Meta's Cloud Ambitions; Rocket Lab's $8 Billion Acquisition; When Should You Trim a Winner? $RKLB

Summary

Chit Chat Stocks Podcast: Detailed Episode Summary

Episode Title: Meta’s Cloud Ambitions; Rocket Lab’s $8 Billion Acquisition; When Should You Trim a Winner? ($RKLB)
Date: July 3, 2026
Hosts: Ryan Henderson and Brett Schafer

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Episode Overview

This “Investing Power Hour” episode of Chit Chat Stocks centers on three primary themes: Meta’s surprising move to enter the cloud computing business, Rocket Lab’s ambitious $8 billion Iridium acquisition, and the evergreen investor question of how and when to trim winning positions—especially in hot sectors like semiconductors. Along the way, hosts Ryan and Brett give their takes on earnings from Nike and discuss topical listener questions, IPOs like Jersey Mike’s, and some lighter investing tropes.

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Key Discussion Points & Insights

1. Meta’s Entry into Cloud Computing

[01:38 – 10:37]

• Announcement Context: Bloomberg leaked news that Meta plans to build a cloud business selling surplus AI compute to outside customers.
• What Does This Move Mean?
  • Mark Zuckerberg had hinted at this in the last earnings call.
  • Ryan expresses skepticism: “Why would Meta do this if they're so capacity constrained? Why do they have excess compute?” ([02:30])
  • Explanation: Meta continually upgrades to cutting-edge chips for internal AI research, leaving large clusters of “good but not best” GPUs idle ([02:57]).
  • Brett: “How much revenue are you going to drive, especially when demand eventually normalizes from just getting really old chips and selling them?” ([05:32])
• Competitive Impact:
  • Meta’s move isn't a direct threat to AWS, Google Cloud, or Azure (“Not a huge financial driver for Meta at all. But it's better…than letting GPUs sit idle.” — Ryan, [04:54])
  • It’s more a shot across the bow for “neo-cloud” players like CoreWeave and Nebius.
  • Brett (discloses he is short neo-cloud names): “These companies just chased when demand was outstripping supply… It's the same thing as the bitcoin mining craze. Eventually dies out.” ([09:06])
• Market Reaction:
  • COR (CoreWeave) stock dropped ~10% on the news; reveals fragility and lack of true moat in the GPU resale model ([10:00]).

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2. Big Tech, AI Lock-In, and Enterprise Strategy

[10:37 – 15:27]

• Meta and Microsoft valuation discussion:
  • Meta EV/EBIT: just under 17x; Microsoft: 19x ([12:27]).
  • Microsoft enjoys strong enterprise lock-in via Copilot, even if end users would prefer rival models: “It's not even about the best model—it’s what you're permissioned for.” ([13:29])
  • Brett: “Enterprises move slowly. Eventually, maybe, the better models get approved, but right now, Microsoft’s ecosystem wins due to inertia.” ([14:23])
• “AI winner or loser?”: Skepticism over Microsoft's “innovation” (or lack thereof); most of their “winning” comes from enterprise lock-in rather than product superiority ([15:10]).

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3. Listener Questions – Contrarian EU Carmaker Renault

[15:44 – 19:56]

• Listener asks about EU automaker Renault (trading below net cash).
• Brett: “I never want to invest in cars, but maybe if there’s a real catalyst.” ([15:44])
• Ryan: Used to like “net-net” plays, but too much “brain damage” to stay on top of such names—prefers durable growth over value plays now ([17:34]).
• Both agree: Given the “abundance of value in durable growth companies” currently, carmakers aren’t of interest unless “opportunity cost” changes ([18:18]-[19:56]).

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4. Rocket Lab’s $8 Billion Acquisition of Iridium

[29:09 – 35:23]

• Deal Details: Rocket Lab to acquire satellite comms operator Iridium (half cash, half stock).
  • “Most transformative deal in the space industry” according to the release ([29:09]).
• Strategic Fit:
  • Allows vertical integration: launches + satellite production + global spectrum ([29:09]-[31:13]).
  • Brett: “Using highly-valued stock for the deal is smart, but… it’s only because the stock is overvalued. Launch capacity is Rocket Lab’s core differentiator.” ([31:13])
  • But, “Are we seeing a flood of satellite supply? Is the market really big enough?” Good internet coverage already exists in the US—hard to see the TAM ([31:13]).
• Potential Risk: Excessive optimism in the sector; Brett compares to Berkshire’s use of its own overvalued stock in the past (General Reinsurance deal, [34:21]).
• Capital Strategy: Hosts favor permanent ATM (at-the-money) offerings and buyback programs rather than sporadic announcements ([35:23]).

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5. Trimming Winners: Semiconductors & ASML

[37:38 – 42:37]

• AI “Picks & Shovels” Have Gotten Frothy
  • Brett: “New company Etched came out of stealth... Motley Fool’s lists show semi ETFs are up 60% year-to-date, and 20% of the S&P is semis.” ([37:45])
  • Asml now trades at 66x earnings: “It’s getting really hard to ignore that sell button.” ([40:52])
• Hosts’ Approach:
  • Ryan: Skeptical—“I can’t think of any time paying 60-70x for a $50B+ company has worked out. Maybe there are exceptions, but even ‘bulletproof’ companies at these multiples rarely outperform over the long term.” ([41:07])
  • Brett: “It probably makes sense to trim if it’s a giant part of your portfolio... don’t sell everything, but heavy trim depending on weighting and age.” ([42:16])

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6. Earnings Recap: Nike

[21:38 – 27:39]

• Nike continues to disappoint investors:
  • Revenue -2% YoY; footwear -1%, apparel +1%, equipment -3%.
  • Wholesale up, direct down; management claims they’re “laying the groundwork for our sport offense…” ([23:13])
  • Brett: “Nothing to get excited about.” Ryan: “Nike is working hard to stay in place… On the treadmill.” ([23:19]-[23:34])
  • Is Nike’s brand still sticky? Strong new competitors (Hokas, On, etc.) mean further market share erosion is likely ([23:41]).
  • Hosts are unimpressed, skeptical about “culture” as a moat ([25:36]-[27:39]).

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7. IPO Watch: Jersey Mike’s

[42:37–48:44]

• Blackstone is spinning Jersey Mike’s via IPO; 3,300 locations, $4.3B system sales, AUV of $1.4M (lower than Chipotle, Cava, or Portillo’s).
• Strong same-store sales comp off 2020 likely exaggerated by the COVID rebound.
• Brett and Ryan are both negative:
  • “It feels like there’s been a lot of brand deterioration… I’ve been underwhelmed with the value and the sandwich.” ([46:07])
  • Ryan refers to his “never invest in restaurants” rule and recounts Subway’s overexpansion as a cautionary tale ([47:50]-[48:01]).
  • On consumer-facing brands: “Habits change rapidly—there’s no lasting moat in fast casual or QSR.” ([48:14])

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8. Small Cap Deep Dive: Leon’s Furniture

[48:44 – 51:57]

• Canadian furniture/electronics retailer, suggested by a listener as a “hidden real estate” value play.
• Financials: market cap CAD $1.65B, 3.7% dividend, “sub-10x operating income, clean balance sheet.”
• Brett is uninterested due to flat revenues and lack of growth (“not seeing that growth… You have to have that combination of revenue & earnings growth with good valuation” – [50:55]).
• Ryan prefers quality compounders (Copart, Accenture) trading at similar multiples but with higher potential ceilings ([50:57]).

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9. Fun and Listener Q&A

[51:57 – End]

• Absurd Stock Names:
  • Crowd favorites include: Big Bear AI, Pony AI, Applovin, Meta, Alphabet, Shark Ninja, Smart Bird AI.
  • Hosts note that some “normalized” names remain dumb, and audience agrees Meta’s rebrand hasn’t changed usage: “People still just call them Google.” ([53:33])
• Lamest Reasons to Buy Stocks ([54:21]):
  • Stock splits, international expansion, “right quadrant on Gartner chart,” “fast revenue growth,” politicians or smart money buying, product popularity/anecdotes.
  • Ryan: Chasing “face value” low multiples is common but dangerous (“the only thing that matters is cash generated from here” – [56:16]).
  • ROIC, NPS, Glassdoor ratings, or Gartner scores are backward-looking or manipulable and shouldn’t dominate a thesis ([57:08]-[59:12]).

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Notable Quotes & Memorable Moments

• On Meta’s Cloud Play:

  • Ryan: “The idea they’re moving toward more cutting-edge workflows and the older chips just sit idle—better to offer them to someone than let them gather dust.” ([02:57])
  • Brett: “If you’re just buying these and reselling them, especially to other hyperscalers, I don’t see this business model lasting… It’s the same as the Bitcoin mining… It dies out.” ([09:06])

• On Cloud Lock-In:

  • “Unfortunately, Microsoft Copilot, whether or not it’s our preferred model, is the one that we’re permissioned for… huge lock-in value.” — Ryan ([13:29])

• On Rocket Lab Acquisition:

  • Brett: “They’re using highly-valued stock… which is only advantageous because the stock is overvalued.” ([31:13])
  • “Are we seeing a flood of satellite supply? I think the addressable market in the next 5-10 years is not as big as people think.” ([31:13])

• On Nike:

  • Brett: “Nothing to get excited about.” ([23:19])
  • Ryan: “They’re on the treadmill—working hard to stay in place.” ([23:34])

• On Trim Decisions (ASML, Semis):

  • Brett: “It probably makes sense to do a little trimming if it’s a giant part of your portfolio…and your age… but don’t sell everything.” ([42:16])
  • Ryan: “I can’t think of any time paying 60-70x for a $50B+ company has worked out well. Even bulletproof businesses can turn in bond-like returns if overvalued.” ([41:07])

• On Culture as a Thesis:

  • Ryan: “Culture is not a moat. Culture's not a thesis… With large public companies, culture itself should not be the crux of a thesis.” ([25:36], [27:39])
  • Brett: “If you're a buy-and-never-sell type, it’s tough to go, ‘Well, they have a great team right now, so I’m going to bet on them forever.’” ([26:28])

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Timestamps for Important Segments

• Meta’s Cloud Entry: [01:38–10:37]
• Big Tech, AI, and Enterprise Software: [10:37–15:27]
• Renault (Listener Q&A): [15:44–19:56]
• Rocket Lab’s Acquisition: [29:09–35:23]
• Nike Earnings Discussion: [21:38–27:39]
• Semiconductor Trimming & ASML: [37:38–42:37]
• Jersey Mike’s IPO Commentary: [42:37–48:44]
• Leon's Furniture Small Cap Review: [48:44–51:57]
• Fun Segment: Stock Names & Bad Investment Reasons: [51:57–60:04]

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Tone & Style

The hosts maintain an analytical yet conversational and accessible tone—challenging narratives, poking fun at industry buzz, and inserting candid “war stories” from their own investing journeys. Their skepticism towards market fads and careful focus on long-term business quality are consistent throughout.

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Conclusion

This episode offers a rich, wide-ranging discussion for investors—combining sharp analysis of current news (Meta, Rocket Lab, IPO trends), recurring investing dilemmas (when to trim winners), and practical wisdom (beware of shallow narratives, resist backward-looking metrics). For listeners, it will provide both thoughtful frameworks and some entertaining takes on today's frothy investment landscape.

Transcript

[A]

For the past three years, IBKR individual clients averaged 24.3% annually, beating the S&P 500's 23.1%. Lower costs and 170 plus global markets matter. Interactive Brokers Member SIPC Visit ibkr.com performance welcome to Chit Chat Stocks, a podcast that helps you find your next great investment. I'm one of your hosts, Ryan Henderson, and I'm joined today as always, by the one and only Brett Schaefer. This is our Week Investing Power hour episode. We do these every Thursday live at typically 5pm Eastern time. We're doing this an hour early because Brett's got some travel plans, but yes, usually 5pm Eastern Time on Thursdays Live on YouTube. So if you ever want to tune in, ask us some questions, you can head on over to YouTube, look up chit Chat stocks, and it'll be right there. On these episodes, we talk all things financial markets. We've got earnings from this week, a few stragglers who left from earning season. Really Nike probably being the biggest report there. Meta announcing that they are potentially a new cloud provider. We could talk about what that means for the market, what that might mean for aws, Google and Azure and some of the other cloud businesses as well. We've got an IPO from a familiar consumer brand in Jersey, Mike's, and then a big acquisition from Rocket Lab as well. Plus a couple other headlines that we can talk through, but I'll leave it there. Brett, what do we want to talk about first?

[B]

Oh, let's just, let's talk Meta. How about that? That was the biggest news of the week. Lot of people in the substack chat wanted us to talk about it. I will say we have a lot of listener questions we'll get into, so I think we'll have that. It's a little bit of a slow week right in between earnings. I think the transition from one quarter to the next is always the slowest week for us, unless there's some sort of massive ipo. But yeah, let's talk what Meta's doing here, Ryan, because maybe to frame it, we've seen conflicting reports out there of compute shortage of compute, too much oversupply. Meta has to go out to places like Core Week to find computer, but now they're renting things out. So it's confusing to take the listeners through some context here and then we can discuss it.

[A]

Yeah, and I'm not sure this announcement's going to answer any questions realistically for investors, but on Wednesday this week, Bloomberg leaked. Someone must have told someone at Bloomberg that Meta is planning to build a cloud business selling their surplus AI compute power to outside customers. Mark Zuckerberg sort of alluded to this on the last conference call, so it shouldn't really be that big of news. Honestly, this is just kind of confirmation actually. On the last conference call analysts asked a question about this and Mark's words were it is definitely still on the table. But here's sort of an I was curious, like why would Meta do this right? If they're so capacity constrained and that, that seems to be the. The what every big tech company is saying is that they are consistently compute constrained and they need more compute power for AI, why then do they have excess compute to begin with? So here's a quote that I found kind of interesting. It says Meta is continually upgrading to cutting edge chips for internal frontier model research such as their Muse Spark models. This leaves vast clusters of highly capable previous generation or non core GPUs idle. So from that sort of logic, the idea that they are moving towards models or their AI workflows require the latest generation of GPUs or at least are better optimized by the latest generation generation of GPUs then yeah, I guess in theory if you've got idle chips, it's better to offer them to someone than to just let them sit there on some, some rack in a data center. So from that side of things, I think it makes sense, assuming that that is the case for Meta. But there's a lot of sort of misleading headlines related to this that does not make them like an AWS competitor, maybe in like the smallest capacity. But when you think about why does a company work with Google Cloud or AWS or Azure, There's a lot more to it. Those hyperscalers or cloud providers are more of an end to end solution and there's databases and a lot more that goes into it other than just renting hardware. So I think this would put most likely put Meta more on the playing field with the other neo clouds like Core Weave, where Basically they're buying GPUs in bulk, renting them out and earning a spread or trying to earn a spread on the difference. So I don't think this will be a huge driver financial driver for Meta at all. But it's better I guess than letting GPUs sit idle maybe.

[B]

Yeah, they can. They could resell them if that was necessary. How much revenue are you going to drive? Especially when demand eventually normalizes from just getting really old chips and selling them to who, who, who wants that? I. I'm not sure. Like, yeah, why would they not. Why would a customer, for example, comedy you work for sponsor fiscal AI, one of many, many cloud customers out there. Why wouldn't they go to Google Cloud or AWS or Azure when you have the full suite? This feels like nothing. The stock initially reacted and went up, but today I think this is two days after the announcement, it's back down to where it was. And you're in that same position where I think meta, they can research all they want on AI, they can keep up on the cutting edge, they can spend the billions and billions and billions of dollars, but I think they're still searching for a business model besides ad optimization.

[A]

They can even hire Kyle Kuzma to come in and speak to their experts on AI. So yeah, it's, what's the expression, kind of a solution looking for a problem. It feels, maybe that's the wrong analogy here, but they are, it feels like they want to be in the discussion always. They want to be in the AI discussion. They want to be perceived as sort of a leading AI player. And from everything I've read and everything that I've seen on, on the advertising business, it makes sense. Like, like the, the AI is helping for targeting, retargeting. I mean they continue to improve that. That is the gist of their business. But sure, where do we stand with reality Labs at this point? Where, where else is the AI spend going? I know that like Meta AI was one of the most downloaded apps for a little while, but what is that worth? Like you can, you can spend a ton of money to become like a leading downloaded app for a little while, but what are customers staying on meta AI like? If you look at the market share charts or market share trends among the lady models, Meta's nowhere near the top. So I just, yeah, I think there is probably still a lot of wasted spend here. I say all that and I still think this might be, this might make sense as a long. Maybe this. I don't know if it's psychological long or, or should be a real long, but I think every time it's traded at a multiple this cheap, it's. It's worked out.

[B]

Yeah, I just don't like Meta, but it probably works from here. I wish they weren't pouring money into Capex and were pouring money into a buyback at these levels. We have a comment here from Tyler says haven't looked at the core weave stock price, but Meta renting out CPU capacity or maybe GPU capacity Must be bad for Core Weave. I think this announcement probably says more about the Core Weaves and Nebiuses and I think there's others out there. There's a lot and a lot of market cap in what they call Neo cloud players which maybe they have software capacities as well. But again if you're just buying these and reselling them, especially if you're reselling them to other hyperscalers, I don't see this business model lasting. Like why in five years does it need to exist? I do not know. It's the same as the bitcoin mining. All these companies which Core Weave used to be a bitcoin miner, they were just chasing when demand was outstripping the supply and everyone wanted to get in on the bitcoin mining craze. It's the same thing I think that eventually dies out. Disclosure. I am short neoclouds so I am biased a tiny bit of part of my portfolio. But yeah, if anything Meta probably not much but Coral and Nebius probably says yeah, maybe we're inching towards more efficient supply getting out there.

[A]

Yeah and this news was not good for COR. I think the stock is down around 10%, maybe 11% since this leak was was dropped. I agree. I mean it also kind of speaks to maybe the fragility in the business. Like where's a competitive advantage in that business model? You just described having GPUs like you had them at a moment in time when people needed them. That to me is not a lasting advantage. They fell into a business model here that I don't think is durable necessarily.

[B]

And frankly they just been the most aggressive with buying them with debt at probably any price trying to get the contracts in there. You've seen companies like AWS be much more disciplined taking the long term route. See we have a comment here. Meta would need to have from here to get back to its trough. EV to EBITDA levels when it went sub 100. EVA to EBITDA levels are, you know, it takes a lot on the balance sheet. Blah blah blah blah blah. Thank you for the comment there. Yes, it's not as cheap as it was but it probably looks okay the multiples at something like 20. I like it, don't love it.

[A]

Yeah so I guess question for you here Meta right now at maybe I can. Let's pull this up on fiscal real quick just so I have the exact numbers. I'm going to go EV to Ebit. EV to EBIT for Meta stands at Sorry, one second, Hold on, pause. I know this Makes for terrible audio. Let me basically I'm comparing Meta to Microsoft. Which would you rather own here and then let me actually get the numbers.

[B]

Okay. Neither. It depends on the multiple but Microsoft doesn't seem to to be that attractive either. If this growth from AI runs out from the cloud business, they do not have the low cost capacity like Google or AWS to really win market share. I think they're in third place from kind of a competitive standpoint but again I'm no expert on the cloud so the.

[A]

And just to put the numbers on it, Microsoft stands at EV to EBIT of 19 times. Again, all these numbers are very different if you look at it on a free cash flow basis given some of the capex and then met as just under 17 times so not that far away from each other. The something that's underrated. I don't know if we've discussed this on the show, but we've. In, in my job at Fiskel, we've been talking to a lot of companies basically about you know, what AI, what model are you using in your workflows. And a lot of them basically say unfortunately, Microsoft Copilot, whether or not it's our preferred model, it's the one that we're permissioned for, it's the one that we've got, you know, we've got this massive deal with Microsoft where everything's bundled in and they've got to go with Copilot. And when all the teams are on the same system, obviously you want that kind of uniform software usage. So I, I wonder if, I mean obviously Claude is still benefiting like Claude's still growing, same with Codex. But I think people might underestimate how valuable that lock in is. Even as we have serious competition from the other AI models, I don't think

[B]

that's a reason to buy the stock. What, where, what is you're just basing on. It's essentially the same as like the old cable TV business where you go, this is all you can use. There's potentially better models out there for watching television, but until that happens, we're locking these customers in. Eventually Claude and Codex and what have you, I think will get approved, right, if they're superior, if all the startups are used,

[A]

maybe, yeah. I mean it moves slowly. Enterprises are still getting CLAUDE licenses. Yeah, sure, like, but it feels like all these AI models have been supplemental to Microsoft's existing ecosystem of products. Whether that's PowerPoint, whether that's Excel, like you layer it on top. I don't think it's supplanting these businesses like Microsoft to me is benefited like they seem like an AI beneficiary as opposed to any sort of. What's the narrative? What would the case be for them to be sort of an AI loser? Just too much spend on cloud?

[B]

Don't know. I don't know. I just don't know why they're an AI winner. They have no innovation. What any innovation have they brought out? Name one copilot.

[A]

Brett, that's.

[B]

I guess, I guess that's, that's fine.

[A]

I've never actually used copilot.

[B]

So hey, I work for a larger enterprise. It's Google Drive. Maybe because everyone's remote, but Molly Foley uses Google Drive and just got cloud. Cloud enterprise. So that's an anecdote for you.

[A]

There we go.

[B]

You can't invest on anecdotes. I know that. Of course. Microsoft Office 365, which I think they subscribe to as well. There's a lot of money getting spent on enterprise software. All right, should we have this question here from Tobias? He wrote a nice one. Any interest in super contrarian EU carmaker Renault Market cap less than net cash plus high visibility assets, multiples of market cap, Operating business plus bank division equals bad optics and requires analysis. Yeah, I mean first look, I never want to invest in cars, never want to invest in the automotive business. But if there's something that's trading well below net cash and there's going to be a catalyst there, I would like it. The only thing is right now we just did that episode on Falling Knives. The I just see so many opportunities and kind of durable growth businesses that I really do not like investing in something that I'm not confident in. Kind of a long term growth trajectory. If I'm going to replace that with something that is, you know, a durable grower. Where Renault I go, all right, you get this one time boost. Now what? You research your investments, you analyze markets, you manage risk. But did you research your broker? For the past three years, IBKR individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. IBKR's lower trading cost compared to competitive rates, efficient execution and access to more than 170 global markets helped investors keep more of what they earn and put more capital to work over time. The broker you choose matters. Interactive Brokers member SIPC if you care about performance, find out why the best informed investors choose interactive [e-mail] performance.

[A]

Yeah, if I were If I cared more about how my portfolio does in the next quarter or two, I'd probably be more interested in this. There was a time and place where these sort of. I don't know if it could technically be called a net net, but I used to be more excited about putting them into my portfolio where maybe you can get a double or triple and there's high margin of safety. But I'm just not doing enough daily maintenance and work on, on my portfolios to have it be worth the brain damage of, of owning a carmaker because there's a lot of headaches associated with that.

[B]

Yeah, I like it if I don't have opportunities in what you might call quote unquote compounder land. But if I'm seeing tons of opportunities at 15 times forward earnings, 10 times forward earnings, maybe you looked out, you're at 10 times earnings a couple of years out on some high quality businesses. I'm not going to replace that for something that might double if you're right, but then you got to replace it with something else. You really need to be in a moment where you're having trouble doing anything with your cash like a 2021 period, 1999 period, maybe a year ago when a lot of these compounders were doing well. But right now anything that's not AI is getting crushed. And there's just. I think I have more than 100% of my portfolio of opportunities like that I would buy before Bruno.

[A]

Yeah, I think we're saying all this without actually looking at the numbers. We're basing it off what you posted here and just assuming that sort of a net net where you can get a double or triple in a good scenario. But I agree. We just did The Fallen Angels vs. Falling Knife episode and it felt like my takeaway was that there are a ton of good businesses out there, very high quality businesses with large reinvestment opportunities that can, that trade at very attractive multiples. Like it feels like there is an abundance of opportunities in quality companies which I can't remember the last time I was saying that. So yeah, say opportunity cost kind of doesn't interest me at the moment, but maybe I should take a better look at the numbers.

[B]

That's the same thing with me with big tech. I think you get solid returns from some of these but with the potential with smaller companies, especially if you're younger. I was looking up way to comma here that there are rumors that Microsoft is going to buy OpenAI. I didn't see any news, but I looked it up and CNBC AI age something news thing they have says that Microsoft commits $2.5 billion and 6,000 employees to new AI implementation unit. That's great. I guess that's going to get them more embedded into enterprises.

[A]

But wait, like outward like them. Sorry, Microsoft implementing AI or them helping customers implement them helping customers. I mean whatever. Yeah, these are basically just sales folks that I could see that being worth the spend. Honestly it's.

[B]

Yeah, but it's more, it's costly. Like okay, you're going from an age where all these companies were capital light, employee light if they really wanted to be to capital intensive consulting firms.

[A]

Sure. But these are probably like largely commission based compensation structures. So it's I'm guessing the same as

[B]

like Accenture sort of.

[A]

I don't, I don't know, I don't know the details here but if these are just sales folks, it's like, it's implementation.

[B]

So I think after like. All right, let's get it.

[A]

Okay, all this is it. What do they call forward deployed engineers?

[B]

Yeah, contract workers. Yeah, well they, they have a nice branding on that name I think,

[A]

I think that could be fine for them. I mean they already employ a massive sales force I imagine to sell like non AI solutions. So my guess is maybe these are folks that are specialize a little more in co pilot or they're poaching them from Claude or anthropic or whatever but could be worth it. Let's talk Nike earnings real quick. There isn't a whole lot to dissect here. Nike has been, to say it politely, a horrendous investment over the last decade. Revenue this quarter was down 2% year over year which isn't bad. I think that was a beat. Footwear was down 1%, apparel up 1%. Equipment minus 3%. Gross margins did improve partly. There was like one time accounting impact there. But the story here is that they are moving in the right direction with their wholesale partners. So wholesale grew 4% year over year. Direct revenue collapsed 7%. Here's a quote from the CEO. We made meaningful structural improvements to lay the groundwork for our sport offense which, whatever. It's so funny when Nike has to come up with a corporate strategy and they always name it something related to sports. Anyways, across our team culture, innovative product, brand strength and how we serve consumers in our countries and cities. While we continue to face top line headwinds, we are encouraged by progress in performance product and are focused on consistent execution. Improve profitability in scaling our wins to realize our full potential.

[B]

Nothing to get excited About.

[A]

I feel like this is going to be in no man's land for a while. Forever.

[B]

Forever.

[A]

It's. They're working hard to stay in place. What's that analogy you use? They're on the.

[B]

They're on the treadmill.

[A]

On the treadmill.

[B]

On the treadmill. Like maybe they went to incline. Yeah.

[A]

Even if they get their marketing mojo back, even if they sign the right athletes, first of all, they are already massive. I think it's $30 billion in annual footwear revenue, which is still the largest in the market by a long shot. And there's competition all over the place. Is it if for the average individual, does Nike hold the same brand value that it did 10 years ago? In a world where there's Hokas on running shoes, Adidas, I mean, obviously those Adidas, Puma, that kind of stuff was around a long time ago, but feels like you finally got a new entrant. New. Several new entrants into the space that are just going to erode market share for a long time.

[B]

You get to the point where you don't know what's going to happen. Some years or some eras, Hokas were doing well. Then there was the. On sneakers, it's so difficult to say, well, Nike's culture is vastly superior and they just have this culture of innovation. Yeah, they probably did for a couple of decades and that was a very long time. But we've talked about this before. There's no predictability with this business whatsoever outside of a little bit of kind of the Jordan really core sports advertising, you know, locking in with sports teams type stuff that can give you a little bit of a base, but, you know, like merch sales for jerseys and things like, things like that. But besides that, there's nothing to get excited about here whatsoever from any sort of competitive advantage. And I don't even care if they just start accelerating growth because who's to say when it peaks again, they could have a couple of viral products. Doesn't matter.

[A]

Al, I'll go out on a limb here and say culture is one of the most overrated things in investing, I think. Yeah. Culture is not a moat. Cultures not a thesis. Look, a company might have a great culture, but every company says they have a great culture. And what you would describe. What would you describe as the advantages of a great culture? You hire good people, Your people are more productive. Maybe they generate higher revenue on a per employee basis. Maybe they have more efficiency or they're more productive rolling out features, whatever. That's not like. I wouldn't Describe that as culture, necessarily. I'd say that you have assets in those, those specific people.

[B]

But yeah, you like that. But if you were a buy and never sell type, which we're the ones that like that we want to buy something, hopefully they never give us a reason to sell. It's tough to go. Well, they have a great team right now and then say, I'm going to bet on them forever. Now, There are some CEOs that have a fantastic track record, some founders you're betting on, but those founders typically work in tandem and also build businesses with advantages. That's what they're focused on.

[A]

I mean, when you're looking at a company that's like a startup or you're a VC. Yeah, culture, culture. The people matter. Yes, 100%. But you look at. Okay, let's take Copart for example, because we just did an episode on them. It'll come out next week. Shameless plug there. Is the culture going to change the amount of people that get into accidents in the next year? No, it's like there's some of the stuff is outside their control and you can. Again, maybe there's some sort of angle you could play there. But at the end of the day, I think with large public companies, culture itself should not be like the crux of a thesis.

[B]

Yeah, I agree, I agree.

[A]

I think it's kind of lazy thinking, in my opinion.

[B]

We have a comment here that says, does chit chat stocks have good culture? Yes. Two people, we never have any have a culture. We have good ROI on time spent, but that's exactly it. Say, for example, instead of us, you have like the number one investing show, Something like that. What are the ones that just got acquired by OpenAI? They're worth a lot, growing fast. You could say they have a good culture, but that's not an investing thesis in some sort of media asset, like, Right.

[A]

No, no, it's not. Someone says here every company says they do. Yeah, I agree. Danaher operationalizes theirs, it seems.

[B]

Yes.

[A]

And then it says stuff like Les Schwab employees for life mentality. Look, the people that are talking about the culture, like, yes, maybe it's discussed from top down. But if I go to the nearest O'Reilly and I say, man, how do you feel about this O'Reilly culture? To the parts specialist that's there, he's going to be like, what on earth are you talking about?

[B]

Like, yeah, they might say they treat them well, but that can't be your only part of the thesis. Dana Herstock. Down, down, over the last five years. Maybe that has spin. Google Finance might be misleading me, but down 20% cumulatively in the last five years. Culture isn't everything. Valuation management, which I like to talk about, as well as business quality.

[A]

If they're. If their stock dropped, Brett, that means their culture deteriorated.

[B]

Yeah, that's fair. That's fair. All right, other topics. What about Rocket Lab? Getting into the space economy, I guess more into the space economy game. They are buying iridium for $8 billion. Here's the quote from the press release. The acquisition will be one of the most transformative deals in the space industry. Joining together two innovative American companies to play a leading role in the US Space economy emerges Rocket Lab's leading launch capabilities in satellite manufacturing. With Iridium's global satellite communications network spectrum and 500/strong partner ecosystem to create a competitive, vertically integrated space company that designs, builds, launches and operates its own constellations, delivering critical communications capability to millions of users worldwide. A lot of buzzwords, but it makes sense. And for someone that hopes to add Rocket Lab to my portfolio someday, when it's down 80% from here, I like that they're using half cash, half stock. But they also raised a bunch of money through a stock offering recently. I think they're still at something like 60 times sales. So again, using the stock here is advantageous, but it just the reason that's advantageous because the stock's highly overvalued. I like the deal here. They're getting the spectrum. There's satellites up there and it really shows that the key for them to kind of fully on compete with SpaceX within the launch and space economy stuff is to get that larger rocket going and then they can launch more satellites, build this network. But on the other hand, you have Starlink, you have what's Amazon's leo. Leo, Amazon, Leo, ast, Space Mobile. I know people like that one. You have all these companies trying to build competing satellite constellations. Does it not look like we're seeing a little bit of a flood of supply? Like, for example, in The United States, 99 of the time you get pretty darn good Internet from your home provider and your mobile provider.

[A]

I don't know. Lately, Brett, lately having some troubles.

[B]

The. Yeah. Well, there was, I think 10 things. Parents, house, right. There's I think 10 things that the Xfinity guy said was ancient when we called over the technician. So now it's working. But there are still issues you have with the satellite Internet as well that again, you can't be like behind a tree. You can't be blocked, things like that. It's not a, oh, we can just go to build a bunch of satellites. We're going to go to the whole world and everyone's going to buy from us. I think the addressable market in the next five to 10 years is not as big as people think. Yeah. There could be innovations that basically allow it over the next few decades for everyone to just have satellite Internet always on, always on your phone, on all your devices, high speed, what have you. But the flood of supply here. It's expensive to build these things. You don't know how much you're going to earn. I like that rocket lab and SpaceX have that launch capabilities because Amazon hasn't been able to get that many satellites up into orbit. It's been slower. And same with AST Space Mobile, not as fast as they wanted. I think Rocket Lab's the best positioned. But can we not say there's a little bit of a potential oversupply of satellites coming on? What. What did Simon say on that episode? We had there's like a hundred thousand backlog. That's a lot.

[A]

Yeah. I mean there are clear advantages to having the two tied under the same umbrella. Obviously you don't have to pay to get your catch a ride up to space. So from that perspective it makes sense. This is for me, this. When you trade at a really premium multiple, I think this is probably the best thing you can do other than just continuously issue stock is.

[B]

It's a. I think it's great acquisition. They got the spectrum too. Yeah. That's important.

[A]

I've always thought like trading, trading at a ridiculous multiple. People, people think it's great, but it's kind of the kiss of death sometimes for, for companies it can be really challenging when things go poorly or, you

[B]

know, when expectations change so employees can't realize, hey, we were trading 100 times sales. What happened to my stock went down 80%. You can't. It's hard to explain that to your worker.

[A]

Yeah. And from the employee's perspective, you think the business is falling apart. Like, well, the business is struggling because their stock's down and it's like maybe nothing has changed. I think the best thing you could do is try to make sensible acquisitions that. I mean, you look at even Berkshire did that back in the day with. What was it? General Reinsurance. Was that the one they bought through stock when.

[B]

Yes, in the 90s. They used the stock. It also at the same time. This is why Buffett's the goat at a savant. They Added a bunch of bonds to their portfolio and diversified of the portfolio with their whole insurance operations. While at the same time I think 30% of their net asset value. Something around these lines was Coca Cola trading at 50 times earnings. So they didn't have to sell Coca Cola. They basically used equity from themselves and look through with Coca Cola to acquire General re diversify. I didn't have to sell Coca Cola. Take the taxes. Yeah, pretty smart move. Now this also smart but I, I think for you have to almost have these at the money offerings when you have 100 times sales and just force the stock down. Am I crazy and say look, until we get down to like 20 times sales, which is still absurd, let's just raise $10 billion.

[A]

Yeah. I wonder if I maybe don't quite understand the mechanics of having like an open ended at the money offering. Like is that can companies just do that indefinitely? Can they? Why can't they just do that all the time?

[B]

Yeah, I like companies that have open ATMs and open buyback programs. Because when you have the open buyback program, you don't have the curse of I announce a buyback program that my stock goes up 10, ruining the ROI of said buyback program. Just have an open buyback program. Don't announce a billion dollar buyback program every six months. It's very strange to me.

[A]

Yeah, I think the longer that I've been investing, the more I've realized how big of a difference it makes to have like a founder at the helm. Because a lot of the capital allocation just looks out way further. Like with buyback programs so many times if you get the wrong person in the seat, they or someone that's only prioritizing the next couple years because that's what their compensation is based on. They're going to time a lot of this stuff poorly. It's also one of the reasons I like dividends. I mean I don't, I'm not a dividend truther, but. Okay, let me put it this way. I like dividends in my Roth.

[B]

Yep.

[A]

It's less likely for the dividend to get pulled. Whereas take Adobe for example. They're buying back a bunch of stock, all of a sudden they spend $2 billion on a SEMrush acquisition. Why not keep buying? You know, they can slow the buyback down. Whereas once you state what your dividend is, you risk losing a ton of investors. And management knows this. You risk losing a ton of investors by pulling it or changing it. So I don't know. I think buyback programs yeah, My favorite scenario is when companies just have them open at all times. I don't like these. We got the. We got board's approval to finally buy back our stock.

[B]

Yeah, exactly. Did you see this new company, Etched came out of stealth.

[A]

No. What is the. Whoops. I don't know what either of those words are.

[B]

It's very. The company's called Etched Etched. It's a new semiconductor company. They have a whole thread here. I have another bubble watch if you want to look up the thread. There's a lot of buzzwords that I don't frankly understand, but they're on invest like the best. And they look. They sounded pretty sharp. Here's what caught my eye though. They have investment or let's see someone. All right, they have a. They said they have engineers. They used to work in Nvidia, Google, TPUs, Broadcom, SK, Hynix, TSMC and more. They're backed by Jane street to Sigma, other VCs. But I heard that they're also backed by TSMC, which again may or may not be true. But they have these things that again are what they're calling low voltage inference. They're trying to start this whole new thing which essentially means inference. So running the AI models the way they design their chip, which can scale up to an entire rack, almost like what super microcomputer does for companies. So kind of taking that and doing that along with what Nvidia does, they can have a substantially more efficient chip for inference utilization. And today we got the Motley fool, kind of our like half year movers, as they say. So like here's a bunch of stocks that are up or ETFs that are up X amount this year. Write an article about them because people want to read about stocks that are up a ton of the semiconductor ETFs up like 60% year to date and I think 20% of the S&P 500 or maybe the global market index now because you have to include some of these aging companies is semiconductors. And I feel like this, this etched company. There's other innovations coming out there. There's the Cerebras with the giant chip, which I always think is hilarious to think about. We just made it so big. I. I feel like it so dangerous to own this sector right now. Asml, we had a great comment here in the substack chat. I actually think I have it linked, unfortunately. I hope I want to find it because of the. Let's see. No, basically I'll find in the chat if someone asking that ASML is trading at 66 times earnings. Let's see. Yeah. Okay. Chris, whether he joins the live show is very active in the substack chat, which people should join. Getting really hard to ignore that sell button on asml. Anyone else in the same boat? I love the picks and shovels approach to AI, but that trailing multiple of 66 is eye watering, I think. I agree. If it's a huge part of portfolio sell trim, maybe, but it you also want to let your winners. Right. It's a very, very tough moment here for some of these kind of semiconductor compounders. And ASML is not a direct competitor to these innovators on the chip market. They're probably going to benefit if there's just a bunch of new companies out there. I just think it's a tough time. It's not what I'm screaming out to buy. Especially when everything's up 100% kind of the last six to 12 months.

[A]

Yeah. And we're not talking about like understated earnings. Like you know, if it were trading at 60 times earnings and there was something that had depressed the profits over

[B]

the last 12 years, margins, they can get to 10%.

[A]

Yeah, right. When it's a business like that, I'm okay paying up because honestly I don't even care about last 12 months earnings for a business like that. But I can't think of any time that paying 60 or 70 times earnings for a more than $50 billion market cap business has worked out great. Maybe there's some exceptions, but ask Ferrari shareholders, ask Intuit shareholders. Companies can feel bulletproof and ASML is probably as close to a bulletproof business as you can think of. But 60, 70 times earnings, it's hard to imagine yourself getting better than bond like returns at that point. Like you need like a 25, 30 year model to make it work and assume that they're going to grow at absurd rates over that time. So yeah, my. It depends what kind of everyone's, you know, personal finance is personal. But I would not be a buyer of ASML at 60 or 70 times earnings, that's for sure.

[B]

Yeah, it probably makes sense to do a little trimming if it's a giant part of your portfolio. And yeah, Kender in the chat here says it's a very good company. Sometimes the answer is not sell everything but do a heavy trim depending on the weighting and your age. So it's personal. All right. Should we look at this other bubble watch topic here?

[A]

What about are we going to talk Jersey Mike? So I'm kind of curious on this ipo.

[B]

All right, all right. First I'll mention that the pink jacket guy is probably the most famous tech analyst now. Really, really good at his job, I'd say of Wedbush, Dan Ives, he's exiting to start his own venture. And I appreciate this. Like I would no shade against Dan. Obviously he's way more successful than we are. But this type of decision is also what happens during market frothiness. It's just another check.

[A]

Yeah, there's a lot of indicators. What do they say? The lights don't. They don't tell you when you're at the top. But there are.

[B]

They don't ring the bell at the top. Not lights.

[A]

There are some very obvious indicators, usually like stock fueled, massive acquisitions.

[B]

Right.

[A]

IPOs. Massive IPOs.

[B]

A new world. We need to invest. Like, here's what they're trying to do, which I again, wish them all the best. It sounds like a cool idea. They're building a modern merchant bank focused on helping companies capitalize on opportunities created by AI. So it feels choppy when the. Yeah.

[A]

Yes. And it's kind of like sort of paradoxical because yes, that's the right time to go out and start a venture and raise money when money is flowing. But at the same time that's not. It's an indicator of tops, like, or at least temporary tops. So yeah, it doesn't always. It's not always the exact same, but it rhymes. So, yeah, I think we're seeing a lot of that. Let's talk Jersey Mike's though.

[B]

Jersey Mike's, they filed an S1. They're owned by Blackstone. So this is kind of like the Bumble IPO, the S1. Skimming through it. There's a couple of complications, of course, once you get spun up from private equity. So forgive me if I get something wrong here, but I was kind of looking at the headline numbers and I have no idea what they're going to try to spin it out as. But I do know they bought it for $8 billion a couple years ago. I don't know how fast time is going, but we can look at them. They do franchising. So they have 4.3 billion in system sales, 3,300 locations, but they only have a 1.4 million AUV average unit volume. So it's kind of low. You know, Chipotle's at 3, I think Cobb is at 3. Portillo's rip is at 9 million. But they did say they're seeing really strong Same store sales growth 50% cumulative from 2020 to 2025. Comps from that might be a little easy. I want to know what 2021-2025 is. You can't agree.

[A]

Yeah, I agree. Wow. Bottom. Bottom of the pandemic. You posted Great cops. I would hope so. Or else.

[B]

Yeah.

[A]

Be around.

[B]

Yeah. There's not much. Sandwich delivery. All right. The operating income was a little underwhelming. Only 151 million from what I saw. I think it chopped off two weeks of the year because of some acquisition or maybe when they made the acquisition. I'm not exactly sure. The question I have, is it really worth 8 billion? I don't know.

[A]

My gut tells me I don't want to be anywhere near this. The. It feels like there's been a lot of brand deterioration here. And obviously, look, 50% comp sales growth. Again, that could be coming out of COVID So take it with a grain of salt. That's great. But I've been very underwhelmed with the value and the sandwich that I get out of Jersey. Mike's. I got the same feeling with Chipotle

[B]

years ago.

[A]

Yeah. Oh, it feels the same. And. Yeah. I just don't. I don't want to touch it. I usually try to say. Well, I usually try to stick to the rule that if the data disagrees with my anecdotes, go with the data.

[B]

No, go with your data. Go with your gut. It's a heavy date.

[A]

Yeah. When it comes to restaurants, I feel like you should probably go with your something that's very consumer opinion. I think your gut should have a little more way.

[B]

Chris says the sandwiches look very dry. You gotta ask for Mike's way. Right. That's how they're on.

[A]

I haven't been back in so long after I had a rough experience. The other part is I'm pretty sure they really jacked up prices. If I remember correctly.

[B]

Private equity. They wouldn't do that. They wouldn't do that. Yeah. And I think it comes back to the rule. I learned this the hard way with Portillo's. Never invest in restaurants.

[A]

That's right. I forgot you implemented that rule.

[B]

I'm implementing that new rule. Remember Subway? Subway was the hottest thing when we were like 10 years old.

[A]

Yeah. Yeah. Of course.

[B]

Everyone would go.

[A]

They ruined their business with. With a phenomenal sale and slogan in the five dollar footlong. Like.

[B]

And they. Yeah, they overbuilt things can happen. It's a tough industry now. There's not much.

[A]

And habits change. Like apparel is what I've found and I, I, I thought that was kind of I would have expected it to be more consistent and durable. But you look at Portillo's comps for example you look at Chipotle comps and maybe they've been somewhat stable but Cava like there's been a lot of brands that have come along and captured interest for 510 years. Sweet green is a great example that right now.

[B]

Yeah we'll see what happens. Five to ten years. Yeah it's hard to get around kind of that kind of competitive advantage. Remember do a small cap of the week here. Had a listener suggestion, not the sexiest one. Leon's Furniture Here's a quote from the substack chat. You guys should look at Leon's Furniture as a small cap Canadian company excellent balance sheet hidden real estate assets that would be spun out at some point. Canadian population is experiencing a bit of a decline but I think that will reverse going forward. There has been pressure on earnings as of late. I haven't looked too closely just my preliminary thoughts and said I listened to the podcast. Thank you. All right. Market cap of $1.65 billion in or Canadian dollars. They do home furnishings and electronics store in Canada. Maybe slight online risk but home furnishings I feel like is going to be in person for a long while outside of kind of that Facebook marketplace used stuff that is extremely popular that if we look at them with our friends at Fiscal AI always mention use our link Fiscal AI Chitchat and get 15% of any paid plan. The revenue hasn't grown much except for a one time pandemic boost that was probably a little bit of inflation there. Their operating profit is $217 million with a very clean balance sheet. So that is a sub well under 10 times operating income. 3.7% dividend yield. If there's these hidden real estate assets that they're going to sell. Maybe there's an opportunity here for people that like these deep value small cap. But it comes back to the same thing with Renault. For me right now this is something that I would be interested in if I didn't see a ton of opportunities elsewhere in durable growth companies because just not seeing that growth and revenue growth is not everything. I was even talking about people with that in the substack chat today. There's a lot of novice investors. We used to do that as ourselves when you're first starting out when you just say revenue is growing quickly buy it at any price but you have to have that combination of revenue and earnings growth and good valuation and if you don't have both, it doesn't get me excited.

[A]

Yeah.

[B]

And

[A]

I'm totally in agreement here. This could work out as an investment, but the opportunity cost, it's just not worth it at the moment. I look at companies like Accenture, I look at companies like Copart. Copart's trading, I think at low to mid teens, normalized earnings. Accenture is more like seven, eight times. So in the same ballpark as Leon's. To me, those have a higher ceiling. Maybe there is some headwinds here in the short term for those businesses compared, I don't think AI is disrupting furniture stores generally, but the ceiling for Accenture, the ceiling for Copart, I think the average growth rate over the next 10 years could be substantially higher at those businesses and you're paying a similar multiple. So yeah, it would be. Opportunity cost for me is the biggest thing.

[B]

Okay, let's move to the substack chat questions. Since it's been a bit of a slow week, I was trying to spur some interest, some fun topics for the last 10 minutes here. I mentioned companies that have what I call absurd names that make me laugh. Ryan. I included Xanadu, Quantum, Big Bear AI. We had many listeners say Microstrategy, Alphabet, Meta actually agree because they don't just say Google X and Karoo with five O's Monday dot com. Someone said Harley Davidson's Ticker Hog. That's a, That's a funny one. Data Dog App Lovin. What about you, Ryan? Any. Anything that always makes you laugh seeing them? Pony AI is one for me too.

[A]

Yeah, it's.

[B]

That's hilarious.

[A]

I think some of them are like trying to be as outrageous as possible. Big Bear AI, Pony AI. Like these are. Come on. They're. They're trying to be crazy a little bit or trying to capture interest. The ones that are like, have become normalized but they are still dumb are applovin to me. Sorry, I just laugh. I think of McLovin every time from that movie. The other one. Yeah, Meta. The thing about Meta for me is it has stuck. People do refer to it as meta now. Not Facebook anymore.

[B]

I just hated articles.

[A]

I hated too. But yeah, because you can't say like, you got to call it Meta's family of apps, whatever. Alphabet though. I mean, they've been named Alphabet for more than a decade now and people still just call them Google. Meta has stuck. The only irony is that the metaverse is like a defunct effort. They're not even pursuing it really. So the whole name is based on Something that they did for three or four years and cut. I feel like the real reason they got away from it or they switched to Meta was because the Facebook brand was so horrendous with customers that they just needed something else.

[B]

Shark ninja.

[A]

People say shark ninja.

[B]

Yeah, that's a good one. Smart bird AI Never heard of that. That could be a potential short. I like that. Yeah. Alphabet never get over how annoying it is. One, you have to put two tickers into the. When you write a Motley fool article, this is very annoying thing to do every time. And you have to say Alphabet, parent company of Google every time. It just doesn't make for clean writing. Okay, other topic here. This is sort of serious, sort of fun. I had an idea of lamest reasons to buy a stock. I had international expansion, high NPS score, companies in the right quadrant. On a Gartner chart, I see that way too much. Gartner just nominated Rubrik as the top quadrant. This is huge. And then fast revenue growth. Again, you can't do fast revenue growth. Someone else said stock splits, of course. Smart money and politicians buying stores are always packed. I like the product. It's not going anywhere. Some of those can be, I think indicators to buy. But what about you, Ryan?

[A]

What do you think? Yeah, stock splits. I know we're. Our audience doesn't really pay that much attention to this kind of stuff. But stock splits, obviously dumb. If I had to go with maybe one of the most common fallacies for reasons that investors I respect tend to go with certain investments is like I know people try to get away from this, but just purely buying face multiples like going for the cheapest possible.

[B]

It's at 10 times earnings. It used to be at 30. Now we do this sometimes, but you gotta try to be hesitant about it. Like okay, why should I go back to 30?

[A]

I fall for it all, all the time. Like it's so hard not to be intrigued by three times free cash flow at wix. But the only thing that matters is the cash they are going to generate from here. And that can be for companies that are, you know, maybe WIX works out. So maybe I'm, I'm talking myself out of something that could be a good investment here.

[B]

But software, software's made a little bit of a comeback this week.

[A]

Generally speaking, when you're trading below four, five times trailing cash flow, it's because the world believes that cash, cash earnings is going to look very different in the future.

[B]

So that's true.

[A]

I would say chasing low multiples is kind of A common fallacy.

[B]

We have one here that says unjustifiable total addressable market. That is a classic. Oh SpaceX going after a trillion dollar tab. This one is sneaky but I do think is hilarious. Not hilarious but sort of just meaningless. Is you focus on a meaningless metric like my. And this is from JF in the chat. MasterCard has a return on invested capital of 45%. This is an incredible company. Okay. One they don't have invested capital. I don't care what is free cash flow per share going to grow into versus what they have to invest. And MasterCard clearly an awesome business but I don't, I frankly do not care that they have a 45% return. Invested capital now sprouts farmer's market where it's actually in the physical world investing in stores. It's a pretty clear word. Return invested capital matters. But I think some people look at certain metrics and just apply it to every company.

[A]

ROIC specifically people get too married to roic. Yeah, I see that all the time. Like people love talking about return on invested capital which is a. It is a backward looking metric by definition. It is the return on previous invested capital so that ROIC can change. It is usually over multiple decades proof that a concept works especially when you are in a business where you do invest a lot of capital like an O'Reilly or a sprouts farmers market where you're literally putting a new store down and the returns without any other predictable

[B]

or like an Amazon. There's other businesses that are capitalized. It mixes everything. And like what is the true return on invested capital? The E commerce business? I don't know.

[A]

Yeah, people get too married to roic. I think it. Yeah, that's definitely up there as well.

[B]

It's helpful in a lot of situations but not all these can't get married to anything I think especially things like oh, they have a high MPS score. That's good but you need more than that.

[A]

Yeah. And there's the, the, the ones that really bother me are the numbers or the like stuff that can be massaged Net promoter score can, can be tampered with. What's the other Glass door ratings. Those can really be tampered with.

[B]

Yeah, yeah.

[A]

The Gartner quadrants.

[B]

Like okay, think about it.

[A]

If I pay a million dollars to Gartner every year they're probably going to put me in a better quadrant.

[B]

Yeah, yeah. And think about it like when you're searching for a restaurant and you haven't been there, it has 10 reviews, all five stars. And they all say awesome or something like that. That doesn't mean it's the best restaurant. It probably means every one of their friends gave it a five star review to start the momentum on Google Maps.

[A]

Yeah, that stuff. Look, I mean, it can be worth taking a peek at because, you know, if someone has a horrendous glassdoor rating or something, and there's a lot of ratings, maybe it means employees are generally disgruntled. But I think that stuff can be wildly overrated.

[B]

All right, we have 30 seconds. Let's look at our friends. It's Interactive Brokers Gan, our sponsor. I do own the stock, so I'd like to disclose that before we talk about the actual financial results. They gave up the June metrics and they're accelerating growth. Client equity up 40%, client margin up 67%. Client accounts up 34% year over year, and daily average revenue trades of 53% compared to a year ago. That's a compounder. I understand why the stock's up so

[A]

much, but what's the return on invested capital?

[B]

Brett? That's true, that's true, that's true.

[A]

It's a good example. Like, there's not a lot of capital needed to invest. Yeah, those results look pretty good. The.

[B]

They keep growing.

[A]

The thing I always worry about with IBKR is just being tied to the good times, like how much of transaction volume and stuff like that would. Would sink if markets were to drop as well.

[B]

But. Yep. All right, well, I gotta run. Happy 4th to all our American listeners. United States listeners, watch the US Team on Monday.

[A]

You know, happy late Canada Day.

[B]

I know we have Canadian listeners as well, and we'll see everyone next week at the regular scheduled time. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Rya 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.