B (3:06)

All right, I don't know where we want to start. Maybe we talk with the luxury stock drawdown. This is something that kind of caught me off guard. I didn't really realize this up until I think last week when you posted about Hermes. But if we look at sort of the top four luxury stocks, I think this is, I call them my top four. There's no qualification here, but Esselor, Luxottica, Hermes, Ferrari and lvmh, you could probably throw in like Kering and Prada, but I just for whatever reason didn't choose those. All four of those and the luxury sector broadly are in pretty significant drawdown. So slo. Luxottica is down 39% from highs, Hermes is down 41% from highs, Ferrari down 43% and LVMH down a whopping 49%. I was trying to figure out what's causing the collapse. And if you look at. And Brett, maybe you can share this chart from our friends at Fiscal AI. If you just look at the revenue

A (4:17)

for

B (4:20)

the combined revenue of lvmh, Ferrari, Espor, Luxottica, Hermes, and you add carrying too. It is the first time excluding the pandemic, which happened quickly and we saw the bullwhip there. It's the first time since the GFC that industry revenue has declined for luxury, for the whole luxury category.

A (4:44)

It's a nice chart you got here. Yeah, it seemed. Does this seem like a bullwhip to you? Sorry to cut you off, but there was such good growth coming out of the pandemic. Yes, this has happened in a lot of industries with inflation, but I feel like this is just a normal normalization back to the long term trend of steady growth a little bit above gdp.

B (5:06)

Yeah, it could be. Maybe there's some sort of a wealth effect coming out of COVID that helped. This isn't the kind of. These aren't the kind of companies that benefit from the stimulus checks. I don't think people are taking those 1400 payments and going and buying Ferrari. But there was, you know it could be potentially wealthier people in parts of the world that are able to afford these products. But the other part is China specifically has been a big pain point that that was accounting for the, I think that was the largest growth market for most of the luxury companies and they've had a big sort of property crisis from, from what I've read that's affected a lot of wealth there and so they're seeing particular weakness in that geography. Tariffs potentially are impacting these companies also. And then maybe some as of late, maybe some Middle east headwinds among like the uae.

A (6:04)

Well that's fair point. I'm not, I'm not sure how large that market is for them but it could be Middle Eastern people going to Europe and shopping and they can't do that anymore. Yeah, that's fair, that's fair on sentiment.

B (6:17)

Yeah, yeah it's hard to point any really any one thing. I mean we did see sort of record growth coming out of the pandemic 2020 I've got the combined revenue here, 82 billion among those five companies and by 2023 they were at 151 billion. Almost doubled revenue over three year span. It's now since come back down. I've got the valuations here. These are the enterprise value to EBIT multiples, sort of the acquirer's multiple for those familiar with their val and from Tobias Carlile's book.

A (6:56)

Always loved Tobias. He's one of the few people that came on our our show when we were nothing so I always feel grateful to him.

B (7:04)

Yeah, shout out to Toby. So here are the multiples. Let's go highest to lowest. So Esselor Luxottica is trading at 29 times EV to EBIT Kering 29 times as well. Hermes 24 times Ferrari 24 times and LVMH 14 times. Do any of these stocks interest you?

A (7:28)

Oh let me try to look again. Do you want me to just rank podcast style stocks I've never owned and we'll see. I, I think we'll go airs 1 Ferrari 2 al 3 caring 4 although maybe caring is at very very trough earnings because there's been so many struggles there and I read I believe like one Wall Street Journal article so by no means am I an expert on the stock yet but I read that they may be turning things around and then exo the, the glasses company I can never pronounce. Sure they have the partnership with Meta, but I'm kind of out on the. The surveillance glasses that teenagers wear. There's already blowback and barely any people have them. I think those are going to be nothing. Hermes 1 Ferrari 2 lmh 3 lmh. I think it's just less quality than Ferrari. Hermes, but curious your thoughts.

B (8:26)

And you're. You mean like in terms of the business aura of the products or the.

A (8:32)

Just the business quality is worse.

B (8:34)

Yeah.

A (8:34)

You have what, less pricing power? Probably, I would think. I mean I know half of it is Louis Vuitton. I think of their profit pool. But again, they have a factory in Texas. Hermes handcrafts everything in France that's not disruptible by automation. And pumping out a bunch of copies from China.

B (8:56)

Yeah, I think I'd probably rank similarly Ferrari. The only thing that doesn't excite, like I like the Ferrari business and I think it's very durable. Like there's probably. I imagine people have heard sort of the Ferrari story about how it's sort of like a luxury club, not a carmaker, all that stuff.

A (9:18)

Hey, you're. That was your pitch at the Motley fool as your internship, right? That was your final project.

B (9:24)

I think that. Yeah, that was the one. Yeah.

A (9:27)

Where it worked out if you bought. I think.

B (9:29)

Yeah. I haven't. I don't know the total stock returns over that time, but I would guess they're positive. My issue here is like there's a production ceiling. Like if you can. Is there any risk that they erode the value like you. They started over the last couple years seeing record growth in vehicle deliveries. That whenever I see that for Ferrari, I think that's not beneficial for the business. Like it might be in the short term and maybe that was sort of some of the Chinese customers that are now disappearing. But I would. Ideally, if you're Ferrari, you grow production or deliveries 1 to 2% a year with 6, 7% price increases every year. That to me seems more sustainable.

A (10:23)

The guided for that. I know we're. There's people out there that are much more experts on the business. I believe they guided for unit volumes not to grow this year. So that could be a good sign if that's what you're worried about. But I do agree where you need you can't have the product available to everyone that can afford it. And even if there's a slight growth in the number of wealthy people out there that can afford one of these products, it really is that resale value. For example, with an Hermes bag, the resale value can be 2x3x depending on the product and if that stays around, that gives them perpetual pricing power for. I mean if you raise price at 3% every year, you can, you can probably do that for three, three decades. I think we did the math once with that luxury overview episode, which I would still recommend people listen to. If you kind of search it in our podcast player, you'll be able to find it. It's with Sleep well Capital and Leandro from Best Anger Science. I believe we went like over two hours with them. Extremely comprehensive and it's one of our most loved episodes. I think that that's aged quite well.

B (11:29)

Yeah, I think I'd probably rank Hermes number one, Ferrari number two. I don't know the carrying business super well and if it is at trough earnings, maybe that's something to be excited about. But it is. This is a good example of it seemed like two, three years ago as these businesses were growing really quickly, there was this sense that even if we hit a recession, the recession is not going to impact these luxury businesses because the wealthiest are going to continue to buy. I think we've maybe seen a dent in that thesis where we've seen some recessions and difficult economic environments in big markets like China. And we're seeing the pullback at least for. I think Hermes and Ferrari have both still grown revenue but at sort of the aspirational brands, if you want to call them that. Louis Vuitton for example, which is kind of right. I think it's, you know, a tier below their sensitivity in terms of consumer spending.

A (12:30)

Okay. I have nothing else to add. Did you hear about this Fundrise Innovation Fund? We have a bunch of listeners in the substack chat this week.

B (12:40)

I did that.

A (12:42)

It's. Well, I'm going to give an article from two days ago from Sherwood News. It says Fundrise Innovation Fund is a publicly traded venture fund that owns some of the biggest names in private tech and it is up more than 750% since it went public last week. The fund went public on March 19th with a share price of $31 and it's now at about 10x that by Thursday morning. However. However two days later. Now as we're recording this, on March 26th Citron Research came out of the woodwork, decided to short on valuation concerns because according to one of our substack chat members, apparently they were trading at 15 times navigation which is crazy, I would think. And if you look at the fund holdings you have as of early 2026, 20% anthropic 18 databricks 10% OpenAI 7% andrew 5% SpaceX these are some pretty premium valuations. That is quite the crazy start. 15 times nav. I mean it's just a holding fund you already have as well. I think a 2% management fee on top of that. So fundrise, hey, great launch. Good business if you can get it. But it shows the animal spirits I think are still there. But on the other hand I feel like this shows that once again and maybe we'll talk about this later or we can talk about it now. Musk is perfect at timing capital markets. He is trying to raise a ton of money and the demand is just outrageous for these private companies.

B (14:18)

Yeah, it helps that these companies, while they're private, don't have to report their numbers like you can. It's vibes really like for public market investors, they want all they hear is the positive things. Generally you hear a lot of the positive things for these private companies because they can be selective over what they announce and you just want to be a part of it without having any sense of what you're actually paying or what price you're paying. So it makes sense that a fund like this would get a lot of demand. 15 times nav makes no sense whatsoever. My hot take here, and maybe this can go into the SpaceX imminent IPO. I think it's going to be wildly oversubscribed even at the numbers you're talking about. Will the price of gold exceed $5,350 on March 31, 2026 at IBKR Forecast Trader? The yes recently priced at 28% and no at 71%. But markets move fast. Forecast contracts let you turn your views into trades on future events like the economy, climate change and politics with simple yes or no prediction style contracts. Get your prediction right and you earn $1 per contract at settlement. Plus you'll earn up to a 3.14% APY on your investment with an interest like incentive coupon. And you'll get $3 for signing up with IBKR Forecast Trader. Forecast contracts are not suitable for all investors. Go to IBKR.com forecast last trading day for this contract is March 31st.

A (15:54)

Sure, we can go to the numbers. Yeah. I don't know if Ryan will allow it, but I would like to automate or allocate half the show to bubble watch this week if I could because there's just a lot of stuff out there. But I'll try to keep it quick with a lot of these topics. First off, this article out there I found talking about the private market transactions is just an all time quote starts out with quote Entrepreneur Tish Paul Bhatia is confident he owns a slice of Elon Musk SpaceX but he can't be a hundred percent sure. This is apparently out there. It's a separate topic because there's a lot of special purpose vehicles. You might see the term throwing out their SPVs for private investor trading and it's unclear exactly if people actually own the stock which is quite lovely. I think it's going to be great for the story and if anything comes out with this, at least for us talking on the show.

B (16:42)

But if we go to that on that it's actually a brilliant model because it's like it's almost information arbitrage where like if I'm a VC or say I want to set up some VC fund and I actually don't know the mechanics of these SPVs but my assumption is that it's some private investment group that invests in a variety of companies totally regard, like irrespective of any valuations, doesn't matter and they just turn around and sell it in some structure to retail investors. So they really like that private investment group doesn't have to care about the numbers, they just got to care about selling it. They just got to care about having the hottest name in that fund, whatever it is. I'm assuming that's the way the structure

A (17:28)

works with this guy. Specifically it's trying to get actual shares like of a single company but back to it's just privately traded. So you have employees or existing investors that have been around with SpaceX for a decade and then they're selling into the market. They find another private buyer who's a, what do they call it, accredited investor. And maybe there's the middleman here trying to f, you know, broker the deal. But you're not confident that it's actually the underlying shares that you want to own.

B (17:59)

I'd be concerned if I yeah, let's

A (18:02)

buy those at 100 times sales, why don't we.

B (18:04)

Let's talk about this reported valuation.

A (18:08)

Sure. So, and I think these numbers, I agree is probably going to happen. I think the reports out there is that the valuation could be $1.75 trillion. And again they want that number out there to set the tone because then if it comes down a little bit it's not the end of the world. And they want to raise Ryan 75 billion. That's US dollars, not pesos. All right. That would be over two times the size of Saudi Aramco, which is the

B (18:39)

largest ever in terms of money raised.

A (18:43)

Money raised, yes.

B (18:45)

Yeah, my gut says they're going to raise that much money and then some. I think they're going to have an absurd valuation because no one cares. Like they take action people, they just

A (19:03)

want to be part of it.

B (19:04)

They just want the name. And there are enough. If the last 10 years, last 15 years, has taught me anything. People just believe in Elon Musk. He has he. And it's only grown. The cult has only grown. And he will, they will buy whatever is offered to him.

A (19:22)

There's so many different ways to go about this. I think one for an example, back in even five, 10 years ago, people talk about buying Tesla stock and I know that this may seem like dumb, but they say, well, SpaceX is going to Mars. There's no actual financial sentiment, but the underlying demand from the retail crowd for SpaceX is going to be higher than Tesla and Tesla is one of the highest ever. So I think you're right on that point. Second, apparently the filing, the S1 filing is going to happen this week or next week. Should we do a special within maybe the Wednesday slot, an S1 breakdown? I think we have listeners tell us if we should.

B (20:06)

My concern is that this is going to be like a 600 page document.

A (20:11)

That's fine, Ryan, you don't mind homework?

B (20:14)

600 pages of homework might be tough. The. Yeah, yeah, we got to do a special episode on this. Largest IPO ever. Most likely it's going to be good. The funny thing, yeah, like you said, I think a lot of people for a long time just treated it as like, I'm not investing in Tesla, I'm investing in Elon Musk. And like literally believed that their ownership of Tesla gave them ownership of everything else that was related to Musk and now it might come to fruition. So.

A (20:47)

Oh, you think? I did I say last week that my. My hot. My hot take around the merger is happening this year. They're setting things up.

B (20:56)

I don't know if you mentioned it, but I saw you tweet about it and I agree. I think it's all going to end up under one umbrella.

A (21:03)

Yeah, we don't need to talk about terrafab, which again, the naming is just phenomenal. Apparently they're going to 10x the size of Taiwan semiconductors output. Hey, I hope it happens. The world will be a better place. But tbd, if that actually does. But what I thought was very curious. As someone who knows way too much About Elon Musk and his companies is that it's a combined endeavor between SpaceX and Tesla. And I think that's just laying the groundwork to saying, look, we gotta be together to have this work. And they're gonna pitch that, they're gonna, they're gonna merge, it's gonna be a whole party, it's gonna be.

B (21:38)

The name will be X.

A (21:40)

Yes, yes, yes. We're on the same wavelength there. Come on. That's happening within the next 18 months.

B (21:46)

The thing that's funny is like

A (21:50)

all

B (21:51)

of this is going on. Tesla as a business has really struggled over the last three years and it just like it's as if no one even cares anymore.

A (22:00)

No, they don't. Optimus is coming. Come on. Optimus is going to be the only employee at Terrafab, Ryan. Within three months. Within 18 months. But look, they, they, they need to have a new story. They need to raise, I don't know if Tesla needs to raise capital, but if things keep going as they are, the valuation's going to compress. They're going to need money eventually. And given their ambitions, Cyber Cab, all this stuff, full self driving. Optimus was this terrified thing, crazy ambitions, which we should be nice to Musk, he does execute, you know, a lot of the time with this on a long enough time horizon. Now these new promises seem a bit crazy. You know, I'm trying to be a bit fair to the audience, Ryan, that's skeptical. But there I think the story is going to be, we're going to merge, we need a ton of money. We have this story to sell AI data centers in space. And what I think Musk knows above all else, probably smarter than OpenAI and Anthropic, is that he needs to get to the capital markets quick because things are looking a little creaky, I would say.

B (23:10)

Yeah, I mean credit to Musk because he's, you're right, he's 100% phenomenal at timing capital markets like, and I think he has over promised on a lot of things. But the capital raises have always helped

A (23:29)

him

B (23:31)

execute or at least attempt to execute against his ambitions. So he's got a big piggy bank to work with and he can throw a lot of money at some of these big issues that he's trying to tackle.

A (23:44)

Yep. All right, let's get some more topics here. Do we want to try again? I'll keep it, we'll keep it brief. We got a lot of maybe more vegetable topics that I want to hit. AI update. Ryan, we have some listener questions here that I think can maybe spur it. Let's see. 1 Tyler says since it seems like OpenAI is inference constrained by dropping Sora and H100 and B200 rental rates are skyrocketing. Does that mean hyperscalers are going to have margin expansion? And it seems like anthropic is increasing ARR by around $10 billion or so a month. Doesn't this imply AWS is going to have massive acceleration revenue? I'd agree on that. But then we have other questions here around. Let's see predictions around OpenAI. They won't IPO in 2026, says the other Tyler. Sarah Fryer was interviewed by Kramer earlier in the week. She stated the company is on a journey to get ready for the public markets. Ooh Fryer. We need better energy than that.

B (24:43)

Wait, Sarah Fryer's the OpenAI CFO?

A (24:46)

Yeah. Which I have to say given what is going on at the last 10 years of block/xyz/whatever squares name now, I I don't have much that doesn't inspire much confidence for me.

B (25:02)

Yeah I, I agree.

A (25:03)

This, this all leads into the topic that I think is maybe making me pull out. I don't know. I. I don't know if this is the best day but I'm pulling out the WeWork meter on OpenAI because I think it's flashing code red because this invest did you see these return promises? I'm sure you did.

B (25:21)

Yeah, yeah I saw them.

A (25:23)

Okay, so here's the quote from Reuters which had the exclusive reporting OpenAI is is offering private equity firms preferred equity stakes with a guaranteed minimum return of 17 and a half percent significantly higher than typical preferred instruments to people familiar with the matter said it is also invest offering early access to its newest AI models as it seeks to enlist investors such as TPG and Advent for its joint venture. Now I had AI Gemini. Funny enough right? A comparison to what this is these numbers are compared to what buffered offered Goldman Sachs in the liquidity crisis of the great financial crisis and it's significantly worse. So the OpenAI is trying to raise money at worse terms than the investment banks had to in one of the greatest liquidity crisis in banking history. Is it ay AI wework Ryan, Come on, tell me I'm crazy.

B (26:26)

It feels like it. I haven't heard a good piece of news from OpenAI in like a year. Everything feels so concerning with them. Why can't they just slow down? Like all of this like this liquidity crunch. It all feels extremely self inflicted and I know they're in this race, this AI race, if we want to call it that. But if they slow down just a little bit, I think they'd be able to sort of bridge the gap maybe and get public and be okay. But my guess is they are just hemorrhaging money, and I don't think that's going to sit well. I think it might work for SpaceX. I don't think it's going to work for OpenAI. This 17.5% guaranteed return is truly, truly outrageous. That's unheard of, I'm pretty sure.

A (27:20)

I mean, Buffett had 10% dividends on his preferred stock that he could kick into a equity position, which he did and made fantastic returns on. But, yeah, the 17 and a half percent would be.

B (27:32)

Wouldn't you be upset if you're any other investor.

A (27:37)

Yeah.

B (27:38)

That the. This new tranche is getting 17 and a half percent guaranteed returns.

A (27:46)

Oh, yeah. And I think they. And I don't. We don't have the full numbers. This is just recording. I believe they're senior, like, above all other investors, too. So it makes me think they're a little desperate, to put it mildly. And you know what? I think we have other topics to go into. Is that that interview on. What is it the Brad and Brad. Not Brad, Brad.

B (28:11)

I was just thinking about that.

A (28:12)

That one is going to be in every documentary.

B (28:15)

Yes.

A (28:15)

I can just envision it now. Either whether this is the moment that OpenAI turns things around and becomes a massive success, or if a call comes crashing down. Is that interview when Altman told Gerstner, sell if you want, which everyone said, yeah, do it. Get out. Get out. Brad, you have all these other investments that are doing great OpenAI, you don't need them.

B (28:34)

That's exactly what I was thinking. If you're Brad Gerstner and the CEO came on and told you, go ahead and sell. Like, if you're so scared, basically like threatened him. And Gerstner's like, whoa, no, no, no. I'm just. This is what other people might be saying. That's not me. And then they turn around and give the next investor 17 and a half percent guaranteed returns. Wouldn't you be like, okay, yeah, maybe I should sell. Maybe it's time. It goes to show for me. I think there was this quote a long time ago from. I'm blanking on his name, but he writes a wonderful column I think works for Bloomberg now. And he said basically, like, there's no venture capital is the biggest sort of herd animal of any Investment community in the world like they group think is super prevalent in the VC world. It just goes to show, I think they just want association, like company association, like a lot of VC firms want company association with these big names and

A (29:40)

they're, it helps them raise money.

B (29:43)

Yeah, yeah, probably. I mean they're willing to, you know, look past any, any actual investment concerns because they can raise money and they want to be invited to the parties. As a chef, I know flavor doesn't begin in the kitchen. It begins on the land. And West Home's nature led Australian Wagyu is a strong story written in the landscape of northern Australia. Cooking is storytelling. And West Home Wagyu carries a story of northern Australia itself. Raw, powerful and deeply authentic. It's a testament to the passion and care raised in the rhythm of northern Australia. I'm chef Meilin from ADA Club in Los Angeles and I invite you to visit westhome.com maitland to learn more and taste a story only west home nature led Australian Wagyu can tell. That's W-E-S-T H O L M E.com M E I L I N so

A (30:46)

good, so good, so good. New spring arrivals are at Nordstrom Rack stores. Now get ready to save big with up to 60% off rag and bone, Marc Jacobs free people and more. How did I not know Rack has Adidas? There's always something new. Join the NordicLub to unlock exclusive discounts. Shop new arrivals first and more. Plus buy online and pick up at your favorite Rack store for free. Great brands, great prices. That's why you Rack. Yeah, the Chicago pension fund can go. Hey, you guys got access to OpenAI? Oh wow. Interesting. I hear that's hard to get. Oh, here's $10 billion.

B (31:25)

Yeah, I guess. Okay, do we want to keep going on bubble watch or what?

A (31:30)

Yeah, what else do I even have here? There was something about crypto backed mortgages.

B (31:35)

I, I, I need to take a break from this. Let's eat our veggies for a second, talk about something tangible.

A (31:41)

Yeah, let's go with you with Grab entering Taiwan because I think that talk, you know, relates to Grab. You've been interested in them on the watch list. It enters a market that Coupang is trying to enter. There's the Chinese players. Yeah, I think this should be quite interesting.

B (31:55)

Yeah. I've been doing more work on Grab. They are the leading ride sharing company in Southeast Asia. For those unfamiliar, I like that, I like the business. It basically for simple terms, it's sort of the Uber of Southeast Asia and Then they've got some fintech capabilities for the consumer app. And this week they announced that they are buying Food Panda, which is the leading food delivery app in Taiwan, for $600 million in CA.

A (32:24)

Great name for an app, Food Panda. Come on.

B (32:28)

And I, I think it was owned by Delivery Hero is the overall company name. But yeah, Food Panda primarily competes with Uber Eats in that market. Those are sort of the two leaders. And here's the quote from Anthony Tan. He says this acquisition will mark Grab's expansion into Taiwan, our ninth market and first outside of Southeast Asia. This is a natural next step for Grab as our experience in Southeast Asia is a direct fit for this market. Our long standing expertise in managing complex delivery logistics for dense and high traffic cities is well suited for Taiwan's bustling cities. Taiwan's population of approximately 23 million also has a high demand for mobile first services. Similar to the Southeast Asian consumers who Grab serves every day, we see a significant opportunity to grow the food and groceries delivery scene here. Grab has $6.8 billion in cash and equivalents on the balance sheet, so not a huge dent for them. A $600 million cash acquisition and food panda apparently generates 1.8 billion in annual gross merchandise, volume or value. Whatever they go by, Grab for context generates about 14 billion. So little over, I guess probably 15% of Grab's current GMV. I think the optimist here would say that Grab can accelerate the business. Grab can potentially improve margins with their own sort of logistics capabilities and what they've built with their app. The other maybe exciting thing here is Uber tried to buy Food Panda two years ago for $950 million. So I would be maybe concerned that maybe Uber was just willing to way overpay, but maybe there was a slowdown as well. Like I would think if you're paying basically 30, 40% less of a price tag two years later, I would guess there'd been maybe been some growth headwinds, but that's all suspicion on my end. If you're looking at Grab, they have made acquisitions like this in the past. They bought Uber's Southeast Asia business, I think in 2020 timeframe, maybe 2019. And they also bought Jaya Grocery, which was a big competitor in the grocery delivery space in 2021. And they have done a successful job of migrating those customers onto the Grab app and expanding those businesses. So I like, I think I like the deal. We don't have a ton of color on the valuation and all that, but Grab has been successful with this before and these do tend to be sort of market share like winner take most markets it seems. So I like it. I like Grab as a business. I like Anthony Tan. A little positive anecdote about Grab's CEO Anthony Tan in the early days I think I might have said this on our episode when they were having a hard time getting drivers on the app. He would wake up at 4am and go to the gas stations where all the taxi drivers would get coffee and he'd hand out free coffee and if they join the app. So he was, he was little boots on the ground CEO willing to get after it. I kind of like that anecdote. I like like the way he operates.

A (35:48)

We have a comment here in the chat that says I like Grab but for Southeast Asia I like Sea Limited much more. They're running a very similar playbook to Mercado Libre with a gaming cash cow to fund their expansion without taking on debt. Cheap right now too. As someone who likes we got to talk about Coupang investing heavily in Taiwan. That could be a competitive threat there because they do have the combination of E commerce plus food delivery. But it's pretty early days. I think it'll be quite competitive. I like as someone who's interested in couponing Mercado Libre, I don't like that C limited exists because they just go into markets and say hey, we're just going to compete with no margin and see what happens.

B (36:28)

They do. Look at them in Brazil. Look at them in Brazil and read some of those expert transcripts. They are more than happy to lose money in Brazil.

A (36:38)

Yeah, it's I'd say I've been thinking about it a lot because I'm doing a research report on Mercado Libre next week. But in regards to Grab, with a lot of these markets, I believe they're either be under one umbrella or two. There's going to be the, the Amazon type player with the, the warehouses, the fast delivery of goods overnight and then there's going to be the fast delivery from the what I'd call the motorcycle drivers in the US It's a little bit different but it's kind of the ones with the big, the big backpacks and logos. There's going to be one of those players. Maybe Grab can tackle that market but at the end of the day I kind of think again and a lot of these companies are trading at reasonable prices. Maybe you just take a basket approach and go I want Grab see Unlimited coupang, Uber Doordash. Mercado Libre Rappy is not public but I think they're partnering with Amazon, actually, and maybe add Amazon into the mix as well. By the hood. Do you think that basket performs well over the next decade?

B (37:45)

Can you list them again?

A (37:47)

Grab. It's basically all fast delivery and E commerce. So Grab C, limited Coupang, Amazon, Doordash, Uber, Mercado Libre.

B (37:57)

Yeah, I think Grab beats the market. And speaking of doordash, this isn't really news. It's news to me. Maybe news to you as well. I'm getting interested in DoorDash here. 45% drawdown they're currently at and a lot of it's related to this AI concern with the Citrini piece, which is very sort of like far fetched in my opinion. I've got some notes here, but let me just, I'll try to bullet point it so I don't go too long here. The customer adoption is still really strong. Gross order value is growing 23% year over year organically. That doesn't exclude or that does not include their Deliveroo acquisition, which they made or they closed on last quarter. They have shown that they are profitable on a GAAP basis. So they've gone from I think negative like 10% operating margins or negative $580 million in operating income. Shout out to Fiscal AI for giving me this data. Really quick. $580 million in operating losses to $723 million in operating profits over the last two years. So it's been a very big transition. They're at 5% operating margins now. They've done that without seeing a slowdown, like a meaningful slowdown in deliveries. And I think they are less susceptible to the autonomous vehicle risk than a business like Uber because there's a lot of complexity involved in the food and the grocery delivery business beyond the ride. Right.

A (39:27)

I got one word for you, Ryan. Optimus

B (39:32)

Tesla.

A (39:33)

Yeah.

B (39:33)

Yeah, he's going to make the food, he's going to place it, he's going to.

A (39:37)

Yeah, he's going to take it. Well, there's going to be an optimist guy. You're making the food at the restaurant is going to be the delivery driver as well and he's going to take it to your front door. No, I, I agree with you that, that was a complete joke. That's not going to happen for many, many years.

B (39:53)

Like I kind of think about it like this. In theory, if, if a Waymo were to just show up to a restaurant, the restaurant wouldn't necessarily know what to do. But if an order gets placed through doordash where the restaurant owner has already Uploaded the full menu and is familiar with like the order intake process. Instead of just waiting at the door for the driver to come in, if they just go in and they place like let's say DoorDash has rented autonomous vehicles from Waymo or whoever and they just go place the to go box in the car in a secure spot or whatever. That makes sense. I actually think it kind of supercharges doordash's business because it takes out the biggest cost which is drivers. Uh, the other. So I, I like the AV angle for DoorDash. The other thing is I'm pretty sure the recent spike in oil prices is part of what's causing the price collapse for DoorDash lately. They DoorDash recently launched an emergency gas relief program where eligible drivers automatically get weekly payments based on the total distance driven. So it's basically just meant to sort of help drivers afford the jump in gas prices. It's going to cut into margins and it's probably going to hurt short term profitability. But I think this is helpful for retaining drivers in sort of this market share battle with Uber Eats. I like that they are treating drivers well.

A (41:19)

That's fair.

B (41:20)

Any thoughts on the business? Now I will say this EV to EBITDA is 42 times. Margins are expanding quickly I would add. But it's not like cheap. Cheap.

A (41:32)

Yeah. I had to take a look before on fiscal AI at the gross profit multiple. Kind of a nice top line number that was about nine. So it's not, it's not overly cheap but that's not crazy expensive. I like the business. I was someone in the past that had a doubt on this business's viability because I just thought it was too expensive and people wouldn't use it. But look, you got to look at the numbers. It's people like this stuff. Even if there are curmudgeons like myself that think it's a complete waste of money and gets you low quality food.

B (42:05)

I'll tell you what, you are not the only one. There are. I have a lot of shock. People hate the entire concept of doordash. Like they think it's the laziest thing in the world. And I don't know, I mean it's convenient, right? Like people pay a little extra to not have to go get something. I don't do it.

A (42:22)

A little extra has gone a long way there, right? A little extra is going a long, long way.

B (42:28)

That is true. I don't know.

A (42:30)

And the quality of the food, that's where I get hung up. But we don't have to have a whole philosophical debate on. On whether it's better.

B (42:38)

Someone asked, where would you peg mature margins for DoorDash? I honestly don't know. What are gross margins at? 50%, I think.

A (42:47)

Yeah, but operating, what's. Let's say operating margin. Let's try to pull it up.

B (42:52)

Right now, I think operating margins are at about 5%. My guess would be they could get to probably 20.

A (42:58)

Yeah, they get way higher. That's the story.

B (43:01)

Yes. Especially like if autonomous vehicles, you know, let's say that is a tailwind for them. That would take out some cost and, and boost the gross profit line. So I would guess 20 could be mature margins, maybe higher. But yeah, I'm interested. It's. It's on the. It's moving up the watch list for me.

A (43:22)

Yeah. And listeners should remember that revenue is after the driver and restaurant cut. So it's what DoorDash is keeping. Correct. Or am I wrong?

B (43:31)

I honestly haven't dug into the account. If it's 50% gross margins, I would assume so.

A (43:37)

Yeah, I'd assume so as well. But hey, maybe it's another stock research episode for you in 2025 or 2026. Excuse me.

B (43:47)

Yeah, yeah, that might be my next one. Do we want to talk Turboquant?

A (43:53)

Sure, sure.

B (43:54)

What I saw some.

A (43:56)

That was my nickname in algebra 2.

B (43:59)

I heard. Yeah. I read some comments. People like. This is what the. This is what I was called my first year in the investment bank.

A (44:06)

Yeah, yeah, yeah. I was actually called the Bath Robot. So, you know, hey, that was my life.

B (44:12)

Close. It's not that far off.

A (44:14)

Yeah. So let's get into the. What was actually happening here. Alphabet put out a nice blog post. They go into great technical detail over a huge increase on model efficiency that they had. There was a lot of people talking about how this came out a year ago and then. That's fair, you know, it's not going to affect the numbers today for some of the businesses that might be hurt. But essentially it's greatly increasing the efficiency of running the AI models. That's about what I know. With the new compression algorithm, I will say the Silicon Valley TV show, once again, very prophetic. They go into a lot of technical detail. Like I said, it went really over my head. But this is the line that stood out to me. Quote, the results for long context needle and haystack tasks are shown below. Again, Turboquan achieves perfect downstream results across all benchmarks while reducing the key value memory size by a factor of at least 6x polar quant is also nearly lossless for this task. I think what that means is that they're six times more efficient and the results are the same. Right?

B (45:22)

Close. Nearly lossless.

A (45:25)

Okay, nearly lossless.

B (45:26)

Yes, results are similar. I did see a lot of. So basically Google announced this and it was like this incredibly technical explanation of what Turboquant's doing. And a whole bunch of people in the comments are like, this seems good. I know, yeah, sounds good.

A (45:43)

I, I think, well, okay. Memory stocks are down on the news. I think one, you know, if you have six times more efficiency, you're not going to need as much memory when running these AI queries for inference is what I'm reading. I would think maybe this means Nintendo is going to be able to get product. Who knows? I, I believe that that'll be the case. I'm saying that a little bit rhetorically or sarcastically. The one question I have though is why release this to the public? And I think it's because Alphabet does not need to play the game of going to the computer chip complex as much as every other player out there, given their TPU dominance and they want for them. If AI models get more and more efficient, that's where they win.

B (46:35)

Maybe, maybe they also just have a history of publicizing like everything.

A (46:41)

Sure, sure.

B (46:42)

But I would guess that if you asked Micron for a list of their top five top 10 largest customers, Alphabet's probably still up there.

A (46:52)

That's fair. That's fair. The I, I think, okay, look, whatever Turboquan is, my, my thinking is is, you know, specifically, I don't know exactly what is going on, but I think over the long term, similar to how Google optimized Google search for 15 years or the last 25 years, these models are going to get much more efficient. And I don't think there's going to be trillions of dollars in memory and chip demand. There's a trillion dollar incentive to get these models more efficient. And I think the smartest minds in the world who are all working on this are going to make it happen.

B (47:31)

Yeah, I don't like. If you look at Micron's most recent quarter, I don't think growth like that's going to be sustainable. I hope it's not or else everything's going to get a lot more costly for customers.

A (47:42)

There's going to be a lot of profits in South Korea, that's for sure. And Boise, Idaho maybe. You know, the downstream effect of what I was thinking is you should bet on Boise State to do well in football because their nil program's going to get.

B (47:55)

So turn this into a Cal bet or a poly market bet.

A (47:58)

What do you think? I, I, I think honestly that's, I

B (48:01)

think you might be hopping one step too far.

A (48:05)

Yeah, it's, it's about four, four steps too far. But who knows their nil budget's going to increase if Micron Stock is up 10x.

B (48:13)

Do we want to talk. I hate saying this word. Do we want to talk? Crypto backed mortgages?

A (48:19)

Yeah, this was something. And don't worry, we'll get to small cap of the week after this. I guess we're going to be able to use our $1 million in FART coin now to make a down payment on a house. Thank you to regulators. Here's a quote from this article just from this morning. The mortgage finance giant Fannie Mae will soon accept so called crypto backed mortgages for the first time. The latest expansion into cryptocurrencies for mainstream financial transactions. Once the crypto assets have been pledged for the down payment, the homeowner can't trade them. That's fair. If the value of the crypto in the account falls, the mortgage loans aren't affected as long as the owner keeps making monthly payments. I think that's a little peculiar because one, you're relying solely on income and if it's going to be collateral, well, shouldn't there be, am I using the word right? Covenants in the contract where if the value of your collateral goes down a ton, the the bank is going to repossess? I don't know. I don't know.

B (49:15)

But yeah, how, I mean, how far into the crypto universe does this extend?

A (49:21)

Like it said bitcoin only. I made the hardcoin drug, it said bitcoin only.

B (49:26)

At that point there may be my concern, if I were an underwriter would be obviously stability in the bitcoin price. Like if bitcoin does drop 50% or 40% or whatever and you have to repossess the assets, you are getting significantly less. Now there might be enough stability in bitcoin, although it's still proven to be extremely volatile. But I would just think like imagine going to the mortgage underwriter and like showing them your financial assets and you're like, here's tits coin. I have, I have a hundred thousand dollars in tits coin. Would you, do you take this? I mean it would just be one of the most awkward encounters. The I would not, if I were the underwriter, accept these assets, most of them probably bitcoin as well. I mean it's just like intensely volatile.

A (50:29)

Yeah, I guess if it's allowed to happen doesn't mean it will happen. I could see it being a part of someone's portfolio if they need to prove that they're credit worthy. Like, oh hey, I have all these assets. This is a part of it. Sure, it's fine.

B (50:41)

But it is an interesting idea of how much has money being tied into Bitcoin. And the rise of Bitcoin impacted mortgage demand or home buying demand in the country over the last few years. If the underwriters aren't accepting it. That, that, that is kind of interesting. Well, it was capital in my opinion. It was a lot of capital going to waste anyways. But if you can owe you, if you could not use it to back any loans, it was probably a bit of a headwind.

A (51:20)

Yeah, I agree. I really have nothing else to add there. Want to do small cap of the week listener suggestion?

B (51:26)

Let's do it.

A (51:27)

All right. It's L, it's Lowar Holdings. L O A R Ticker is L O A R loyal listener Cade Invest with the suggestion he writes Horizons Investing. Here's the Fiscal AI summary. Lowers holdings engages in the design, manufacture and sale of niche aerospace and defense components for aircraft, aerospace and defense systems. They were founded in 2017 and are headquartered in White Plains, New York. I actually think the business was formed in 2012, but Loras holdings was formed in 2017 as a holding company. First note, I should say is that they're pretty young, but what exactly are the niches that they help with? Because again, you know, you look at these industries, aerospace parts, defense parts can be quite, quite lucrative. I'm going to be utilizing Horizon's Investing's report and Fiscal AI to help with the brief small cap of the week overview. I have a nice chart here from fiscal AI. They actually have the KPIs already up and running and it is the amount of money. I could really visualize this quickly for acquisitions that the company has made. They've made over $1.1 billion and they've increased it over the last few years. The amount of dollars they spent on acquisitions for their aerospace and defense parts. Roll up if you want to use our link and get access to all of these segmenting KPIs thousands and thousands and thousands of them across different companies. Use our link Fiscal AI chitchat. Sign up for any paid plan and you can get 15% off. All right, back to the small cap of the week. Well, a guy named Dirks and Charles started the business in 2012 with some other aerospace people to build a niche in aero and defense component conglomerate. I think this should pretty you know, perk up listeners ears given you know you can look at the stock charts for transdime and Heiko. It's not exactly the same but there's some really good profits to be made in this industry. The products can include things like safety sensors, flight control computers, stuff like that. Founder controls 4.3% of the business. 27.5% revenue growth since 2022 21% operating margin in 20235 10% organic revenue growth for the last three years. Again confirm what they how they define that but that seems very very good. Fiscal AI says four times net debt to ebitda. I'm not sure exactly that's what the company uses but they're going for a levered roll up here. The problem and what's probably going to keep it on my watch list is EVD58. Now maybe I need to look into it further and see whether the EBIT is is actually that but yeah

B (54:05)

it's

A (54:05)

expensive regardless of that growth but definitely an interesting industry, interesting business. Feels, feels like rock solid. You're going to have durable, durable demand.

B (54:15)

Yeah there's pretty good history here of serial acquirers in the space doing well. The I wonder if maybe they're under earnings. My I don't want to necessarily write them off right away just because of a multiple and I actually think that happens. I do that all the time where it's like eh. I just see a number that I don't like on the multiple and I don't dig any deeper and there's a chance that they're just like way under earning. I find it, I like it. I'm not like super familiar with the space. We've got a comment from Tyler in the chat that says just invest in transdime. Best of breed serial acquirer. Yeah they're the aerospace serial acquirers that run leverage and I think Transdig runs at like pretty sure they're at like seven times net debt to EBITDA usually is what they run at they have done well there's better relations with suppliers when you can acquire when you can get multiple procure multiple items from the same vendor. So like Boeing buying from Transdig or whatever.

A (55:27)

Sure.

B (55:28)

So there's some sort of scale economies there. I watch list for me it's watch

A (55:37)

list yeah and compared to you know Transdem is a large business. This company lower holdings market cap's five and a half billion so maybe you're getting on the ground floor or something. Yeah. This is going to be one where you need to care about valuation, but it's. It's a big bet on management. You know, it seems like this industry is great, but management quality, valuation, you got to care about those as well.

B (56:01)

I wonder if Transdigm, Heiko, obviously larger businesses. I wonder if they maybe don't bother with acquisitions that might not move the needle for them. Where there is room for a player or a serial acquirer that targets potentially smaller businesses like Lore Holdings. That's purely speculation. I don't follow any of those companies. But I imagine as you get bigger, there's less emphasis on these tiny deals.

A (56:30)

All right. Should we talk about Meta's new compensation plan?

B (56:35)

Sure, I guess.

A (56:36)

Did you see this?

B (56:37)

Worth enough?

A (56:38)

No, Zuckerberg is not included. So a little different strategy than Musk on that front. But Meta has instituted a price target stock option plan in order to properly align and sent executives and shareholders the lowest tranche. 1100 highest 3700. I believe it's over the next maybe four years. Maybe it's. Maybe it's a little longer than that, but not too long of a time period. Current stock price 564 and falling. First question before we get another Meta topic. And why the stock is falling this week. Does this get you more interested in the company?

B (57:15)

If I were to invest in Meta, it wouldn't be because of this. But it's better than some other compensation plans. Yeah, I think I would say it's a positive green flag over a red flag.

A (57:25)

For sure. Yeah. It's better than just throwing out RSUs to 100,000 employees recklessly. I saw some crazy figures on how much SPC is costing Meta. I want to say it was something. It was in relation to this article. It was something like tens of billions in paying the tax withholdings and repurchasing stock for the RSUs vesting. Yeah, it's just a lot. And maybe this will align them better if you actually tie it to stock performance.

B (57:59)

Maybe I've just been reading too many headlines, but they do seem a little loose with what they're willing to pay employees. The biggest red flag was what they paid that guy to run the AI lab.

A (58:13)

$14 billion. Yeah. Who would be like a mid level guy at Google's AI lab who's not. Who wouldn't maybe not even be a top 10 engineer there?

B (58:21)

Yeah, yeah. Just like what are we. What are we doing? 14 billion. That's what a good chunk of their Cash flow.

A (58:31)

Yeah, it's fair. That's fair. I mean, yeah. What are they doing?

B (58:34)

80 billion in free cash flow. I mean, pull it up right now.

A (58:37)

Alphabet, I believe, spent like a billion to reacquire the guy that invented the transformer model and pretty much was one of the groundbreaking researchers in all this. That might be a fair price, but it's definitely not. You know, $14 billion for a guy that started some rapidly growing startup.

B (58:57)

46 billion in trailing 12 month free cash flow. Granted, big capex cycle, so. But nevertheless, yes, they are paying 25% of their free cash flow for one employee.

A (59:08)

And you need to go down the line and look at how much of the SBC in the. Either the investing, I think it's the financing one. You probably won't maybe not have that on fiscal AI is going to the stock option stuff. Okay, here's something that's more serious and why the stock is down. This week we have reached some landmark court cases. There's actually thousands of them out there in meta and social platforms versus mainly children, health and addiction. Here's a quote. It happened just, I think in the last 24 hours. The judgments for the plaintiffs threatened to undermine long held protections that have shielded Internet companies for decades. They suggest future juries might be receptive to a product liability argument against social media, which forms the basis of thousands of similar lawsuits waiting to be heard. And they encourage new plaintiffs to come forward, raising the prospect of mass litigation that gets stretched for years and lead to settlements or changes in the industry akin to legal campaign against the tobacco industry in the 1990s. And a lot of people point out, hey, tobacco did great since then, but it's not the same. It's not the same.

B (60:11)

The asbestos claims kind of, yes, it's

A (60:15)

probably more similar to that.

B (60:17)

And so do you know what the specifics were of what they were guilty of?

A (60:23)

So the specifics of the jury I believe decided. And again, some of this stuff is qualitative, but it comes around purposefully or basically going a blind eye to addicting children to your products and having that statement out there and having that be the legal president could be very, very detrimental to these businesses. One, you're going to have to change your business model for the children, which again, like I think anyone in society should want to not have these companies addicting children to spending eight hours a day on TikTok. And then second, there could be massive, massive liabilities because of it. I feel like the stock reaction is warranted.

B (61:07)

Yeah, I don't know where I stand on this. Like it feels a part of me thinks it feels unfair to blame the companies that were doing what was in their own best interest, at least financially. But at the same time, especially for companies like Google and Meta, I think when you generate more than $50 billion in free cash flow, you kind of have a civic duty not to destroy society a little bit or at least invest heavily in like, protections.

A (61:40)

Oh, protections. That's. That's my favorite one.

B (61:44)

These protections, I mean, they have been, from what I've seen, I don't have a kid, so I don't know this, but I, I believe they have been investing in a lot of parental controls, which I would think is the way to go about this is giving like parents the ability to limit time spent and all that.

A (62:06)

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B (62:36)

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A (62:58)

Visit the website for more information. In I think they should have to do tobacco ones where they essentially give you data once the app opens or when you download it and it says this is going to kill your child's brain. You know, maybe. Sorry, could you hear that ringing in the background? Yeah. Apparently in Brazil it's a big prank for kids to hit the, the, the doorbell things. Yeah. Happens about once today.

B (63:24)

Joke's on you. Yeah. Interesting. I mean, if this, if they end up paying claims every year. That's brutal. Yeah.

A (63:32)

Or a master settlement agreement. The master settlement agreement was a trillion dollars for the tobacco companies over 50 years. So. Yeah.

B (63:40)

So it doesn't. What would you. Social media companies can no longer market. They can no longer advertise. What if they did that the same way they did for tobacco I would buy Google and I would buy Meta on the spot.

A (63:51)

No, no. Well, they're already close to monopolies. They already don't really market much versus their size. I don't know if it would be this. I don't think it's the exact same as tobacco. Let me know.

B (64:07)

No, it's probably true.

A (64:08)

Okay, before we're. We're at an hour before we get out of here, people are asking about this Bloomberg report on Nintendo Switch 2 supply reduction. Let me just say the article is completely wrong. That's all I have to say. Demand is rising because of this Pokemon game and the movie. I have no change to my thesis. But there's also questions about building watch list portfolio stuff. Rebuilding our portfolio with stuff we've never owned. And I would say that we're saving those for potential Wednesday episodes. But I appreciate all those ideas.

B (64:35)

Let's do that. Let's do. Yeah. Rebuilding our portfolios from scratch. Let's do an episode on that.

A (64:40)

I like that, but it's a specific question. It can't be stuff we've ever owned.

B (64:47)

I'm down. That sounds fun. Stocks. Let's just go really quick. 3 highest stocks on your watch list. Go.

A (64:54)

Let me load up my dashboard. You got to go first. I'm loading up my dashboard on fiscal AI.

B (65:02)

I don't know. This isn't necessarily on my watch list, but because I own some shares. But it's a starter position which for me sort of functions like a watch list. Interactive Brokers is up there. We're going to have a full research episode on them next week from yours truly. Airbnb have been looking at as well to size up again, sort of a tracker position. And I would say doordash might be up there as well.

A (65:30)

I might be missing something, but let me go. You're gonna laugh, but I think it's getting cheap. Autodesk, the company's phenomenal new holdings and Pacifico Airports. Although I'm waiting for Pacifico Airports to get a little cheaper.

B (65:44)

Autodesk. That the chronic frustration of management.

A (65:51)

Well, the business is great. The stock. $240 for forever. One move.

B (65:58)

Yeah, well, the return on brain damage might not be worth it, but true. I think that's going to do it. Thank you everyone for tuning in. Thank you for all the comments in the chat. It's pretty active today, so thank you everyone for listening live. We want to remind you that Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Stocks is not formal advice or a recommendation. We may buy, sell, or hold any of the securities discussed on this podcast. Thank you again. We'll see you all next.