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- [00:05]
A
Big tech earnings are in and news flash, they're spending a lot of money on AI. Motley Fool Money starts now. Everybody needs money. That's why they call it money. But you can give them to the birds and be that.
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From Fool Global Headquarters, this is Motley Fool Money.
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A
Welcome to Motley Fool Money. I'm Travis Hoyam, joined today by Lou Whiteman and Asit Sharma. We have to start with the big news of the week. That is big tech. And I want to start with, I think, one of the most surprising earnings reports. That is Google. They were nano bananas, if you will. Their results. The stock was up a little bit, although not a huge move, 4 or 5% after earnings. But revenue was up 15% in search. The cloud business grew 13%. Asan, I want to start with you. What, what was your biggest takeaway from this quarterly report? Because there's so many pieces of Alphabet now and it's. But it seems like they're all kind of moving in the right direction.
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C
Yeah, Travis, it's like an Alphabet soup of earnings to piece together what's really driving that engine. For me, the step up in cloud margin was pretty important. So the profit that the cloud business, which is full of generative AI, is making, this was 17% margin this time last year. This quarter, they came in at 24%. So what does this mean? Well, Alphabet likes to brag that it provides the full stack to its customers in AI. So from the infrastructure to agents to all kinds of machine learning algorithms, etc. And you can price for that. The pricing is favorable and we're seeing that as this little business grows, it's getting more profitable as it goes along.
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A
Yeah, the interesting thing with that is that business just became operating income profit positive in the first quarter of 2023. So we're less than three years into that actually being a profitable business for them. What, Lou, what were the big things that you saw when you looked at earnings from Alphabet?
- [02:22]
B
Yeah, we'll vibe off of Mark Twain and his code. Reports of my death were greatly exaggerated. Remember when AI was going to swamp Google search and just everything was down from here? As Asit said, the margin improvement, I mean, overall margins up 200 basis points. But what that shows is this is so much more than search. That wasn't really ad revenue that drove that. That is all of the premium things they offer as consumers. That is cloud. Cloud grew revenue by 34%, but operating Inc 85%. That speaks to the benefits of scale and that speaks to, I think a really, really well positioned company from here.
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A
Yeah, Asset Lou mentioned some of these other businesses. YouTube is the other one that I think we often forget is under Alphabet. And one of the things that stuck out to me in this report was that search and YouTube grew at the same rate, which may sound a little bit strange, but what that's telling me is that they're monetizing at basically an equivalent level on both of those. So, you know, your views are in number of searches and number of videos watched and things like that may change a little bit. But if you were seeing search grow at 5% but YouTube grow at 20%, that would be problematic. Am I thinking about this correctly, that that it's actually good that they're growing at about the same rate?
- [03:39]
C
I think so. Because in some ways Alphabet is still using, you know, search as a way to funnel people to YouTube, although those who get a little bit addicted to a certain type of YouTube shorts myself. I'll be honest here. We don't need the search to get us there anymore. But this is a business that is, I think of it as being tiny but powerful. Tiny in the scale of Alphabet's total earnings, but powerful because of that growth rate that you mentioned, Travis. The attention economy, which we'll talk about in a bit when we get to meta, is such a big part of the earning stories of much of big tech. The fact that Alphabet continues to grow, this little enterprise is important because over time, the rest of that business inevitably is going to slow a bit. But I have a belief that YouTube will keep scaling along the lines that it is 15 to 20% reliably quarter after quarter after quarter.
- [04:32]
A
And they continue to take market share, even from Netflix, which I think is surprising when you look at some of these results. Let's move to their AI spending because this is, you mentioned, we've mentioned Google Cloud, that's the big growth story within Alphabet. But they have to spend a lot of money to build out the infrastructure to actually grow at 34%. So, Lou, they increased their CapEx guidance. It was increased last quarter to 85 billion. This quarter, I think they said it's actually going to be 91 to 93 billion dollars. And then they said more next year. We've heard whisper numbers of around $120 billion. This is a lot of money. Is that bullish or bearish for investors long term?
- [05:12]
B
Time will tell, won't it? Yeah, to put meat on it. Capex up 83% year over year. And I know it's really accelerated this year. But look, AI was around last Year. So this is, I mean we are now doing year over year comparisons when this spending was starting to ramp. Look, the good news is everything we said, they seem to be finding ways to monetize this and if that can continue, we will be glad that they are investing more. But yes, when you're spending $24 billion every three months on just infrastructure on CapEx, you darn well better figure out how to monetize it. So I do think it's, it's the elephant in the room. It could be fine, but it's definitely also what we should be watching.
- [05:55]
C
Yeah, I want to chime in here and agree with Lou. There's a little bit of risk in Alphabet's picture, okay? There's risk in every big tech hyperscaler's plans to build out all these data centers and provide so much inference to the world. But looking at Google's business and they're much smaller than say Amazon Web Services, but their spends are approaching AWS spends for their build out. That means that they're playing a lot of catch up and if things go south for all of these, they'll have a bigger hit on their P and L pound for pound than maybe an Amazon Web Services will.
- [06:29]
A
Speaking of CapEx, Alphabet's response, the market's response to Alphabet's earnings where it was actually pretty positive, it was not as positive for Meta as that was another big one. They didn't actually increase their CapEx guidance. I think it was just actually at the top of the range that they had previously given. But the questions are starting to mount about how are they going to actually turn that spending into more money in the future. So asset, what should we take away from what the market thought was kind of a flop of a quarter but you kind of look at the numbers and I didn't see anything that was horrible. But then again you start to ask questions about are they going to actually get an ROI on spending tens of billions of dollars a year on Amazon?
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C
Totally, Travis. I mean what happens when you merge Daddy Warbucks with what's arguably the Doors most popular song, Come On Daddy, Light My Fire. More specifically, we're going to set our cash on fire. And that's been the mojo of Meta and Mark Zuckerberg for a long time. You nailed it. This business is strong. There is nothing wrong with it under the surface. And in fact, average price per ad was up 10% this quarter. Ad impressions up 14%. Revenue growth. What up 26%. Billions of dollars to the bottom line in operating income. They had A little charge against earnings, big charge against earnings. But look at this spend. Will it remain something that investors can sort of whistle past? I think today was the first indication that no, maybe we're not. And I know, Lou, you've got some thoughts on this as well.
- [08:03]
B
Everyone's spending money, right? And yes, as it's right, the core cash generation machine is intact and is as ever. The difference is now is that we are going off balance sheet at Meta, all of them. But we can no longer just kind of justify all of this spending on AI as hey, it's coming out of free cash, free cash flow.
- [08:24]
A
And what do you mean by that, Lou?
- [08:25]
B
Well, so, I mean it's a big difference between them. They make all the money in the world and they're just choosing to spend it. That's, you know, whether or not it's a good move or a bad move, it's healthy. When you start borrowing for this so you're actually spending more than what you're making. It can still pay off, but it better pay off. There is just an added element of risk both to the company and probably to the system. The big thing for me here, just this continued question is Meta versus Google, Microsoft, Amazon, it's on the distribution side. I think we saw with Alphabet and I think with all those other companies, they're cloud businesses, they're consumer businesses, they're office tools. I see how AI will be distributed and infused into the products. Meta stands out to me because the monetization plan, I think to me anyway, is less clear. And when you are spending so much, borrowing so much, you gotta get monetization, right? So I do think that's the difference right now.
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C
Yeah, Lou, it's funny, I used to have the same thoughts about Meta on their distribution, but you know, I'm a WhatsApp user and so that little AI agent is right at the top. I've never used it actually, but I know people who do. I've got some cousins in India, they're using that all the time. And just the way that this business has been able to monetize things like Instagram, where I couldn't make that instant connection. The platform is the distribution, right? It's the users. It is different than the hyperscale businesses, but time over time they prove that they're able to find a way for folks to fork over some more money.
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A
It is one of those companies, this is the one hyperscaler that is spending tens of billions of dollars on AI infrastructure that doesn't have the same third party business that all the other companies has. If Google over builds for itself or for third parties, it can use some of those GPUs itself. Same thing with Microsoft. So does that present more risk? I think that's maybe the question that I have. I'm not a meta shareholder, but I have come to sort of respect what Zuck has built. And then you get to these points where you go, it's really just a trust me. I said, is that all we're doing is just trust? Do you trust Zuck or not?
- [10:38]
C
Yeah, he's got a mini I told you'd so wrapped up in here, which is a few years ago, before everyone really understood the import of Genai. He said, well, all this money that we're spending for reality labs, the AI infrastructure, the GPUs, et cetera, it'll be useful. It'll help us really make our ads better. And we can use all this compute to squeeze more ad money out of our users. And lo and behold, that's what they've done. But I just want to point out here, I'm skeptical of what Zuck said in the earnings call that, hey, if we build extra compute, we'll just use it to make our stuff better. No worries. I don't buy that simply because the magnitude of what they're investing now is, as Lou pointed out, going to having to have debt out in the public markets is a magnitude larger than this first iteration that we all saw. So yes, it worked the first time around. Will it work this time? I'm not so sure.
- [11:33]
A
These stakes are getting higher. Next up, we're going to talk about one company that the market was very impressed with. That is Amazon's result. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Amazon was the other big earnings report this week. Shares were up 10% after earnings came out, which is a huge move for one of the biggest companies in the world. Asit, what did we learn from Amazon? Is this a story about aws? Is this a story about retail advertising? What should we take away from this quarter? Because just like Alphabet, there's a lot going on at Amazon.
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C
Yeah, it's a story of all three. And we can start anywhere. Maybe we'll start with aws simply because the market breathed a little sigh of relief. People felt that its peers like Alphabet were moving faster and maybe grabbing the business ahead of Alphabet. And what we learned, and I know Lou has some thoughts on this as well, is that Amazon has a business proposition they feel the world needs to understand so many enterprise businesses have converted from on premises infrastructure over to the cloud onto aws and those are really ripe customers for that whole AI stack just like Alphabet that we were talking about. And it turns out that growth is re accelerating. Margins look very healthy. I'll come back to margins in a sec. But Lou, I mean that cloud business really stood out to you, didn't it?
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B
It was great. And guys, remember was it three months ago when the cloud business didn't stand out and everyone was sort of leaving Amazon for dead? You know, maybe we shouldn't read too much into any one three month period but yeah, cloud, 20%, you know, growth, it's everything, it, everything you could have hoped for there. But how about across the board performance? Ad sales up 24%. Even retail was up 10%. So much for that weak consumer. It's just, it's hard to find a hole in this, this is just a multi, I mean all parts of this business seem to be firing and it's just really impressive just to see the strength on display.
- [13:41]
A
I say one of the things that they talked a lot about was Trainium and the demand that they have for that chip. This is a competitor to Nvidia's chips. This is kind of a big can of worms. But it does seem like sort of the alternatives to Nvidia are starting to gain some traction. Trainium is one, TPUs from Google is another. They apparently can't make those fast enough and they're, you know, whether it's to for use with TPUs or just Google cloud, they can't. They're basically having to turn away some customers. Are we starting to see an alternative layer of compute in AI start to be built that is maybe gaining momentum because all of these companies do have an incentive not to be beholden to Nvidia.
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C
That's right Travis, they are spending a lot of money for these purpose built chips. Trainium is a great example. Even Microsoft which was behind on the game, now has their Maya chip which is very similar. So what these chips try to do is offer a reasonably similar level of performance for less cost. So think 30 to 40%. This is the cost savings that Amazon consistently talks about. And yes, lots of businesses want to use what is performant and also cheaper. But the issue here for Amazon more than it is for Nvidia is that Nvidia has this really fast cycle of iteration and Amazon doesn't iterate quite as fast. So the Trainium chip, while it's getting a lot of hype and it's got this Huge customer in Anthropic, which is the maker of Claude the LLM. They are going to be soon in a place where they're going to have to have a next generation of chips. And this is where I think that maybe train them in these other chips just won't live up to the hype. And we also see lots of deep pocketed customers still want Nvidia's latest and greatest chip. So they're doing both. They're spreading a little money to Amazon but putting most of the dollars into Nvidia's next big thing. And I would say AMD is playing that space now. So I think you're right. There's a layer now of business that's up for grabs and some of these hyperscalers are getting it because I don't want have the customers in house. But are they going to supplant Nvidia? No. And do they know that they themselves, Amazon must buy Nvidia because their customers want it? Yeah, Andy Jassy talked about that on the call.
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A
So is the game for AI compute right now still just who can buy the most Nvidia chips and then maybe add on some of their own custom Asics? Is that sort of the idea asit?
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C
Yeah, it's interesting you should mention Asics because these sort of custom built chips that are of the ASICS variety, they really help with cutting down the cost of compute. But then here's another issue. GPU is very configurable so you can reprogram it as use cases change where an ASICS is more pointed. So you can save customers money for a certain amount of time. But if the needs change, you know, if we go not nano bananas, but I don't know, like polymorphing pairs, ASICS might not be built to do the same thing that a GPU can do to to adapt to what customers want on the inference side.
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A
So would the way to think about it B is if the rate of innovation in AI, the rate of these models being introduced and in 2023 it seemed like there was a new model every two weeks. Now we've kind of slowed down. So is that slowing of model improvements good for the ASIC business because you can actually customize your chip to run optimally for Claude, let's say, or Gemini and so they're able to actually kind of get to scale before those are obsolete. Is that the right way to think about it?
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C
It's a good way to think about it because what the models now are offering really is just more reasoning steps. It's not like we're having huge, huge advances. So Asics could fill that. In other words, you keep asking ChatGPT questions. It keeps asking me, I said, do you want to drill down on this after all? I'm like, maybe I'm tired of drilling. I'm going to take a break here. But it's so eager and all these models are so eager to have you keep reasoning because now it's a little bit cheaper for them to provide that and there aren't that great of leaps and improvements on what the models can do. So yeah, I think that's an astute point, Travis.
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A
Lou, as you look at all of these big tech earnings, what stands out to you and where do you think the best buys are in the market?
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B
I still like Alphabet a lot and I think as far as mag7i still that they just again, I'm worried about a world where the AI model sort of becomes commoditized and so then it's going to be who has the resources to really make money off of it. And again I'd point to probably Amazon, definitely Microsoft and Alphabet as just the ready made customers. Wildcard here is Apple. Apple has been gotten so much flack for kind of failing at AI and I don't think that's just their, you know, Apple waits. I think they really tried and it didn't go well. But with their customer base, with that iPhone, with that as a prize for any one of these models, if we do get to a world where the models are kind of not the big deal, it's who has the consumers, Apple could end up being the biggest winner here at all.
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A
When we come back, we are going to play trick or treat. You're listening to Motley Fool Money. I was working in the lab the.
- [19:04]
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Late one night when my eyes beheld an eerie sight for my monster.
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A
From welcome back to MLY Fool Money. It is Halloween so we thought we would have a little bit of fun and play investing trick or treat. The idea here is that I'm going to give Lou and Asset a stock and they have to tell me whether it is a, a trick so they're bearish on the company or a treat and investors should be bullish. Let's start with some of the names that we have been talking about already on this show, Alphabet. Lou, you kind of gave away your answer earlier but Asad, I want to know is Alphabet, after these recent gains, is this a trick or treat for investors?
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C
It's a treat, you know, it's one of the Biggest games in town. The tech is very solid. If you look at scholarly citations on AI, they're one of the leaders actually, in papers. And of course, it was Google engineers who came up with technology, along with some others that underlies all of Genai that we enjoy today. So they were a little bit late to commercialize the game, but knives out now. So for me, a treat. Yeah.
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B
Stock's up 74%, I think, six months. So maybe they've decreased to a fund size treat instead of like just the full size.
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A
But it's the dreaded fun size.
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B
It's still true.
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C
I was so surprised. It had been a year. Okay, really quick, guys. I broke open some Halloween candy in advance and the fun size, I was like, wait, isn't. Shouldn't fun size be big? The fun size is small. What a marketing genius thing. Sorry, sorry to interrupt. Lou.
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A
Let's go on to Meta, another company that we've talked about a little bit. Price earnings multiple on a forward basis is 23. So it's actually cheaper than Alphabet. But there are maybe more questions, maybe there's not. Lou, what do you think? Is this a trick or a treat? For investors?
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B
It's a treat. But it's an Apple or something. It's not the treat you want, the.
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A
One you don't want in your Halloween bag.
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B
It's a treat. But you have to wonder, is it really a trick? As long as that cash machine is working, I can't be too worried about it. But we already talked about it. There are questions here.
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C
I'm going to say it is a trick, and I know this is wrong. I came on this show maybe three or four years ago and sort of infamously said that Meta was one of the worst of big tech. And I had so many cogent reasons. It's really hard to bet against this company because of that ad revenue, the profits associated with it. The fact that 3.5 billion people around the planet are active daily users of.
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A
One Active, I think the right way to say it is addicted to Instagram.
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C
Yeah, totally. But look at the flip side of this. They continue to sink money. First it was Vrar. Then I believe it was the Metaverse. Then we went on to a couple of iterations. Llama was going to be the next big thing, and now super intelligence is the goal. So Mark Zuckerberg believes in this zero sum game that the Internet can be one, AI can be one, all of revenue can be won. And I just think you take a risk when you do that, even if you have such a Beautiful business model underneath. So I'm going to say there's a slight trick in this business.
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A
Beware, let's end our big tech on Microsoft, a stock that we did not really talk about today, but asit a lot going on at Microsoft. Is this a trick or a treat?
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C
It's a treat for me. I love me some Microsoft because it doesn't get quite the attention of some of its big tech peers, but it chugs along. Office is a franchise, it has so many franchises in the gaming world. It has done an aggressive amount of investment in AI through OpenAI and now is playing good with them again. So I think it's just a wonderfully managed company. And don't forget it's got a core of a cloud business that is really all about again that long term transition of enterprise businesses from premise into the cloud. So I think for me it's a treat that doesn't get the attention it deserves long term.
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A
Does the $135 billion now that we have a reorganization of OpenAI, $135 billion stake at their $500 billion valuation. Now we hear that they're looking at an IPO at a trillion dollar valuation. That could be, you know, $250, $300 billion stake. Does that change? Is that you know, something that you meaningfully build into your thoughts on Microsoft?
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C
Yeah, I think increasingly it is. They're in for a penny, in for a pound with OpenAI. We've seen that the management of Microsoft, Microsoft is deadly aggressive and usually deadly right in how they allocate their capital. But it's getting a bit big for comfort. All in all, I think it will be a win for them. But maybe this is the equivalent of what Lou pointed out about the off balance sheet financing that Meta is undergoing. Each of these companies is getting a little deep in one part of this equation and that's maybe the pain point for Microsoft as we look at the risk landscape going forward.
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B
So let's be clear, that OpenAI stake is what, less than 4% of Microsoft's market cap right now, I think. And if anything, I think as I agree they're great capital allocators and I think this is kind of them saying it's okay to you can play around. So I think they're actually de emphasizing from OpenAI which I think is probably smart. If Alphabet was a fun size, Microsoft is still the full size candy bar treat for me because I will always favor the enterprise over the consumer in terms of monetization. I am really annoyed with all of the would you like AI's help? Every time I open Excel, but I get it as a business thing, they, you know, we, we have for decades now taken for granted their ability to sell to the enterprise. And I just think they are the most natural beneficiary of the AI revolution, which I still think is sort of a lot of just back office mundane stuff getting done faster. And I mean as a consumer I would love that. But as a business, I pay up for it. Microsoft is the go to AI play for me.
- [25:23]
C
Can I just underscore something Lou said for just a moment here? I was in I think Word maybe prepping for the show this morning and just jiggled my mouse. Hey, can I help you write this? Dude, my cursor is not even blinking yet. I don't need the help today.
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B
It's the modern clippy.
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C
It's a modern clippy. Let me work. I'm glad you have these tools. I use them sometimes, but let me work.
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A
Yeah, let's move on from AI to apparel, something that Lou is a huge fan of. Let's start with I wear clothes. Let's start with Nike. Here's a company that has gone through crazy changes over the past five years, became really unloved by the market. But at this price, where we are today, is this a trick or a treat?
- [26:12]
B
I think it's a trick and it's our fault. I think that there are too many people still kind of anchoring to the Nike of old. And I don't think the Nike of old is coming back. I don't think in the world of you don't need Sonny Vicario and a billion dollar advertising budget, all you need is one good Instagram influencer. I think just the pie is gonna be split in more pieces. I think Nike can be a winning, but I think it's a mature, boring investment. And I don't know if investors have really, really readjusted expectations. So that's my trick.
- [26:48]
C
So for me maybe this is a fun size treat. I think so short of term, it is a company that will reward investors. They are in a turnaround. Elliot Hill, who was at Nike for so many years, has done a good job of getting employees motivated to go back to the roots, to focus on product, to be more of a player, to start ramping up that technical innovation that they've ceded to other businesses, other shoe businesses and apparel businesses. So I do think Nike has a shorter medium term trajectory where it's extremely rewarding. But I actually think after that it's 50, 50, maybe they're just too mature. There is one possibility though that they do get their old mojo back. They were able to operate at scale before and they were very fearsome as a business. So don't count them out. I'm still, still a little skeptical as much as I do like this business. But time will tell.
- [27:40]
A
I have little kids and it is amazing that Nike and especially the Jordan brand, still really, really big brands among the kids. And if, if they're going to go by the wayside, it's going to start with the kids first. Let's stay in apparel and go with On Holding. This is a stock that I own, full disclosure, but, but I just do want, I want to give a quick comparison between Nike because I do think the markets analysis of these two companies is interesting. The enterprise value to sales of Nike is 2.1 and their sales have been in decline for three years. Over the last three years they have a negative compound annual growth rate on only about 50%. More expensive enterprise value to sales of 3.4. Their three year compound annual growth rate 43%. Austin, I'm going to start with you. Trick or treat.
- [28:27]
C
I think on holding is a tree. One of the differentiators between Nike and ON holdings is that on holdings has a much more profitable direct to consumer business. It's scaling pretty quickly and they have an eminent amount of pricing power because as I said before, I was referring to a few companies, maybe Deckers Outdoor is another one with their Hoka brand. Nike let other businesses get on the shelves that were in front of customers. And businesses like on worked with small running groups. They're very community based organization. They spread their brand extremely well. They're smart with their advertising and they have a leasing model for their warehouse space and they have automation of very high, highly technical shoes. They have a robot factory that you can go take a look at on the web. There are not many machines but they spin out on a single filament that's more than a mile long. A super shoe.
- [29:17]
A
And it's, it's a pretty cool shoe. I would love to try. I think it's like $350. So I'm not ready to jump into that quite yet.
- [29:24]
B
But.
- [29:24]
A
But it's a really cool shoe.
- [29:25]
C
Yeah. So what I'm trying to communicate here is there's some credibility behind the thesis that on could be a long term fast grower. This company is for real. And yeah, it feels pricey. It always feels pricey. But from sort of the rule breaker's perspective of how to invest in Stock. Sometimes those businesses are sending you a signal for a reason because they're going to keep growing and they're going to keep bringing profits home.
- [29:48]
B
Yeah. So I will concede that could happen. It's a great brand. And my daughter, who's a competitive runner, she calls on the, the brand for people who don't really run but want to look like it, which, let's be honest, is a much larger market. That's the market you want. I am just so. And I know there's plenty of exceptions asit's right, companies do defy expectations and keep going like this forever. But I'm always wrong on this because I just don't believe retail companies can remain the flavor of the month forever.
- [30:20]
C
Yeah, really quick here. You're right about that, Lou, in one sense. I mean, the prevalence of on. On college campuses and something. Emily Flippin sent me a picture of all the buyers at the Art Basel show in Switzerland who were wearing ons, you know, dressed up real spiffy with ons below. So your daughter has a point there.
- [30:41]
A
Let's end on this one. A company that had really surprising results this week, that is Chipotle. Have they lost their mojo? Is this a trick or is it a treat at the current price? Lou, you can go first.
- [30:53]
B
So I think this is a trick. I still like the company. I think they can figure it out. But my theory here is that fast casual again category that didn't exist when we were growing up, this kind of in between, between fast food and sit down that yes, it was real, obviously, but it is sort of now saturated. It's reached its, its, its natural like demand.
- [31:15]
A
And so the trick part here would be that they're going to still add stores and they're going to kind of themselves.
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B
And there's so many good rivals. I think this is just a, I think it's a fight for share from here and I think it's going to weigh on everyone. I, I hope love their food. I hope they make it. I think they will make it. But as a winning investment from here, I, I think it's a trick.
- [31:38]
C
I'm not sure on this one. I'm leaning trick. I'll probably think on it some more, maybe unwrap the candy at home. But I will say this about Chipotle. They shifted over the last several years to a more decentralized model that's less focused on, you know, quality control and lots of things that made them great before. They say they're focused on throughput. I'm not so sure. That that real drive to have fast throughput is still there in the business and you can sort of see the effect out in the real world. So this is anecdotal, but I do think there's something that's underlying what management says, which is it's all about the consumer. The younger consumer doesn't have money. Yes, they're broke, but I think they've also taken their eye off of what made them so appealing first place. And part of that is the experience and presentation and just, just the quality of the business.
- [32:28]
A
It used to be such a no brainer from a cost standpoint too. A burrito for five or six dollars, like, you know, depending on how much you eat, might be two meals. That's, that's really changed over the last few years. When we come back, we're going to touch on some interesting news from Netflix and get to the stocks on our radar. You're listening to Motley F Evil's Lurking in the Dark.
- [32:57]
C
This is a real good story about.
- [32:59]
B
Bronx and his dad Ryan, Real United Airlines customers. We were returning home and one of the flight attendants asked Bronx if he wanted to see the flight deck and meet Kathy. Andrew.
- [33:08]
C
I got to sit in the driver's seat.
- [33:10]
A
I grew up in an aviation family and seeing Bronx kind of reminded me of my when I was that age.
- [33:15]
B
That's Andrew, a real United pilot.
- [33:18]
A
These small interactions can shape a kid's future. It felt like I was the captain.
- [33:22]
B
Allowing my son to see the flight deck will stick with us forever.
- [33:25]
A
That's how good leads the way. As always, people on the program may have interest in the stage stocks they talk about in the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. One of the interesting pieces of news that came out late in the week is Netflix announcing a 10 for 1 stock split. This is going to be effective on November 17th. Lou, these get a lot of attention. You still own the same percentage of the company, but is this a big deal or not? Because the stock was up after the news came out.
- [34:18]
B
So in general, no. I mean, they're not big deals, but they do get a lot of attention. But this one was weird. Okay, A week after earnings, why not just announce this with earnings? And I gotta give credit to Our colleague Toby Bordeland, who, he saw this announcement on Thursday and the first thing he said was, wait, I wonder if they're going to buy something. Because a lot of times these four digit stocks, if you want to negotiate a deal with a four digit stock, it is really hard to do. And sure enough, hours later, reports surface that Netflix might be interested in Warner Brothers Discovery. I don't know if I really love that idea. I kind of like that idea. But either way, I kind of think Toby might be onto something that really makes sense as a reason to do it. And it does make this split more interesting than most.
- [35:02]
C
Yeah, Lou, I actually have the same. I got my opinion on this from Toby as well. So credit to Toby Bordelon. The only comment I have is like, Netflix is crushing it, in my opinion, in localized content around the globe. They're allocating their capital so nicely and they are doing well both in subscriptions advertising. It's just great long term company. Why at this point would they even bother looking at other businesses to acquire ip? So for me, it was a little bit of a nothing burger. Actually, I've become pescatarian. So let me change that. It was a little bit of a nothing filet.
- [35:38]
A
Before we get to stocks on a radar, I do want to shout out one of the most interesting conference calls every quarter. That is Brian Armstrong at Coinbase. He said at the end of the conference call he was distracted because he was tracking prediction markets and then went on to say, I just wanted to add the words, I quote, bitcoin, Ethereum, blockchain staking and web3 to make sure we get those in before the end of the call, end quote. I just thought it was hilarious that he is watching the prediction markets and kind of playing them. So we'll see what happens with that. We're now at the point in the show where we give the stock center radar and bring in Dan Boyd to get his thoughts. Lou, let's start with you.
- [36:15]
B
So, Dan, it has been a crummy year for transports. There was talk of a slowdown already heading into 2025, which tends to depress volumes. And then I don't know if you've noticed, but there's this whole tariff and trade war thing that sprung up that's not great for trade. So it's pretty noticeable when a boring old truck, xpo, popped double digits following earnings this week. XPO is now up more than 300% in the last five years. Despite it being a bad time for transports, I think it still has more room to Run. This is a self help story. New management has come in and streamlined operations. The results suggest they have been able to take share from rivals during this downturn. The restructuring is almost done, but if transportation demand finally begins to recover in 2026 and there are some green shoots, XPO can remain in the fast lane for many here.
- [37:04]
A
Dan, is trucking an interest to you as an investor?
- [37:07]
D
I mean, I love a radar pitch, Travis. That starts with it's been a crummy year.
- [37:14]
C
4.
- [37:15]
D
There you go. Yeah, I mean, it's. It's compelling. It's compelling trucking. It's not going anywhere, Right? We got to get goods from one place to another.
- [37:23]
B
Dan. Finding stocks when crummy markets. That's what Hidden gems is all about, baby.
- [37:28]
A
All right, Asit, what is on your radar this week?
- [37:30]
C
Well, you won't believe this, but trucking is also on my radar.
- [37:34]
A
Complete coincidence. Maybe we should have led the show with trucking.
- [37:37]
C
Should have, but yeah, I want to keep this freight train moving. So I will talk about a company called C.H. robinson Worldwide. Now, this is a logistics company, so they deal with ocean freight, with rail freight, different modalities. Trucking is a big one for them, and it's a fragmented industry. There is a lot of software out there to help people try to do logistics functions. But C.H. robinson has built this pretty interesting platform over the years. And a funny equation occurred to me as I listened to their last earnings call. A plus L equals MM. AI plus logistics equals MO money. And C.H. robinson, surprisingly, is using AI to just have better results for its end customers and to be more efficient through logistics. Around the globe, income from operations surged this quarter 23%. And their cash that they generated also really shot up to 275 million from 167 million in the period before. Stock is up 75% over the last five years only. But year to date, the stock is up about 49%. A lot of that due to this latest earnings report, which is all about A.I.
- [38:51]
A
All right, Dan. Logistics, but A.I. infused.
- [38:55]
D
Yeah. This is a hard one, Travis, because it's very similar companies in very similar places with very similar stock prices. But I think C.H. robinson gets the edge because it's a little bit cheaper and it has a dividend. So we're gonna go C.H.
- [39:08]
A
Robinson. All right. For Lou Whiteman, Asad Sharma, Dan Boyd, behind the glass, and the entire Motley fool team, I am Travis Hoyam. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.