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DeepSeek Disrupts, Big Tech Responds
00:38:54
The market was left with more questions than answers about the next era of artificial intelligence. As we wait, the hyperscalers keep spending.
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Transcript63 lines
- [00:05]
Dylan Lewis
Deep Seek isn't slowing down the AI build out yet. This week's monthly Fool Money radio show starts now.
- [00:19]
Jason Moser
Everybody needs money. That's why they call it money.
- [00:23]
Dylan Lewis
The best things in life are free but you can give them to the present.
- [00:29]
Asit Sharma
Be the money from cool global headquarters.
- [00:32]
Jason Moser
This is Motley Fool Money.
- [00:33]
Dylan Lewis
It's the Motley Fool Money radio show. I'm Dylan Lewis joining me over the airwaves. Motley fool senior analyst Jason Moser and Asit Sharma. Fools. Great to have you both here.
- [00:42]
Jason Moser
Very happy to be here.
- [00:43]
Dylan Lewis
Hey Dylan, I'm very happy to have you guys because I think I need you guys this week.
- [00:50]
Asit Sharma
So what about the other weeks?
- [00:51]
Jason Moser
Is there something to talk about? I don't know.
- [00:54]
Dylan Lewis
I need you all weeks but I think this week in particular me and I think our listeners need you to kind of walk through what we saw, what was a massive market shakeup related to AI. We saw a big tech's response to that market shakeup and we're going to unpack all of that. The news of the week. Deep Seek the Monday really the market was processing the fact that there was a new AI chatbot out of China on par with what we are currently seeing in the market from OpenAI and other players like Anthropic but operating at a fraction of the cost and asit. That market processing turned into hundreds of billions of dollars in market cap being wiped away from companies like Nvidia, other big tech players, energy stocks. Can you walk through a little bit of what the market was looking at as they were seeing this news?
- [01:40]
Asit Sharma
Sure. So deepseek is a company based in China, a sort of scrappy, ambitious large language model creator. They have a model called R1 and R1 has performance equivalent to the O1 model of GPT. So this is not news in and of itself, but the company published a paper which showed how they did it and that backed up some claims that the deep seq R1 model is trained at a much lower cost versus Western models and it also provides inference at a much cheaper cost. So when it answers a question that that compute is cheaper as well. Looking at how they did it, there are some novel approaches, sort of like being able to solve a problem without the resources. We know the US has put these export controls on high end chips and so it's sort of a novel innovative way to both train a model and give output much cheaper. And they for those who are interested, they do things like activate fewer parameters in the model at a given time rather than using all the parameters they use concepts of something called sparsity. So being very efficient with information in different ways. The upshot is that I think most of the artificial intelligence world looked at what they've done, looked at the papers and said, you know, maybe not all of this is quite the savings that they're purporting, but it's legit. And with that, we had sort of a chain of reaction, a nuclear chain of reactions as people looked around the landscape and said, hey, wait a minute, do we really need to spend all these billions on high end Nvidia GPUs if there's a way to do this stuff faster, smarter, cheaper? And so here we have it. This was the market reaction. Of course, a lot has transpired in just a few days since Monday when the markets woke up to this realization. And we can dive into that.
- [03:36]
Dylan Lewis
Yeah, and we saw that hit the chip companies, we saw that hit the companies that have done all the cloud build out. We've seen that hit energy companies as people have wondered if the energy demands are going to be quite what they were estimated to be. And Jason, I look at, at the way that this has come together and it feels like a very rapid resizing of what the TAM could be for some of those businesses because technology has moved on a little bit. But I think we kind of have to remind ourselves a lot of those estimates on what these addressable markets might be and what these opportunities might be have been a bit of a finger in the wind because of how nascent some of this technology is.
- [04:12]
Jason Moser
Well, yeah, I think it's all still very new. There's a lot that we don't know and I think us have made some great points, points there in regard to it's, I love the word use there, scrappy. I mean, it was just. That's exactly what this is. Right. And we should see more of that. I think ultimately, like Asit mentioned, technology, it's all about better, faster, cheaper. Right. At some point or another, I mean, that's kind of the trend that we ultimately pursue is we want things to make our lives more efficient, we want it at a lower cost. And, and, and that all, that all works. Now I, I think it's funny. Investing is always so funny, but this was so headline driven and it was driven by so much uncertainty that the funny thing to me was that there just is so much that we don't know. I mean, there was this headline number of $6 million. I think that they were saying Deepseek built this model out with, but nobody really knows. I Mean we don't understand exactly what's behind all of this, but there was an interesting study and I do want to bring this up because I think it matters, particularly as we talk about AI and these sort of newfangled AI search engines that we use. There was a study or a study done by News Guard which focuses on all this kind of stuff and they kind of went through and looked at these different LLMs, these different AI engines to see what engines are more reliable, which ones work better in deep seats. Chatbot achieved only 17% accuracy in delivering news and information according to this News Guard audit that ranked IT number 10 out of 11 companies that they ranked. And in that that is comparing it to others like Chat, GPT and Google's Gemini among others. It said they Chatbot repeated false claims 30% of the time and gave vague or useless or not useful answers 53% of the time. And so when we talk about utilizing this technology in whatever aspect, a lot of this boils back down to reliability and trust. Can I trust that it's giving me what I need? And I mean, of course we're going to get there. I mean you got to think about Google's just basic search. That wasn't perfect first either. But I think it's just something to remember that when we talk about all of these new AI engines that are doing things that apparently are supposed to make our lives easier, better and faster, whatnot. I mean it is going to be some time to really kind of perfect this technology. And to me, when I, when I think about what's going on with Deepseek. Yeah, this just seems like it was very headline driven emotional reaction to the market that we probably need to learn more about before we make any kind of a definitive decision.
- [07:19]
Dylan Lewis
Well, we did not have to wait long to hear from some of the major industry players with their take on Deep Seek and the direction of the AI industry. We had earnings out from a lot of big tech companies which I love. We get the immediate reaction, including Dutch chip equipment manufacturer ASML and how quickly the outlook can change. ASIT company was down Monday, roaring right back after reporting results later in the week.
- [07:45]
Asit Sharma
Yes. So ASML famously sells these very high end machines that enable chip manufacturers to make the chips that power our electronics and computers. And they have a newish model. So these are high NA EUV machines, extreme ultraviolet radiation machines that enable the lithography on chips. They've got some older models which are EUV machines and they also have models which help companies build lower process chips. So stuff that goes in our electronics. When you put all this, all these sales together, they can be lumpy. And that's not my word. That's the word that management of ASML uses the Dutch management team to describe how their bookings of what they record is in new sales each quarter can jump around. And we have seen ASML be so volatile over the last few quarters simply because investors were like, okay, are you going to be selling more of the high end machines next quarter or are you selling more of the mid level range? We don't understand how your business is going this quarter. Great revenue on the top line, 24% growth and an outlook that doubled what analysts were expecting for bookings. So the outlook is very nice. But management is saying, look, because it's so hard to predict this stuff, we're actually going to stop issuing this bookings guidance in the near future. But this has an implication, as you said Dylan, because there was another message there which is, look, artificial intelligence is still a driver for us so we're going to keep building the high end stuff there's still a market for. So no one has to panic today.
- [09:23]
Dylan Lewis
We're going to hear more on that theme after the break and we're going to have some more chip talk after the break, including what Microsoft and Meta's management teams have to say about the deep sea drama in the direction of AI. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with fool analyst Jason Moser and Asit Sharma. Deepseek made AI waves this week but big tech got to say their piece too. Earnings out from Microsoft, Meta and Apple. Asit, let's start out with Microsoft. They are the highest on the food chain of AI when it comes to the cloud business and their partnership with OpenAI. What did you see in the results?
- [10:05]
Asit Sharma
Results look solid to me, Dylan. Microsoft's revenue increased to almost 70 billion bucks versus this time last year. So that was a 12% increase. Diluted earnings per share only grew 10%. I'm always expecting a little bit more out of Microsoft on that EPS number, but still decent. I think the big story here was that the market looked at the growth in Microsoft's cloud business, the infrastructure business that serves up AI. This is Azure that only grew 31%. The market wanted 32%. So we saw Microsoft sell off a bit. But the big picture here, the big picture story, this is a company that's still investing a lot of cap but capex capital expenditure going into AI. It has a strong future in this business and results were, as I said before, you know, just solid what you'd expect out of Microsoft.
- [10:51]
Dylan Lewis
And I think if you're looking for some guidance from management over there, Satya Nadella saying what's happening with AI is no different than what was happening with regular compute cycles. It's always about bending the curve and then putting more points up the curve. Kind of talking about the efficiency elements we were getting to earlier with technology as that curve bends. Asit Microsoft not slowing down. That capex spend hit over 22 billion for the past quarter, nearly double where it was a year ago.
- [11:16]
Asit Sharma
Absolutely. And one thing that was very interesting in all that commentary was Microsoft is being very flexible in its hardware and its software. There was a clear message yesterday after what we saw out of Deep Seek that look, we're going to be an open platform. So as we build out all these data centers, if the best model is Deep seeks, we'll let people use that. If AMD is the better solution over intel and Nvidia or vice versa, we'll go there. We'll make sure that everyone can use the best tools because at the end of the day we want to be seen as sort of that low cost, high quality provider.
- [11:50]
Dylan Lewis
Also saw results from Meta this week and unlike some of its big tech peers, Jason not nearly as affected by the Deep SEQ news after earnings shares hitting new all time highs.
- [12:00]
Jason Moser
Yes, well I mean I think the strong continue to get stronger and Meta is one of the stronger businesses out there now. It's worth mentioning they are spending a lot in order to do all of this. I mean the AI investments, the Reality Labs investments. But the market seems perfectly happy with it for now. So we'll see how those investments bear fruit over time. But the results for the quarter were very encouraging. Revenue for the quarter was $48.4 billion. It was up 21% and that ultimately resulted in $8 and 2 cents in earnings per share. That was up 50% from a year ago. As I mentioned, they continue to spend heavily as they build out their AI capabilities and we've talked about this through the, through the last week or so with this target of somewhere in the neighborhood of 60 to 65 billion dollars in capital expenditures here just over the course, over the course of the next year to build out that AI capability. The nice thing about that for Meta though is it serves them two ways right. It gives them the opportunity to participate in the AI opportunity, chatbot stuff like that. But it also helps make their Business ultimately better as well. So I think as long as, as long as investors are on board, then there's no reason why we should continue to doubt it. I mean, this is a platform with 3.3 billion people that used at least one of their family of apps on a daily basis in December. I mean, this thing is connecting the world. You know, it just seems like steady as she goes, Meta is doing a lot of neat things. I think the big question mark for me honestly is Reality Labs. Reality Labs continues to just incinerate money. I mean, revenue there in Reality Labs for The quarter was $1.1 billion. It was basically flat. But the business lost about $5 billion versus around $4.6 billion just a year ago. So that's a big question mark, I think. Will those investments ever really pay off? It feels like the AI investments probably make a little bit more sense at this point. The Reality Labs immersive technology stuff still kind of wait and see mode.
- [14:18]
Dylan Lewis
That came up on Meta's call and Zuckerberg said that this was really going to be one of the big years for understanding the opportunity when it come to, when it came to the glasses as a category, kind of pointing to the fact that a lot of the really big breakout products in consumer tech have started to sell millions of units as they've gotten into that third generation. And I feel like that has been so far from a lot of investors minds because it is not where the cash is coming from, it's. It's where the cash is being funneled into in terms of funding the efforts. But is that something that at all plays into your outlook for the business at this point?
- [14:54]
Jason Moser
I mean, at this point? No. I mean, at some point we have to sort of recognize whether this is just throwing good money after bad and we're just not there yet. I think immersive technology, it's been a space that's developed a little bit more slowly than some may have hoped. But the beauty of this business is that they are the leader in the social media space. And I thought it was really encouraging to see that they are going to be making some efforts, try to monetize threads. Now I'm not a threads user, but there are apparently 320 million actives that do use it and Zuckerberg has the goal of getting that to a billion plus users as well over time. And so if they can pull off monetizing that, well, that's just going to provide a little bit more cash for them to continue investing in the future and seeing what works and what doesn't.
- [15:45]
Dylan Lewis
For anyone with doubts about the cloud build out and all of that capex spend. Mark Zuckerberg telling investors it's possible we'll learn otherwise at some point, but it is simply too early to say that we're over investing in this zone and that he feels like that infrastructure buildout is a strategic advantage no matter where this industry goes. Asit putting together what we've got from Meta and from Microsoft this week, are you happy to see them continuing to invest in all of that cloud infrastructure?
- [16:12]
Asit Sharma
I think I am. I think it's a game of trying to understand what the capacity needs are going to be, how much you can derive from that, what's going to be your economic profit in a few years and the realization that if you build it and they don't come, that is going to be some depreciation expense on your income statement without the revenue. So it's a delicate game. And I know they expend a lot of compute resources themselves and trying to model this stuff out. Bottom line, I agree. If I were in their shoes right now, I'd be building too. I'd be getting a little more cautious as each quarter goes by, but I'd be in build mode.
- [16:46]
Dylan Lewis
Spoken like a true accountant.
- [16:47]
Asit Sharma
Asan unfortunately, like the bean counter, I am.
- [16:51]
Dylan Lewis
All right. Last but certainly not least when it comes to market cap. Largest company in the world, Apple, also reporting this week and I think the trend of Apple's kind of ho hum results have continued. We have a lot of kind of big questions about this business. A lot of them still not really being answered.
- [17:07]
Asit Sharma
Yeah, ho hum is a great word, great term for this Dylan, because Apple had a record quarter, 123 billion odd in sales, but it only grew 4% earnings per share, also a record, but they were up only 10% year over year. Now just peeling into that services business, still going very strong for Apple, but the big driver of this company is of course the iPhone. IPhone revenue was 69 billion. Now remember just a few minutes ago I talked about Microsoft's total revenue for the quarter approaching 69, 70 billion. So here we are, one product that just shows again the massive imprint of this company on this consumer landscape. But you know, there are some puts and takes here. The iPhone in China has had a little bit of disappointing trajectory over the last few quarters. Sales were down 11% year over year. CEO Tim Cook talked about the fact that look, they had some channel inventory movement during the quarter. That's part of the reason those sales were down. But also Apple Intelligence is not yet in those Chinese iPhones. So that's another reason why the demand isn't as strong as we might like. Looking though ahead, you know, maybe they start to pick up momentum as incorporating AI on device becomes a bigger thing for Apple. Right now it hasn't had quite the uptake that I expected it might. To Apple's defense, though, they are still a very innovative company. And I will note one of the entities that came out this week with a really great analysis of that deep seq R1 model were the engineers and research scientists at Apple.
- [18:44]
Dylan Lewis
All right, Asit, Jason, don't go anywhere. And listeners stay right there too. We'll be back in just a minute with more earnings from the past week, including rundowns from Tesla and Starbucks. You're listening. It's Motley Fool Money. Welcome back to MOTLEYFUL Money. I'm Dylan Lewis joined on air by Jason Moser and Asit Sharma. And fools. It is a rare week that Tesla earnings get pushed to the second half of the show. Jason, that is just the kind of late January we're having.
- [19:23]
Jason Moser
It's a busy, busy month for sure. And Listen, I mean, Tesla's stock, it's up better than 100% over the last year. So it's been a story investors continued to support. But I wouldn't call this earnings report anything terribly special. And in the near term, I think it does. It prompts some questions regarding the autos side of the business, which is obviously the crux of the business, specifically on what profitability looks like going, going further down the road and even really the margin side as well. I mean, total Automotive revenue was down 8% from a year ago. Deliveries grew 2%. We saw operating cash flow $4.8 billion. That grew modestly from $4.44 billion a year ago. Again, going back to that margin side, I think that's a big challenge. That's a question we're going to have to continue to sort of ask in regard to this business. We've seen the automotive gross margins come down fairly significantly over the past several years as price wars have escalated somewhat. But ultimately it all brought it down to the bottom line. Non GAAP earnings per share of $2.42 for the full year. I think to me, I mean, it was encouraging to see energy generation and storage that continues to impress. They saw revenue of just over $3 billion. It was up 113% from a year ago with its highest gross profit ever. So, I mean, there are a million different ways we can go in discussing Tesla and I'm looking forward to doing that with Dylan. But. But that seems, that seems like the most important stuff right off the bat.
- [20:59]
Dylan Lewis
Yeah. Asit, we also got the benefit of looking at the full year results. They closed out their fiscal year when they were reporting this quarter revenue up 1%. That is not really a number that a lot of people are used to seeing from Tesla. Jason talked a little about the automotive segment. We see some strength when it comes to their energy business and their services business. What's jumping out to you as you look at the results?
- [21:22]
Asit Sharma
Well, I like that those two businesses combined are, is now roughly one third of the operating profit of the company. So they're growing and contributing. That 1% is so interesting because it reflects the market dynamics. So Tesla having to discount vehicles and move vehicles at quarter end to try to keep up with fierce Chinese competition and maybe more cautious buyer in the US and other parts of the globe for electric vehicles. The hybrid market is looking so attractive right now for so many consumers and investors as well. But I think one of the things that Tesla is going to really hone in on is they've lowered their cost of each vehicle. So they had a chart in this quarter's earnings, which, which they always do, showing the progression of their cost of goods sold for each vehicle is the lowest it's ever been. But they have to keep building capacity and they need demand to be there. It only helps so much if you can't keep selling at scale. So there's this very interesting dynamic where that brand is going to need to keep pushing in the marketplace for them to get back to the profitability levels they had in the past.
- [22:27]
Dylan Lewis
In typical Elon Musk fashion, we not only got what happened in the last quarter and over the last year, but we also got to look forward at what is going on with Tesla's business and some of the big hairy goals that they're going after. One of those is a more affordable model. He noted they are on track to start production in the first half of 2025. Asit, Jason was talking about some of the margin compression and the effects when it comes to their automotive segment. I have to imagine them going after more affordable models is also going to put a little bit further pressure on that.
- [22:59]
Asit Sharma
It will, but this is going to be a case of making your money on volume rather than margin and they have no choice because the Chinese in particular have shown themselves to be so adept at having pretty fun cars at a low price point. Tesla has to go there and they have been on the Shelf and off the shelf with the idea of a cheaper car for years. So I'm glad to hear that they're coming to market with that.
- [23:22]
Dylan Lewis
Musk also made mention of some other future land projects. Their unsupervised full self driving which will be coming to Austin, Texas in June, according to the CEO. And its purpose built robo taxi scheduled for volume production in 2026. These are out there in terms of ideas. Very future Y Jason, how do they factor into the Tesla story for you?
- [23:44]
Jason Moser
Well, very future indeed. And listen, I don't, I don't put anything past this guy. I think Elon Musk is an amazing entrepreneur and he obviously sets the bar very high. He doesn't have a great track record of hitting those timelines, but I think ultimately that's what investors are so enthusiastic about regarding this story is what it becomes beyond just a car company. Right, and the robo taxi, the humanoid optimus robot, I mean, all of those things put together, I mean, it's clearly participating in the AI opportunity as well. I thought it was interesting in the call. I mean, listen, talk about setting the bar high. Now in the call, Musk said there is a path and he clarified this is a very difficult path, but he sees a path where Tesla will or can be worth more than the next top five companies combined. Now just think about that for a second. We're talking about companies like Google, Microsoft, Meta, Apple, et cetera. I mean, that is a lot. And ultimately that is all due to autonomous vehicles and autonomous humanoid robots, as he put it in the call. And so that is where he's looking. And I think it's really up to investors to determine whether they actually believe that is something that will play out in the course of their lifetimes. I mean, for some of us, maybe it will. For some of us maybe it won't. But. But that's ultimately kind of is what guides his thinking today.
- [25:23]
Dylan Lewis
All right, Starbucks officially in its Brian Niccol era. The coffee chain bringing its first quarterly report public with the new CEO at the helm. And Jason, Market certainly like to report shares up about 10% this week. But I think more than anything else, for me, this report reminded me that for all the fanfare around leadership, turning a business around takes quite a bit of time.
- [25:45]
Jason Moser
It really does. And I'll be honest with you, as a shareholder of Starbucks myself, I was a little surprised at the market's reaction to this because it was a very underwhelming report. But to your point, I mean, this is new leadership and they are basically trying to turn around one of the biggest, bigger companies out there in the retail landscape. I think investors are giving Brian Nicol some rope here as he works to get things back on track. I think he was a huge upgrade from previous leadership, don't get me wrong. But it is going to take some time. He just started in September 2024. You look at the numbers, like I said, not terribly overwhelming. I mean we saw revenue of just $9.4 billion, essentially flat. We saw active Starbucks Rewards memberships at 34.6 million today. That was 34.3 million a year ago. So they're not really growing that out either. Global comp store sales declined 4%. That was driven by a 6% decline in transactions. But that was partially offset by a 3% increase in average ticket. And that ticket is what caught my attention because something he noted in the call, that they've changed sort of the philosophy of this company. They started reducing the frequency of discount driven offers and they saw this quarter 40% fewer discounted transactions from a year ago. So they are kind of going back to that pricing argument. Right? They're trying to give you a premium, premium experience, premium product and they want to demand a little bit more premium pricing. We'll see that. You know how that plays out. I mean the traffic numbers are a little concerning there, but this is Starbucks. I mean it's coffee and it's tea. So, so I, I do feel like there is, there is a lot of opportunity there. And one final point I, that I thought was just fascinating here in the call, he sees the opportunity in the US alone to double the score the store count from today. And I mean when you think about that, I mean they have over 17,000 stores in the US today. He sees the opportunity to double that. I don't know, I feel like there's an Onion article there. Dylan.
- [27:52]
Dylan Lewis
Yeah, I was going to say if you thought there was a Starbucks location close to you, just wait. Yeah, we'll get even closer. Yeah, you, you mentioned the, the moving away from discounting. I think the company is moving some of that marketing budget, budget and promotional budget over to more branding and storytelling. And that is part of Nichols approach with Back to Starbucks. He wants to revisit the original story of the company. He's also having them focus on the role that their coffeehouses play in the community. Really making sure that they get that morning timeshare right and looking to empower their baristas again to kind of delight their customers from those major priorities in his plan. Are there ones that you'd particularly like to see them make progress on soon.
- [28:36]
Jason Moser
Well, I definitely love to see them continuing to invest in the workforce, really kind of going back to the roots of what makes that company so good. Right. You go in there and it's an experience and I think a lot of people felt like it became a little bit more of sort of an assembly line experience recently, particularly with the strength in mobile and what they've been able to do with that. To me, I think another really encouraging part of what they're trying to do is they're talking about simplifying the menu. Right. I mean, they're just trying to get back to doing what they do really well. They talk about seeing basically 30% reduction in both food and beverage skus by the end of this fiscal 2025. And I think for a lot of consumers, that's been one of the problems with Star. It is a little bit confusing.
- [29:28]
Asit Sharma
Yeah. Jason, I really like what you called out because to me, Brian Niccol is doing something very similar to what he did at Chipotle, which is looking at the business fresh and saying, okay, what is the basic blocking and tackling we need to do here to get this business back on track? And it's not rocket science here. So I love looking at the brand increasing that, moving to higher value transactions. All the stuff that you pointed out, this should be really positive for shareholders. Except maybe for that vision where maybe I'm leasing out part of my backyard for a Starbucks location. Other than that, I like what he's doing so far.
- [30:03]
Jason Moser
Yeah, not rocket science, but definitely rocket fuel. And that's their competitive advantage.
- [30:08]
Dylan Lewis
Asit, you thought working from home wouldn't give you the chance to go to a coffee shop every day? Just wait, take a couple steps into your backyard and you'll have your morning brew waiting for you. All right, Bringing us home. Over on the earnings parade, it is the payments giants MasterCard and Visa. We're going to dig into the numbers for both these businesses. But I think Asa, to kick us off here, every indicator so far from the holiday season, you look at results we get from E commerce trackers, results we've gotten from retailers, and now the results we've gotten from MasterCard and Visa saying this holiday season was a very strong one for consumers and for retailers.
- [30:45]
Asit Sharma
Yeah. What's up with the global consumer? What's up with the US Consumer? They just keep chugging along despite inflation, despite people feeling very scared about the future in many instances. I mean, MasterCard is one that I looked at. Just numbers are quite Strong. So net revenue increasing 14%. They had platform growth, gross dollar volume up 12% and that all important cross border volume which often drives these companies up 20% for MasterCard. So I think these giants really benefit as people keep spending, but they're also both of them doing things to protect those moats. Mastercard's example is buying a company which specializes in cybersecurity. Why? Because they can show that their network is safer. Because they have better fraud prevention tools and that prevents the younger upstarts from taking market share because everyone who is a merchant is worried about the potential impact or fraud on their business. So I think both companies really doing what they do best in facilitating transactions and they keep acquiring just bits and pieces to make their networks stronger, more secure, more attractive to merchants.
- [31:54]
Dylan Lewis
Jason, you dug into the results from Visa. Are we seeing a similar story with what they're reporting?
- [31:59]
Jason Moser
Yeah, I think we are. I mean this is just another boring stodgy payments company that just continues to flex its massive network effect muscles. Right. I mean it's just amazing. You think about these companies, they're pushing through 15 + trillion dollars of volume on an annual basis and it was, it was a great start to the year here. $9.5 billion in net revenue, that was up 19 or I'm sorry, 10% from a year ago. Earnings per show up 14%. They saw overall payments volume up 9% from a year ago and ran $4 trillion through the network just this quarter alone. So I mean we saw strength in US with payments volume up 7%. International was up 11% asit mentioned, cross border with MasterCard. That another point of strength for Visa here, that was up 16%. And there's no reason to believe that any of this should really change in the near future. Right? I mean this is just how money is moved more and more digitally and more and more through these networks. And we have that MasterCard and Visa really control most of those toll booths.
- [33:06]
Dylan Lewis
One of the curious non earnings pieces of news this week that I wanted to dig into with Visa. They will reportedly be the partner to bring financial services to Elon Musk's X app. This is a planned peer to peer payments app using debit cards and money transfers from bank accounts planned to launch later this year. I guess we shouldn't be too, too surprised by this one Jason, because Musk has talked about wanting to make X into more than just a social media app.
- [33:33]
Jason Moser
Absolutely. And I think there is, there's far more, there's just zero risk I think for Visa here in, in trying this, right? I mean, this is something where they can try it. If it works, great. If it doesn't, okay. I mean, certainly X is in a position where they are trying to figure out how to monetize that platform and grow it. I, I don't know that. So I, speaking as a, as an individual, I mean, I, I can't imagine I would ever want to be moving money through X personally. But I think that one thing that Musk has done since he bought it, he's created a little bit more of a creator economy within it. Right. And so we're seeing people being able to monetize their usage of Twitter or X a little bit more so than ever before. And so I think for those folks, it actually could be a nice little value add. It might be an easy way to kind of deal with the platform and how they maybe make money through creating on the platform. But I guess we'll have to wait and see there.
- [34:31]
Dylan Lewis
All right, listeners, coming up next, Jason and Assit have their stocks on their radar this week. Quick break ahead of that, stay right here. You're listening to Motleyful Money. As always, people on the program program may have interest in the stocks they talk about. And the Motley fool may have formal recommendations for or against store buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Motley fool only picks products it'd personally recommend to friends like you. I'm Dylan Lewis, joined again by fool analysts Asit Sharma and Jason Moser. And we are going to jump right into stocks on our radar this week as he does every week. Our man behind the glass, Rick Engdahl is going to hit you with a question. Jason, you're up first. What are you looking at this week?
- [35:22]
Jason Moser
Yeah, taking a look at UPS ticker is ups, obviously a very big move for such a big company this week. Big sell off in the stock based on the earnings report there. It wasn't a bad core. But investing, as we know, is about the future. And they definitely made some news on that front. They're talking about some particular challenges that they're dealing with. But I think that the headline really was in regard to the cutting of the volume with their largest customer, that customer being of course, Amazon. Right. They are talking about cutting that volume and ultimately whittling that down by about 50% over the course of the next couple of years. By back half of 2026, they expect to cut that volume by 50% or more. And you know, I understand that. I mean, Amazon is their largest customer, but it's not their most profitable customer. And I think that's an important thing to note there. The margin on that business is actually dilutive to UPS's business. So they're going to try to get away from that and focus on becoming a little bit more profitable, cutting some of that business. It definitely makes sense, but it is something that will impact that top line growth at least for the foreseeable future here for the next year plus. So I definitely understand the reaction that investors had there. It's one heck of a headline losing that business. But I think zooming out, it makes a lot of sense. Large customer risk is always something to worry about and this move is meant to address that risk and ultimately tamp it down.
- [36:58]
Dylan Lewis
Rick, a question about ups.
- [37:01]
D
Just looking at the stock chart, it seems to have gone to the moon and back in the last five years. Now it's sitting where it was in 2019. Was that just an anomaly? This is supposed to be a slow and steady company and it's back where it should be now.
- [37:12]
Jason Moser
It's definitely a slow and steady company. I think it went through a little bit of a funny stretch there over the last few years with everything that went on with COVID and whatnot. But this is one that the longer you own it, the more sense it makes and that that dividend will remain reliable.
- [37:25]
Dylan Lewis
All right, Asit, what is on your radar this week?
- [37:28]
Asit Sharma
So ServiceNow symbol N O W. This is a company that supplies apps to enterprise businesses and actually helps them develop apps in house. It helps with automation, spinning up AI within big businesses. This is a company that is very expensive. It's trading at 62 times forward earnings. But it's taken a hit this week because you know when you're high priced and you miss analyst estimates just a bit, this is what happens. So subscription revenue, a very important part of this business was off by about a percent versus analyst projections stock is sold off. But a very strong company with deep relationships in the Fortune 500. If this falls further, I'm really looking to pick up some more shares. I'm a share owner of this business.
- [38:07]
Dylan Lewis
Rick, a question about ServiceNow.
- [38:10]
D
ServiceNow's stock chart. I was looking at that one too and it's a lot nicer. It goes up and to the right pretty steadily. Is this the case where the winners just keep winning?
- [38:18]
Asit Sharma
It is a winners keep winners, winners keep winning company. Thanks for tripping me up there, but yeah. So near term turbulence can equal long term value for investors who are patient.
- [38:29]
Dylan Lewis
Rick, you going with the winners this week.
- [38:31]
D
I like that chart that goes up and to the right.
- [38:34]
Dylan Lewis
Enough said. Servicenow is the winner. Jason Osit. Appreciate you bringing your stocks, Rick. Appreciate you weighing in. That's gonna do it for this week's multiple money radio show is mixed by Rick Engdahl. I'm Dylan Lewis. Thanks for listening. We'll see you next time.