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Nvidia's Blowout Earnings; MicroStrategy's Meltdown; Is Hims & Hers Stock a Buy? $NVDA $MSTR $HIMS
01:07:11
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- [00:01]
A
Welcome to Chit Chat Stocks. This is our weekly Power Hour episode. I'm one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Schaefer. On these episodes we talk all things financial markets and we have plenty of news for this week. Nvidia reported earnings which always captures probably the majority of headlines for the financial news for this week. But we also had Adobe making an acquisition. Jeff Bezos is getting back in the ring again as a CEO apparently. We've got small cap of the week, we've got number of bubble watch topics that Brett's got WIX earnings and plenty more. A bunch of questions from the audience as well. But as always, if you enjoy the show, please go ahead, give us a review on Spotify or Apple podcasts and feel free to comment as well. We do these shows live on Thursdays at 1pm Pacific Time, 4pm Eastern Time. So without further ado, Brett, let's make.
- [01:01]
B
Sure you have the time right there. Ryan, I don't know what dimension you're sorry, Pacific Time, 5:00pm Eastern Time, but close.
- [01:10]
A
I'm a little off but where do you want to start?
- [01:16]
B
Let's just do Nvidia earnings get it out of the way. It may or may not be why people are panic selling this week. We're recording this on Thursday so we don't know what's going to happen Friday. There might be a huge revers there but The S&P 500 I just checked and don't go selling everything yet. It's back to where it was in early September of this year. So it's given up about two months of gains in this bull market. One of the I'd say sharpest corrections, maybe the sharpest correction we've had since the tariff tantrum in April this year. But if you look at Nvidia's numbers and we'll get through the positives and negatives of what their below out quarter means, if you look at the numbers they're quite phenomenal. So why don't you go through them Ryan?
- [02:06]
A
Yeah, they beat on the top and bottom line. So just headline numbers they be the stock jumps the initially after market. Yesterday when they actually released their numbers, this is coming out a day later but Wednesday when they reported their numbers stock jumped I think 5% after hours and it stayed up 5% hours pre market and lost all of their gains within the span of like 3 hours I think during intraday trading. But let's go through some of the actual numbers. The top line looked really good Brett, maybe you can do some screen sharing with fiscal AI charts here, but I'll.
- [02:45]
B
Try to come up with something creative. Have a little fun there. Most of them are just flat, flat, flat, flat, flat, and then just exploding higher. But I think we'll get the gist when. Logan, do you have anything specific? Revenue, earnings, Earnings per share?
- [02:58]
A
Why don't we do operating income, Annual operating income? Because that's the one that blows my mind. But revenue was really strong. They blew past expectations. And it looks like an insane chart when you look at the data center revenue over the last specifically like eight quarters. But Jensen Huang, CEO, came right out to start the call and said, there's been a lot of talk about an AI bubble. From our vantage point, we see something very different. He said, as a reminder, Nvidia is unlike any other accelerator. We excel at every phase of AI, from pre training and post training to inference. Now, one notable thing that happened here. So it's always funny to see the reactions because it's like confirmation bias for bulls and bears.
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B
Yeah.
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A
So real quick, operating income for Nvidia went from $4 billion to $110 billion in about three years. So you can imagine how that chart looks for anyone that's not watching. But that is. Let's take a pause here because that's an insane growth figure for any business. But to go. To go from four, think about, like, working at that company and feeling like, oh, I'm at a big organization when they were doing $4 billion in operating income, and then two or three years later, you are in the biggest company in the world. So anyway, the watching people's reactions to these earnings reports, I always find a little funny, because bulls, it's plenty to like, frankly, if you just look at the headline numbers and the earnings. Now, we can talk about cash flow discrepancies here in a second. There's, you know, you should feel positive about it. And then for bears, they're like, like, inventories jumped. So here's a quote from the CFO. He says, on our balance sheet, inventory grew 32% quarter over quarter, while supply commitments increased 63% sequentially. We are preparing for significant growth ahead and feel good about our ability to execute against our opportunity set. Basically, inventories jumped quite a bit. And they're saying it's because they see big supply commitments coming. And for bears, that was also exactly what they wanted to see. So it's like.
- [05:24]
B
And I don't think that's really the bear case. I think the bear case. And let me address what Huang said. Or Jensen, I guess people call him. I guess I want to be formal. He said, there is a lot of talk about an AI bubble. From our vantage point, we see something very different.
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A
That's.
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B
It's kind of like your crack dealer saying, from our vantage point, we don't see a crack epidemic. There's no issue out there. This is healthy usage. I mean, that's not the guy I want to go to when asked about whether there's a bubble.
- [05:57]
A
No, definitely not. Yeah, well, obviously he has. He's more biased than anyone, probably, to feel optimistic about Nvidia. But there is. There seems to be a misconception on, like, the AI bubble generally. Like, I think when people talk about the AI bubble, people are referring to a spending bubble for the most part. That's what I think of, is that people are spending companies, not people. Companies are spending more on GPUs than they should because maybe they don't generate a positive return on the GPUs that they're buying. That's what I refer to as the bubble. It's the spending bubble, not. And who benefits from a spending bubble? Nvidia. It's going to show up in their top line. So people that are saying, oh, no, no, no. Like, look there, this isn't a bubble. Look how much revenue Nvidia is generating. It's more like they're kind of proving the point in a way that there is sort of a bubble. But on the flip side, obviously, the quote on if they keep doing 100.
- [07:07]
B
Billion in operating earnings and it doesn't go down. Right?
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A
Yeah. I mean, if. Well, if the customers generate positive return on the GPUs that they buy, then is it a bubble? No, I guess we just have incredible economic growth for the rest of the future. I don't know. But the. On the flip side, I see a bunch of bears calling out the inventory jump and saying like, yeah, that's nothing.
- [07:34]
B
I know, it's stupid.
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A
They're like, this is all like, Nvidia is just manipulative accounting. That's all it is. Like, they're just propping up earnings and it's like, it feels like they're trying to cling to something, to feel like, I don't know, this is more bearish of a report than it should be. But, like, there's no way that you look at Nvidia in isolation and think, oh, inventories jump. They're screwed. Like, it's. It. If you were in Jensen Huang Spot, or if you were in Nvidia, Spot. Wouldn't you boost your inventory if you were seeing huge jumps in commitments?
- [08:18]
B
I agree. And inventory is going to grow as the business gets larger. That's not something, especially if it's just one quarter of slightly faster growth than their quarter over quarter growth. That's not something to be concerned about whatsoever. But I also agree with you that the bear case has to be similar to. We've talked about this plenty of times. Similar to the telecom bubble where you Nvidia is going to earn 100, $200 billion in earnings for say three to five years and then it collapses. That is a, that is the bear case is that they're going to earn a ton now, but their customers are overspending and the revenue down the line on the open eyes, the anthropics, the Geminis of the world don't show up. So we're still tbd and I think the market is kind of reacting to that. Well, we're not going to shoot up Nvidia after these earnings because we have to let them. And especially given that they're trading at I think still a third above 30 times forward earnings, something like that. I mean it's not an insane multiple, but they're still climbing the wall of worry for this ultra bull case. And I have no idea what's going to happen. I'd rather just sit on the sidelines.
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A
No, and, and there's the thing that frustrates me is the, the depreciation schedule argument. This gets on my nerves because there's a whole bunch of people that are saying like, and I understand the logic, I understand the idea that like these valuations are propped on, propped up based on trailing earnings for these companies, for all the big tech, and that trailing earnings are inflated. I don't think, I don't think the depreciation schedules are that far off. And it, what bothers me the most, like maybe they are. They could be. But it bothers me that people that are not actually working with GPUs have no experience with GPUs, have no idea what workloads are actually running on. Old generations are the ones saying these should be two to three year depreciation schedules, not six years, six years, there's no useful life for a GPU after six years, that kind of thing. I don't think Mark Zuckerberg, Satya, Nadella, Sundar, Pichai, Jassy, Bezos, basically anyone who has big ownership still in some of these big tech companies, I think they would probably put their foot down somewhere along the line. If these things were worthless after 12 months, like there's. They're not. If they knew that these were. No, no way. There wouldn't.
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B
They wouldn't. That they would rather go bankrupt before doing this.
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A
One quote, Mark Zuckerberg said that. That's it.
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B
And, and the Google founders, they said, we can't afford to lose in this. We'd rather. They literally said what? That that's a quote from them. We'd rather go bankrupt than lose this race. So with that sentiment, I think you have to have the balance there that. I'm not sure who's right, but there is credence to that. The fact that the depreciation schedule should be a little bit faster because I don't think the accountants know.
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A
So. Okay, I understand the logic of just. The CEOs have FOMO and they want to do what everyone else is doing because they want to be the winners in AI, whatever. But it just bothers me that Chanos, who I have a ton of respect for, it's like, do you, do you actually have any insight here in terms of what workloads are running on these 6 year old GPUs?
- [12:10]
B
He doesn't know yet.
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A
Yeah, yeah, obviously not. So it's just like, it's like they want to be bearish and they're looking for something and the depreciation schedules of the GPU seems to be like the big boogeyman because it would have a huge impact on their earnings. And I just kind of think that there isn't. They probably have a better view. The companies probably have a better view what the GP, what older generations of the GPUs are worth and what they can actually like, what value they can provide for the company. Can you still use them? I don't think they're sitting in the trash bin after three years. I think they're somewhere on a rack in a data center in the middle of nowhere serving some function.
- [12:51]
B
Probably not. But what happens three years from now, given how fast things are moving, Maybe there's a better argument that that could be different. But I understand what you're saying. Let me add from an investor, some quotes here from an investor that knows this space and follows it extremely closely. Much better than us. And I'm going to steal some of his quotes. It's Gavin Baker. Oh, what's his fun name? Atreides Asset Management. It's the one, the Dune one. He had some thoughts on AI after the Gemini 3 rollout and Nvidia Blackwell scaling. Here are some quotes. Maybe Ryan, you Can stop if anything sounds interesting here. QUOTE gemini3 shows that scaling laws for pre training are intact. Okay, that's fine. I think this second one is interesting though. The frontier model industry increasingly looks like a four player oligopoly. Gemini, OpenAI, Anthropic and Xai all have much more advanced checkpoints than are publicly available that are being used to train their next model. Makes it difficult to catch up. Meta has a chance because Chinese open source models are only nine months behind, but only a small chance. This I guess Meta is benefiting a ton from AI optimizations on advertising, but this is a reminder that they have, I would say so far failed spectacularly to do anything within the chatbot space.
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A
The customer facing chats you're talking about like customer facing applications.
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B
Sure. Meta AI, right, as they call it.
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A
Yeah, Llama is Llama's the model. Meta AI is like the consumer facing application.
- [14:35]
B
It's confusing. There's too many names.
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A
Yeah, yeah. On the one hand it seems like they're doing quite a bit on the back end with ad optimizations, but yeah, consumer facing they have not caught any sort of momentum from at least what I can tell.
- [14:53]
B
All right, and here's another quote from the same piece. He says, I understand the OpenAI jitters. The $1 trillion of unfunded spending commitments cast unfortunate doubt on the powerful underlying reality of AI today. OpenAI has lost share and is decisively behind two other companies for the first time from a model quality perspective. They've also lost most of the founding team. The Internet trade survives the demise of Yahoo, MySpace and AOL. He also said and wanted to note that the return on invested capital for the hyperscalers, meaning Amazon Web Services, Azure and Google Cloud, remains higher than it was before they ran their capex on GPUs. Let's say for the time being. I mean when something's. When supply is still way behind demand, your ROIC is going to increase. So I want to know what happens when that normalizes. But his point is, is fair as a bull there, but when looking at OpenAI, the way he puts it there, they're falling behind, they're losing a lot of talent and they're trying to spend a trillion dollars here. Maybe when Altman tells the shareholders that they should sell and, and hope that the short sells can come in, maybe the shareholders should sell at a $500 billion valuation because there is a ton of risk to this business and with how well Gemini seems to be doing, I, I would be quite concerned if I was a shareholder. Yeah.
- [16:20]
A
Gemini 3 looked very promising and it looked even like. I will probably use it for like, I don't know if you saw the image to code or like the image to application translation. Maybe this is more. Maybe this like was introduced by older models. But you can like upload an image of what you want and it'll build a website for you, give you the HTML, CSS and JavaScript. But yeah, I thought it looked really, really cool. I'm already a Gemini user and it's incredibly accessible. Like press tab and enter on your keyboard anytime you go to Google and you're automatically on Gemini. The thing I thought was interesting here, the quote I liked was the fact that Hopper rental prices and Hopper I believe is the newest model. Yeah, the second newest model of GPUs for Nvidia. He says the fact that Hopper rental prices have increased since Blackwell became broadly available suggests that GPU residual values might need to be extended beyond six years. So it's interesting, you got this like you've got tech wanting to extend the useful life and you've. On the flip side, you've got investors, pessimist or skeptical investors, I should say saying, no, you gotta. They're not worth as much.
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B
So.
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A
It would. I think, yeah, OpenAI no matter what, I still think it's a very risky model and they seem to be in the worst position despite like the most market share, like I would say the most fragile position, business model wise of everyone else here, since it isn't just they don't have a cash printer like some of these other businesses have. But I would, I feel very optimistic about Google here, Gemini specifically, which I guess the whole world does because the valuation has doubled in the span of seven months. They've gone from a forward EBIT multiple of 12 to 24 in literally seven months.
- [18:36]
B
Did you know that Alphabet is now outpacing Nvidia's gains year to date up 52% excluding dividends. Nvidia only quote unquote up 30%. Not a bad comeback for them.
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A
So much for efficient markets. When you have the most profitable company in the world, Google up 100% in six months, it's counterintuitive to, or I guess it's anti efficient markets.
- [19:10]
B
But let's shift gears because we do want to talk other things. The talk about the residual life there, saying that rental prices keep increasing again. I want to know what happens when supply matches demand because. And a comment here on the live chat reminded me of this, actually they deleted it. Maybe there was a grammar. They talked about someone in the live chat about the EV boom in 2019, 2020, 2021 and 2022, where you saw the residual value of Tesla used cars actually rise because there is a shortage of supply versus the demand of people that wanted electric vehicles. But what happened when demand actually met, Excuse me, supply actually caught up with demand across the industry. Well, Tesla used car prices have gone down by 50%. I do not think AI is different than any other commoditized or, excuse me, compute is different than any other commoditized industry. It's not, it's not going to be different. But I want to know what the, the useful life is going to be once we meet. Once supply matches demand, because it's going to be three, four, five, six years. I have no clue. But it's a huge question that there is just so much uncertainty with.
- [20:34]
A
Yeah, I guess my question would be how does supply meet demand? Is it just purely more production of Nvidia GPUs or is the implication there that someone, someone else can create a leading edge GPU compatible with or comparable to Nvidia's?
- [20:54]
B
Well, TPUs exist, but there's a lot of variables out there and it makes me not want to touch any of these stocks because I don't know the answers to almost any of these questions, I don't think. But it doesn't really matter how supply matches demand. Eventually it will. I mean, Tesla's flooded the market. They had growing operating margins then, then once it reversed and we heard the, we saw the opposite side of the capital cycle, they went down. I don't understand why this would be any different. And the only way it isn't is if end AI software revenue grows at about 100% for the next decade. Good luck. That's all I'm saying. Good luck. Why would I bet on this at these prices?
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A
Betting on Nvidia here.
- [21:50]
B
Yeah, Google, I guess, obviously was a lot cheaper earlier this year. Seems pretty fairly priced now. But I think it makes a lot of sense that they're outpacing Microsoft now and just surpass them in market cap. Before we move on, we want to talk about our friends at Interactive Brokers. Interactive Brokers is our favorite brokerage platform. They make it easy to buy stocks, ETFs, options, futures, currencies, bonds and more, all from a single unified platform. And Interactive Brokers allows you to maximize your returns by minimizing your costs. They offer zero commissions on U.S. stocks and low commissions on international securities. And they don't cut corners either. Interactive Brokers, one of A kind smart routing technology gets you the lowest price possible in 36 countries and 28 different currencies. Interactive Brokers is our home for stock trading and we wouldn't go anywhere else. If you're getting serious about investing, it's time to upgrade to a broker you can trust. Head over to ibkr.com restrictions apply. Interactive Brokers is a member of SIPC.
- [22:56]
A
Yeah, yeah they did. They are now the third largest company in the world behind Nvidia and Apple. Let's shift gears though because we can do AI. We can do AI. Talk all day and go nowhere. I want to talk about Adobe's acquisition of Semrush. A little bit of merger portfolio. Yeah, two portfolio companies here. Adobe is a larger position for me than semrush. It's a 1.9 billion dollar all cash deal. Semrush generates basically I think 450 million roughly in ARR. For those that don't know, Semrush is like an, it's like an online visibility tool. So if you work in a marketing department at call it a Fortune 500 company, you want to know how you're ranking versus competitors SEO wise or even conversational AI ranking. I forget the term they use. I think it's geo Generative engine optimization. It's like the new SEO.
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B
Whatever.
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A
SEMrush is a really good tool and they have a lot of data points for you and they've put it in, packaged it into a nice little software tool and Adobe is acquiring them. $1.9 billion all cash deal. I thought Semrush was cheap. And there's a really good opportunity to I guess upsell or cross sell here because Adobe has a foot in the door with their experience business. So for I think a lot of people think Adobe Creative Suite, they, they think Photoshop, they think video editing, all that when it comes to Adobe. But I want to get the exact number right. But I believe it's like $6 billion in revenue for them comes from the experience side which is like business, online, website management, content management type stuff as well. Marketing optimization. It's more for the marketing department as opposed to the creative department if that makes sense. Even though they're kind of two in the same. Anyways, Semrush as a shareholder I sold my shares. So I mean it basically got, they're buying it at 12 a share. The stock jumped to 1180. I don't really care for merger arb at this point and there is a chance that it doesn't go through. But given Adobe's history of having deals blocked. But the, the question for me is you are buying a business at 4 times ARR. When you could be buying back your own business at 14 times cash flow. Like you could be buying in your own shares. That $2 billion would have gone a long way in a buyback. So I guess my thing is like was this needed now? I would have wish they'd be. They'd wait until they have a slightly better valuation or they wouldn't be like right now seems like a great time to buy back shares is I guess what I'm trying to say. And I know they want it makes sense like it fits into their experience portfolio. But could you have waited two years? Like if you're, if you've got an 8% 9% buyback yield and you're confident in your own business, I feel like you could have waited to make this acquisition.
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B
Yup. Higher opportunity cost for sure. I don't really have anything to say about it. Seems like good deal for Semrush shareholders. We'll see what happens with Adobe, but they're going to keep having to climb the wall of worry. Have they come out with Q3 earnings? I know they might be one of those offset months. Are they next week or do they already come out?
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A
Let me double check. I'm actually not sure.
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B
I should probably shareholder Ryan, come on, you got to be on the ball here.
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A
I know but earnings season is a blur. No, they have not come out with earnings yet. August okay.
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B
Yeah, which yep for some reason takes.
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A
Me to a new. Takes me to another topic. We got this question from the audience they asked is basically like so the question was can you take a look at the divergence between the quote unquote AI winners? So like the Snowflake Datadogs, Palantirs, Cloudflare, Crowdstrike, Rubrik is who they called out AI infrastructure type beneficiaries versus the AI losers, which are like the application software companies, both still in the software bucket, but he kind of groups them as AI winners. AI losers. Like can you explain why there's been this big discrepancy in SaaS valuations between those two buckets and the application software? You can think like Adobe Salesforce, Monday.com, atlassian, trying to think of some others here, maybe HubSpot. There has been a very real like divergence between the two which strikes me as a little weird. And so what I'm seeing a lot of is people like software's software is getting disrupted by AI because growth rates are coming down and they're looking at Adobe and they're looking at ServiceNow and they're looking at Salesforce. And you compare them against Rubrik, which is a cybersecurity company that went public last year. And part of that to me is like, okay, ServiceNow is 10 times larger. That's just a natural. Growth rates are going to come down when you're generating 10 times more revenue than a cybersecurity company. So nominally, like you can have much slower growth as a large SaaS company and still gain market share even if you see some tiny player growing in the triple digits. So I think it's important to not just say, oh, SaaS is slowing down because that's part of the maturity of the businesses. And yes, maybe they were over like growth rates were extreme over the last five years, I guess you could say. But like let's take it Salesforce for example, they pulled back a bunch of their marketing spend and got profitable. They went from 0% profit margins to 18% operating margins in I think like 12 months, maybe a little longer. There's, there's going to be a repercussion of like growth will slow a little bit when you do that. That's kind of the, the give and take. So. And now you have everyone complaining that revenue growth is slowing for them. And, and so I guess I'm kind of going in circles here. But I don't think they really are AI losers. Application software companies like the AI winners, I don't really have a take. They seem extre. Overvalued to me. They seem like more than I would pay. But they're going to grow much faster and they are probably real AI beneficiaries. Like when you look at cybersecurity companies or AI infrastructure backbone type software companies, yeah, they're going to benefit from the extra spending. But the application software, they're not losers because of AI. Like you look@Monday.com they're layering on like conversational AI to features that are making the platform more usable for their customers. They're improving the like feature set by layering in conversational AI. So you know, plan out this task for me and it'll give you whatever four bullet points of what you're supposed to do or the building blocks they can basically integrated a little more deeper into their actual software. That does increase arpu and you see that like net revenue retention for a company like Monday.com is like 117%. So they are still benefiting from AI to me, but maybe to not the same degree. I generally think a lot of these applications offer companies are attractive here and I'm putting that's kind of a big bucket But Adobe salesforce Monday.com I think a lot of these businesses will be able to grow revenue or earnings at a double digit rate for longer than people think they can. Any thoughts here Brett?
- [32:02]
B
Yeah, it's probably a good time to buy not not a sector I really understand too well but just pulled up Salesforce while you were talking. Seems like it's trading at 17 times free cash flow but should be noted people should look at stock based compensation because these are heavy SBC issuers to their both sides of the employee base, research and development as well as their sales staff. I see a forward forward PE of 19 trailing PE of 33 that might be optimistic on the next 12 months unless they can do really wild margin expansion. But in general they're trading at seven times gross profit. So if we kind of look at the underlying unit economics there that's I'd say reasonable for what you might call wide moat business. And I totally agree AI is not going to kill these things. If it's much easier to build software tools using generative AI and add that on to whatever service you have, the individual customer is not going to do that because it's going to be cheaper for you to do it once and sell it to all your customers just like it was previously with general purpose software. I'm not going to be building my own fiscal AI Interactive Brokers or port sideo even if that is technically possible in the future because it's just much cheaper for a company to build it once and sell it 100 times. And what's the return on time spent? They're still going to be able to sell it to me at a reasonable price.
- [33:37]
A
Yeah, I really don't understand the I don't understand the AI is gonna kill them like Bear Thesis maybe for actually not even for Adobe because if you try like use any of these models and say you know, generate me this image I was using mid journey for a little while and it's good but there's still like for a static photo it can maybe work especially if it has like editing tools layered on on top of it. But for video editing and any and really like professional imagery I think you're still going to need there there's workflows beyond prompting like there's manual editing involved or there's prompt editing involved. So get rid of this in the corner. Get rid of you know you can do it that way as well. But I just, I don't think it's like pure AI disruption. I think the biggest risk here is that AI makes it a little easier for it drops the barriers to entry for software businesses a little bit where it's now easier to get started than ever. Between scaling with Cloud, the APIs that are available, building on top of OpenAI's API or Gemini, whatever you want to call it, there's a lot of businesses being built that way.
- [35:09]
B
But we got a comment here that says I'm a developer, AI doesn't replace software, it allows us to make better software faster. I think that agrees with the sentiment we're trying to have we have there as outsiders and it makes a lot of sense. Another one here. I'm a motion graphics artist for an ad agency and there is not even a real competitor so far for the Adobe software that I use. That's music to Ryan's ears as a shareholder and hopefully they spend more cash buying back stock instead of acquiring acquiring Semrush, although that could end up being a good acquisition. Who knows. I want to talk about a, well an investment fund that I wanted to shout out for really solid returns here as well as a potential, potential special situation out there. I know the market, maybe after this week it's not as expensive but we're at close to all time high PE ratios. You might have a hard time finding investment opportunities, especially if you're not looking internationally. But someone posted this letter online said this is an underrated investment fund. It's either pronounced Hindi group or Hind group. Maybe I'm getting that wrong. It's Hinde Group. 726% cumulative returns since inception in 2015 versus S&P 500. Total return of 281%. If anyone from there is listening to this podcast, we'd love to have you on talk about a company you're interested in. And they not only invest in high quality companies, they're in Alphabet Interactive Brokers, a couple other ones but they layer on special situations and they just highlighted one of the first ones they found in a long time in Becton Dickinson. The ticker is BD and for reference here the stock's at $191 as of this while as I was writing this it might be a little different. Today they are a company that sells basically diversified medical technology, syringes, thermometers, all sorts of other stuff that might be a bit more complicated. They do $21 billion in revenue but they decided to monetize their biosciences and diagnostic solutions business, which is 3 15% of the business. I won't go through the entire structure of the spinoff, but essentially you are getting. And let me get the exact number here. It's. It's with. On a per share basis. Okay.
- [37:30]
A
Yeah.
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B
So when they spin it off, it's going to be valued at $18.8 billion or roughly $65 per share of BDX. So $65 of $191 per share price. And the transaction is expected to close by the end of the first quarter of 2026. And after this, on a pro forma basis, the new Becton Dickinson is going to trade at less than 10 times what it'll likely earn per share in fiscal 2026. And they are going to have a giant influx of cash that they're planning to repurchase stock with. Seems like a really interesting opportunity. They called it a good business as a whole, not a great business. But at times like this when the market is trading an extreme price, I think it's a fascinating opportunity some people should look into.
- [38:20]
A
Yeah, I like it. Well, I got to look more into it, but I like the sound of it. And you're right. I think I feel like I'm running dry on ideas lately a little bit. Where a lot of the companies I'm looking at it just even if I like the business, it feels like an uncomfortable entry price and it's refreshing.
- [38:43]
B
I'd re. Look, there's some stuff down about 20%. Do you want to talk Wix? Maybe something that you've liked before that's back below a hundred dollars a share?
- [38:52]
A
Yeah, let's do it. They actually had. There's like a hidden gem in there. They kind of.
- [38:59]
B
I'm going to talk about it. Base 44. Although you were talking about the picture Vibe coding a website with Gemini that got me a little scared for any WIX shareholder, but stock's back below a hundred dollars. Five point. We'll say 5.5 billion dollar market cap. Now I would just reference that for the rest of the notes I'm gonna give here. They just released earnings and they're guiding for full year 2025. $2 billion in revenue. They have 70 gross margins and I wish I had the chart in front of me, but they're doing guiding for 600 million in free cash flow this year. There is a good amount of SBC underlying that, but their SBC nominally hasn't gone up for about three years now. So still at about two. A little over $200 million a year. So free cash flow, if Ryan remembers this as well, was about.03 years ago and it's inflected up to $600 million while the SBC has stayed flat at $200 million. I think that's a good way to grow shareholder value. And as Ryan mentioned, they have this acquisition of base 44 that is growing like wildfire, is one of the core quote, vibe coding website builders. It's already at $50 million in annual recurring revenue and they're buying back stock shares outstanding. Haven't fallen that much historically because of the high SBC levels, but I think in the future that could change any interest here. It feels somewhat cheap even if you take out that SBC from. From that free cash flow number.
- [40:29]
A
Yeah, I don't know a ton about base 44, but from what I understand is vibe coding is basically helping you prop up a website really easily with like little code required, like generative AI website building. It does sound like Gemini 3.0 would compete with that a bit, but Gemini 2.5 or whatever probably competed with that also. So maybe they've grown despite that. The. There is sort of a perfect world here where and I don't know if this is what's happening and I'm actually almost 100% sure it's not what's happening, but you could go like, build me this website on base 44, layer on Wix's website editing tools and sort of marry the two. However, they've been pretty explicit that base 44 continues to operate as an independent company and the integrations I believe thus far pretty minimal. So I. It's kind of funny that they're like a venture capital firm in a way. Like they basically just bought out this hyper growth vibe coding platform, which you don't really. I feel like you don't see public companies.
- [41:54]
B
No.
- [41:54]
A
And it was a small acquisition eventually.
- [41:56]
B
Yeah, it apparently was tiny at the time and it's growing extremely quickly. But I wouldn't get too hung up on that. I guess I would like them to integrate. That seems weird, but right now they're doing so well. Maybe don't mess with a good thing. Don't let a good thing get ruined by messing with it.
- [42:14]
A
Yeah, I mean they've gone from most.
- [42:16]
B
Interested in WIX I have been in a long time.
- [42:19]
A
Yeah, it's just soft.
- [42:20]
B
This sort of software feels so at risk and uncertain with the AI bubble. Or not bubble, sorry, Boom. I don't know, it might go in the too hard pile. I'm just not sure what happens five years from now.
- [42:34]
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 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. I don't know if the like core WIX business is that susceptible to like, like I don't know if they're a huge beneficiary of the AI boom per se, but base 44 is probably the. I like the core business. It's very competitive. So like low code, no code, website building is quite competitive. The only issue that I've had with WIX historically is that so they're based in Israel and they're one of the largest tech companies there. So they kind of have this like big tech attitude without big tech resources which I think can hurt you sometimes. And the. You kind of see this with like a lot.
- [44:26]
B
They spent a lot on stuff.
- [44:28]
A
Yeah, they spend better though.
- [44:30]
B
I mean that frivolously.
- [44:32]
A
Yeah, I remember like the 2022 drawdown forced them to like get religion on or at least get lean. I remember they had to do I think a couple layoffs as well. But you kind of see that in how they act like taking like moonshot VC bets as sort of a public company on base 44 now this worked out but they also, I think they've invested, they've like co invested a lot of other companies in Israel. I think Abishai Abrahami, the founder, I don't know if he's still the CEO, they might have had someone else step in but he's a huge shareholder And I think Monday.com as well, which is.
- [45:14]
B
Israeli based, I Think that's correct. It could be reversed. It could be the Monday.com person, but.
- [45:19]
A
I think yeah, but it's just, I don't know, it's probably like not a huge, like they don't have the Googles out there like headquartered there. So it's, they kind of treat themselves like they're a big tech company and spend a little too much. But yeah, still 600 million in free cash flow. Call it 400, 350 in real earnings after you strip out SBC. I could see this doing fine from here. I'm not like pounding the table on it.
- [45:54]
B
I think that's good perspective. Okay, do we want to talk? Another listener suggestion when you put some notes together for small cap of the week, Terra Vest, one that I believe your boss over at Fiscal AI likes as one of the Canadian gems out there. I think it must have been, maybe it was a Canadian person that messaged us because they also wanted us to talk about Constellation Software. Kind of wanted to talk Terravest just because Constellations talked about so much. But it's Terra Vest. What is this company, Ryan? And have they, have they fallen from all time highs? Are they in a drawdown? I guess. Take us through, take us through the story.
- [46:36]
A
I don't know. I didn't check the stock too much but I looked into the business quite a bit. And first of all, thank you for.
- [46:41]
B
The recommendations while you're talking.
- [46:44]
A
Yeah, we should have good KPIs there as well since so much of the team's from Canada. They love their compounders. The. Yeah, so Teravest Constellation Software and Turning Point brands were the recommended stocks. I'll focus on TerraVest today, give some quick thoughts on Constellation and then I'm going to save Turning Point brands for next week. Constellation real quick. For anyone that doesn't know Constellation Software, I think it's mainly a household name but I'll go through it quickly. They're serial acquirer of vertical market software companies. So think like very niche software products. The example I like to use is operational software for the bowling alley, like having pre built functions that are custom made for specific businesses. These are fine companies that they're acquiring. Like I say fine, kind of like they're okay. Organic growth has averaged 2 to 3% over the last decade. So it's not crazy growth rates but they're just really Constellation is exceptional acquirers of businesses. So from targeting them to having touch points with them, they're constantly in contact with like every private software company seemingly in Canada to being the first one there when they want to sell CSU is or Constellation has built a playbook for acquiring vertical market software companies at attractive prices. That's the general thesis on Constellation. Their founder stepped away due to health issues and the stock is now in its largest drawdown ever which isn't that much. It's like 35% which is insane. But what I find, what I find interesting here is it's in its largest drawdown ever and I really don't have that much interest in the stock. They are still trading at 35 times EV to free cash flow available to shareholders. So I think part of it's just people realizing the valuation was extremely and.
- [48:51]
B
Then the other part, operating cash flow, I guess you might not.
- [48:55]
A
Well they break out like a free cash flow available to shareholders. Like they report that on as a custom KPI. Operating cash flow would be higher. I think there's like some incentive stuff. But the metric to follow is what they report there, the free cash flow available to shareholders and there's no stock based compensation. So it's not misleading. The thing that I don't love about Constellation software is this might just be a theory on my part but there are not that many like great Canadian like like when I say great I mean like global powerhouse Canadian based companies. There's really a few great ones. I'm sure there's like some energy companies that I'm not considering but like tech wise you've got Shopify, Constellation Software, there's probably some others but those are kind of the two most notable. And so I feel like there's a huge like concentration of Canadian investors that it's almost like American investors to Apple where it's like you kind of just buy and don't think about it because it's like oh that's your American tech company or whatever. I think there's some of that relationship with Canadian investors as well. But anyway, teravest. Let's talk teravest because I'm going a little long here. Terravest often gets called the next Constellation software which I find funny because they're in completely different end markets. Like could not be further apart. They are a serial acquirer of manufacturing businesses, mainly sophisticated steel products. So think things like storage tanks or containers for fuel. So to be more specific, they are the number one manufacturer of propane and natural gas tanks and transport vehicles. So picture like that big commercial truck where there's a huge pro like commercial propane tank on the back. They're the number one manufacturer of those in Canada. And then they're the number two in the US and this, this is I think exclusively commercial. So if you're picturing like the little tiny propane tank you pick up at the gas station or Home Depot or whatever, that, that's not what we're talking about. It's more these big commercial tanks. The second largest segment for them is H vac equipment. So these are things like heating oil tanks and furnaces. And this is really big in rural Canada apparently where home heating like they don't have direct access to infrastructure that would enable home heating for things like the electrical grid. So they need instead petroleum fuels, things like heating oil, diesel, propane. So they have to have tanks for that. In isolation. These businesses look okay. I bet it's like business that's not, it's not going to get disrupted by AI, I don't think. And there's probably not a lot of VC funding being poured into propane tank competitors. But they're small companies for the most part that there's some transformational acquisitions that they've had. But generally it's small companies that they buy at around half times revenue.
- [52:16]
B
Kind of medium sized operators, not small businesses, but medium sized, family owned probably.
- [52:22]
A
Yeah. And then there's kind of the straightforward serial acquirer playbook which is there's automatic cost syndrome, cost synergies. So things like centralizing back office functions, admin accounting, hr, it they no longer have to do that themselves. They can outsource it to Terra Vest and actually I think now multiple of their portfolio companies share the same corporate office in Calgary. One second. Sorry, I got a cough. I don't want to do into the mic. Anyway, the, the other one, the big synergy here that kind of is unique is that they are able to buy steel in bulk at significantly lower cost. And all these businesses, the one commonality that they have is that they're manufacturing steel products for the most part. I think maybe there's like a few services businesses but the biggest input they cost input cost they have is steel. So this allows them to source cheaper than supplier or source cheaper than competitors and either be a lower cost provider or have higher margins. It's kind of the standard cost advantage playbook. But I sometimes think when I hear business pitches like this, I'm like it sounds so simple. But this has worked over and over and over again. Serial acquirers, like implementing if you're a good acquirer where you have like, like true cost synergies. When you integrate a company there's a reason that it works. There's A reason that there's so many serial acquirers that have become like massive compounders over the years. So I, I would put this in the mate. I mean, so far they've been a really good performing stock and could be worth looking into more.
- [54:23]
B
Yeah, it, it seems okay. I mean, clearly the stock has worked well and they've grown well. But compared to a Transdime or a Heico, where you have that advantage of. All right, we're the only. We sell. We're the only seller of this part and we have an insane amount of pricing power because of this. Within the aerospace supply chain versus I get a discount on steel. I feel like I need more of a competitive advantage outside of. We're good at acquiring companies before I'd invest, but that's just me. I don't know if at their core, these are great businesses. When the holidays start to feel a bit repetitive, reach for a Sprite Winter spiced cranberry and put your twist orange addition. A bold cranberry and winter spice flavor fusion Sprite Winter Spice Cranberry is a refreshing way to shake things up this sipping season and only for a limited time. Sprite. Obey your thirst. New markdowns are on at your Nordstrom Rack store. Save even more. Up to 70% on dresses, tops, boots and handbags to give and get.
- [55:37]
A
Because I always find something amazing. Just so many good brands.
- [55:41]
B
I get an extra 5% off with my Nordstrom credit card total queen treatment. Join the Nordy Club at Nordstrom Rack to unlock our best deals. Big gifts, big perks. That's why you rack.
- [55:54]
A
No. And I'm looking here. EV to free cash flow and EV to.
- [55:59]
B
Oh, yeah, earnings yield. I had it up. I had it up 3%. Yeah. Yeah.
- [56:03]
A
So nothing. It's not like screaming cheap. And maybe there might have been some temporary depression on the earnings figure there, but I don't, like, I don't have any experience in this industry, and it feels a little outside my circle of competence. Like steel propane tanks. I would be totally lying if I pretended to know what the competitive landscape looks like there, especially in Canada. So, yeah, it kind of feels outside my circle of competence. But the stock has done really well and I could see it continuing. And the one benefit that they have is that they're a much smaller, much smaller serial acquirer in a big industry as opposed to like the trans times of the world. The cat's very much out of the bag. So there could be a larger Runway for acquisitions for Terravest.
- [57:07]
B
Okay, we're running up on time. I got other stuff I want to talk about first and this is I guess the Gavin Baker stuff was also included in Brett's bubble watch. But MicroStrategy, let's get an update here. Over a 50% drawdown Bitcoin. Let me check live as we're recording since it never stops trading, it's down below 90,000 a coin, $88,000 per whatever. Bitcoin to USD. So quite a big drawdown here. It is now down year to date. MicroStrategy, given the levered nature of the business is down quite a bit. And I want to say I try not to have schadenfreude but this could not have happened to worse people. The I, I.
- [57:57]
A
Let me do your quote that you saw on Reddit.
- [58:04]
B
Oh yeah, yeah, yeah. They're, they're, they're in 50% drawdown. They are circling the wagons heavily. They are asking why the stock is down and they're blaming, there's a guy blaming the Epstein files. I mean it's a whole, they really got their brains locked in on this one. And did you see and maybe you'll pull up the quote but did you also see the lifeboat AI generated image.
- [58:27]
A
Yes. Where the ship sinking and he's not near it. So for anyone that did not see.
- [58:32]
B
This, MicroStrategy is sailing away. Yeah. On a life raft.
- [58:35]
A
And I sometimes feel like, I sometimes feel like I'm too online when I talk about this stuff. But for anyone that doesn't know, Michael Saylor, the CEO of Strategy formerly MicroStrategy posted an AI generated image of him sailing away in a life raft while I think what looked like the Titanic.
- [58:58]
B
Was.
- [59:01]
A
Sinking behind him, which was maybe not the message he was intending to send. But here are some quotes from.
- [59:08]
B
Should have had the shareholders in the life raft with him.
- [59:11]
A
But yeah, here are some quotes from the MicroStrategy Reddit page. I really try to comprehend what is triggering the sell off and what in the world will stop it. And someone said my cope is that they are pushing down so hard because they're going to pump Bitcoin so hard and MicroStrategy will go crazy up. Pain before gain. So okay, I, I feel kind of bad because either it's like broken English or maybe this is just someone that doesn't really have any idea what they're doing is what it sounds like. But yeah, I love the they like.
- [59:51]
B
Oh, gotta blame them.
- [59:53]
A
There's like, there's this, you want to put someone out there like to make it feel like you're against someone, but it's just your own shareholders selling stock like this isn't hot.
- [60:07]
B
Yeah.
- [60:08]
A
It's not some boogeyman out there that's out to get microstrategy. It's a horrible strategy. Business model. Yeah. Strategy, sorry, Horrible strategy.
- [60:21]
B
Well, what's funny is that okay, I looked at or go ahead, go ahead.
- [60:26]
A
It's. I, it is so pointlessly risky. It makes no sense. They could. And the thing is like they say, well, as the valuation comes down, our bitcoin yield goes up. That doesn't mean anything. It doesn't mean anything. That's the issue is like it's not a buyback yield, it's not a dividend yield. This, there's no actual returns here other than hopeful price appreciation.
- [61:00]
B
You said it sounds incredibly risky. Did you know that most crypto exchanges now offer offer up to 50 to 100 times leverage on your money? So you can bet one dollar, put in one dollar, bet a hundred dollars on something like Bitcoin. So if it goes down or down 1, 2%, you're completely wiped out. They're, they're allowing people to do this.
- [61:23]
A
I, I know, I know I've said this before, but when people ask me like, and I think this is a common misconception where people are like, I'm buying Bitcoin because it's going to go up and they say how's that any different than stock investing? Stock investing, you're buying. Well, for the most part you're buying a cash flowing business where you have a claim to the earnings. It's like a claim ticket. It used to be a literal ticket where you have a claim to the company's asset value and their earnings. And you know, theoretically if the company were to liquidate, you have a percentage of that or you can get a percentage of the cash flow through dividend distributions. So you, you have a real claim with Bitcoin, there is nothing supporting it. So like when that business, if the stock drops, your claim to the business grows. Like your dividend yield is growing all else equal. If the stock drops Bitcoin, there's nothing supporting it. Like the only thing that was supporting it was other buyers. So you, it's like it's a pure.
- [62:40]
B
Momentum value narrative vehicle. Yes.
- [62:43]
A
There's no such thing as value here. You're not getting more value. Theoretically.
- [62:48]
B
What's funny enough is that the microstrategy and sorry, you're buffering so I couldn't, Sorry for interrupting, but the microstrategy people confused on why it's going down. Like I look at Nvidia today. I was like, why is it down? It was a good report. I looked at Wix, solid report. Why did the stock go down 20%? I wonder what they said, the MicroStrategy, you know, 100%. Why it's going down? It's because Bitcoin's going down. There's no mystery here. But I want to, I want to close out with something, especially because I just want to put it in the title because it's a very hot stock. Hymns and hers new services in the stock is in a nice little drawdown. And do this quick because we are running up on time. They launched D2C blood draws and lab tests quote. Their base includes one yearly blood draw that captures 50 biomarker tests and is available for $199 a year. They have a second one that captures 120 biomarker tests across 10 categories and is available for $500 a year. A recurring guest, Travis Hoyam from Asymmetric Investing. Go check out the newsletter. Tried out the service and wrote it up on his newsletter. He said, quote, as you would expect, signing up for the labs is a straightforward process. Hims and hers is a typical modern tech company. With a few clicks I had paid for and scheduled my labs, quote apparently through Him's and hers. This cost is half the price of the Quest Diagnostics if you go directly to them and he says, quote, I see labs as a productive product that opens doors for Hims and hers when they had the lab data. Creating an action plan offering services or prescriptions is a no brainer. One thing I want to look at is Quest Diagnostics stock because it seems like that's popping up as a big service provider for all these lab tests. But I think this product fits very well within the Hims and Hers ecosystem. The stock right now is in a 48% drawdown. EBITDA gross profits 5.2 revenue grew 49% year over year last quarter quarter Company is now net income positive. Yes, there is the GLP risk, GLP1 risk, but is the stock actually attractive here? Ryan, any interest in looking at them again?
- [64:53]
A
Maybe. I had some red flags with the CEO. So the CEO seemed to get pretty caught up in the excitement of the stock. It's maybe a nice way of putting it. Like he it felt like he was pumping it a little bit, but we'd.
- [65:09]
B
Like to see him mature a little bit. Yeah, yeah.
- [65:11]
A
On the one hand I see like red flags with the CEO, but I also really respect Travis and I do see the actual, like, disruption opportunity here, and they do have. Anecdotally, they have very good brand notoriety with the platform. Like, a lot of people have heard of hims and hers. Well, depending on which side you're on, I know probably more him than hers.
- [65:35]
B
A lot of marketing. Yeah, I see their marketing constantly. They really want me to buy some stuff from them.
- [65:42]
A
Yeah, YouTube.
- [65:44]
B
I'll be interested too. Sorry.
- [65:46]
A
Yeah, I said YouTube ads galore. There are so many YouTube ads that I get from them.
- [65:52]
B
That is true. All right, we have one final question to end the show from a commenter. I'm gonna. Tyler joins all the time, so I wanna include it. He says, is Sam Darnold the guy? Uh, I said I'd put him in the too hard pile.
- [66:08]
A
Yeah, he's outside my circle of competence.
- [66:11]
B
Yeah, that one is a difficult question. As a Seahawk fan, I hope he proves me wrong, but. All right, we're going to close things out. Oh, I was supposed to talk about the launch of the Emerging Moats newsletter. I should just say quickly. Check it out. We rebranded the email newsletter. We have a paid stock research service on that. The link is in the show notes. We'll probably talk about more details on that when we have more time on a podcast, but go check it out, see if it's for you. It's tailored for wealthier individuals and professional teams and covering stuff at least once a week with comprehensive research reports every four weeks. Go check that out. Nothing's changing about the podcast, but we just launched that. Give it a look, Ryan. Anything else before we get out of here?
- [67:00]
A
No, I think that's gonna do it. I can take us out here. So thank you, everyone for tuning in. We will be back next week with tons of more content. What's our interview for next week? Or. No, not an interview. We've got a list.
- [67:15]
B
It's an earnings season listicle that we haven't decided yet. We're either. We have somebody brewing, but we're gonna have to figure that out.
- [67:21]
A
I actually think this. I have an idea that I'll try to sell you on after this, Brett, but next Wednesday should be a very exciting episode, hopefully. And then we've got another power hour. Thank you again, everyone for tuning in. Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Stocks is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed on this podcast. Thanks again, everyone for tuning in and we will see you next time. And Doug, here we have the Limu emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating.
- [68:18]
B
It's accompanied by his natural ally, Doug.
- [68:21]
A
Uh, Limu is that guy with the binoculars watching us?
- [68:24]
B
Cut the camera.
- [68:25]
A
They see us. Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings Ferry Unwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts. It's okay not to be perfect with finances. Experian is your big financial friend and here to help. Did you know you can get matched with credit cards on the app? Some cards are labeled no ding decline which means if you're not approved the they won't hurt your credit scores. Download the Experian app for free today. Applying for no ding decline cards won't hurt your credit scores if you aren't initially approved, initial approval will result in a hard inquiry which may impact your credit scores.
- [69:02]
B
Experian.