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SoFi Short Report Allegations; Micron's Insane Numbers; Nvidia's $1 Trillion Revenue Projection
01:04:51
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- [00:00]
A
This episode is presented by Interactive Brokers. Interactive Brokers is the best platform for global investors. From their one of a kind market coverage to their best in class pricing, IBKR truly has it all. If you're serious about investing, head on over to ibkr.com stay tuned for more Interactive Brokers later in this episode.
- [00:18]
B
Welcome to the Chit Chat Stocks Podcast, the podcast that helps you discover your next great investment. I am one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Shafer. We got a lot on the docket. This this is our weekly Investing Power Hour episode where we talk all things financial markets. We do these live every Thursday at 5pm Eastern time. So if you want to get any questions in, feel free to hit us up on YouTube, head on over at 5pm Eastern Time and ask away. In the live chat. We've got a SOFI short report from Muddy Waters. Controversial, one popular name. There was a bit of selling in the stock. We've got the trade desk not technically sued, but protested by one of its largest customers. We have absolutely insane revenue numbers out of the largest memory chip maker, I believe the largest micron, who reported earnings this week. And we've got plenty of other news as well. OpenAI potentially giving up to Google, some Uber partnerships and plenty more. Brett, how are you today? Where do you want to start?
- [01:30]
A
Well, I want to start by saying if anyone cannot join the live stream, they can always join the Substack chat and ask away. I always do a pre show. I try to do at least 24 hours before, maybe on a Tuesday or a Wednesday morning as well. I usually toss out the same thing. Hey, what do we want to talk about this week? So if you can't make the live show and you have something you are dying for two retail investors to talk about, ask away.
- [01:56]
B
Yeah, usually I think we hit the big topics, but sometimes we might miss a thing or two. And if you have any specific companies you want us to look at or anything like that, the substack chat is the place to do that because it gives us a little bit of time to actually prep and add some notes instead of just doing a live take. Do we want to talk so far? Short report.
- [02:19]
A
Let's do it. I didn't have time to read it, but it looks like you made quite, quite a few notes here. Of course, Muddy Waters, pretty popular short seller. Well unpopular in certain circles, but they've been around for a long time. They're not afraid of any controversy. What were they saying here? Ryan and Can I assume that. I think we talked about it on the episode that came out this week where, you know, new lenders, lending businesses, it's all about trust. And were we vindicated by. By our hot takes that some people give us pushback for?
- [02:54]
B
Yes, well, vindicated by this report and some of the allegations per se. But obviously at the moment they remain allegations. So I, and I do want to maybe take a sec to there. When we talk about short reports, they can be almost intimidating if you're a shareholder. And there are a lot of shareholders that just ignore them. There's a lot of shareholders that try to dismiss whatever they can, discredit the short seller. My general piece of advice because I don't know if you've ever had a company that you've owned where there's been a major short report that was released on it, but my suggestion is to read it, take some time, don't make any decision the day of. Wait for a response and give it some thought. But wait to see what management says is usually my opinion. It can be very frightening, I think as a shareholder. Have you ever had this happen to one of your companies?
- [04:04]
A
We've had one that we both own, Ryan Remitly Global, and I actually forget who did it. Was it Spruce? Point is that it's very hard to remember all the investment fund names. It was a complicated slide deck. There were allegations of. I actually forget what the allegations exactly were. The thing is they ended up being right even though what they said was going to happen with total deceleration of the business didn't happen. But when you read one of those, yes, it does always sound scary and sometimes they're right, sometimes they're wrong. But I agree with you. Take a step back. You don't need to sell immediately if you have a thesis on the company, well, just take it as another piece of information and look, you try to digest it, figure out if they're right and if you're worried that they're right. You know, there's other. There's other fish in the sea.
- [04:56]
B
Yeah, I want to be too quick to discard short reports either, especially ones that are alleging fraud potentially because some short reports are just based around, you know, we don't think the company's going to grow or whatever. They just are don't believe in the business. But if it's alleging fraud or aggressive accounting, which in the case of SoFi is what they are alleging here. And I'll talk about that. I do think important to actually look at some of these and Try to get a response or some clarity from management. So let's talk about this. Here is the first paragraph. Muddy Water says SOFI is a financial engineering treadmill, not a healthily growing origination business. SoFi shareholders are incessantly diluted so management can hit bonus targets through GE capital style loan marks and Enron esque off balance sheet structures that disguise borrowings as revenue. Thoughts on the first sentence there?
- [05:58]
A
Well, whenever you toss in GE or Enron and yeah, I mean I think that's just we know why they're using that, that term. We'll see if there's any validity what they're doing. But I could see, you know, the SoFi having GE style stuff, you know, Enron, I have no idea what they're actually allegating here but are alleging here. We'll see what are the specifics here. Let's actually get to what they think SOFI is doing. That makes it a short.
- [06:27]
B
So the focus really of the report was that they believe SOFI is engaging in fraudulent or at a minimum very aggressive accounting in order to hit bonus targets. So there were several different accusations in here that I think are worth talking about. I'll go maybe spend some time on the ones that I think really matter. And then some of the, I'll hit on some of the smaller ones as well. So the first and probably the most pressing was an accusation that SoFi materially understates its net charge off rate on personal loans and personal loans are the largest percentage of their loan book. Now it's been, we talked about this I think two weeks ago or something like that. It's been a very quick expanding portfolio or of loans for them. And, and the crux of Muddy Water's accusation here is that they say or they claim SOFI understates the net charge off rate two ways. One, so they use the 120 day delinquency rate and they say that SOFI disposes of loans close to the 100 day charge off threshold in order to get them off their books. And then they too apparently park defaulted loans in unconsolidated vies. That's sort of the Enron accusation part. The SOFI estimates that its net charge off rate or Muddy Waters estimates that the true net charge off rate for personal loans is closer to 6.1% while SoFi states as of last quarter that their net charge off rate is 2.8%. This is the reason this is important is because that net charge off rate is used as the fair, used as one of the big inputs for the fair value assumptions of these loans. So when they originate new loans and they book the earnings, it can be basically them potentially misleading or booking earnings that aren't going to materialize. Any thoughts there, Brett, real quick?
- [08:33]
A
Yeah, yeah, that's, that's a pretty sharp allegation. What is it over double the actual net charge off rate that there are the state in the charge off rate. If they're doing this, I mean, it makes sense how they can do this. That feels pretty logical. It's before they hit the threshold. I'm not sure exactly if that's totally nefarious, but if they're putting defaulted loans off balance sheet and they're not actually stating that they're there, I mean, yeah, that's clearly misleading a county because your loans are worse than you're reporting to investors. That one's, that's pretty cut and dry if that's what's happening.
- [09:09]
B
Here's a quote from the Muddy Waters report. It says in one such transaction, SoFi sold $62.5 million of defaulted but not necessarily charged off loans to an entity called Altura ventures LLC for $5 million. That's 8 cents on the dollar. This it was selling those loans for. Now. And the other accusation here is that they're selling to these entities who are just reselling them and that maybe there's some suspicious activities with these entities that they're selling to. The second big accusation here was that SOFI is using a manipulative financial modeling technique on their student loan portfolio. So on their $12.9 billion student loan portfolio, which generates approximately $450 per year in day one, fair value gains. And some of this gets complex into the bank accounting, but basically they're saying that they're recognizing these paper profits at origination before a single payment has been collected, which is apparently ultra aggressive. Yeah. And then I'll kind of rip some of the, rip through some of the other ones here and then we can get some takes. Third, big accusation. I'm not totally sure how this works because if you're reading this, my guess is that some of the SOFI shareholders were a little confused, honestly, and maybe didn't realize all the, I guess, secondary market activity that goes on with, with bank loans. So they are alleging that SOFI is seller financing sales of their whole loans to make it look like the fair value marks on their personal loans are valid. So basically they are paying companies to buy them from them. They apparently received a letter from the SEC about this. And then in the last few days of quarter, shrunk the outstanding balance and in order to do that borrowed $312 million. They have not reported in their financials. This is again what Muddy Waters is saying. I'll fly through the rest of these here. The other allegation says SoFi's loan platform business is not a capital light toll booth generating fee income. It appears to be a wet funded forward flow transaction, a disguised form of borrow loan proceeds. SOFI books as fee income. They compared this to again the off balance sheet structure that Enron used. Two more here. Brett, I see you're about to chime in. So.
- [11:33]
A
Well, I was going to say I'm confused on what this last part is. The LPB thing, the loan platform business. So are they selling it to themselves? Is that what they're doing? What's the allegation?
- [11:44]
B
Believe so. Or selling it to entities where they have they've done seller financing or like suspicious entities? I think is the assumption here. Let's go through some of these other ones in 2025. So if I capitalized approximately $194 million of marketing expenses instead of expensing it to hit adjusted EBITDA targets, that's a
- [12:10]
A
red card right there. That's that stuff.
- [12:14]
B
Yeah. And then here's the last one I'll talk about and I actually this. It would be the most concerning for me if I was SOFI shareholder. It says while SoFi's 8K filings state that NOTO has not sold any SOFI stock, noto and CFO Lapointe have extracted approximately $58.3 million through prepaid variable forward contracts, instruments that are economically equivalent to stock sales. The seller receives guaranteed cash today. The share transfers at maturity. The shares transfer at maturity in total. Muddy waters estimates that SoFi's total adjusted EBITDA for 2025 was actually 103 million instead of the roughly $1.1 billion that management states. So 90% reduction and that's a compensation hurdle for them. So that's pretty rough.
- [13:05]
A
Yeah, that's pretty rough. You can see why these are pretty. This is bad. The stock should go down 80%.
- [13:11]
B
SoFi responded the next day. They had a press release. It was limited. They issued a three paragraph response. The release did not specifically address any allegations. I'm not necessarily saying that's a bad thing because I think sometimes timing can be important with this, especially when someone's alleging fraud. You don't want it to just linger there for five days while you fix up responses. But they did avoid commenting on Anything specific from the allegations? Here was the first paragraph of their response. The claims made in the Muddy Waters report demonstrate a fundamental lack of understanding of our financial statements and business. We intend to explore potential legal action against Muddy Waters for the act, for the factually inaccurate and misleading report that they shared about our business today. Let me, I'm going to give my quick thoughts here and then we can get yours. My first thought is I would not really care too much about this, honestly, if I were a SOFI shareholder, if Noto truly had never sold a share. Because if he had a huge chunk of insider ownership here and he hadn't sold a share, then there'd be no incentive to deceive or manipulate the number. Right. But the variable forward contract show that he basically has booked share sales or at least whenever he says, or the company says he's never sold a share. You know, it is at a minimum disingenuous, which I would find frustrating. The second thing here, this is the difficulty of a lending operation. I think this is why SoFi shareholders were kind of stunned and most shareholders just basically said Muddy Waters was wrong about these companies in the past. Discredit them. Don't listen to this. This is nonsense. Because the issue is we don't know. Minority shareholders here do not know what the true default rate is in the loan book for personal loans. It's a black box, which is part of the issue with a fast growing lending business. And then the third thing, and this is maybe the biggest, this is the issue of having adjusted EBITDA targets as executive compensation hurdles because there's no limit to how much can be adjusted or the things that they can do to make that number say what they want.
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A
That's.
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B
Any thoughts from you?
- [15:29]
A
Yeah, those are all fair, I think with the loan book stuff being a black box, I think maybe more so. It's in a. Almost no one wants to put in 20 hours of work to analyze this and spend, you know, you know what I'm saying? Where yeah, like someone like Buffett can go through during the financial crisis and look at what were they? Lehman Brothers, Goldman Sachs, I guess they ended up investing in. But he was given an offer like, hey, take a look at this business. What do you think? Could you help us out here? Do you see any potential value if he could come in as a savior? And he analyzed it. But there are very few people out there that have the skill to analyze a financial like this. I don't think I really do. And then do you want to put in the time? No, this is another example for me. If I'm going to invest in a financials company, the one that we have a long history with is probably just nelnet. I don't think anyone else in our respective portfolios are true banking entities. And that for me is just solely based on trust. You have to be just trusting in them as operators. And when you're someone like Sofi that has new management new relatively of the last five years or so and getting into new lines of businesses that are growing quickly, it's. It's gonna add a layer of potential risk and even if none of these what they did here. Yeah. You know that connection to actually selling stock when you stated you weren't you know, synthetically and then having those adjusted EBITDA to targets. Yeah that's clear cut and dry unethical behavior by a management team. But maybe some of the things that they did wasn't necessarily like on purpose where you know, maybe Muddy Waters is alleging this type of stuff but it's part of the business that makes it tough and maybe it looks worse. You know they're, they're an upstart, you know for lack of better no pun intended there financials company and maybe they're just making a bunch of mistakes. Either way if they're actually could be like if this stuff is true either way the, the business is in much worse shape than people thought.
- [17:39]
B
I do want to. I just want to say we probably have some SoFi shareholders to listen to this podcast regularly again I would wait. Also it is worth noting Anthony Noto bought shares that day that this came out. Okay, I don't know if that's optics or what that really means. The But I've been. I mean I think we did a deep dive on SoFi a year ago or I did and I was fairly optimistic about the business. On the deposit side this is a really fast growing fintech like it's a slick consumer app that's done a really good job growing customers and deposits. It's the lending side for me that has kept me away and has been the only hesitation for me from being a shareholder is I just have no idea what the true net charge off rate is for personal loans. Without without knowing the industry super well. 2.8% on personal loans seems low. If you're a regular listener to chitchat stocks then you've probably heard us talk about Interactive brokers. Here are three reasons why we think interactive brokers is better than any other brokerage platform. Number one, they've got it all stocks, bonds, ETFs, options, crypto, you name it. 170 markets, 36 countries, 28 currencies. Number two, they've got best in class pricing. They have zero commissions on US listed stocks and ETFs. And margin rates up to 54% lower than the industry. Number three, you can ditch the separate high yield cash account. Interactive Brokers offers up to 3.14% interest on instantly available cash held in your investment account. Head on over to ibkr.com Rate subject to change margin involves risk restrictions apply. Interactive Brokers is a member of sipc.
- [19:27]
A
That's fair. Depends. It depends what you're underwriting. I mean American Express is 2% but they're the top end of the market.
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B
Right.
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A
For them specifically. So far. It's just the fact that you have an unsecured personal lending business growing really quickly. We don't know exactly how that's going to turn out. It could easily turn. It could easily just get super ugly within a year and maybe that's what's happened. We have some comments here that says, I will be honest, I don't know a single person that uses SoFi. Well, yeah, there could potentially be allegations against how active one of their active users are. Yeah, I don't know.
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B
Technically just members is the definition.
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A
Yeah. You're a member. Have you signed up for an account? Yeah, I would look into the definition of that. Maybe it's looser than people think. That's something I would definitely look into if I was considering investing. We have a comment here from Tyler saying banks can almost grow as fast as as they want. But good bank operators are extremely disciplined and often limit growth to a slow pace. These SOFI accusations seem crazy. Maybe there's some smoke, but what are regulators doing? If so, if I can get away with all this. A fast growing bank should be where regulators focus. I think that's true to a point. But regulators, what are you going to do? There's so many loans out there, I guess, I don't know. You can't expect them to inspect everything. It's more of a audit issue. Correct.
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B
From Deloitte, I believe. Oh yeah. And some of the stuff would be apologies. If you hear the dog barking in the background would be on the auditor's hand, which I believe in this case was Deloitte, so. But even they can be sort of.
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A
There's the dog. Why don't I keep. I'll keep talking here if you want to get muted there the. I know I grew. I agree with you there. It's not regulars aren't going to pick up anything. And if you look at the history complaining about the sec, there's that. I don't know if it's famous but it's always memorable to me. The scene in the comedy the Other Guys where they say, what do you actually do with the sec? There's all these frauds out there that you never catch and you only catch them in hindsight, I think you should expect that to continue and that's why you have to stay vigilant, respect the, what do you call them, the forensic accountants out there. You have to respect these short report people such as Muddy Waters that I believe are doing it. Yeah, they want to make money obviously, but they're not doing it disingenuously. You know there's some out there just like people in the long, you know the people that are just pump stocks all the time. That's. There's people like that on the short side but you have to read that, listen to them, think if you agree. And a lot of the times when there's smoke there can, there can be fire. Yeah, I wouldn't touch this thing. That's, that's all I'm saying. There's got to be better opportunities out there. Like yeah, it's just tough for individual investors to buy these type of things because if these loans go sour, given how levered these businesses are, if you play around with accounting at all, you can get burned really, really quickly.
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B
Okay, you want to take some questions here from the chat before we move on?
- [22:48]
A
Sure. Let's see. We had someone say how do you think the market would react to a massive acceleration in revenue growth at the hyperscalers AWS above 25% GCP. Google Cloud above 50%. Azure above 40%. I think it's almost priced in, I'm going to be honest. For 2026 they're increasing their capex at such a high rate and they're stating that there's a huge amount of demand that's not catching up with supply yet. So there's going to be this huge boom and I honestly think it's priced in.
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B
Yeah, it certainly feels expected given the capex guide and that they are saying that they're for as fast as they're growing capex, they're booking it as well. So it, I think it's pretty likely. We'll see on how would they react. My concern is that like if cloud accelerates again we're just going to see more commentary about capex growth from the management teams. And it's like push and pull because analysts seem to not like the Capex guides which don't blame them and obviously you like the cloud acceleration.
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A
Okay. We have someone asking here about grocery outlet recent 10k said that they do a 5050 gross revenue share with store operators. Thoughts on how this compares good or bad to others? They probably. I remember we covered them a while back. I haven't kept up with them but feels like good incentive alignment. I wouldn't read into it as necessarily good or bad. Whereas are the hurdles good? Does it lead to good performance all around me you can have a 5050 revenue share line but you have to think well, does it actually incentivize everyone to do well and is it going to leave a little bit for shareholders at the end of the day?
- [24:26]
B
Yeah. We've had two people now comment. Any updated thoughts on Kelly Partners Group? We actually talked about them last week on the Power Hour so if you want to check that out we touched on some of the AI risk maybe and then the opportunity and the revised valuation as well. By the way, if you're heading to Berkshire this year or Omaha for the annual hiatus, they have their own event apparently Kelly Partners Group is doing their own event at Berkshire. You might be able to get more context there.
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A
All right. Yeah. So I'm sure the CEO will be there. That's one that I follow somewhat closely but it's not. I can't say I'm an expert on it at all yet. We have another and this is a tease from someone that is going to be on next week. Have you guys heard of this G dot merger R but G D O T seems mispriced to me. Total book value around 0.5 times. Ryan, have you heard of this? I'm assuming no, but maybe it's a small.
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B
I have not.
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A
We can look into. I appreciate the idea generation and yeah, you know there's always something to do even. Even if things look crazy out there and oil is going to $150 a barrel.
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B
I will say I've gotten away from the merger arb game a bit. I can't remember the last time I Activision Blizzard.
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A
We did it. We did. All right.
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B
That did not. Well, whatever. It worked I guess. What was the other one that ended up working out? It was like the semiconductor company, I think.
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A
Idn. I think they're a memory player.
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B
No, no, no, no. IDN was that small cap Intellicheck.
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A
I can't remember.
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B
It was like a Korean company or something. But it was like the merger Spread was massive.
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A
It's. It was NAND memory chips. I'm sure their stock is soaring at the moment. Yeah, I can't remember. I can't remember if it even worked or not. I think it actually didn't go through, but they may be a bit better for it. Okay, what do we want to talk about now? Nvidia. A lot of announcements, a lot of press releases. Trillion dollars in revenue, allegedly. The high tide earnings, Uber and AV partnerships. It's kind of the same old stuff every week at this point. It's just so many press releases. I can't get over it.
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B
Let's go. Maybe some of these Uber partnerships I want to switch to a high note here and some, some positive developments.
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A
Do you think this is positive for Uber?
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B
Maybe.
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A
Maybe we can debate that. That's, that's I guess my question at the end of the day, I'm not sure what, what I think. So they're announcing a lot of partnerships within the autonomous vehicle and self driving taxi space. They just announced, I think a couple days ago, Maybe even yesterday, $1.25 billion investment into Rivian to accelerate their AV goals. Not EV, not electric vehicles, autonomous vehicle goals. So both companies are going to work to get Rivian, I guess, Robo Taxis onto uber sometime by 2028. I'm sure Uber got pretty good terms on this deal because Rivian is struggling quite mightily as a company. They need funding, they need cash injections. Volkswagen's been doing that for them as well and they're hopefully getting that DOE loan. But you know, besides that, they have an expanded partnership with Nvidia. Nvidia apparently is going to have Robo Taxis on the market by 2028, 2027 at least. Uber is going to be powering something within video software for autonomous vehicles. I don't know exactly what that is, but we'll see.
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B
Follow that one.
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A
Yeah, they, I guess have software. I've never understood that part of the business. But there's a company called Wave and they are partnering with Nissan and having Nissan Leafs, who, you know, autonomously driven on the Uber platform. In Japan, Zoox is joining Uber, the Amazon startup within, I think San Francisco and Las Vegas. And Uber itself launched Uber Autonomous Solutions, which allows autonomous vehicles and autonomous vehicle companies to easily onboard to ride sharing. So getting onto the Uber platform, it's a lot of announcements. Clearly it's hard to keep up with. The company is pretty press release heavy. What do you think? Is this coming from a position of strength or a position of weakness for Uber? Because you have all these small players they're partnering with, but then you have the Teslas and Waymos out there that many, many people are scared of. I'm more scared of Waymo. But there's those big two players that are trying to compete without Uber, at least most of the time.
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B
I'd argue that it's, it's a positive development, but it does feel like they know what the narrative is around their stock and that the big risk being Waymo. So they're trying to diversify their partnerships as much as they can. Even if it's maybe more noise, the news at the moment, like it might just be press releases for the time being. But I mean, in theory, the more autonomous vehicles or autonomous vehicle companies that are on their platform, the better. I think that's like, that makes them the. The platform, the powerful platform as opposed to being beholden to Waymo. But it does kind of seem like maybe they're doing all this to for optics so that it doesn't feel like they are beholden to Waymo.
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A
I think it's coming from a position of weakness. I'm going to be honest. They know. They just know. They see Waymo's growth rate. I'm still on this.
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B
I don't buy it. I don't buy it.
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A
But why do they need to invest a billion in Rivian then? Why it's going like Rivian. Rivian stock is probably going to zero. Like, have you seen their business?
- [30:22]
B
No, I haven't kept up with Rivian. But like, if we're going around again on this Waymo versus Uber debate, like, I think I stand in Waymo's or Uber's corner here. It feels like feels like Waymo needs Uber more than Uber needs Waymo at the moment.
- [30:46]
C
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- [31:41]
A
Nah. Well, I just disagree. We don't have to talk. We have other things to talk about. We've talked about this many times. But when, for example, Apple Premier is the premier smartphone platform you could call it, right? Pretty much. For all of existence and up till today, almost every company has to go to Apple. Kiss the ring. They'll do what they do. Apple doesn't need to beg companies to come to them because they have all the power. Now, that's flipped a little bit in recent years because of this AI stuff, where now they're paying Gemini Alphabet, where before Apple was receiving a huge amount of money from Google Search. But usually Apple just goes, oh, sorry, we're not going to approve your app. Sorry it took us a month to approve it, or sorry, you're going to pay 30%. Uber has to go out and try to go to all these companies. I don't think they're coming from a position of strength where they don't hold all the power in the industry.
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B
I mean, you don't think these AVs or these AV companies are wanting to partner with Uber?
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A
Oh, I think they do, but I, I think these AV companies are. I mean, it's like, is like DuckDuckGo versus Google. It's nothing. Like these companies have nothing on the road. There isn't anything. Cruise has nothing. Zoox has barely anything. Waymo dominates.
- [33:03]
B
But are they worse? But is Uber worse off for having these deals in place in the event that these vehicles or these companies do start to have vehicles on the road? Like, it feels like they've got no choice but to partner with these companies.
- [33:18]
A
Yeah, but if Uber had all the power, the companies would just come to them. They wouldn't even pay a billion dollars to have them join. That's what I'm saying.
- [33:28]
B
Yeah.
- [33:28]
A
Apple doesn't pay Spotify. Hey, you got to use the Apple platform.
- [33:34]
B
No, but I don't know. I still think there's the supply issue with Waymo that we talked about with the oscillating demand. But, and Uber solves that. But let's, let's shift gears because we have had that conversation before and we, I should say we did a full Uber deep dive with Aria a while back that I would. I think most of that conversation was about the Uber versus Waymo debate.
- [33:58]
A
So yes, more detailed discussion. Discussion there. What about this trade desk allegations? This was pretty surprising.
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B
The trade desk.
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A
The trade desk, just like. Which is State University.
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B
It is still one of the Most frustrating names in public markets for me. Actually I own one of these.
- [34:17]
A
The Real Brokerage. We're going to the. The Real Brokerage. Yeah, yeah.
- [34:22]
B
It's infuriating. Anyway, so Publicist Group, which is one of the largest advertising companies in the world, commissioned a private audit of the Trade Desk and allegedly found multiple violations of their service agreement. Publicist Group accounts for more than 10% of the trade Desk gross billings. Allegations include that the Trade Desk applied its demand side platform fees to additional charges not permitted by the contract, that clients were automatically opted into tools and build for them without consent. And Publicist says that the Trade Desk failed to provide data needed to verify that media costs were invoiced without hidden markups. The big issue here, aside from the the complaints is that Publicis delisted the Trade Desk and advised its global clients to stop using the platform. That is way more harmful than just a pure lawsuit. And this to me is way worse than any short report or anything like that. You've now just a lost potentially 10% of your revenue but also lost credibility across the board and probably across the industry. The Trade Desk is now down 83% from all time highs. Is there any world in which you end up no buying this?
- [35:37]
A
Nope, nope. I'm going to answer before you finish the question. Trade Desk, is this a tough market? All do you the last five, six years we've been pitched many many times on this show by outside guests reading reports we've talked about on power hours or maybe deep dives. You have what the Trade Desk Pubmatic wasn't there Magnite all these other players. I mean Amazon's in the game now but they have it more of as a holistic solution for Prime Video and Amazon sponsored listings. It kind of makes sense. Hey no, no. This is a tough field and look at their pe. I've written a bunch of Motley fool articles on them. I'm sure if we look at fiscal AI right now the Trade Desk is trading at a PE of all right, load for me, 26. This isn't right. Like it's not a, it's not a PE of 10.
- [36:37]
B
Yeah. Are they, I mean under earning or is that like what you think?
- [36:43]
A
Steady state margins, four and a half. So to be fair maybe they're under earning but they're in a very competitive spot. I mean I think what the AI overview that fiscal AI has makes sense. It says there's a structural disadvantage. Well it says that they're competing against Google Meta and Amazon. I wouldn't want to compete against Google and Meta in advertisements. We said this many times and Amazon is obviously a big player as well.
- [37:15]
B
There was also a lawsuit against them this week that they drastically overstated what their new Coke platform Coke is the name of it was capable of and I guess under delivered for partners. Anyways.
- [37:31]
A
Yeah tough week for some growth stocks. Man. I'm glad I'm not in any of these things. I. October, November, December was tough for my portfolio. I think you as well. We have some overlap but man, yeah, I feel bad for anyone that holds holds these trade desk and Sofi.
- [37:46]
B
You know what we haven't talked about on this show yet is the decline of Bumble.
- [37:51]
A
I know. And the stock they had a somewhat. I don't know. The Stock went up 50% on I don't know.
- [38:02]
B
It's like a cigar butt. It's trading like a cigar butt and it might deserve to. Users have just like. I think they dropped 20% or something like that year over year. It's maybe pull it. I'll pull it up. On Fiscal. This is our weekly plug for Fiscal AI.
- [38:20]
A
Okay, I'll give the ad while you pull up the numbers here. Fiscal AI is. Fiscal AI is the best, I'd say terminal that you can use within your browser for all sorts of financial tools. And they put out stuff all the time. Ryan is, you know, helping. Helping marketing and getting the word out. But one, that one product feature that I've been requesting for the last, I'd say two years has finally made it through and it's annotating conference calls and maybe other stuff. Maybe not just transcripts, but at least transcripts where you can highlight or you can tag something and you can have your own notes being taken within the app or the web browser. So it's just fantastic. Where okay, instead of having my own Google Doc or written notes on a yellow notepad, I can actually put it within that specific point and I can come back to it for that company. It just provides a ton of value. You can use our link fiscal AI chitchat. Get 15% off any paid plan. You've heard us talk about them plenty. All right, Ryan, that's a long enough ad. What's Bumble looking like here?
- [39:27]
B
Here's your Bumble app paying users year over year change. They were growing 35% three years ago. Today they are declining 22%. Here's the actual specific app numbers. They were officially for the first time ever, eclipsed by Hinge in total revenue.
- [39:51]
A
Wow.
- [39:51]
B
This quarter.
- [39:52]
A
That is interesting.
- [39:55]
B
Would you ever get back into the dating apps.
- [39:58]
A
Not.
- [39:58]
B
Not as a user. As an investor.
- [40:01]
A
As an investor. Probably not. Probably not. It feels like there's momentum against all of these businesses. And you look at something like Hinge that is growing within. Within Match Group, doing fairly well financially. It's growing. I mean, it's not growing explosively on a revenue basis, but it seems to me. And maybe this is just reading stuff on Twitter and being 29 years old, but it seems like everyone just uses that app and eventually it's. They're not like Tinder and Bumble are pretty much dying. That's purely anecdotal. So, yeah, I don't want to lose any more money owning these investments. I'll make my money somewhere else.
- [40:46]
B
Yeah, I think I'm with you. It can't get cheap enough for me to get interested.
- [40:53]
A
Yeah. Maybe with Matchers buyback, maybe there's a price like, it's significantly lower than here.
- [41:00]
B
But here's Hinge versus Bumble.
- [41:05]
A
That's a pretty chart. Wow.
- [41:07]
B
But here's. The issue is I used to love these businesses because I thought there was a wonderful network effect. Like. Right. Like the more users you have on there, the more people want to be on there because there's more potential dates.
- [41:20]
A
That's fair. No, I mean, that is a. That is a benefit to scale.
- [41:23]
B
Right?
- [41:23]
A
There is a benefit to scale, but
- [41:24]
B
we've now seen two apps in a row deteriorate in their network effect and get replaced by a new app again. So Tinder, Bumble are both ceding users to Hinge. Is this going to happen to Hinge again? Like, I just. I don't know.
- [41:41]
A
It.
- [41:42]
B
The staying power. I've been underwhelmed by the staying power of dating apps.
- [41:46]
A
Well, I guess. Yeah. The point is, if you have, like, there is value, obviously. And if someone said here that the podcast stopped recording sound. Oh, that's not good. You can hear me, right? Ryan Video still works.
- [42:06]
B
Yes, I can.
- [42:08]
A
I can hear you.
- [42:11]
B
All right, this might make for.
- [42:13]
A
Maybe the live isn't working. If not, unfortunately, it'll. It'll work on the. The recording, but don't know exactly how to. How to change that because Ryan and I's looks totally normal for anyone. Okay, it's back. Yeah, Bugs by Riverside. We pay them our annual fee and it seems they come up with a new bug for their software every month. All right, let's get back to what we were actually talking about with the dating apps, because we have a lot of topics at hand today. I think the last thing I'll say is you can build a network effect within a dating app within, let's say a good one, a good city, New York City, that's kind of a premier one large city, wealthier people, a lot of people willing to spend. You can build a network effect there by getting a lot of people to join your app. But I think it's easy to if you have one, it doesn't mean you can't start five others and get people to start joining those. So that's what makes it hyper competitive. You don't have a network effect that really builds a sustainable moat. It's just a little bit flimsy and we learned that the hard way by losing a little bit of money in that.
- [43:16]
B
Okay, I want to briefly touch on Micron's earnings because this was.
- [43:21]
A
Yeah, that's a chart right here.
- [43:23]
B
This was outrageous. Maybe you can share this chart. Pull it up. Fiscal AI again, shout out and this was so Micron reported earnings yesterday as of this recording two days after this will be released on the podcast players and I thought this was a mistake when I first pulled it up. And by the way, shout out to Fiscal AI the data's up usually within minutes of an earnings report. The they reported. So they have gone through I guess maybe 10 years of cycles where it was at the max $9 million or $9 billion in revenue per quarter. And then last two quarters ago they printed $11 billion in revenue, then $14 billion and then out of nowhere $24 billion in revenue. Last quarter their revenue growth accelerated. So revenue growth last quarter was 57%. This quarter revenue grew by 196%. Now I'm not very. I'm pretty sure Micron's like an eight bagger over the last like three years or something. Astounding. The I'm not really interested in Micron as an investor just because it's not really my expertise and it seems to be a cyclical industry historically actually one of the most cyclical industries. And we talked about that on the recent Capital Cycles episode where memory chips have historically been one of the most cyclical industries. And you get huge investments from the big producers when things are going well because they invest into the success and it makes sense. Here's a quote from the press release. Brett, get ready for this. In the AI era, memory has become a strategic asset for our customers and we are investing in our global manufacturing footprint to support their growing demand refle reflecting confidence in the sustained strength of our business. Our board has approved a 30% increase in our quarterly Dividend. This is the catch, right? And here's the thing. Micron reported 196% revenue growth. The stock dropped 4% today.
- [45:41]
A
People knew. People knew.
- [45:43]
B
Sure, yeah, it was kind of baked in. But when you see 196% revenue growth and outrageous demand for your chips, are you going to not invest in expanding your footprint? Like, how do you. You have to.
- [45:58]
A
Samsung just announced, I believe I read this in the Wall street journal this morning, $70 billion in capital investment commitments. So that's another competitor. It's just an industry where if all you have is scale and there's multiple competitors, there's going to be someone that's going to want to invest. Get more supply online, take advantage of the high prices, and then the high prices eventually solves itself because supply matches demand. It's how it always goes. And unless you're someone like TSMC with processing advantage, meaning that no one's able to compete with them on advanced chips, yeah, you're in a riskier position. And yeah, I wouldn't, I wouldn't be interested in Micron, but I am interested and glad that they're investing in more supply because it really hurts Nintendo. It all comes back to Nintendo for me. So good, so good, so good.
- [46:58]
C
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- [47:08]
A
How did I not know Rack has Adidas?
- [47:10]
C
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- [47:57]
B
Yeah, the one caveat here, I'll say is they are investing heavily to increase their manufacturing footprint, but they also approved a 30% increase in their dividend. So it's not like they're Reinvesting all their money back into expanding capacity. But yeah, it does feel like classic capital cycle at play here. Do we want to talk Nvidia's maybe Nvidia and Coupang real quick?
- [48:24]
A
Sure, yeah. Our portfolios are getting in on the hype train. Ryan, let's, let's see what you think about this quote from this press release. Coupang, a US based technology leader, they always love to say that, announced at the Nvidia AI conference and Expo today that its collaboration with Nvidia has helped Coupang create a quote AI factory which is accelerating new innovations across the company's e commerce, logistics and delivery services. And you know, just trying to just pump the stock. That's it. Like who cares? Show me, show me your own cloud. Like, I don't know.
- [49:04]
B
I already assumed that they were having very technologically advanced factories. Whether you call it an AI factory or not, my assumption here was that they have great fulfillment capabilities. So this means pretty much nothing to me. It did surprise me that apparently they have a fulfillment center in California.
- [49:29]
A
I saw you, I think it's for getting. And they bragged about this because they're trying to just really push the idea that they're a United States business. It's for getting product from the US to Korea and I guess Taiwan. So you have brands, they try to go for the mid sized brands. I think. What did I see? It's, it's like not mom and pop, but maybe a small to mid sized business within consumer packaged goods or something like those palm pomegranate seeds and pomegranate juice. And then there was like some beauty and I believe some, some, one of the Kardashians, I don't know, they were, did a press release on that about bringing their products over there. That makes a lot of sense to me. You sell into coupons, fulfillment center, you don't worry about anything. They put it on the Coupang platform, they get it over to Korea, they sell it to people, they give that brand their cut. That feels like a good business to me. You don't have to get it over to Korea. Like, you know, it makes sense.
- [50:27]
B
Yeah.
- [50:27]
A
They're not competing with Amazon anytime soon.
- [50:30]
B
No. Okay. Well, speaking of, do you see Amazon launched one hour shipping in some major US cities?
- [50:37]
A
I did. And what surprised me and I think is something that shows that Bezos is not there anymore running the show. And I did hear more about this Blue Origin Amazon thing. Apparently it's a, it's bad Blue origin, stealing a lot of talent, which is strange. I Don't. I don't understand this. Bezos, it's your own. You're both. It's both your companies.
- [51:00]
B
He still owns a lot of stock.
- [51:02]
A
I know, I know, but maybe he just doesn't care. The. What I saw here is that there's an extra fee to get one hour delivery on certain items. And I think Bezos would have said, screw it, it's going under the prime bundle. What do you think?
- [51:17]
B
Yeah, I agree. Any. I think it. Yeah, absolutely. If you can get one hour shipping in the. Included in prime, that's a huge upsell. That's. That's pricing power.
- [51:30]
A
Just. Yeah, just don't make everything one hour. Yeah, well, here.
- [51:37]
B
Here's the difficulty, Brett. How are you going to. You can't have any more loss leaders if you're spending $200 billion on AI data centers. No more. There's no more room for lost leaders. Everything has to be profitable now other than data centers.
- [51:54]
A
Ads will make up for it. Yeah, the. Honestly, it's interesting that they're getting closer to the rapid deliveries of Uber Eats doordash instacarts. You can get glow sheet delivery pretty quickly now with. I. I don't think any. You have to have it do a large enough order, but I don't think it comes with an extra fee in. In cities in the United States. You could probably try it someone on Amazon. Yeah, Amazon. It's called Amazon Grocery. I actually tried it once to just test it out investor style. And it was quick and pretty cheap. Like it wasn't even. It wasn't marked up. Not. Not too much marked up. No. But.
- [52:35]
B
Okay, I do want to talk about this OpenAI this week. Here's a quote. ChatGPT maker OpenAI's top executives are finalizing plans for a major strategy. Major strategy shift to refocus the company around coding and business users. Looks like they're trying to go after Claude's market. Does this. Does it feel like they're giving up to Google in any way or they're just trying to chase Claude?
- [53:06]
A
That's a trillion dollar question. I think for one, the anthropic guy, Dario, don't know how to say his last name. Is just popping open the cigar and saying, you know, I beat you. Altman. He was. He worked for Altman back in the day. So it is a pretty big widely. They wouldn't even hold hands at some India AI summit where everyone stands really strongly together and says, we're partnering for AI. And then they wouldn't hold hands. They're supposed to hold hands, you know, in a group photo. They won't do it. So they do, they do not like each other. And I think OpenAI is realizing that Anthropic was smart to go after enterprise. It's much more lucrative and there's not going to be that much monetization. We've brung up the stats on this show before. Four of what? The amount of people that spend on chatbot subscriptions is quite low, even though I pay for Gemini Pro and I'm pretty much, I'd say a skeptic on this investment narrative. Like not very many people are going to be using it at all. The fact that there's a billion people using OpenAI and most of them aren't paying anything I think is an extremely flawed business model given your compute costs. So they need to find a way to get profitable. This is maybe a way to do that. It seems like they were able to pretty much catch up pretty quick with Anthropic and they seem to be doing okay within the whatever it is, the enterprise agent market. But I, I, that's a good point. I'm not maybe giving up to Google is a little strong, but it shows that I think Alphabet, for better or worse can be a bit more comfortable with using Gemini as a loss leader where OpenAI they got to get profitable quick given how bad their income statement is.
- [54:57]
B
What do you think about this? OpenAI equals Yahoo
- [55:05]
A
maybe. I think OpenAI equals I don't even PT Barnum times a thousand. Like this guy is just, he's something
- [55:18]
B
it so here's okay, it feels like OpenAI ChatGPT generally has kind of lost its, I don't know, aura. I hate that word, but aura, I guess in markets like feels like it kind of has, it doesn't have the same like thrill to it like when people talk about Claude, when people talk about Anthropic, when they talk about Gemini or anything Google's doing with AI, there seems to be a ton of excitement and maybe I'm underestimating how much how many people use or how many businesses use OpenAI under the hood, like as an engine for any LLM stuff they're doing.
- [55:59]
A
But it's majority. Claude has majority market share now.
- [56:01]
B
Yeah, I would be, I'd be concerned that the consumers are more flexible than people think. And even if they use ChatGPT all the time, I don't think it's that hard for them to switch to Gemini. And Google still owns the most valuable real estate on the Internet, which is their own Search bar on Google Chrome. Just tab enter, you're on Gemini. Like, it's. I think it's really hard to compete with that. They still have the largest market share credit to them, but it feels like, I don't know, I kind of like the potential yahoo analogy of 25 years ago.
- [56:43]
A
Yeah, I think, I think it definitely work. The. I'm just. What I'm very curious about is whether the IPOs go out for both Anthropic and OpenAI later this year.
- [56:55]
B
I hope they do.
- [56:57]
A
Yeah, I want to see those S1s. The. If you asked me two years ago in regards to AI would have said that Alphabet was very undervalued. We talked about it all the time. And they've shown their ability to regain market share. We'll see if they can push back. I think they're like 20% maybe on consumer now. We'll see if they can get even more. But I think it's extremely. Just uncertain what's going to happen because I think OpenAI still has a lot of use among consumers. Cloud is growing extremely quickly, but who knows what the potential growth is within enterprise. Like, it's growing extremely rapidly now, but whatever the ROI is, we'll see. And I still think, well, maybe I've changed my mind a little bit on. I think Gemini. I. I just, it doesn't work as well as it should. Like, I give it a Google Maps.
- [57:46]
B
Gemini.
- [57:47]
A
I give it a Google Maps. This is the same company. I give it a Google Maps link and I say, tell me what this place sells or something. You know, can I buy X thing here? And it goes, oh, this is X and X store in a city thousand miles away. I go, no, look at the link I sent you. I like yelled at it once. I get, no, that's wrong. Look at the link. How is Gemini not fully connected with Google Maps is what I'm saying.
- [58:14]
B
Yeah, I don't know.
- [58:18]
A
I think they didn't have the B. If they didn't have the balance sheet, they would have that connection. Now they can just act a little more lazily and not get everything pitch perfect.
- [58:30]
B
Okay, do we want to talk about your bubble watch? Here we are. We got five minutes left here. The boldest take.
- [58:39]
A
Yeah. Did you see this? Did you see this?
- [58:42]
B
I just spot in your notes. Yeah.
- [58:44]
A
Well, this is Barons and I found this on. I'm actually on Blue sky now. Yeah, it's, it's, it's boring over there. But Twitter is. What? I don't know. Twitter's getting worse. So. Yeah, it's back. Back up. I like substack more, but substack chat. Subsect chat's better. I know. I try to spend more time there, but here's what Baron says. Moody's warrants of recession risk if oil prices stay elevated first. I mean, just fantastic analysis. That's what you pay them for. Here's what they said. They put the probability of a U.S. recession at 49% even before disconcerting events in the Middle East. I mean, bravo. What a bold take. 49. I'm on a 50% I'm coin flip only.
- [59:32]
B
That's like. That is a. They just said basically nothing with all those words. They said nothing. It's like there's always a 49 chance of a recession.
- [59:47]
A
I know. It just makes my header and then every one of the replies just puts it into some, like, political thing. And like. Well, I blame this person on. It's like the. Yeah, no, the politicians don't have the much of an impact.
- [59:59]
B
Yeah. Social media is. It's. Well, I'm only on really X or Twitter, and it's just. It's a terrible experience. Like what happened to Fintwit. I just need that back.
- [60:13]
A
No, it's gonna send you promiscuous photos that just. Now. I don't want to see this. I want to see investing stuff. How about this? Okay. Yeah, thanks. Thanks AI or thanks the algorithm. But why don't we talk about Nvidia's projections? Huh?
- [60:33]
B
Nvidia? Yeah, at a conference this week. Their conference.
- [60:38]
A
Their conference. Right.
- [60:39]
B
What is it? GT something gtc.
- [60:41]
A
It's like their product. Annual product conference. Yeah.
- [60:45]
B
Actually, a couple friends of the show were there, asked questions. Jose Naharo. You remember Jose Naharo. I think he's been on one time before. Yeah. Yeah.
- [60:55]
A
With. With contractors for the Molly fool as well, at least.
- [60:58]
B
Yeah, he. He asked Jensen Huang a question. But anyway, they are projecting that the company's AI chip revenue could reach $1 trillion by the end of 2027. Here's. Here's my take. That's not that crazy. With all the CapEx estimates, I. That kind of makes sense. If the Cap X estimates are real, why would that. Why would that not happen?
- [61:31]
A
That's fair. Yeah, that's. That's. That's fair. But. Yeah, that's crazy. It's crazy. I think it's crazy.
- [61:40]
B
I think. Is it? I feel like we've almost just become desensitized to.
- [61:47]
A
To the numbers.
- [61:48]
B
To put in numbers out there. A trillion dollars in revenue is a lot. That is Crazy. That is more revenue than any company in the world at this moment. I think the highest is currently Amazon in the 700 billion.
- [62:03]
A
Walmart.
- [62:04]
B
Yeah, they're both like 700 and they're selling toilet paper. Not high productive semiconductors.
- [62:13]
A
Yeah, the. Yeah. I don't know, who knows, who knows what it's going to be? But what I thought was interesting is what the Dario, the founder of Anthropic, said on the Gosh, gosh, what's his name? Dwarkesh park podcast that all the tech people go on. He said, look, we're projecting at our current rate, our revenue is going from a billion last year, 10 billion this year, to $100 billion at the end of 2026. And if we're off a little bit versus what we have to spend to come in, the fact that we're growing so quickly could put us $200 billion in the hole if we're just off on what we're projecting. So that's why he's like, we gotta act a little more cautiously in our spend. Where OpenAI is saying, well, let's just commit a trillion dollars and see what happens. And it just puts all those businesses. I think I actually have a hot take. I don't think the cloud is that good of a business. When's the cash flow showing up? Like, it's actually, I don't know, that good.
- [63:19]
B
I don't know if, if Amazon decided, let's not build a new data center.
- [63:29]
A
Okay, then you lose, you. You fall behind the eight ball in three years.
- [63:32]
B
But not on certain workloads. Right. Like, it depends on what you're like, serving.
- [63:40]
A
Right.
- [63:41]
B
Like storage, like AWS storage. I'm sure they're profitable there, you know. Yeah, but yeah, I mean, it is fair. Like, is it just a spending treadmill?
- [63:52]
A
Well, there, there's just an idea and kind of. It's almost like a meme that cloud's one of the best businesses ever. And I was a before, maybe looking at these businesses more closely like four or five years ago would say, yeah, you're probably right. Aws, wow, what a monster. But you kind of look under the hood and you go, I got so much upfront capital spending. And there's better. I think there's better businesses out there.
- [64:16]
B
Like the stock exchanges, the last one.
- [64:19]
A
What about this? Thoughts on SpaceX forcing the NASDAQ and S and P to include them in the indices before the normal time frame and profit before the ipo. So wait to be included. And this is actually. I know we're Going long but on Blue Sky. The one person on there that I appreciate so far is Kabuki. Who? People have won our fit. Twitter goes. Who? What is this guy talking about? Basically one of the funniest people. Ex investment banker. He's on there doing his whole thing. I missed him. It's been like two years and he's up to his old nonsense. But he wrote about this on his substack, which is completely free. So essentially the. Basically the IPO. When SpaceX goes public, they're forcing the NASDAQ to put them in the NASDAQ 100 before the actual time commitments of something like, oh, you got to be out for a year, or what have you. We have to be profitable. Isn't that just harassment? Am I wrong? Musk is shaking down the exchanges or the. The indices.
- [65:24]
B
Yeah, I don't know the indices.
- [65:29]
A
Look at the. Look at the.
- [65:30]
B
Look at the latest companies they included. The trade Desk, I think is down 70% since they included it.
- [65:35]
A
Carvana.
- [65:37]
B
Carvana. Who are the other ones? There's some other. Like just the timing is always the worst.
- [65:42]
A
Yeah. Oh, oh, Peloton. Yeah, there's plenty of examples.
- [65:48]
B
I think that's going to do it. Thank you, everyone in the chat. I see some questions around the substack. The chat is totally free. There's actually some great conversations going on there.
- [65:59]
A
Yeah. Then I have the premium research side of things. Emerging moats. And it's slightly confusing. Under the same banner, but that is paid. But anyone can join the substack chat. We talk all about the podcast in there. All right, Ryan, you can hit the disclosure on me.
- [66:13]
B
Sure thing. Thank you, everyone for tuning in. I want to remind listeners that Brett and I are not financial advisers. Anything we say or discuss here on Chitchat Stocks is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. Thank you again for listening and we'll see you all next time. Security program on spreadsheets. New regulations piling up and audit dread. It's time for Vanta. Vanta automates security and compliance, brings evidence into one place and cuts audit prep by 82%. Less manual work, clearer visibility, faster deals, zero chaos. Call it compliance. Or call it compliance. Get it? Join the 15,000 companies using Vanta to prove trust. Go to vanta.com calm.