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Jerome Powell Takes a Stand; Taiwan Semi's Capex Surge; Catching Software Stock Falling Knives
01:07:07
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- [00:02]
A
Welcome to Chit Chat Stocks, a podcast that helps you discover your next great investment. I'm one of your hosts, Ryan Henderson, and I am joined as always today by the one and only Brett Schaefer. Today we've got our weekly Power Hour episode. We do these live on Thursdays at 5pm Eastern Time. We do them live on YouTube, so if you ever want to ask us a question during the show, feel free to head on over. Follow 5:00pm Eastern Time on Thursdays. Ask us any questions in the chat and we will try to answer them for you. But we talk all things financial markets on these episodes. We riff on anything in the world of finance and we have a lot to discuss this week. Software Mageddon is here. The SaaS apocalypse. My portfolio has certainly been feeling it. I'll talk about that a little bit. We have Jerome Powell versus really Bill Pulte, I think, but maybe Donald Trump. We also have a potential credit card rate cap, which we'll see. We'll see what comes of this. But it's put banks in disarray a little bit. And then we've got a bunch of other news as well. A little bit of earnings. Taiwan Semiconductor, Delta Airlines. Brett, where do you want to start?
- [01:15]
B
I think we can start with the software apocalypse. Ryan. I want to apologize to the listeners, anyone, including yourself, that is invested in software stocks, because I'm finally getting interested. So that means the bottom's not in yet. Diving the bottom is very, very, very difficult. Probably means another 20% more to come. I kind of had the feeling. Hey, Adobe at 300. That is as sticky as it sounds. Or as messy as it sounds, probably a better word. Hopefully their software is sticky.
- [01:49]
A
Yeah, it might have been a little Freudian slip there.
- [01:51]
B
Yeah, exactly. Exactly. The. It feels cheap. So why don't you take us through the numbers. I know you compiled a lot of data. You have a very complex chart here from our friends at fiscal AI Drink. We already mentioned fiscal AI three minutes into the episode. But yeah, what's the data here? Why, why is it down? Is it, is it this cloud code stuff? Is everyone going to be generating software now?
- [02:16]
A
Honestly, I think that's part of it. The. Yeah, this might be a fiscal AI heavy episode, but basically software stocks broadly have been clobbered over the last week. And really, it's been a tough year in general. And if you look at like the software ETFs, a lot of them don't actually reflect the returns that we've seen in some of the bigger traditional software as a service companies because a lot of the ETFs are market cap weighted and they're heavily weighted towards Microsoft and Palantir, which seems to justify gravity. So and those two have kind of propelled the ETF returns. But if you look at some of the big names, some of the darlings of the software industry, I'll go through a few of them. These are the last 12 month returns for I picked 10 stocks here but I think you could have gone through and picked a few more as well. Fortinet down 17% Workday down 21% Salesforce down 25% Adobe down 26 and I think they're in like a 60% drawdown. Constellation Software down 29% which used to be the. The compounder, the Canadian compounder could still be but it's gotten a multiple re rating. DocuSign Little might not to fit in with the rest of these in terms.
- [03:40]
B
Of quality but nevertheless that's an old flame. That's another old flame right there. That's 20202021 all over them. Zoom.
- [03:48]
A
Yeah so they're down 31% service now down 35%. Keep in mind these are just the trailing 12 month returns. A lot of them are probably down even further from highs Monday.com down 41% Atlassian down 46% HubSpot down 51% the some of these might have changed by the time this gets released onto the podcast feeds, but there are a few here that I actually find pretty interesting. So Constellation Software for starters they now trade at a forward PE of less than 20 times and keep sometimes when I talk about a forward PE there's a whole bunch of like it's non GAAP because it's forwarded testaments non gaap. The usually there's some big stock based compensation adjustment. You don't have that for Constellation Software. They have had the flat share count I want to say for like since.
- [04:48]
B
Their beginning of their existence them and tsmc. It's a beautiful chart similar to olo's revenue and some of those those the the exactly flat charts on fiscal AI to the pre revenue companies that I'm shorting or TSMC and Constellation Software share count I think to give you a breather there Ryan, we need to get someone on as an interview for Constellation Software because that's a business. I generally know what they do. I've read their shareholder letters. But there are people out there that know 10 times as much as us and follow them much more closely. I think this quarter we should definitely get someone on.
- [05:27]
A
Yeah, I imagine Listeners would want that as well. The other one, which is a current flame of mine, Adobe now trades at an EV to EBIT of roughly 14 times. I believe after today's drawdown that is trailing EBIT. And I was backing into some assumptions. They're probably reducing share count by about 6% to 7% annually at the current pace of buybacks. So I find that pretty compelling. And then ServiceNow, the price is still expensive here. The EV to free cash flow minus stock based compensation because they've got a lot of. SBC is like 60 times the. This might be the highest quality SaaS company of the ones I listed at the top of the episode because they have probably close to the most insane customer renewal rate I've ever seen. Like if you look up their customer renewal rate, it's been basic and it's on fiscal AI, maybe I can pull it up. It's another flat chart. Pretty much it's 98, 99 every single quarter, every year. You're.
- [06:41]
B
I still don't know what they do. I'm gonna be honest. Never, never, never could figure it out. Let's see the overview. Says Enterprise Cloud Computing Solutions that defines structures, consolidates, manages and automates services. Wow. Okay. I still don't know what they do, but yeah, a lot of people, I will say someone past guests on the show, Casey Rossellillo of the. What's their channel called? Semicolon.
- [07:04]
A
Chip Stock Investor.
- [07:05]
B
Chip Stock Investor. Thank you. They don't need the help, but I will say it's a fantastic channel. She was pitching ServiceNow. So a lot of other people as well. At least some anonymous accounts on Twitter. A lot of. A lot of people like it here.
- [07:20]
A
Yeah. Let's see if Gemini can help me here. ServiceNow automates and manages digital workflows.
- [07:27]
B
I think fiscally I took it from Gemini. Gemini takes the information from fiscal AI. It's going to have the same summary so of what the company does.
- [07:37]
A
Yeah, it kind of sounds like one big sort of system of record, I would guess.
- [07:43]
B
Okay.
- [07:44]
A
But with if you. I mean when you have an actual. If you have an actual 99% customer renewal rate, unless they're just like dropping prices every quarter, which they're not, that allows you to pay up a lot to acquire customers because that means they've got like 20 year lifetime values. Obviously that can change. But using that churn rate backing into it, you've got like extremely long lifetime values. And I'm sure I'd love these enterprises. It's a pain to switch, but similar.
- [08:14]
B
To Oracle or something like that. Yeah, it feels a little bit similar to that.
- [08:19]
A
Yeah, I guess a couple lessons here in looking at the software. First of all, it's a good example of the pitfalls of the mantra pay up for quality. You hear this all the time and it sounds good until it doesn't because things narratives can change really quick. I mean it's amazing that Adobe is a battleground stock today. Like maybe not even a battleground stock. People seem to hate it and think it's like AI is going to disrupt it. Five years ago, 10 years ago it was considered like ultra high quality, can't live without it software for their customers and it fetched a premium because of it. Uh, but it's just, it's a good example of even the high quality compounder like businesses, when someone's being grouped into that camp, that's probably not the time to buy it. Like when it's the high quality compounders just pay up for it no matter what. You know, like who cares what the earnings multiple is? It's going to grow revenue 20% a year for the century. It's, there's always. I found that pretty much most companies other than maybe Costco, which seems to always fetch a premium.
- [09:39]
B
I think we're just young enough where we haven't look at that long term chart for both Costco and not Amazon Walmart. The earnings ratios are at a very, very elevated level. I still can't figure out why.
- [09:54]
A
I can't think of a single business that has never that you can't look back and say there was a point when the company struggled and there was a reasonable entry point valuation wise. I can't think of any company that's defied gravity multiple wise forever.
- [10:16]
B
That's a fair point. That's a good way to put it. If you look at Adobe, I pulled up their earnings yield historically if we go back 10 years ago, maybe 1%, 1 1/2% and now it's 5 1/2 percent, 6% maybe even higher because I think the updated chart would be even higher. Yeah, five and a half percent, exactly. That is quite the multiple compression that you have to deal with. Everyone hates it now and maybe it's a good buy, especially with this buyback we will see. I'd love. Well, I guess I just don't know the industry that well so I get a bit nervous buying into stuff because I go, well I use Canva, sure, maybe I won't use Adobe ever. I don't, I, I really don't know. Yeah, it Kind of goes into my two hard piles still, despite prices.
- [11:10]
A
Yeah. My thinking here is that you are like. And I, I, some people probably really think Adobe's screwed. I heard people in on AX and Twitter calling it the. I can't even remember the name of the company, but whatever. Before digital film, before digital cameras came along.
- [11:36]
B
Kodak. Kodak. They were digital, I believe, right? Or no. Or was that they were before digital.
- [11:41]
A
Anyway, the point is that people are saying this like it's a wave of innovation that's leaving that behind.
- [11:47]
B
But.
- [11:47]
A
And I use figma, I use canva, I use Mid Journey, which is like the text to image AI, image generation. But if I went to work at an enterprise, a big Fortune 500 company with a huge marketing department, you're going to have to learn Adobe's Creative Suite. It's sticky, it's a pain to switch. The switching costs are really high. And $90 a seat at an enterprise level when you've got for professional marketing people isn't that high. And you're probably blending it with the Adobe Experience cloud to pull in a lot of the marketing, to use the analytics that you get from the experience Cloud on your customer base and to leverage it with your Creative Suite. So I just, my gut tells me enterprises won't switch. I think that's kind of a safe assumption for a lot of products, probably like software. If people use you on a daily basis, most enterprises aren't going to switch. I do think people like you and me, small businesses, user growth will probably be significantly slower, maybe even flat over the next decade. But let's say you get 4%, 4%, 5% revenue growth, slight margin expansion, call it 6% to 7% earnings growth, which is less than what analysts are expecting. If you pair that with a 5% buyback, you're getting good returns here. I mean, you're getting 10% plus per share earnings growth. That, that to me, I think those are fairly safe growth assumptions. And the valuation looks good here.
- [13:34]
B
They're going to have to climb the wall of worry. We have a question here in the chat as an entirely different topic, maybe a little less sexy, a little more political thoughts on the GSEs, Fannie and Freddie Mac. Are we experts on those businesses? No, but there's really something here that kind of takes into part the housing market and maybe we can talk a little update on that. I've seen a lot of stuff, Ryan, that in the south things are looking cheap, so you might have an opportunity to make a little purchase there at a reasonable price. Finally, there apparently these GSEs, Fannie and Freddie Mac are increasing their allocations of mortgage backed securities. Hundreds of billions of dollars is not a giant portion of the entire market, but it's supposedly going to narrow the spread between mortgage backed security yields and long term treasury yields which will overall hopefully lower mortgage rates for individual home buyers. The question was like, any thoughts on that? I would guess any decline in mortgage rates is going to incrementally increase buyers. We've actually seen that in the month of December, I think nar, which is the national association of Realtors, said they had a record month in December of the last either two or three years. We're finally seeing activity pick up and I think of right away a company such as the Real brokerage, which I've covered on the newsletter in the past year, where they are a, you know, a brokerage but they're, they're cloud based and volume is going to drive their revenue, volume is going to drive their real estate agents that they work with their earnings, which the Real brokerage is going to take a cut. And if we're going to see a reversal of, okay, we had a huge freezing of the market in real estate and if mortgage rates normalize, I kind of get the, how would I say it? There's always those real estate bulls that are telling you the market's about to unlock and they kind of, they describe it as a coiled spring right now where it's all right, it's multiple years of people stuck in a place they want to sell and then when they eventually do, it's going to be a huge jump in home sales. And I kind of understand that that could happen because there's a lot of people that are waiting for slightly lower mortgage rates. And I think 2026, especially because this government, this U.S. government wants mortgage rates lower. I think this could finally be the year that housing activity picks up.
- [16:15]
A
Yeah, yeah, I could see the case for it. I mean when you actually think about the last three, four years since the, or I guess maybe three years since the rate hike cycle, it's pretty astounding how housing has held up. Like you would think that because home prices are, were already not that affordable and when rates spiked, they became even less affordable. And you still saw, at least out of the big home builders that I was looking at, still saw pretty good buyer demand. It wasn't any like they were all underperforming their expectations, but it wasn't like they fell off a cliff. And I think a lot of that just probably goes to the fact that there needs to be an increase in supply. But like to your point, yes, mortgage rates, there seems to be a lot of pressure from this administration to drop to get rates to come down so that more people are buying homes. But at the same time.
- [17:20]
B
The you.
- [17:23]
A
Could see less supply come online from new builds if you stop having institutional buyers. Which is the flip side that this administration has talked about is they they want to take that demand out of the market.
- [17:39]
B
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- [19:38]
A
I've been doing some house tours down here in Austin, which was certainly a hot market coming out of COVID This.
- [19:45]
B
Is a buyer's market now. It's number one. I think, I think I've heard number one, you and you in West Florida.
- [19:50]
A
A lot of inventory on the little Zillow surfing that I do. The other part Is it's kind of funny talking to realtors sometimes because when they show up all of them say the same thing. Well, rates are coming down, rates will be coming down. Finally they make it sound like it.
- [20:12]
B
Was like, well, they say the same.
- [20:13]
A
Thing gets out of the way, you know, so he's like, it doesn't matter if you buy now. Rates will come down. You can refinance.
- [20:18]
B
I've been seeing hearing the same commercial since 2022. There's. It's, it's like a baseball commercial for the local baseball team. So they played a hundred times and it's always marry the rate or no, sorry, I'm getting completely wrong. It's about car lending. It's marry the rig, date the rate. It's the same thing for like cars versus houses. They've been running the same commercial. Think about how ironic it is for a three year car loan. They've been running the same commercial for the past three or four years. No changes whatsoever. So you're right. It has been many years of everyone expecting the same thing to happen year after year after year. Maybe 2026 is. We don't fully unlock the market, but this is kind of a step change from unfold freezing everything.
- [21:07]
A
Yeah, yeah, could be the. This kind of leads into the Pal v. Pulte debate as well. But before we get to that, I do I want to close the loop on software real quick. Just to go back to that. A lot of this seems to have stemmed from the Claude code advancements. I mean it really dates back to the, probably all the way back to the ChatGPT launch. But the concern with a lot of these businesses, I'm thinking about Monday.com specifically but a lot of these like task management or CRM solutions, people seem to think that a lot of enterprises, let's call it a $50 billion company with 5,000, 4,000 employees somewhere in that ballpark are going to be building from scratch and stop buying from outside vendors or there'll be an increase in that. I think that's really far from the truth. Like I just don't see that playing out. People. I'm seeing all these anecdotes that people are like, oh yeah, no, our developers can just vibe code that, that CRM. We don't need Salesforce anymore. It's. And I remember people were saying this about stripe like oh, you're getting fed up with your payments processing fees. Like just vibe code a payments processor and it's like it's only going to take like five devs, two to Three months to throw something together. Especially with Claude. Okay. You think they just set it and forget it. The you. You then have to maintain that forever. Like these things break all the time. And it's probably a worse. I guarantee you 5 devs on your team that this is not their focus. Could not vibe code a stripe or a payments processor with equal feature compatibility. So everyone else that uses that system or relies on it's going to be pissed. It's probably not going to have the same payment authentication rate. So it's going to be a headwind of revenue. And the kind of. The list goes on. This is. I'm using payments processors here but. But it's the same for task management software. Everyone that uses money.com is going to be pissed when you rip and replace for some terrible solution that five devs built and forgot about. Because what happens when stuff doesn't work? You go back to the vendor. So it just. To me, it's costly to maintain these things and a lot costlier to add more and more developers to maintain these things than to just pay for a vendor or at least price compare to, you know, like most of these industries are competitive. Salesforce has competitors. I think you can go out and you can look around and price compare. But I think it's very. And that would be the headwind. To me that's a realistic headwind to software is that pricing power is not as high because AI has lowered the barriers to entry for competitors to come along. But the idea that people are building all this in house is like insane to me. And if that really is the narrative, I think that'll get disproven over time.
- [24:21]
B
Yeah, we'll see. I don't have a hard take on the industry, but the market looks. It looks cheap. It looks cheap. I like the theses here. It's probably tough for people to keep buying. It feels easier sitting on the sidelines going, oh, I'll nibble after. It's down 50%. And there's the meme of the guy all bloody next to him. Like, I've been here for three years, man. But it's definitely interesting at the moment. I think you even have Constellation software that was supposedly unbeatable business. They're getting taken out to the woodshed as well. Yeah.
- [24:55]
A
The one thing I will say is there's not like a lot of these are in big drawdowns. They're still not cheap. A lot of them are still 30 plus times earnings. And if you do think there's going to be slower growth 30 plus times earnings is not that cheap. But there are a few here. Constellation Software, Adobe where the headline multiples are starting to look pretty attractive.
- [25:20]
B
Okay, we can't talk software forever. As in questions here that I think can relate to the Jerome Powell video and I wouldn't call it a scandal yet kind of some simmering story that could potentially blow up if things develop. But let's see. Tyler asked do you think Powell stay in his governor role until 2028 even though he end his chair role? I. I don't know and I don't think that matters. There's another question. If the Senate can't won't confirm a Fed chair, do you think Powell will stay in the chair role yet? That could turn into a huge political football if they decide to do that. If an investigation is ongoing into any criminality around the. What is it? The, the remodel, the expensive remodel. But that leads into some notes I have on Powell's video. First, these are a couple questions I have thoughts on the video can be the treasury secretary keep Bill Pulte in line. I think we need to might need to mute him permanently. Pulte just, just causes trouble for investors, the economy, a lot of stress and unneeded stuff. From what I was reading it seems like Pulte and whoever the prosecutor is, I think it's that old Fox News host honestly Janine Pirro could be wrong. Not no expert on this all this stuff but they basically went rogue and did this without any sort of coordination. And it would make zero sense really to me to mess around with Powell and turn this into a whole political scandal when his term is about to end in a few months. So I don't understand the motive and I yeah, those are my thoughts. What did you think, Ryan?
- [27:08]
A
No, I think you're right. I think like if I were Trump I would be disappointed that this happened when it did. Especially if he didn't know about it. I got a feeling he had to know about it. But you could have just let it go. Let his like run end and nominated someone that you thought was going to favor more your policies or just lower rates like you want. But now I think this raises a good point. Like people are going to be questioning the politic.
- [27:43]
B
Politicization. Politicization. It's a tough word, tough word.
- [27:47]
A
The politics involved in whoever the next nomination is. So it I watched this video and first of all I think Powell I like pal.
- [28:00]
B
He's the man. He's a true, he's a patriot.
- [28:03]
A
I think he is and to the question of would he stay in the chair if he had to until they nominate someone else. I think he would. I would not. It sounds like it's taken years off his life. Frankly, it looks like it's taken years off his life. When I watch these videos, he seems like just exhausted.
- [28:20]
B
No, no, you're true, you're right, you're right.
- [28:22]
A
So exhausted all the time.
- [28:24]
B
Yeah. To be fair, 72 years old. But yes, the before and afters are quite stark.
- [28:30]
A
Yeah, I mean, I guess he's been. Been there for a long time, but it's just, it's so infuriating. Like it's a guy is genuinely trying to do his job. Like whether you like him or not, he's trying to do his job. He's I. And poking him more and more and calling him like, oh, he's just trying to hurt me politically. Like that's only if I were him, I'd be like, all right, now I will, like now let's try to raise rates. But he's still just kind of stuck.
- [29:03]
B
To his math, basically. Yeah, I mean, he took it. Yeah, he took it. It's, it took an oath to serve the American public. It's, it's a tough situation. I hope it simmers down as an investor, but my only thought of what I can control is diversifying away from the United States. Because when you combine this with all of the fiscal spending we're going to. We had a question here that I really don't know how to answer with any conviction. Do you guys think basically a gun to your head recession or expansion in 2026? I'd probably say expansion because of all the fiscal stimulus that the government is trying to push through this year, especially along with the data center build out, just makes a lot of sense. And the fact that again, we once saw that this quarter that the bank say consumer spending is adequate. But back to the point, it feels to me like the dollar is going to depreciate. It also feels like there's more risks of an inflation re acceleration with a lot of the things coming down the line. A lot of the proposals, a lot of the spending, a lot of the basically monetary and fiscal things, we're lowering interest rates, we're going to try to pump stuff out. I mean, there's just all of these proposals. As an investor, it makes me want to diversify outside the United States. That's, that's all, that's all I'll say. Any other thoughts, Ryan, before we go to the next topic?
- [30:30]
A
No, I Feel the same way. And part of it is valuations are just expensive here. That's the other. Like that makes me want to look elsewhere. And I will say I did that this week. A little teaser here. Bought two stocks. This is more of a buy now. I got to go verify, but I bought MercadoLibre. I know I said I wasn't going to do it right after it jumped on the Venezuela news, but I thought it still looked cheap anyways. And I bought C Limited. Honestly don't know the C Limited business super well. I'm getting through the 20F at the moment and I think I might just end up selling it.
- [31:11]
B
This seems very complicated. Yeah, well, it's more.
- [31:14]
A
Yeah, I thought it was more of a vertically integrated e commerce player than it is.
- [31:21]
B
A little more TEU than Amazon. Huh. I didn't know that.
- [31:24]
A
Yeah, it. It seem. It looks like they're trying to build that out, but that's not the same as having a logistics advantage. Like trying to make a logistics advantage is not the same as happy one. So I might end up selling that. And they have a lot of loan exposure. So.
- [31:42]
B
Yeah, so it could get messy without you knowing kind of Southeast Asia, stuff like that. We have a comment that says Melly, which is Mercado Libre Sea Ltd. I think that's Topicus and Coupang are great ways to diversify outside of the States. I would agree. I'm someone that likes Mercado Libre, don't own it. It definitely could. And then Coupang is one of my largest positions as well. Yeah, I think, hey, I'm in the. I'm the middle of a Mercado Libre market right now. Their home country, Mercado Pago. I'd honestly think it's so entrenched here with payments. Think of it like the payment terminal plus your credit replacing credit cards for so many people. It's almost like Venmo meets Adyen meets Clover. I don't even know how to describe that. Meets Square kind of. It's. It's all that wrapped in one and it's all from your smartphone. I think that nubank is going to have a tough time if they enter this market because it's so entrenched in that should, I think get people bullish on Mercado Libre. You know, it's not as big as Brazil or Mexico from a population standpoint, but it's entrenched. That's for sure.
- [32:52]
A
The one thing I've heard and I think Brian Stofl gave me some sense of security around this is. I always worry that I think something is the Amazon of blank. Like, oh, it's the vertically integrated E commerce player in South America or in Brazil or in Argentina. And I'm worried that that's right. Like, that's not an accurate description of what it is. And Brian Sto, or I think it might have been, you honestly were just like. Like, it's kind of exactly what you think it is.
- [33:22]
B
Yeah, well, I mean, if you talk to anyone in South America and you like, hey, where do I buy this? You know, especially as a foreigner, you don't know exactly how all the local shops and stuff work and they'll go, well, you can maybe get it here, but it's easier on Mercado Libre. Unfortunately, foreigners can't get an account. You have to have like a local, almost passport number, ID number. But I honestly wish I had an account. So that's some good anecdotal evidence.
- [33:48]
A
All right, do we want to shift gears a little bit here?
- [33:54]
B
Small cap of the week or.
- [33:56]
A
That's an interesting one. Okay, then let's go tie one semiconductor, because hot stock today, and I think it's helping the entire hardware market as well. So my small cap of the week. I was asked last week to do Zeta, which is an advertiser ad tech player. Looked into it, and I wasn't. I'll just say I wasn't loving it. I could have kept digging, but I, as I was researching, said I also found TripAdvisor, which I found way more interesting and really liked it. So, first of all, thank you to Alex Morris, TSO Investing, for writing this up and inspiring my research here. TripAdvisor, for those that don't know, is a legacy travel company with sort of a hidden gem under the hood.
- [34:49]
B
So Gen X and boomers will know TripAdvisor, we're. We're maybe a little bit young for that.
- [34:54]
A
Yeah, we're right in the. We're in the in between where I guess Viator is kind of for us maybe, but yeah. So when most people think of TripAdvisor, they probably think of the legacy TripAdvisor website where you go and you plan your trip, and then TripAdvisor, they redirect you to hotels or an online travel agency or something like that. And then TripAdvisor collects referral fees from those merchants or hotel providers, basically. So most of their referral fees come from booking holdings in Expedia, but that business is dying. Like I said, they're basically a middleman between, like Google and hotels. I Think Alex Morris described it as click arbitrage. Basically, they're paying to show up as high as they can on the search rankings and they get, they get paid a little bit more for the, the hotel referral. Google is trying to go no click with their AI answers. So that's kind of cutting TripAdvisor out. And then the OTAs are trying to go direct to the customers through mobile app. So on both sides, they're getting squeezed. This business has gone from 1.3 billion in revenue to 850 million in revenue over the last decade.
- [36:07]
B
So probably goes to zero, too.
- [36:11]
A
Yeah, And I would guess that the runoff gets even amplified from here.
- [36:15]
B
Fair point. Yeah.
- [36:17]
A
And they're trying to, I think they're trying to downsize this business. They're cutting marketing spending, cutting employees, all that. On the other side, they have Viator, which is now their largest revenue contributing segment. And so that's why I say kind of sort of your classic good company, bad company. However, and the only thing that's given me pause as I was doing this research is this is one of those IAC like amalgamation spinoffs which I've gotten burnt on a number of times when I try to do this good company, bad company thing. Match Group, it was like, yeah, Tinder sucks, but Hinge will take care of it. The cash flow runoff from the big brands, it really hurts in the short term anyways. Viator itself looks like a really attractive business. You can think of them as. I know this is kind of an ironic analogy now, but the Airbnb for experiences, and I say it because Airbnb is going into experiences.
- [37:19]
B
They actually executed the best and the fastest on getting the experiences supply. I've looked at both platforms for certain things and Viator has 10 times the supply in most markets now. That's probably the biggest threat. Can Airbnb catch up? Maybe, but they've just been a bit lackluster in that regard for, for their entire history and I don't know why.
- [37:43]
A
Yeah, I kind of would say wait and see on the Airbnb threat, but.
- [37:50]
B
Maybe, maybe, maybe they buy it, spin it out. Honestly, they have a third segment, right? You spin out all three of these, let Airbnb take it out, and maybe get a 2.3x return from here.
- [38:03]
A
I think a lot of these businesses, maybe not TripAdvisor, you kind of just let that run for whatever cash you can. But the, the fork is their third business. It does like 200 million in revenue and it's actually profitable competitors. And this, that's just Like a restaurant reservation systems. It's very popular in Europe. It's like the resi of of Europe. I guess they. There's been a lot of private equity buyouts in that space apparently at big multiples compared to what people are, I guess you could assume giving the fork but. And I don't know, kind of a funny name. But anyway, the Viator, it probably makes.
- [38:44]
B
More sense in European languages. Maybe better in Spanish, French and Italian.
- [38:49]
A
Yeah, Viator seems like a logical acquisition candidate for Airbnb. It's probably not too expensive. And if they're really trying to make into a push into experiences, this is one of the quickest ways to acquire some supply the whole business overall. And by the way, Viator, 22% revenue growth rate since 2019 so it's growing quickly. Just turned the corner towards profitability and it seems like they can continue to scale margins. It's got a $1.6 billion enterprise value. In total they do 2 billion in revenue. They're currently doing 340 million in adjusted EBITDA. I know, roll your eyes. Uh oh, but.
- [39:37]
B
That'S true.
- [39:38]
A
Even if you strip. Even if you strip out the stock based comp. It's like 220 in adjusted EBITDA minus stock based compensation. It's five times enterprise value to adjusted EBITDA at the moment. The concern is there's basically all these headwinds at TripAdvisor which is the most profitable business by far, which is going to lead to headline multiples looking really expensive. I hate to say it but I'm interested and I know, I see has burned me a lot but I can't.
- [40:15]
B
Help but that means you're going to name the. The one from Arrested might not have.
- [40:22]
A
Worked out for them, but it might not have worked out for me. But maybe it will this time.
- [40:27]
B
They're in a 10 year drawdown. 80%. Let's look at the max one 90% since 2014 and that's cheap. Buy the dip.
- [40:40]
A
I think three years ago they were doing 400 million in operating cash flow which is much higher than now third of their valuation.
- [40:49]
B
Fourth. Yeah, we have a comment here that says. Yeah, we have a comment here that says. Time to keep an eye out for that strategic review. 8K. I think there's already been rumors about it. The company has said they're exploring options, which is what women say when they're breaking up with you. Along with executive teams, they always use very formal speech to kind of. What exactly are you doing? We're exploring our options. What does that mean? You're trying to get bought out. Yeah. You're trying to change ownership.
- [41:20]
A
Yeah. And they actually just bought this. There was two red flags here. One, it's technically a long, long time descendant of iac, Bit of a red flag in my opinion. The other one was it was a part of the Liberty Complex, which.
- [41:37]
B
Ooh, that's a double dipping.
- [41:39]
A
Yeah. And Greg Maffei is on the board, which. Look, whatever you think of these people, it seems like they always make out like bandits with good pay and shareholders are left holding a bag. That's what it sounds like in the.
- [41:53]
B
Sometimes they do okay. So. Yeah, sometimes they do bad. Hey, can you guess? Can you get close to IEC share price right now? Give a guess.
- [42:01]
A
I have no clue because I don't remember what it was when we were.
- [42:04]
B
Okay, okay, there's 40. It's pretty much where it was when it crashed in 2022. Hasn't gotten much of anywhere.
- [42:14]
A
That sounds about right.
- [42:15]
B
Based on Match group.
- [42:18]
A
Oh, match group.
- [42:21]
B
35, 31, 60, $31.60. Hinge is finally growing.
- [42:31]
A
Hinge is actually becoming a decent. I know I said this five years ago. It's becoming a decent piece of the pie.
- [42:38]
B
I know. If they buy back enough stock, the market cap will become small enough, they'll trade it at cheapest enough earnings ratio to finally be reasonable. Is that this year?
- [42:47]
A
Maybe.
- [42:49]
B
Maybe.
- [42:50]
A
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 Labs, 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.
- [43:54]
B
If you regularly listen to Chitchat stocks then we know you love analyzing individual companies. We do too. That is why I, Brett Schaefer, 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.
- [44:38]
A
Let's talk an actually good business here. Want to talk Taiwan Semiconductor?
- [44:44]
B
Sure. So stocks up big. They had another blowout earnings. They had a huge capex guide which just flows through to the entire. Well maybe we'll talk bubble watch after this too because I have a. I have a serious bubble watch and a. I don't know if you clicked on the link but hey, I think maybe, maybe one of the best ones we've ever had. But let's talk TSMC. Eat the veggies first. Q4 operating margin was 54% remember this is a manufacturing business, so that is just absurdly strong profit margins. That shows the pricing power they have in their monopoly. Ish, pretty much monopoly position. 25% revenue growth in US dollars Q1 gross profit margin guide of 63% to 65% which is growing, which means I put a question mark here but it pretty much guarantees that they're flexing their pricing power muscle to their customers. So the Apples, the Nvidias, the, the Broadcoms, the Advanced Micro Devices, everyone, they're guiding for 30% revenue growth in 2026 off of a. What I think is what at least a hundred billion dollar base. So just really absurd growth. And they're guiding for starting in 2024. So it was higher than this guide the last two years, but through 2029, 25% compound annual revenue growth. That's kind of what they're seeing at the moment. And they're looking at again this is from their customer order book. $52 billion to $56 billion in capital expenditures in 2026. That's why everything semiconductors is rallying today. You see ASML up and all that market cap is now $1.47 trillion. Could this be the largest company in the world by the end of the decade? What do you think?
- [46:36]
A
Yeah, the revenue guide is outrageous. It really is. 25% revenue annual revenue growth from here over the next five years would be insane. I wanted to highlight this piece of the transcript from C.C. wei, who's the CEO of Taiwan Semiconductor. And it's kind of funny. I don't think he speaks perfect English. So some of this, they do this.
- [47:03]
B
Repeating thing on the call. The calls are terrible.
- [47:05]
A
I'm gonna say I've never listened. I just read the transcripts. But some of it kind of reads funny as you could probably imagine. But it reads very like just brutally honest. It sounds like. So here's the quote. Someone asked him, are you worried at all about over expanding capacity if AI demand drops? Which great question. And he says you are essentially trying to ask whether AI demand is real or not. I'm also very nervous about it. You bet. Because we have to invest 52 to 56 billion dollars for the capex if we don't do it carefully. And that would be a big disaster for TSMC for. So of course I spend a lot of. I have spent a lot of time in the last three or four months talking to my customers and then my customers customers. I want to make sure that my customers demand or demand is real. I talk to the cloud service providers, all of them. Their answer is. I'm quite satisfied with their answer actually. They show me the evidence that the AI really helps their business so they grow their business successfully and he or she in their financial return. This is the part that kind of.
- [48:16]
B
Is working for us. You know what I saw? This was one of those tweet headline aggregators, so don't take it for fact. Could just be a rumor that and this maybe reflects more in Microsoft software prowess at the moment that Microsoft is spending $500 million a year on quad on anthropic.
- [48:38]
A
Interesting what happened to their Amazon could get a little earnings re rate. I know just from the markup there last the last sentence here I find hilarious of his quote. He says I also double check their financial status. They are very rich.
- [48:54]
B
Yeah, that's true.
- [48:56]
A
I'm sure that he can get a. Do they. Does he need to like talk to him to figure out that they have 100 billion on the balance sheet?
- [49:04]
B
You know what? It was also happening at the same time. Maybe they timed it for the earnings. I'm not exactly sure but probably not. But the US and Taiwan have clinched a trade pact. They're eliminating tariffs. I'm guessing Taiwan Semiconductor was, you know, all these big companies negotiate away from it. You have Tim, Tim Cook coming to the the Oval Office with some gold plated iPhone and then oh boom. No, no tariffs for you. $500 billion in Taiwanese commitment to the United States. I believe in half of it is going to be in U.S. manufacturing. So I think $250 billion in total, probably on top of that old 100 to, I think $150 billion number from TSMC. And it's all going to expand, I believe, to 12 manufacturing plants in northern Arizona or north of Phoenix. So northern Phoenix. I saw that some of the land prices in northern Phoenix just skyrocketed, and TSMC has had to go to auction for some of these things. So if you like, one of the best lucky investments of the last few years is if you were someone in northern Phoenix and you just happen to own an acre of desert or a couple acres of desert, and hey, now my land's actually valuable. Instead of 50 years from now when the city expands out there. Actually, this company from Taiwan wants to spend $200 billion to build these. These advanced manufacturing facilities.
- [50:33]
A
Yeah, I wonder if there's investors out there looking for, like, land, adjacent land that could be used for data science.
- [50:41]
B
Oh, yeah, yeah. Or someone comes in, it's probably a slice or a drop in the bucket of their overall spending costs, and they go over to the auction, they have some people, and they're like, all right, just drive up the price for tsmc. I'll give you a little cut. I could see. I mean, that's illegal, but you definitely could see something like that happening.
- [51:00]
A
Humble brag. Here I am up 50% on my tiny little Taiwan semiconductor position.
- [51:08]
B
Hey, Buffett sold way earlier than you remember when he bought at the absolute low. That's right. Sold right away. Yeah.
- [51:16]
A
You think that was him?
- [51:18]
B
Yes. He mentioned at an annual meeting it was him. He's like, I bought. And then I got nervous about the geopolitical situation a month later or something like that. So he sat on it and he was like, I don't want to deal with this.
- [51:32]
A
Hey, the old man's not afraid to change his mind. He recently did an interview, didn't he, with Becky Quick?
- [51:38]
B
I think it was pre recorded, but yes, new video footage has come out. Yeah, he says things like, live the life you want to live. It's fine. I don't think it's worthwhile watching.
- [51:53]
A
I bet he doesn't love getting questions about like, how should I live?
- [51:59]
B
Like, he's like, well, I researched stocks for 16 hours a day and played bridge. He.
- [52:05]
A
I bet he's just has like a list of platitudes. He's like, just try to be happy. Live the way you want to live.
- [52:14]
B
Uh, people. Yeah. There was a lot of news going around about how he was. He said he's still hunting for a hundred billion dollar deal or was before he retired. And I was like, yeah, that's, that's not news.
- [52:23]
A
He always is. Yeah, yeah.
- [52:26]
B
And people are like, I got an idea for you Nvidia. Like yeah, he could, I'm sure. I don't know if he's heard of that company.
- [52:35]
A
Yeah, well, I don't. I feel like there's some insurance that he could. Some insurance companies that would interest him these days. Maybe, maybe he just doesn't care anymore. But there's been a huge sell off in the Medicare space. Maybe he just.
- [52:53]
B
Well, they bought United Health, remember?
- [52:55]
A
Oh, that's right.
- [52:56]
B
So yeah, maybe they'll increase the position there. I don't know if they made for the political stuff. They want to get associated with health insurers as a wholly owned subsidiary. I'm not, I'm not sure. But hey, they seem to like it a little bit at least.
- [53:11]
A
Yeah. Also there it seems like that's a. Anyone who owns or runs the Medicare companies is hated by a lot of people.
- [53:23]
B
It seems that's true.
- [53:27]
A
Google and Apple.
- [53:29]
B
Let's do it. Yes. Yes. Well, this is another one. You have a larger position in Alphabet. I have a unfortunately psychological position that is up 100% and doesn't impact my personal portfolio. But Gemini and Siri is really pretty basic. Announcement. I think it's very understandable. Apple is going to be paying Alphabet what is reported to be about a billion dollars every year to have Gemini Power Siri. Now a billion dollars is not that much in the grand scheme of things for these companies. But my question is, is this not a moat erosion staring us in the face? Can Apple not. Do they not have the expertise that do this themselves? Because they're the ones that came out or I think maybe acquired it, but then launched Siri over a decade ago and they have no AI LLM capabilities at all. Seems like they can't do anything.
- [54:20]
A
This was a mode erosion issue five years ago. Siri has not been.
- [54:26]
B
Oh, confirmation, confirmation.
- [54:29]
A
This was not baked into the valuation, I am sure. And it hasn't changed the valuation since Siri. What Just dropped the ball, man. They were the first to market from what I remember with a product like this and it's been unusable for 10 years. Would you rather usable.
- [54:52]
B
Would you rather have them be Apple and probably spend nothing on it and just kind of let it go? Because they do have cost discipline on that operating expense line or would you rather have them been Amazon and have a slightly better product and spend a hundred billion dollars to nowhere at least Apple this case maybe get a better roi.
- [55:13]
A
I know but it's kind of awkward that they've just left it there. Like it's just link it's this horrible product just lingering out there like you would think they would feel concerned to have their company attached to a product like this. And and the other issue is like if you don't have a sense of how to solve for it. Here's the part about LLMs is there's a endless amount of cases to solve for on an LLM like and that's I assume I guess Siri's not an LLM but the could be should be this makes sense pay a little bit, give it to Gemini. I still don't necessarily understand the monetization angle from Apple's perspective but convenience I guess makes sense.
- [55:57]
B
There's no mono yeah I guess your point there. Here's what I would be concerned about. I've been told for the last decade, and I think it has been true for the most case that the iPhone is the best real estate in the world and companies need to pay a privilege to be associated with. This is why Google pays so much to have Google search be the default. This is why the App Store has insane fees now Alpha or Apple is going to Google or Alphabet or whoever and saying look, we need Gemini or Series Terrible you we need your capabilities with us and Alphabet has much better negotiating leverage. That's just such a mode erosion to me. Again, it's plain as day. And if you imagine five to ten years from now, if on the smartphone or whatever device you're using, if AI is the center point of these smartphones, if that's like the key focal point for everything and it goes through Gemini, who has the power in the relationship. I think it slowly goes to Alphabet.
- [57:05]
A
Yeah but maybe you could have said the same thing about Google powering search on on the iPhones for the last 20 years.
- [57:14]
B
I think it's. I think yes, this is your op. Like think about it with cloud code, chat, GPT, all that stuff. It's more of your base level operating system for hardware. Yeah, it's more like Windows almost, at least in my mind.
- [57:34]
A
Why do you think Apple chose to go with Google over.
- [57:40]
B
Because OpenAI stole all of Apple's employees in AI?
- [57:45]
A
I do wonder if Sam Altman has a bad relationship with a lot of the other tech executives.
- [57:53]
B
I would guess so yeah, I would think so. He's a little bit Elon Musky where people are like oh yeah, I like him. Or like screw that guy.
- [58:03]
A
There was a, this is unrelated but I, when I listened to that Reed Hastings interview they were like he served on Facebook's or maybe he still does serve on Meadows board. And I, I, he must not because this comment was like kind of a fu. To Mark Zuckerberg.
- [58:21]
B
It was. Yeah, he doesn't anymore.
- [58:22]
A
Yeah, yeah. He was like, well you know, I admire the fact that Zuckerberg's willing to like focus on really sidetracked bets. Like it, it's very audacious and it's, it's amazing how he doesn't, he, he doesn't get buy in from shareholders and doesn't care and he's like, and he's willing, he like kind of backhanded complimented him was like, yeah, you know, it's amazing how he just wastes shareholder dollars on some of these like big home moonshot bets like crypto and stuff.
- [58:55]
B
Yeah, yeah.
- [58:56]
A
There's no way you're still on that board.
- [58:59]
B
Speaking of Zuck, that leads to Bubble Watch. This is a serious one related to all the TSMC and that quote you had there, Ryan. Mark Zuckerberg had a post on threads. Be nice to have that power. It's just I'm going to make, I'm going to post something on here and everyone, everyone's going to see it because I control this. It's kind of long, but I'll read the first two sentences. Today we're establishing a new top level initiative called Meta Compute. They love initiatives, don't they? They, they just love new projects, new names. And he says Meta is planning to build tens of gigawatts this decade and hundreds of gigawatts or more over time. How we engineer, invest and partner to build this infrastructure will become a strategic advantage. It's going to be led by other people, blah, blah, blah. Do you know how much hundreds of gigawatts is?
- [59:50]
A
I saw your tweet. So yeah, I do. But it's honestly I see these things and I see people quote gigawatts and all of it just means nothing to me.
- [60:00]
B
Like you think it's not happening, never going to happen.
- [60:05]
A
It just feels like a who can say the biggest number battle and there's no timeline on these things. So like maybe they could build tens. Well, first of all, what is tens of gigawatts?
- [60:19]
B
Tens of gigawatts. Let's pull up that list. A hundred is that ten. Yeah, let's see. I want to put it in context to the size of a country. What tens of gigawatts is, it's high hundreds is like the size of Germany. Their entire country.
- [60:37]
A
I'd be shocked if they built a hundred gigawatts of capacity.
- [60:43]
B
Do they build, do they launch Meta cloud once they overbuild?
- [60:47]
A
So I've heard that they have a lot of demand. Like people have asked them if they're going to sell Compute. It's a nice backstop I guess like if, if they can't fulfill their all, if they have over. If they're over supplied, have too much capacity on Compute. It's nice that people have asked for this but I think if they were going to do it, they would have done it five years ago.
- [61:18]
B
Yeah, probably right. It just makes you think Alphabet is in such a better position.
- [61:26]
A
Yeah, I mean they, the thing is not that much has changed between now and a year ago with Google just narrative.
- [61:35]
B
They've got like 15% market share instead of 5.
- [61:37]
A
Yeah, yeah, Gemini's gotten better but a lot of that stuff was visible a year ago. They had the distribution, they had one of the highest performing models. They had all the money in the world to throw at it. They had great tech talent. I don't know, it's weird how now it feels like a no brainer and then everyone thought it was dying.
- [62:03]
B
Price tries narrative okay, we gotta close that. What?
- [62:07]
A
Do you remember Libra?
- [62:08]
B
Libra, yeah. And they got changed to something else. It was going to save El Salvador or something like that. Yeah, I didn't, I didn't hear about the pivot. Speaking about crypto, I got a press release that I'm just going to read. Let's start it out here. January 15, 2026, bit mine immersion Technologies, the leading Ethereum treasury company in the world, announced a $200 million equity investment into Beast Industries. Bit Mine also implements an innovative digital asset strategy for institutional investors. QUOTE Mr. Beast and Beast Industries, in our view, is the leading content creator of our generation with a reach and engagement unmatched, said Thomas Tom Lee, Chairman of bitmine. Beast Industries is the largest and most innovative creator based platform in the world. In our corporate and personal values are strongly aligned. We're excited to welcome Tom Lee and the bitvina as a new board. Blah, blah, blah. This is. Their support is a strong validation of our vision, strategy and growth trajectory. And it provides additional capital to achieve our goal to become the most impactful entertainment brand in the world. And here's the Kicker, we look forward to exploring ways to further collaborate and incorporate DEFI into our upcoming financial services platform. And right now, Ryan, as we're recording the Bitmine shareholder meetings being live streamed on X and in Q1 of this year, Bitmind Immersion. This is a lot. They will be launching Maven Made in America Validator Network, a dedicated staking infrastructure for bitmine assets.
- [63:45]
A
So you're about to make a trade based on a friend's text, but which u do you listen to? Is it we could buy a house.
- [63:52]
B
In Tulum.
- [63:55]
A
Get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn more@finra.org TradeSmart AI is incredible. They can teach you how to fry an egg and even write a poem pirate style, but it knows nothing about your work. Slackbot is different. It doesn't just know the facts, it knows your schedule. It can turn a brainstorm into a brief. And it doesn't need to be taught because slackbot isn't just another AI. It's AI that knows your work as well as you do. Visit slack.com meetslackbot to learn more.
- [64:47]
B
That's. That's, that's it.
- [64:49]
A
That might be the most.
- [64:51]
B
It's one of the best press releases I've ever seen.
- [64:53]
A
Yeah, I guess you almost have to. Like, if you're a business that technically does nothing. Like, if you don't, if you're not, you don't create anything, you don't provide any value, you might as well lean into it. Like, you might as well make an equity investment in Mr. Beast. Like, just do. Do the craziest thing you can. Because if, if the whole, if your business is being a meme stock, you might as well take it up a notch. Like, take it as far as you can because there's no point now. Like, if they turn around and we're like, we're going to start making stuff. They're investors.
- [65:26]
B
They're buying 5% of the Ethereum worldwide. Ryan, this is a really important business. You know what's hilarious? At least microstrategy strategy, sorry. Had a premium to nav for like years. This company went public in, I think July, or the announcement was in July, went public maybe in August, something like that. They're already trading at a discount to Nav. So the business model's already broken in less than a year.
- [66:00]
A
Yeah.
- [66:03]
B
$14 billion market cap. Yeah, I think.
- [66:06]
A
Count me out.
- [66:07]
B
People forget people. Well, yeah, count me out. Yeah. As well. I think with the market just inching higher every day, people get lulled to sleep of the craziness out there. I did a fiscal AI screener feel anyone can use for free. It's a good way to check out the product market cap above $100 million excluding biotech, price to sales above a hundred. There are 71 companies out there with a price to sales above a hundred. Outside of biotech, that's quite sizable.
- [66:39]
A
What was the market cap above?
- [66:40]
B
What about a hundred million?
- [66:43]
A
A hundred million.
- [66:44]
B
A hundred million. Yeah.
- [66:46]
A
Okay. Yeah. No, that's insane.
- [66:48]
B
I mean no company should trade at 100 times sales.
- [66:52]
A
Yeah, we got a comment here. Any thoughts on Grab since it's in a recent drawdown? Nothing yet. But if you're looking to which I am as me talking to myself here, if I'm looking to diversify outside of the US that would probably be one of the stocks in my at the top of my list to go revisit and recommendation to all the listeners. If you're interested in that business. We did do a full deep dive on it a while back. If I were researching it, I'd probably go back to my own notes.
- [67:21]
B
That's what these episodes are for. Yeah. E commerce. The grabs of the world seem like good bets. All right, Ryan, any anything else before we close out? We're going over time here.
- [67:33]
A
I think that's going to do it.
- [67:35]
B
All right, let's hit the disclosure everyone 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 guest may Old 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 once again and we'll see you next week. Hablas Espanol Spritoic.
- [68:10]
A
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