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FSD’s Big Week, Abel Makes a Mark on Berkshire, and 24/7 Trading
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Foreign.
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Taxi is finally here. Motley Fool Money starts now. Everybody needs money.
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That's why they call it money.
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Are free, but you can give them to.
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The from Fool Global headquarters. This is Motley Fool Money.
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Welcome to MLY Fool Money. I'm Travis H. Joined today by Lou Whiteman and John Quast. Guys, the robo taxis with no safety driver in the vehicle are finally operating in Austin, Texas. This has been something that has been coming for arguably a decade or so from Tesla. Lou, is this a watershed moment for Tesla or just ho hum, given that it's coming in 2026 and Waymo is operating with fully driverless vehicles? Zoox has vehicles that don't even have a front seat or a steering wheel. You know, is this huge news or is this just kind of the way that things are going for everybody?
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It's a step in the process. It's not a watershed moment, but it's not insignificant. I don't think it really matters who gets there first, if you get there. Tesla has its own advantages. Just the number of cars it has out there, et cetera, et cetera. They'll do just fine if they can get there. The thing is, they have to get there. And to do that as an engineering mindset is you test, you test again, you change the parameters, you continue to build. That's what they're doing. So this is a step along the process, how close they are, when will they get there? We'll see. Look, I'm in Atlanta. I see Waymos buzzing around me all the time. So I, I know that Tesla isn't in the lead here. I don't think it matters who's in the lead. It's just, can they get there? And if this gets them a step closer, good for them.
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John, what, what do you think about this? Because the other detail, we, we don't know exactly how these operations are going. We don't get a ton of safety data either. I know that they have to report some of their safety data to the nhtsb. If I'm getting my acronyms correct, which I'm probably not, but I believe they've had eight or nine accidents with, with these vehicles, even with the safety driver, the person that's sitting in the passenger seat. Now, it appears that there's actually a vehicle following them. There's obviously remote monitors as well. So is this, is this actually something like a Waymo or is this sort of where Waymo was like four years ago?
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It's a good question. Here's the thing. Elon Musk has promised a lot more than what it just delivered this week. Talking about this is going to be much bigger in many, many cities across the United States.
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And we've seen by the end of this year too.
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Sure. Well, maybe even by the end of last year. I don't remember what it was, but yeah, this is a step in that direction, but it's still just a step. And as you point out, we're, it seems like we're still monitoring this car pretty closely. This without the safety driver. Here's the thing with Elon Musk. Take what he says very seriously, but don't necessarily take the timetable seriously. Pay attention to when and go ahead and toss that out. But what he says is very serious. So for example, he just said expect AI data centers in space in the next three years. Okay. When I hear that, I say I need to take AI data centers in space pretty seriously. But probably not within three years. In the same way these robotaxis without a safety driver. Yeah, we are promised a lot more, a lot bigger and a lot faster. But we are moving in that direction and I do take it seriously.
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John, another thing that came out this week was they partnered a little bit with Lemonade. Lemonade is going to be offering with their insurance per mile product you can ensure your Tesla, when it's operating in FSD, it's actually 50% lower than the previous cost. Is that another one of these something or nothing things that's going on? Because insurance is going to be a question for a lot of these robo taxi businesses and if, even if we look at something like Uber or Lyft, insurance is a big cost for them. So if the actual cost is 50% lower than traditional insurance, that seems like something.
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Yeah, this is a general trend out there, making devices that weren't collecting data smarter. By collecting data, Teslas are collecting tons of driving data and it just had a deal with insurance company Lemonade to tap into that. Lemonade does have a pay per mile product as you point out. And so when full self driving is activated in a Tesla, the idea is customers will pay $0.50 or 50% less insurance for those miles when it's activated. Not overall, just when that is activated, you know, and it's Lemonade is saying that Tesla is just the first company that we intend to do this with and it makes a lot of sense. If you're Lemonade, go ahead and tap into that huge Tesla audience and okay, Tesla has its own insurance, but they're not necessarily all in the same states. There are regulatory reasons for that. So Lemonade is available in some places that Tesla isn't. So this makes sense. Yeah, I think this is going to be a general trend. Cars are getting smarter and insurance needs to tap into that.
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Lou, let's stick on the supply side here because I think this is interesting. The thesis with Tesla for a long time has been this was going to be a winner take all market. You said that this was not going to be a winner take all market. As you look out three, four, five years and maybe start eyeing opportunities is autonomy. And some of these things that we're seeing from Tesla, whether it's lower insurance costs, whether it's the autonomous features, is this going to be just standard operating procedure, just like airbags and seatbelts and things like that, or is there going to be a real opportunity for automakers and technology companies in this space?
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Yes and yes. I mean I think the long history for automotive is, is that things that are premium become standard over, especially with safety. Look, there are a lot of companies right now that offer insurance companies offer big discounts for cars with advanced driver assist systems. I know like in some cases it used to be you get your teenager, you know, the beat up old car. Nowadays it's better to get a teenager a new car because the safety systems are so good your insurance is actually lower. So part of, I think what Lemonade and Tesla are doing here is marketing. I think it's a neat idea. 50% off is better than Tesla was willing to do. I'm not sure exactly.
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It's so interesting they weren't able to offer those kinds of deals.
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Well, Tesla reportedly was losing a lot of money on their insurance offering too, which I think is interesting. I mean Teslas are expensive to insure in part because of their supply chain model. Look, for now, full self driving is engaged primarily in the most straightforward, easy parts of the drive, which would suggest the least likely to have accidents. It's when things get hairy is when full self driving has to hand it off to humans. So it's probably a pretty good bet to make, but I think it is a bet. I think that the longer term future is that yes, as cars get smarter we should just see incidents go down and that should affect rates whether or not there are discounts or not. This is aggressive, this is splashy, this is kind of neat. But I think it's more marketing if and when these systems are ready for primetime. I don't think first mover advantage for Lemonade really matters here. I think State Farm, I think Geico, I think Everyone else can sort of ramp up these systems pretty quick because they're all looking at this. This isn't going to catch anyone off guard.
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The final piece of Tesla news this week was that they are getting rid of Autopilot, which did seem to kind of be confusing to some consumers. What was Autopilot? What was fsd? So that's no longer even an option. Actually, the standard options in a lot of ways are going to be less than what you can get from most other manufacturers. Some of the Lane Assist and Smart Follow features just aren't going to be standard with the Tesla, but they are going to offer the FSD for $100 a month. I'll start with you, Lou, but I want your thoughts too. John. Is this subscription model something that is going to be successful not just for Tesla, but for everyone in the industry? Because everyone is trying this. They want this to work. They like the high margins of a SaaS model. But is this the future of automobiles or is the consumer just going to reject it?
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Automakers have been thinking about this for a long time and so far it hasn't come through. I mean, what is it? Was it Mercedes who tried to charge you a subscription for. I think it was BMW or was it BMW? This is a hard thing to change consumer preference on, if anything. And this is why it's interesting, I think you point out, like Tesla's actually behind here and they're charging for stuff that others kind of include a lot of it. Like with Honda, I know it's the premium models, not every model has it, but, you know, so it's a different way. Look, it's very rare that a company stops taking $8,000 upfront in return for $100 a month. I think that's a sign of weakness. I think that's an admission that it's harder to get 8,000 bucks for stuff that, you know, others are getting from just getting, you know, spending $1,000 more on the base model. I wouldn't be surprised if there's a continued push to get whatever is cutting edge off of the standard and you pay for something. But I think that bogey's constantly going to change. And as cars will get safer just in the standard, just kind of. The consumer will push that. And so it's kind of. If I was modeling Tesla, I would have a hard time modeling huge revenue growth in that subscription because I think you're always going to have a moving target of what you can charge for and how much you can charge.
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I don't personally like It, I personally struggle with paying for satellite radio when I can get FM radio for free. But one thing I was thinking about is it's so interesting, $100 a month. Are you going to save $100 on your car insurance with 50% off from lemonade on those miles? I don't know if there's enough there to do that. And so that's just kind of an interesting pricing dynamic.
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Yeah, it maybe depends on your age. As I've gotten older, insurance has gotten so much cheaper. But yeah, the subscription model will be really fascinating to watch. Obviously, every automaker is trying to figure out how it works. I know I got a notice that our, our free subscription to the Volkswagen service where I can get remote Start and things like that is coming up and they want something like $100 a.
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Year to do that.
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I don't, I don't know if that's necessarily worth it for us, but definitely something we will be monitoring here. When we come back, we are going to talk about big changes at Berkshire Hathaway. You're listening to Motley Fool Money.
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The Civil War and Reconstruction was a.
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Pivotal era in American history when a.
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War was fought to save the Union and to free the slaves and when the work to rebuild the nation after.
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That war was over turned into a.
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Struggle to guarantee liberty and justice for all Americans. I'm Tracy and I'm Rich.
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And we want to invite you to join us as we take an in.
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Depth look at this pivotal era in American history. Look for the Civil War and reconstruction wherever you find your podcasts.
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Welcome back to Motley Fool Money. Greg Abel has officially been CEO of Berkshire Hathaway for about 23 days and he's already potentially unwinding one of Warren Buffett's biggest deals. That is Kraft Heinz. So, John, is this admission that this was a mistake, is this Abel making his mark? What are your thoughts on this?
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I think that Warren Buffett already admitted it was a mistake before he retired and was expressing that he did not like the direction that Kraft Heinz was going and splitting these companies back apart when he spent all that time and effort getting them together. I wouldn't necessarily say, though, that this is Abel trying to establish himself and make a name for himself and go his own direction. If you look at the stake that Berkshire has in Kraft Heinz, yes, it is huge. And yet it's only 2.4% of Berkshire's total stock portfolio. If he was going to make his mark, he'd do it in another company such as Coca Cola or American Express. Selling off these much more important positions. But I think he's just tidying up the portfolio from something that he recognizes maybe isn't going to deliver the returns they're looking for. And Buffett's already expressed that he's disappointed.
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Yeah, my first thought was thank goodness Berkshire is finally raising some cash, right guys? They only have what, 382 billion. I'm not sure that was enough. Kidding aside. Look, Greg Abel, he's not just doing this. He shook up management, added a corporate council, he's doing a bunch of things. I don't know what to think of this because it does seem like a no brainer. And why didn't Warren do this? I mean it makes me wonder though if all of our assumptions about just it'll be business as usual at Berkshire or this is Warren pick someone that's continuing to philosophy. Is that true or are we going to see a dramatically different portfolio here? I mean obviously this is something Warren Buffett didn't want to do or didn't do. I don't know why he would leave it to his successor if he agreed with this. That doesn't seem like his sort of thing. It could be a signal that there's more selling. Are we creating an offset for some gains or something like that. But I have real questions about what you can do with this portfolio to really, really get investors interested again to make it less business as usual. As I said, they do have almost half a trillion dollars in cash to play with. Maybe this is a sign that business as usual, the kind of steady as she goes, maybe that's not the plan here. Doubt it's going to be dramatic. I don't think they're going to be doing you know, triple day options in, in tech stocks or anything like that. I, I don't think that but maybe kind of this just fortress Berkshire that we're so used to it is just kind of plotting along. Maybe Greg Abel was picked because he didn't want to do that. Who knows?
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There'll be a lot to watch there. One of Berkshire's former big big positions, I think it was about half their portfolio was Apple. And actually we got some interesting news from, from Apple reports from Apple this week. We have know that Gemini is going to be powering Siri. We're getting some leaks about what that might look like. The generative AI bot that looks like it's going to be folding into Siri. So now you can talk to my AirPods for example, something we were I think supposed to be able to do. About a decade ago. But, Lou, is this Apple now playing kind of a strong hand with Gemini? They've got the distribution, or is this them just being late to the game?
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Charles, I'm so confused by this because it was last year. I was watching actress Bella Ramsey in an Apple TV ad, and she was at a party and she couldn't remember who it was that was coming up to her. And her phone quickly in a chatbot form, just gave her information about who she was talking to and all of that. So what? That wasn't real?
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Apparently it wasn't.
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So, look, I say that I'm not a text expert here, but I think what we're hearing that Siri's gonna become is exactly what every Apple ad and everybody else has been saying consumer AI would look like for years. I think the lesson here is to say, let's see, when they actually get here, how works this stuff really looks good on TV ads involving celebrities, It's a lot harder in real time. I mean, Travis, right now I can conversationally ask questions of my Pixel Bud, and sometimes I get good answer and sometimes I don't. With that same Gemini technology, I think that, yeah, this is trying. I mean, this feels both tired to me and Wired if they actually get it right. Because we've been just talking about this forever and let's see you do it.
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Yeah. We've talked before on this show about personalized AI and how Alphabet really does have a good hand to play when you consider its distribution and all of its products that integrate together. To me, Apple is really just piggybacking on that. It does have the consumer reach and the distribution and the products as well. And so I think it can do personalized AI. The partnership with Gemini makes sense.
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What about the AI pin? That was the other news or rumor that we got this week. It seems like everybody's trying to figure out what AI hardware looks like. And typically what happens is you have a new technology paradigm. You have the PC, you have the mobile phone, and there's a new piece of hardware that comes with that AI. If it's going to be transformative and disruptive, theoretically, you would need to have a new piece of hardware. Is something like a pin going to be successful, John? Is it going to just be earbuds? Is it going to be glasses like we see with something from Meta? Is everybody just trying to throw stuff at the wall? I'm very confused about what's going on in this space.
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Late Apple founder Steve Jobs once said, people don't know what they want until you show it to them. Maybe Apple is going to show us that we really want this. I can kind of wrap my head around the use cases a little bit, but when it comes to what I'd actually use this for in the logistics of making it work, I just don't see any AI device company out there that can get it done. You look at the defunct startups out there that have tried and have failed. I think that the Apple Vision Pro is a good example here. We have talked about VR headsets forever. I really think that Apple delivered a just beautiful product when it came to the Apple Vision Pro. And people haven't really adopted it because.
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Still, $3,500 is a lot to spend for a VR headset, to be fair.
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That is a very good point. That's a very good point. But at the same time, were people who did buy it or were their lives really enriched in the way that they thought it was going to be? I don't know that it actually delivered on the promises.
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It's great that all the engineers watch Star Trek because that's what this reminds me of, right? That little pin you hit.
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But look, that's right, that's right. I've never made that connection. That's exactly what it is.
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But wait, hold on. So this pin will have a microphone, two cameras, an onboard processor, a battery and all that, and also be flat and light enough to effortlessly, effortlessly attached to your clothes. You got that? All of these startups that John mentioned, one of the real problems was the stupid thing would keep falling off or it would be so heavy it would rip into clothes. We'll see here though. Let's get serious for a second. And as an investor, if you're an Apple, this would be my worry. The speculation here is that they are trying to rush something out ahead of whatever Johnny Eve and Johnny Ivey or whatever his name is and OpenAI are trying to get out later this year. That's just speculation. I don't know what that's going on here, but Apple has made its money on observe and iterate kind of come out not with the first thing, but with the better version. If they are switched to. We gotta be first because someone that we used to work with is gonna release something that, I mean again, the question forever is like, what's the next big thing? I don't know if this is a positive development. If, and I say if this is the direct direction they're going. It's scramble and get something out and figure it out later. That's not really the Apple winning strategy over time.
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Yeah.
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The other thing that we learned is it looks like Tim Cook is not going to be leaving that CEO role anytime soon. So is he the right person to lead them into this AI hardware paradigm? We will see when we come back. We're going to talk about potential acquisitions. You're listening to Motley Fool Money.
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Willie blew up the chicken man and Philly last night. AI is incredible.
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It can teach you how to fry.
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An egg and even write a poem.
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Pirate style, but it knows nothing about your work.
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Slackbot is different. It doesn't just know the facts. It knows your schedule. It can turn a brainstorm into a brief. And it doesn't need to be taught.
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Because Slackbot isn't just another AI.
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It's AI that knows your work as.
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Well as you do.
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Visit slack.com meetslackbot to learn more.
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Welcome back to Motley Fool Money. In this segment, we like to have a little fun and talk about some hypothetical acquisitions. So, guys, I have a few companies here and some options for acquisitions. You can throw out your ideas as well because now it looks like acquisitions are back on the table. Netflix is buying Warner Brothers Discovery. There's been some other smaller acquisitions announced recently. So let's talk about Disney, a company that did a big acquisition a few years ago, buying a bunch of Fox assets. But if these acquisitions are now possible again, what do you think they could buy? Is Paramount on the table? I want to throw out Nintendo Epic Games. John, what do you think about these potential deals?
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As far as potential IP goes, Nintendo is the cat's meow. It has just so much untapped potential, and Disney could do a lot with that. But I don't necessarily think that Disney needs more content. It has so much already that it can make into so many different things. So I'd say that Epic Games is pretty attractive from Disney's perspective. It's not really all that strong of a player. Disney in the gaming department. And that's kind of interesting as a huge entertainment business. So I think it could grow, that Epic Games could help.
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Yeah. So I mean, the obvious answer here, let's just wait a few years. When the PE firms are ready to sell Electronic Arts, isn't that the best fit? You know, I mean, that to me is what I come out to. Definitely not Paramount. Maybe a Hasbro or a Mattel for merch reasons. I think something like that, maybe. But I really think just wait a few years and see how Electronic Arts goes, and they'll probably just end up.
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Buying that the interesting thing with both Nintendo Epic Games and then Electronic Arts is it is that video game side that they have these IP assets. Disney did invest $1.5 billion, this was in 2024, in Epic Games. So there's at least a little bit of a tie there. But that does seem like an untapped opportunity as you're creating ip and then you need to monetize it in as many ways as possible. They obviously have the theme park, so it's something they could bring to a company like Nintendo. But both Nintendo and Epic Games could bring more gaming assets. Is that kind of an area where they should maybe have a little bit more focus? What do you think, Lou?
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I mean, sure. I mean, if they can get it. I, I, I don't, I mean, I, I like the strategy. I don't know how much, how desperate they feel to, to do another big deal, especially burned after the last one. So I think, I doubt they're as aggressive as you are, just kind of, you know, just kind of playing Monday morning quarterback. But it, it makes sense.
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Sure. Well, the good thing about gaming is it can go both ways. You can monetize what you already have in gaming, but you can also take some gaming assets and turn them into other things. So it just makes too much sense.
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All right, let's talk about another company that made a big deal a few years ago in buying Activision Blizzard. That is Microsoft. They have plenty of cash on the balance sheet to make some acquisitions, and there may be some deals that could make sense. OpenAI is constantly looking for funding. If that funding dries up elsewhere. Could that be an acquisition? Salesforce? Discord is still private. They've been talking about an IPO for a while. Lou, what could be interesting for Microsoft to acquire.
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I'd be very surprised to see him go after OpenAI. I think we're moving away from.
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You think that that relationship is so fractured that.
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Well, it's not just fractured. It's just I can't imagine they would think it's valued what OpenAI would want or need to make it work. I think, I think the partnership, they have the kind of arm's length and ability to look around actually serves them a lot better. Okay, Discord, maybe, but I doubt it. I do think something like a Salesforce probably makes most sense. I don't know if I'd say Salesforce, maybe a workday or something like that just to kind of add to that office. But the real answer here is could you just buy Zoom and DocuSign and put them out of their misery.
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What do you think, Jeff?
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In hindsight, Microsoft probably should have just acquired OpenAI from the get go. I think it's far too late for that. I could see discourse making a little bit of sense, although it doesn't feel like a Microsoft asset to me. Then again, LinkedIn didn't really feel like a Microsoft asset to me. Still really doesn't in my mind, Twitch.
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Doesn'T necessarily seem like an Amazon asset, but it is.
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Yeah, exactly. And there are times when companies will acquire and just kind of let them be. And I think that this could be a situation where Microsoft could acquire discord and let it be. I don't think it's going to happen. I do think we're going to see Discord IPO in 2026. I will love to take a look under the hood when it does, but that's my guess here.
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Lou mentioned earlier, Berkshire Hathaway sitting on we're getting close to half a trillion dollars worth of cash. They could buy most of the companies in the S&P 500. What makes sense I'll throw out MGM Resorts is one that I just think this is a cash flow machine. It's very cheap. I just continue to think this is overlooked by the market. But John, what are your ideas for Berkshire Hathaway to use do with some of that cash?
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In my view, Berkshire loves to bet on America like real down home, everyday America. And among publicly traded companies, I think that Berkshire might be interested in Cisco. This is not the Cisko, this is the Sysko ticker symbol. Sy yy. This is a food trucking delivery business. And you know, you look at Berkshire, it already owns pilot Flying J truck stops, maybe some, some tie in there. I think another interesting player would be United Rentals. This is the largest equipment rental company in the country. A lot of infrastructure work happening. One of the rare bipartisan agreements that we need to invest in infrastructure. And so United Rentals I think has a long tailwind and I think that Berkshire could be interested in something like that.
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Some interesting vertical integration with a company like Dairy Queen as well. What do you think, Lou?
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So you know, if this was Uncle Warren and as we said, I don't know if it's Uncle Warren anymore but you got Americana, you got Cherry Coke. What do you do? You sit down and watch a good old fashioned American movie with that. I think it's a little bit of a stretch, but what about Disney? It's about a $200 billion market cap, 230 or so.
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It's crazy they could pull that off with the cash on their balance sheet.
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Yeah. And that just feels like Americana assets kind of hasn't, hasn't done anything for a decade or so. Right. So it's not really kind, kind of out of favor. I don't think that would ever happen and I don't think as a Berkshire holder, I want it to happen. But look, if one of the, the paradox that Greg Abel is facing is, is that what can you do that moves the needle? You know, I mean, I mean maybe it is just zero day options all the way to infinity, but I think if you really want to buy something outright, why not go big and actually get into a new vertical and actually try and get something that can have growth? I have no idea. But why not buy Disney?
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Do you think Disney would benefit from not being in the public eye? Because it does seem like some of the things they've done over the past few years have been to placate investors short term while trying to sort of play the game that they need to play long term. But this does seem like a company where if you just took a multi decade view and you weren't worried about the cash flow next quarter or the net income next quarter, maybe that would actually be good for Disney.
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Well, I think you'd say that about a lot of companies. There are downsides to not being public too. But yeah, I mean in general they're the, the, the quarterly grind is tough, like it's not going to happen. But how fun would that be to have the House of Mouse in Omaha every year?
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I, I like it. I like it.
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One more final one that I've been thinking a little bit about is Spotify. Spotify has become a bit of a market darling over the past couple years. Shares a little bit, but much more highly valued than they were a few years ago. What do they do next though? That is my big question that I'm thinking about. So do you buy vertically? Integrate, Buy something like Universal Music Group? I have argued that Live Nation, so getting into ticketing, they own Ticketmaster, makes sense. Paramount. I keep coming back to Paramount because if Paramount can't buy Warner Brothers Discovery, I don't know what Paramount does besides just sell itself to somebody else. And Spotify wants to get into video. John, do any of those make sense or have you got something else in mind?
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As we said, it's all hypothetical. But I love the idea of Spotify potentially acquiring Paramount. It would take Spotify in a very new direction. It would cost a lot of money. Management would really need to have a thorough and urgent plan of attack to make sure that it paid off for shareholders. But this could really elevate Spotify to something that nobody saw coming years ago. And so I do like this idea of Spotify potentially getting Paramount.
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I'll take the other side of that trade because look, right now the issue with Paramount is it's a second tier zero pricing power streaming service in a tough environment. I don't see how the economics change of plus Music. I just don't see how that to.
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Be fair though they have 281 million premium subscribers. I don't know, could you bump that up five bucks a month and include video with that? That could be compelling.
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With a lot of costs though. I mean I still think you are saddled with assets that. I mean there's a reason that they're trying to consolidate this business. I don't know why a second tier under different. Under different ownership is going to become first tier Live Nation makes sense. I don't know why maybe you'd want that just because then you're the target and you're already a target in certain areas. The truth though is boring, right? Spotify is actually a pretty frequent acquirer of small bolt companies. They just bought an audiobook company. They seem to be just like they did with podcasts. Trying to incrementally grow audiobooks. I'll bet that the next thing will be some boring probably private audiobook extension that will make the business a lot better off than buying Paramount or buying Universal or any of these would because.
- [30:20]
B
Fair enough, you're probably right, Lou. But it does seem like a big swing even for Spotify. Would be. It would at least be a lot of fun being able to, you know, know go buy your tickets directly on Spotify to open up your Spotify app when you go to a concert. I don't.
- [30:33]
A
I think.
- [30:33]
B
I think that'd be a Cladia. But I like John's. I like John's argument for Par or for Paramount as well. All right, when we come back we are going to talk about the tokenization of stocks and the potential for 24. 7 trading. You were listening to Motley Pullman. Book I read I'm embarrassed to admit it that there's somebody in my heart land I found out you wrote the.
- [31:01]
A
Forgotten song Take my shoulders and say watch your arms. I'm a little conscious but I feel alright.
- [31:18]
B
As always people on the program make have interest in the stocks they talk about in the Motley fool may have formal recommendations for or against. So to 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 big announcements that is very related to investors this week, guys, is the NYSE potentially tokenizing stocks and getting into 247 trading. John, what do we need to know?
- [31:54]
A
Have you ever seen the videos of penguins in Antarctica? And they're all standing up there on the ice cliff and nobody wants to jump in. Then finally one of them kind of slips and then they all start jumping in. I think that's what just happened. You have all these penguins up on the cliff and I'm talking about BlackRock, I'm talking about Robin Hood, I'm talking about Coinbase and Intercontinental Exchange, the parent company here of. And the New York Stock Exchange is saying we're getting into this tokenized trading. How I think that this works is that the New York Stock Exchange would physically buy a stock and then tokenize it, issue tokens based on that. So it's asset backed. Just like a stable coin is supposedly backed with real dollars. Right. This is going to be backed by real stocks. What this does is it allows the 247 trading and it also allows just fewer restrictions. It's not going to be restricted like a stock. It can trade all over the world, potentially faster, potentially cheaper. But this is a very interesting development and I think that a lot more penguins are going to jump in the water.
- [33:00]
C
Yeah. T0 the dream, right? Instant settlement. Look on the back end. Let's separate out the back end and the front end. Okay. Because NASDAQ actually has an application into the SEC to do this and they hope to start doing this this year. They submitted that last year, mid last year on the back end. This could kind of work to bring down costs and make things cheaper. Worth noting. It's been tried before and there are real regulatory issues here. In part, there are questions about whether these become commodities and does that change insider trading law and all sorts of that. There's a lot to be worked through. It could though lead to 247 trading. If it does. Be careful what you wish for. That's not going to be a good environment for anyone. Price discovery will get a lot worse. It's a real.
- [33:54]
B
What do you mean by that, Lou? Because I look at that as maybe there's dislocations that are an opportunity for me as a long term buyer is That a potential opportunity. What do you mean by it's not going to be good for anyone?
- [34:06]
C
Well, so yeah, in theory, if you catch it first. But look, right now most of the volume on the exchanges are in the first 15 minutes and last 15 minutes of the day. Most of the day is just a wasteland without volume. Markets need volume for price discovery. We get better pricing. The more people want to buy and more people want to sell because we get a better price. If you get rid of those endpoints, there's a real question of when we will get volume and we will see a lot of price dislocation. Travis, I'll leave it up to you whether you think that you're going to be the one that captures that or some algorithm that catches it, but maybe you will.
- [34:47]
B
So the question would be if you, if you have a million shares trading per hour today and you expand the hours by, you know, by 4x by going 24. 7 or whatever the number is, do you get, still get a million per hour? Does that go down to 250,000 shares traded trading per hour and then the spreads have to go up and things like that. It actually becomes more costly, not less costly.
- [35:07]
C
Yeah, I mean, I think spreads would come up. I mean it's a real mistake to think that any professional investor wants to wants this. All a professional investor wants is to not get yelled at and go home. They do not want to be on here. This is solving a problem. It's a solution for a problem that nobody really has. I mean, yes, right now it's inconvenient if you're halfway around the world to trade stocks on New York Stock Exchange. But you know what, people do it anyway. So I'm not worried about that. Look, Charles, I'm going to make a prediction. If 247 happens, the net result is about 10 minutes of the day you'll have actual price discovery. Because what these markets will have to do is just do clearing at one time per day that will bring people to the market. So it's really, it's going to be kind of not a vast wasteland, but something of a wasteland, except for maybe 10 minutes a day. Right now we have two 15 minute period. That's not better.
- [35:58]
A
I think that we need to think about this though, beyond just stocks. And so when you think about the liquidity issue, stocks are already pretty liquid. BlackRock CEO Larry Fink says we're headed towards the tokenization of all assets. I think he's a pretty formidable authority when it comes to the direction of the financial system, basically. I mean, you look at things like real estate, those are. That's pretty illiquid. We're moving towards the tokenization of that as well as we step closer here. So I think that it, it does create some interesting things with liquidity, but it also raises some interesting questions regarding ownership. So it'll be interesting to watch this.
- [36:31]
C
Oh, boy. I can day trade my house.
- [36:35]
B
And to be clear, this is not something that's going to be happening tomorrow. This is an application. They still have a lot of regulatory hurdles. Lou mentioned that with nasdaq as well. But it certainly seems like the blockchain is going to play some sort of role in the future of trading. We like to end the show with stocks on our radar. Lou, I'm going to have you go first. What are you looking at this week, Dan?
- [36:54]
C
I'm looking at rocket lab ticker rklb and this stock has gone to the moon. You see what I did there, guys? In the past year, up 180% in 12 months. This week they disclosed a setback in their new neutron rocket. A tank ruptured during a pressure test. These things happen. It's literally rocket science. But the neutron is an important part of the bull thesis for rocket lab. And this setback is likely going to delay how soon neutron has its first flight. That's already behind schedule. They had already hoped to do it last year. I think the issue is fixable. And in the long run, I'm still excited about this company. But the longer we go without the neutron flying, the more questions they're going to be. So as a shareholder or anyone who's interested, you have to watch this closely. Please just get this stupid thing in the air so we can stop talking about about it.
- [37:41]
B
Dan, how do you feel about rockets blowing up for a rocket company? I mean, who doesn't like enormous explosions? I like how Lou said this stupid thing and then made a joke about the moon. I don't think rocket lab has put anything on the moon. Lou, this is like you're putting out a lot of marketing here, pal.
- [38:01]
C
Yeah, well, okay. To the, to the stars.
- [38:04]
A
Okay.
- [38:05]
B
All right, John, what's on your watch list this week?
- [38:07]
A
Yeah, I'm looking at elf beauty ticker symbol E L F in makeup. This is the low cost leader among the mass market brands. It's grown net sales for 27 consecutive quarters. It's taking market share in large part because of its that it is the lower priced option. Those who use cosmetics, they, they wind up trying it because it's cheaper and then if they like it, they wind up switching. So even though it's the low cost leader, the profits are still pretty good here. Now, profits are down a little bit right now, but we're going to talk about that. The stock has some catalysts. First, it just did some price increases back in October, so it's still pricing its products below competitors, but it's getting in about a 10% increase. That's going to be nice. Second, its profits have been hampered by tariffs. Look, that game changes every 10 seconds. But I think that the current reality, the future, is going to be better than the current reality over the long term. So I think those are a couple tailwinds. It's still a small player. Expects 18 to 20% growth this year. Only trades at about 4 times sales. I find that reasonable. I'm not a user, but the ladies in my house love it.
- [39:13]
B
Dan, what do you think about Elf Beauty? Yeah, I'm also not a user. I actually didn't know that Elf Beauty stood for eye, lips, face the elf there. I think that is.
- [39:23]
A
Well, you're teaching me something.
- [39:25]
B
Yeah. And I'll tell you right now, between a beauty company that continues to put up wins versus a rocket company that continues to not, I can just confidently say we're gonna put Elf Beauty on the watch list today.
- [39:40]
A
Travis.
- [39:41]
B
Sorry, Lou. You'll have to come with something a little less explosive next time. For Lou Whiteman, jonquast, Dan Boyd, behind the glass, and the entire Motley fool team, I'm Travis Hoyam. Thanks for listening to Motley Fool Money. We'll see you here tomorrow, Sam.