also serve slightly different, you know, customer value propositions where Nubank is more of a SOFI or an ally for someone. And Mercado Pago is almost more merchant related stuff. It's more comprehensive Fintech offerings. It's more than just banking, it's almost payments and that sort of thing. Overall though, it's a wide moat stock and I think it still has a durable Runway to grow. And what do the recent numbers look like? If you look at the three largest markets, 35% FX neutral growth in Brazil, 42% growth in Mexico, 97% growth in Argentina. That's partly because of that currency stuff, but still very, very strong growth. 65% growth in FinTech, 49% FX neutral revenue growth in total for Mercado libre. Now in USD terms, which is what I care about, still 39% so not bad. And right now Mercado Libre trades at a market cap of $100 billion EV to gross profit of 8 EV to EBIT of 30. While likely severely under earning versus their long term potential, there are still some things research wise I need to hammer out for them. One, the loan book lending business in general. Two is the long term plan for management. It's not a stock I've taken a deep dive in yet, although it's on the list for the schedule for Q1 2026 for emerging modes research. But I like the tailwinds of the business general E. Com penetration in Latin America. I think there's a long Runway to grow there. You have the recovery of the Argentina economy, one of their largest markets. You have the potential. This is more of a wild card situation, but the potential for regime change in Venezuela and the overall capitalist turn in South America and Central America. I mean look, if I can get a good grip on what long term margins will look like, I think this could be a solid pick in 2026 and one I want to study more in the coming years. In other words, we look at the numbers today, they're doing $26 billion in revenue. I think they can probably get to $100 billion in revenue and maybe a 20% operating margin at scale. Remember, Fintech is going to have much better margins than the E Commerce part of the business. That's $20 billion in operating income versus a hundred billion dollar market cap today. I think that probably would deserve to trade at a $500 billion market cap or 25 times earnings. Can they get there in five years? Maybe, maybe it takes seven. But however many years it takes, I think you can get a 5x return plus any excess cash flow generation return to shareholders. Share dilution has generally not been that bad. All in all, feels like a good buying opportunity for a stock that hasn't got anywhere for five years. But the business keeps compounding, management is great and the moat keeps, as we'll talk about all the time, keeps emerging and it keeps widening.
- [45:49]
B
I think what I find encouraging, and I read this from our Latin American correspondent Ian Bizek, but you also just kind of confirmed it here in your notes. So I read the stat that Mercado Libre is the only public company in the world that has grown revenue by more than, I think it was more than 30% year over year for 22 consecutive quarters. And they've done it for 27 consecutive quarters. So they have sustained a 30% growth rate for the longest of any public company. And at first I think, all right, well, how long can that really last? Something that Ian alluded to. People don't really appreciate how large the reinvestment Runway still is in Latin America and in some of their more dominant countries. And I think you can probably attest to it now. I would guess there's still a huge infrastructure reinvestment Runway for them.
- [46:54]
A
That's fair. I'm not a user of the service because you have to be a, you have to have some sort of local bank account. But I think we can safely say they're the number one choice. It's the one thing if you ask them, hey, where can I get this? Oh, Mercado Libre. Well, I have to ask you to buy it for me, but that's a whole different story. We've talked about that with Brian Stoffel when we had him on to assess the stock, I think earlier in 2025, if not recently, just look it up, it'll be in our feedback. He talked about how he lives in more rural part of Costa Rica. MercadoLibre is really the only company that can get to him and has that information, has this huge database of where people are, where the accounts are. It takes a lot to build up over time. And then for one, the delivery infrastructure. Yeah, they have a long Runway to grow. I mean, so does Amazon still. But if MercadoLibre is like 10, 15 years behind them, that gives Them still a huge reinvestment Runway to move to. The third party services kind of replicate a lot of what made Amazon great in the United States.
- [47:56]
B
All right, let's talk my third stock for today. This one will be a little quicker. My third top stock for 2026 is none other than Amazon. We just mentioned them. Amazon was and is the worst performing big tech stock in 2025. And it's, I think it's up 3% year to date. So it's really not that bad. But there's every other big tech stock I'm not including, Tesla is up more than 10% year to date. I've said this before and I will say it again. I think Amazon has the widest moat in the world. And if you can find the right entry points, businesses like Amazon are incredibly easy to own. They make life easy. Because when you read the conference calls I remember thinking, I thought this with Google for a long time I was like, every time I read the conference call I just thought why don't I own this? Why don't I own this? They're talking about like seven platforms with billions of users, but Amazon, they're talking about delivering 90% plus in less than one day and no one's catching them. They're talking about, I believe it's, if I'm not mistaken, they're the largest revenue business in the world now, unless Walmart still hasn't beat. But I think Amazon finally surpassed them.
- [49:21]
A
Yeah, they're about $700 billion if they're not, if they're third or something like that. Look, $700 billion, that's huge.
- [49:30]
B
You think about the scale, you think about all the levers they have to pull to improve their marketplace and improve their profit margins. And it just is a very, very easy business to own. And you are kind of amazed when you read their conference calls. Usually that's been the case for me for a long time. I haven't been a shareholder, but this year for the first time I became a shareholder of Amazon. I'm going to go through, I guess the three points and the three reasons why I am very comfortable owning Amazon here. So number one, and this is important, probably the most important part for me, the E Commerce moat is very much still intact. The infrastructure and logistics advantage is the engine that powers Amazon across the board in my opinion. It powers their subscription revenue, it powers their third party seller services, it powers their advertising revenue and it also powers the E commerce sales itself. So their first party sales and their third party sales like that, everything minus aws feeds off of the infrastructure advantage that Amazon has built that still feels like it's getting wider every quarter. They talk about how they are still improving delivery speeds. It's the first thing chassis brags about every time like here's how much we were able to bring down delivery times. As long as they continue to do that and continue to widen that advantage. I am happy and I'm noticing it. We are recording this right before Christmas. I am a late gift buyer. Every year I make the mistake. I don't buy things in advance enough. I can only buy from one platform and have it get here in time. Every other platform is still so far behind. As soon as I see the dang shop pay button I I have to get off the website. I have to go somewhere else because I'm not going to wait. And it's not nothing against Shopify because they're not the ones delivering this, but I'm not gonna wait two weeks for a package to be delivered. You trust Amazon. They have built up like a 10 year logistics advantage and no one's even close really to catching up with them. So that moat is still very much intact. The second part is that the higher margin businesses, and I'm counting for when I say higher margin, I'm talking about subscription revenues, advertising revenues, third party seller services and AWS. Those four segments, those now account for 59% of the overall business or 59% of the overall revenue. And that figure continues to grow. As long as that percentage continues to grow, I see no reason why Amazon can't hit 15% operating margins within five years. The third one for me, AWS is still the largest cloud provider and maintains a massive Runway for growth. Cloud computing is extremely sticky, especially for larger enterprises. And I think this year there's been such a shift to AI workloads and so much talk about that and so much buzz. And you saw big years out of Microsoft and Google Cloud, Azure and Google Cloud. I should say that people seem to forget that AWS is still the largest in the industry by a long shot. There's still some Runway for existing enterprise workloads to migrate to the cloud. It's not as you're not going to see as much of that as you did over the last decade. I think I saw a rough stat that 75%, 70, 75% of existing enterprise workloads are run on the cloud. But importantly, cloud is enabling new workloads to be built faster. Fiscal AI is an example. It would be such a nightmare. It would have taken us 10 years longer probably to build our business if 10 10.
- [53:34]
A
Come on.
- [53:37]
B
We couldn't have cost wise.
- [53:39]
A
Sure, sure, sure. That's fair, that's fair.
- [53:42]
B
How would you have scaled if we. If we didn't have the.
- [53:45]
A
They had data center providers. I mean you were able to.
- [53:49]
B
Elastic compute was not. I'm talking about elastic compute.
- [53:52]
A
Yeah, I know.
- [53:53]
B
How would you have built the compute needs without.
- [53:59]
A
I get the point you're making. It wouldn't have taken 10 years longer. The value propos is not that it's better. There's a reason everyone's switching. But let's not get over our skis here.
- [54:10]
B
I. I honestly believe it. Or maybe we wouldn't even have pursued the opportunity if cloud computing wasn't available. You have businesses being built now because cloud computing and AI workloads are making it possible.
- [54:25]
A
The.
- [54:28]
B
I think they will AWS specifically I think can sustain a 10% plus annual revenue growth rate over the next decade. The one boogeyman with Amazon. And it seems like this is what investors are fixated on, and probably rightfully so is the accounting treatment for depreciation of GPUs. Right now they are seeing the widest divergent divergence between operating income and free cash flow in their history due to primarily the build out of their AI data centers. So if you look at operating income 76 billion over the last 12 months, free cash flow is 11 billion. It's a huge spread. Now, a lot of that is dependent on, or I should say future GAAP operating margins are dependent on whether or not the useful lives of GPUs are legitimate. If the useful lives of GPUs are overstated right now, they probably will not be hitting 15% operating margins in five years. If they are what they say they are, I see no reason why they can't hit that 15% threshold. So I personally am of the belief that these. I'm willing to take it at face value. I'm willing to believe that the GPUs have a useful life that the accounting departments say they do. I could be wrong on that, but I'm willing to take it at face value. To put it all together, I think they could generate 11% annual revenue growth over the next five years. That would put them at $1.2 trillion in revenue, which is kind of a wild figure to say out loud. But I don't see what's stopping them from getting there. 15% operating margins on that would give them 186 billion actually in operating income. I had 185 here but it's 186 enterprise value right now is 2.5 trillion. So EV to 5 year out earnings 13 times. It's a little expensive but again I'm not including the cash buildup or repurchases which would probably be more like maybe there's a slight share reduction but I think more likely it's reinvestment which would hopefully power.
- [56:57]
A
I think the share ground's going to rise.
- [56:59]
B
Yeah, I think you're right. But what do you suspect they do with the cash on hand?
- [57:05]
A
Waste it like they usually do. The one thing I'll add here.
- [57:12]
B
All right, if you go back over the last 20 years, I think they've built some pretty valuable businesses with the.
- [57:16]
A
Cash they've deployed Alexa, Fire Phone, the.
- [57:19]
B
Largest cloud computer business in the world.
- [57:25]
A
Various other things. Project Kuiper, which seems to be going nowhere. Look, they could.
- [57:33]
B
For all five of those they have an AWS.
- [57:35]
A
Yeah, yeah, that's fine. Look, the. In 2026 they could generate the most operating income of any business in the, in the world. Maybe excluding I don't know what Saudi Aramco does but of the Mag 7 they could be number one if they wanted to and they don't. They just simply don't. And they're getting a little better with these layoffs. A little bit more expense discipline. But they could do 750 billion in revenue eventually. A trillion in revenue with a 20% operating margin if they wanted to. But. And I agree the stock's cheap here, but I think my biggest risk is that they just waste money on the dumbest things. It's dumber than Meta's stuff. Meta just is public with it and expecting. I guess the one thing that again makes me nervous on Amazon is just doing the same thing or having different expectations. When something's happening over and over and over again is the definition of insanity or whatever that saying is. I think people have heard that one before. Why would I expect Amazon to change? That's just the one. That's one thing that I think is a big risk for, for, for the stock because I agree that your numbers make complete sense. 15% operating margin, I think it'd be higher. $1.2 trillion in revenue. Yeah, it's probably reasonable given the international exposure as well. The how the E commerce business can keep compounding. AWS can keep compounding, subscriptions can keep compounding. But that, that bot, that consolidated operating margin, what's it going to be? I'm just not sure.
- [59:22]
B
Yeah, the one I guess I know you don't love the call it moonshots that they have. Some of them I don't even think are moonshots but they're wasteful areas. When you look at the capex the vast majority of the capex is going towards things that are widening their moats, expansion of aws, expansion of their fulfillment advantage. Some of the operating expenses I would bet most of the operating expenses are going towards those moat wideners as well. But yes, a small piece of their reinvestments are going towards these problems.
- [60:05]
A
Okay then why is an operating margin 20% right now? You have it here. What is the percentage again for the listeners? 59% of revenue is coming from AWS advertising subscriptions and third party seller services which should lead to from that those combined should have 25 to 30 maybe let's say 25% operating same in level margins. Where's the spend? Where's it going.
- [60:35]
B
Towards developer salaries for some of these projects.
- [60:40]
A
I know but that's those four segments are 59% of revenue and should are.
- [60:48]
B
We going to timestamp this for let's say 10 years from now? Project Kuiper was very useful for them as a business and it was a worthwhile endeavor.
- [60:58]
A
Sure. Yeah. I, I, they're, they're just their, their track record of moonshots is way worse than people give them credit for. Just because AWS was so good compared to maybe meta's just as bad but compared to everyone else maybe especially Alphabet, it's just track record's poor. Maybe.
- [61:21]
B
But I think the world will continue to value them on what they are capable of earning.
- [61:26]
A
They are not right now.
- [61:30]
B
Well if they were measuring them on free cash flow it would be a very different valuation.
- [61:35]
A
I just have made the prediction that they have finished the year with the largest market cap in the world two years in a row and I've just been disappointed on the margin expansion. I'm going to lower my expectations.
- [61:49]
B
Yeah, this is not the one I'm the most excited about of the list and actually there's some others that weren't on this list that I'm more excited about. But I do believe it's the widest.
- [62:00]
A
Moat in the world.
- [62:02]
B
That seems to be reinforced in my brain every holiday season. The and if I'm able to make the numbers work on what I think is the widest moat, I feel like I should own some. I'm not going to make a huge chunk of my portfolio. I have the same frustrations and I have heard anecdotally that it's day two.
- [62:21]
A
At Amazon, they say that because they were given. These employees were given daycare, $200,000, $400,000 salaries to do basically three hours of work a day on jobs that were three times duplicated. I'm sorry, that era's over. The company was run at 0% margin and it was wasteful spend hundreds of billions of dollars cumulatively. And I'm sorry, that was a gift. And now it's done. Shareholders are going to matter. I don't think that means it's day.
- [62:56]
B
Two, but they've been at the forefront of getting people back into the office. Early layoffs.
- [63:02]
A
No, we gotta go back to the office photo.
- [63:04]
B
No, but you're saying that they are worse than the other big tech companies.
- [63:07]
A
Look at the. On the income statement. Yes. Now, they do a lot of lip service on layoffs. But I just wonder, okay, you're doing all these expense management things where. Why is it not showing up?
- [63:23]
B
They went from 0% operating margins to 9 in the span of like two years.
- [63:28]
A
Yeah, okay. It should be higher, I think.
- [63:33]
B
Sure. But I think if you were. If you were running the team's P and L, I think they would have a fraction of the revenue that they do today. They would have a fraction of the business success and customers, because it requires.
- [63:49]
A
All right, it's been. Operating margin was at a decimal on fiscal.
- [63:57]
B
It's all right, let's.
- [63:59]
A
Last 12 months. December 2024, 10.8% now last 12 months. Last quarter it's been 11. We've seen four quarters of stagnant operating margin expansion. I think that's why the stock has not done well this year. Now, if that reverses, because it did in December 2022, go from 2.4% to. To the end of 2024, 11%. If that trajectory continues next year, then the stock probably does quite well. But if I was an Amazon shareholder, which frankly I've never been, I would be frustrated over the last year. What's happening? Why are all the high margin businesses growing? Consolidated operating margin is going nowhere.
- [64:47]
B
We'll see how 2026 plays out. Let's. I know we've gone long on this one, so let's finish with your third one for the day. What is it?
- [64:57]
A
Yeah, this one should be, pun intended, not too long because it is a short. It is a stock that had been short for most of 2025. I think it's either April or May. A Spaces is a little bit of a loss right now. It is Palantir Technologies. I wanted to include it on this list. Despite spice things up, put a short in here. It's definitely a bit of a battleground stock. First, let me discuss how I've developed a small shorting strategy and what I do to avoid bowling up. First, I only short diversified portfolio. You're not going to make something a huge percentage of your entire portfolio. And second, if a stock has a chance to turn into a quote unquote meme stock does a chance to 10x if it has a tiny market cap. It's hyped up narrative which is really a lot of kind of the pure without swearing escos that you can find the bad companies. It was something like that size it extremely small. But for Palantir, market cap today is over $400 billion. I do not see it as a giant threat to 10x in a year. So it's going to be a little bit bigger of a position and it's one where I'm comfortable. Now. Is it a huge percentage of my entire portfolio? No, my short book is about 10% of the size of my long book. But why am I short? Palantir really comes down to a few reasons. First, this is one that you can't just solely base a short position on is valuation. But with this one, it's pretty damn extreme. I've called it the most overvalued stock ever. Stock trades at over 100 times trailing sales. I think about 113 as of this writing. Look, this is gonna be a massive headwind, really simple, especially with shareholder dilution coming down the pipeline. And frankly what helps is that right now they have a buyback to nowhere. They bought back stock at these levels, which goes to show I did not realize what's going on here. Let's just go through some quick math. Let's say they 10x revenue plus a little more and their price of sales comes down to 10. Let's say there is no further shareholder dilution, which is a bit delusional. But let's say that it doesn't happen. And let's say they convert just to.
- [67:15]
B
Paint a picture here. If they 10x sales from here, they'll be the largest software company in the world by revenue, which they are not.
- [67:22]
A
Probably excluding Microsoft, but Pure Play.
- [67:24]
B
Yeah, like pure play SaaS.
- [67:27]
A
Yeah, yeah, like look, it's almost to say like they'd have to be as big as Microsoft Office. Okay, maybe, yeah, good goal. Ten years, maybe five years. You can do that. And let's say they convert 40% of revenue to net income, which I think is unlikely. It's maybe less it's maybe the most likely out of all these, but still that's best in class margin. If all these happen, which aren't going to happen within the next five years, the stock is going to trade at 25 times. Earnings Expectations are massive and extremely unlikely to be fulfilled. Now second is the company will be entering a rough comparison in 2026 after this AI super cycle of spending revenue growth. I mean look, this business is good. Revenue growth is accelerated. One that it's a business that's taken advantage of the AI deployment narrative. They won hundreds of contracts large and small with Enterprises and the US government. US commercial revenue is growing 100 year over year. Right now their consolidated revenues accelerated from sharing the chart here. It's a little small on my screen, but September 23rd, about two years ago, they're growing revenue at 17% and slowly accelerated to 63% at the end of last quarter. Next year, beginning in Q1, they're going to have to comp 40% year over year revenue growth. They are now doing $4 billion in annual sales in a niche category, software analytics. And sure they are going to keep growing, but there's only so much revenue available to software analytics providers and with a lot of competition in the space, this is not a plug and play solution. It is for large custom deployments only. So any smaller mid sized business, we always use Ryan's company and our sponsor fiscal AI as an example. You're not going to be doing a $1 million consulting thing to plug Palantir into your systems. You'd have to be an extreme, a much, much bigger business to have that happen. So that small and mid sized enterprises, they're not, they're not part of this addressable market. And look, can someone who knows this business better than me tell me they're going to keep compounding revenue and they're going to sound smarter than me? Of course, I mean there's people that know this business way, way better than I do. But I will say that the AI bubble is not going to last forever. 67% revenue growth is not going to last forever. A detail is going to come and it maybe comes in 2026 and if it does, the stock is overvalued regardless of whether that occurs like three years from now where if they keep growing revenue at 60% for the next five years, like the stock is still overvalued. So I don't think you're going to lose much money if that occurs or any. And third is the fact the company has the opposite of what I'm looking for in management, which is an erratic CEO, frankly a crazy CEO that I do not trust. They are massive Diluters of stock. 4.4% annual growth in shares outstanding since 2021. This is really not a man I would trust with my capital and I'm highly skeptical. He has talked about burning the shorts, which is red flag. And as someone you could easily pattern match to a scammy person, no evidence has come out like, look, it's all just smoke and mirrors I guess at this point. But as Buffett liked to say, he was able to identify who the Scammy, scammy fraudulent CEOs were pretty actively in prospectively given they all had similar characteristics. Now fourth is I think this is a nice hedge for my portfolio in case of a market downturn. You know, we talk about being value investors over here, but my portfolio is coupang Airpower, coupang Airbnb and remitly. These are stocks that maybe they've already started to fall, but during a market downturn they're going to fall. They're probably going to be a little higher beta and stuff. Some stuff I have I think is idiosyncratic, but I think a short with Palantir is a nice way that's not going to have the same sort of. Okay, here's how a good way to put it. When Palantir stock has been ripping this year, most of my longs also do fairly well. So it's not like my portfolio totally gets blown out of proportion. Long, short, when that happens and it's not sized that much in general now in a downturn, I think Palantir is probably going to fall 80% if not 90% and I think that's going to be. Look, I just think it's going to be a good investment over the next five years and if it doesn't fall or crash 80% within a year, then I think it's a great funding short for the next decade.
- [72:00]
B
Yeah, this is probably the craziest valuation I have ever seen.
- [72:06]
A
Now I heard that at this large of a price.
- [72:08]
B
Yeah, yeah, I've heard that during the dot com bubble there were some that were more extreme. But 113 times sales on a business that does have a, does do a lot in revenue. It's not like that just happens to be the case that, you know, it's not like they just started generating revenue and it's 100 times sales. It's a well established business and we're talking about a massive, like eventually you saw this With Shopify in like 2022, eventually it becomes just impossible to fulfill that valuation. And if you're the management team, you're almost stuck in a place of you have no options, you don't know what to do. What is probably best honestly for your business is to talk it down, to talk down the stock because buying back is a waste of cash right now. Sorry, that's a bad decision. But everyone's RSUs are going to be underwater if they're given some now probably most likely you're going to have low employee morale. I think the best thing you can do is kind of set expectations. If you keep talking it up, it's going to be when stocks drop 80, 90%, it's detrimental to the business. Usually it really hurts morale and everything actually happening at the business. So I agree larger for context than Salesforce and Adobe combined on its market cap and it has 6% of the revenue of those two businesses combined. And those businesses have great margins. So. And I say great, but like they could probably generate more money too. It is an extreme valuation any way you slice it. How much does it cost you to afford the short? Like how much are the premiums?
- [74:02]
A
I haven't added that up. But it's gotta be less than what you could earn in. It's not expensive. That's a nice thing about these versus like on illiquid stuff. It's not that much. And yeah, really, if you were gonna hold it in cash. Yeah, I don't, I haven't added, frankly I haven't added up and I haven't noticed the fees seem pretty small. So what is, I guess, what's it to buy? I use it to buy remitly. So you know, it might have been better hold it in cash. I mean, look, think about it. If on an absolute basis you can short it and then hold it in the Treasury ETF or something like that and you can earn 4% short term Treasury ETF. Right. Because you get the cash from shorting.
- [74:47]
B
What's the rationale for doing this as opposed to put options.
- [74:53]
A
Just don't want to deal with cleaner, cleaner timing. Stock could easily be flat next year or up. Yeah. And the good thing is that I think generally if Palantir, let's say doubles and the bubble goes into overdrive next year, I think my portfolio would be okay. And a lot of stuff I'm long will do just fine. Plus I have income coming into the portfolio, so there's really many, many layers to not get totally blown up. Especially because I didn't make this 20% of my portfolio cost. I think it's 1%.
- [75:26]
B
Is this your largest short?
- [75:32]
A
Let's just check quick here. I think it's the them Tesla and Apple. It might take the Apple off. Honestly, doesn't seem like. I feel like it's going to be a good funding short, but I also feel like there's better opportunities out there. Actually, Tesla's number one, but they're about the same size. Still very, very small positions. You want to hear some other companies that they're larger than? I'll close things out here very, very quick. Palantir is a larger market cap than asml, bank of America, abv, Netflix, Costco, lvmh, Alibaba, Home Depot, Procter and Gamble, General Electric, Cisco, Coca Cola, Wells Fargo, Chevron, UnitedHealth and Toyota.
- [76:17]
B
Yeah, that's extreme. All right, wrapping it up. The six stocks we covered today were Airbnb, Sprouts, Farmers Market, Adobe, MercadoLibre, Amazon, and a short on Palantir. We will timestamp this revisit in late December 2026. See how we did with that. Brett, you want to take us out?
- [76:43]
A
I sure can. Let's the disclosure and get out of here. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guests 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.
- [77:18]
B
And Doug, here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Limu is that guy with the binoculars watching us.
- [77:36]
A
Cut the camera.
- [77:36]
B
They see us. Only pay for what you need@libertymutual.com Liberty Liberty, Liberty, Liberty Savings. Very underwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts. Hey, Ryan Reynolds here for Mint Mobile. You know one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's online Unlimited Wireless for 15amonth. Now you don't even need to wrap it. Give it a try@mintmobile.com Switch upfront payment.
- [78:07]
A
Of 45 for 3 month plan equivalent to 15 per month required new customer.
- [78:10]
B
Offer for first 3 months only.
- [78:11]
A
Speed slow after 35 gigabytes if network's.
- [78:13]
B
Busy, taxes and fees extra.
- [78:14]
A
See mintmobile.com.