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- [00:02]
A
If you thought the AI boom was ending soon, I have bad news for you. Welcome to Motley Fool Hidden Gems Investing. Welcome in everybody. My name is Travis Hoy. I'm joined today by Lou Whiteman and John Quast. And as much as I would like to move on from the artificial intelligence story, guys, we have to talk about one of the crazier weeks that I can remember during earning season. On one day we had Alphabet, Microsoft, Amazon and Meta report earnings. Not, not even just a day, within about a 20 minute span. And John, the numbers were absolutely crazy. Alphabet was kind of the one that stuck out to me. 63% growth in their cloud business and you know, all the other companies are growing at astronomical rates as well. We've Talked about the AI spend which is getting close to $1 trillion per year in capex. The growth is phenomenal. But are we at this point where it has to be that good to justify these ever larger numbers of capex spend?
- [01:12]
B
Well, I mean perhaps the most surprising development over the past week is that I am now the most bullish AI person in this room right now. But yeah, the growth is absolutely super and it is this good. Travis. I mean we can talk about the money that is actually recorded as generated revenue, right? But that doesn't tell the whole story. If you look at the remaining performance obligations, much of which are tied to their cloud businesses and much of that is related to AI spend. You look at Alphabet, Amazon and Microsoft, the rpo is at 460 billion, 364 billion and 625 billion respectively.
- [01:57]
A
So somewhere around $1.3 trillion. And just to be clear, RPO remaining performance obligations is like anthropic signs a big contract for compute that would go into rpo, is that right?
- [02:11]
B
I mean it could be anthropic, it could be anybody who's going to spend money on the cloud over a certain period of time. Right? The money that you use today, that's generating reven, but you're going to spend more tomorrow at a locked in contractual price or whatever. But these three companies over just the last three months have added $567 billion to the RPO in just the last three months. We're talking about nearly 200 billion a month in spending commitments for the cloud for the three largest cloud companies in the world. We can't comprehend a number such as that.
- [02:47]
A
Yeah, Lou, I generally agree with John. I, I mean, let's just talk, let's talk top line first. We'll get to the some of the ROI things in just A second. But it is incredible to see these companies that are the biggest companies in the world report growth numbers that you would normally associate with much smaller companies operating from much smaller revenue basis.
- [03:07]
C
Yeah, it's insane. And look, part of this RPO is not revenue. Right? We all know that. And part of this is a land grab. I better get reserve my place now because everybody wants it. A lot of it is wiggly. Right. If things change, you can adjust and maybe not spend that rpo. So it's really hard. It's one of those counter chickens before you hatch thing. You don't re, you know, you need to make that distinction. That said, I don't see any reason to believe that a good chunk of this over time isn't going to come to fruition. This is it. All of the numbers are just crazy down.
- [03:45]
A
Lou, I want to move a little bit closer to the bottom line here because the revenue numbers are crazy. You know, margins are good. If we look at operating margins for a company like Alphabet or. Yeah, Alphabet, Google Cloud, GCP, they've gone from basically 0% operating margin about three years ago to now over 30% operating margin. So you look at those results and you see, hey, you know what? They're getting more profitable. This must be a phenomenal investment. How do you think about these numbers that are being put into the ground? Because the remaining performance obligations are huge. But at the same time these are assets that could potentially. We're buying land, we're building buildings, we're signing energy contracts, maybe even buying energy assets. These are assets that have long duration life cycles and we maybe know what the next six months to maybe two years looks like. But it's really hard to predict what the next 10 years looks like. And, and that's where you start to take on debt to build these things and the calculus gets a little bit different.
- [04:49]
C
So let's be clear, it's in the name, but let's be clear anyway. Operating margin is operating expenses. Right. So it does not include capex. So yes, operating margins look fine. That's an important metric. It doesn't tell the whole story though.
- [05:02]
A
Just so we're clear, you know, it would include depreciation. I just want to, you know, we're getting into accounting world. But it would include depreciation. Yes, but not what you're building for tomorrow's capacity.
- [05:13]
C
Right, Right. And I'll be honest, Travis, I feel like I don't get it because I really struggle with the ROI part of this. I get the reason everyone's doing this. I Get the magic of AI. I get the potential. But yeah, you said it. I mean, Hyperscaler is going to spend 750 billion this year. Wall street has them going to 1 trillion in 2027. Just based on estimates right now, according to Gartner, total global enterprise software spending. So just kind of what businesses spend on all software, it's only about $1.5 trillion. So using their numbers, not mine, AI companies, they're going to have to generate $7 trillion with a T in AI revenue through 2029 to just get a really, really paltry 7% return on invested capital. So $7 trillion in combined sales by the end of the decade in a market that's a 1.5 trillion DOL, basically 7%. That's not great. Alphabet, Microsoft, Amazon, they historically have aimed for 25%. I don't know how we continue to do this. I guess token prices have to go up, like, way up, like swallow a significant portion of GDP up or we're just not going to get the payoff that we think here. I get the top line, I get the growth, I get the enthusiasm. I'm not sure I get the long term win here for these companies yet.
- [06:44]
A
All right, John, give us the bullish case here.
- [06:46]
B
Well, perhaps the bullish case was best articulated by Microsoft CEO Satya Nadella, who says we're at the beginning of one of the most consequential platform shifts that will change the entire tech stack as agents proliferate and become the dominant workload. This will drive total addressable market expansion and change the value creation equation across the entire economy. Really talking about this AI agent move and one of the big deals with AI agents is right now most of our interaction with AI is synchronous. In other words, I need to be there at the computer talking to it, making it do things. And what's going to happen with AI agents increasingly is that it's asynchronous and so it is working in the background whether or not I'm there telling it what to do. And what that does is it does increase the amount of compute that is being used. And to Satya Nadella's point, I mean, really what we're talking about here is a complete flipping upside down of the, the tech stack and also just what software we're interacting with. OpenClaw founder Peter Steinberger talks about, 80% of the computer applications are going to go away because of agentic AI. And you know, just let's, let's dig
- [08:01]
A
into that though, because I think that is It's a fascinating dynamic. Nadella's argument then is, and I think this would be the case for any of these hyperscalers. We need to build these massive compute businesses so that we can effectively destroy all the other software companies. I mean, this is why a lot of the SAS stocks are down so much, is because if Nadella is right, man, you don't want to be in any of these SaaS businesses. So is, is. Does that fundamentally need to happen for this payoff from AI to actually work out? Is that, you know, SAS kind of have that $1.5 trillion that Lou talked about has to shift over to these hyperscalers and we're, I don't know, making our own custom software constantly.
- [08:44]
B
Yeah, I think that that definitely is part of it, Travis. And I'm not saying that that is the best vision of the future or not. That's kind of irrelevant to this discussion. What we're talking about is. Yeah, what is in the minds of the CEOs as they spend so much money on AI infrastructure? What are they thinking about? They're thinking about two things. They're thinking about total addressable market expansion. The market gets bigger and, and that's a good thing. But they're also, I believe, projecting that, yeah, there's going to be a lot of value transfer from the world that we have now to the world that's going to be. And they're trying to capture that, that transfer of the value capture.
- [09:24]
A
Presumably there's got to be some sort of the pie gets bigger thing. I mean, we saw this with the, with the Internet, right. It took a long time to get to the point where we're building, you know, the shopify of the world and this kind of new ecosystem that didn't exist in the, in the 80s and 90s. Lou, I want to push on one thing that I think is confusing me a little bit with this and that is the con, the concept of being supply constrained. Because all of these companies talk about being supply constrained. We don't have enough chips, we don't have enough memory, we don't have enough energy. But supply and demand dynamics, if we go Back to Econ 101, is all about what are you charging for that thing that you're producing? And the thing that they're producing at the end of the day is tokens. So if you look at a company like, like Google Cloud, GCP, their revenue or their, their token production was up 60% quarter over quarter, but their revenue was only up 13%. So that tells me that their cost, what they're charging per token is actually going down. You just kind of laid it out that price probably needs to go up long term for these investments to pay off. So what is this supply demand dynamic? Are we just getting that much more efficient with the chips that are there? Is there? It seems like there is a pressure on token prices. Right? Like if John is right and agents are going to take over everything. We can't be at the price point where we are today if my computer is just going to run 247 doing who knows what. It seems like this is. Tokens are deflationary. But if that's the case, that's a whole different economic question.
- [11:02]
C
Yeah, and look, I don't know the answer and I don't think any of us know the answer, but I fear the answer might be that C word that has got to keep all of the CFOs for these companies up at night. Commoditization. I think the reason why token prices are going down is the intense competition among these companies to kind of get you on their stack. This is a real weird world. Travis, you were talking about it off air that if anything, a lot of the components, a lot of the inputs for these things are going up now because of scarcity. That's supply and demand, one on one. So arguably they're getting less bang for their buck from the spending they're doing, yet they are having trouble charging for it. John's right. The pie could go up. It could become, it could be that it just eats all of software. It could be that we begin to lay off 50, 75% of our employees because we're spending on that too. So all of this money is freed up. We don't have to get into whether or not that's a good version of future or not. But the other answer here, maybe it is that yes, this is right, the SAS apocalypse is going to happen, but the answer could be that it's like one of those bad movie scenes. Collectively everybody's just in a race and it ends with the huge cliff.
- [12:22]
A
Yeah, that, that's absolutely possible. John. I want to end with this because one of the dynamics with the hyperscalers in particular, Lou mentioned it, that they've got the incentive to not be disrupted and they've got cash flow. In the, you know, most recent quarter alone, $150 billion in cash flow from the big four tech companies, Alphabet, Microsoft, Amazon and Meta. They're spending a majority of that now on CapEx, likely by the end of the year, at least. Sometime in 2027 they as a group are going to be negative free cash flow. They're going to be taking on debt to pay for this capex build out. At what point would you get concerned that maybe we don't want to use all of our cash and go from this massive cash generating businesses to now debt funded businesses?
- [13:11]
B
It's a really fair question. And to your point, basically Only of the MAG7, only Nvidia and Apple are expected to generate normal free cash flow this year. The other five are expected to be down or even negative according to Goldman Sachs estimates. And it's not supposed to rebound next year. They're expecting ongoing.
- [13:31]
A
It's probably going to get worse.
- [13:31]
B
Yeah, yeah, exactly. Goldman Sachs estimating It's not until 2028 until we start to see positive traction again with the free cash flow on a collective basis. And that is really interesting to think about and that is starting to push it out into uncomfortable territory quite frankly. Right. Because you know, normally you hear these estimates from smaller companies, right. Results are bad right now, but in the back half of the year they're going to get better. Right. And it's just kind of a hand wave when it's hey, things are going to stink this year but next year will be better. That, that's a bigger hand wave. But if we're starting to hand wave to 2028, yeah, that's starting to get into uncomfortable territory and you start to question it. What is the actual economic roi?
- [14:17]
A
This is both incredibly impressive and kind of confusing for investors to follow. So we'll keep following this here. When we come back, we're going to talk about the economic impact this may be having on people's jobs and what we're spending money on. You're listening to Motley Fool Hidden Gems Investing.
- [14:35]
D
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- [15:50]
A
Welcome back to Motley Fool Hidden Gems Investing. John if we are going to have a big payoff from artificial intelligence, it seems like one of two things has to be true. Either we need to get more GDP growth. We got numbers from the first quarter, 2% growth. That's, that's okay. But I would argue that you would have to be higher than that if we're going to justify trillion plus dollars in spending on AI. The other option is you have job losses and that doesn't seem to be happening either. So when you look at the economic data, where does your head go?
- [16:21]
B
My head first goes to it could be worse. Right. So most of the European economies are growing at half the rate. Canada's growing at about 1%. So it could be worse. That said, you know, you look at where, where is the economy being propped up and it's almost entirely AI infrastructure spend. And on one hand I think it is kind of a good thing because for how long did we talk about these tech giants? You talked about $200 billion in net cash earlier in the show, right? How long did we talk about these companies just dominating and hoarding, quote unquote, their, their cash? Now it's being unleashed and leading to real economic growth. So on one hand that's pretty good. But on the other hand, you know, you do start to wonder like what all in the economy, the weaknesses, what is it masking? Because it's not going to go on forever. And what is going on right now? I mean, there are a lot of consumers that's a big part of the economy and they're, they are stretched, especially on the lower end. You look at the gas prices, that is going to really hurt the lower income spending. And honestly that's a problem that doesn't seem like it's about to get better this year. So yeah, there are questions.
- [17:25]
C
Yeah. And let's be fair, it's usually one or two sectors that are leading the way. It's very rare for everything to be up at once. So whether it's masking or normal, we should be, it's good. It's economic activity. That's what we need. I would note, though, I'm still cautious. Travis, I agree with you. It might be too early to see the AI effect. So I don't want to be dismissive of AI just because we're not seeing it yet. But look, a year ago when Liberation Day happened, a lot of smart people I listened to said it would take a year to 18 months for tariffs to really impact the economy. If so, we're only just getting there. Similarly, a lot of people are now saying, smart people, I respect that the Middle east war or the oil shock, that's going to take six months at least to really impact us. So as annoying as it is, I think the answer is it's okay for now. My gut is we are at least headed towards a technical recession, if not worse, that there is going to be a recession this year.
- [18:17]
A
You say a technical recession. What do you mean?
- [18:18]
C
Well, maybe one we don't feel, but in hindsight we're going to look at it and say, yeah, it was a recession, so a mild recession, I think that's still possible. I don't wanna be Chicken Little here, but all of these pressures are building. All we can say is, so far so good. We'll see how it ends up. And the K shape is real. We've been talking about it. People who can spend, continue to spend. Everybody makes their decisions on an individual, household level. And a lot of people are still fine spending. I do think that it's inevitable that the critical mass of people who are able to do that is going to shrink because of all these pressure, the debate, the uncertainty, the unknown how much that critical mass shrinks and whether or not it shrinks to a point where it can't hold us up anymore. Tbd. I still go back to, yeah, it's going to get worse from here, but I think hopefully we can avoid the worst of the worst.
- [19:12]
A
It's going to be very interesting to watch what happens outside of the AI boom and the AI build out, because I would argue eventually these companies have got to either flatline spending or even decrease their spending and, and get some ROI on this investment. And there's a lot of benefits for, like John said, from the economy, from all the spending that's going on right now. So we'll see what happens in the future when we come back. We're going to get Lou and John's thoughts on where the market goes from here. You're listening to Motley Fool. Hidden Gems Investing.
- [19:50]
E
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- [20:30]
A
Welcome back everybody. In this segment we like to have a little bit of fun with investing in the markets. I'm going to give an over under to Lou and John and get an idea of where they think some stocks are going, where some quantity prices are going to get a general feel for the market. Let's start with Nvidia, guys. This has been the hottest stock in the market for quite a while now, at least since the ChatGPT moment three plus years ago. Lou, the question is, is Nvidia going to be over or under a market cap of $10 trillion currently 4.8 trillion, so a little bit more than double on January 1, 2030. So you have nearly four years to get there. But is Nvidia going to be able to do it? Is this momentum going to continue or is something going to disrupt what they have going on?
- [21:24]
C
So I don't want to be bearish on Nvidia. I love this company but I do think their history has been peaks and then falls and then peaks and falls. You've given me to 2030. I'm probably going to get to be honest, it wouldn't shock me if they hit 10 trillion between now and but I do think that based on our other conversation, AI spending can't continue to go up through 2030. There's just not enough money on the planet. So I do think we will be past the peak and maybe the stock will have settled and it's going to be under 10 trillion by then. Knowing them, they'll have the next big thing, robotics or something like that and it'll be even higher than 10 trillion by 2033. But I'll take the under on that.
- [22:10]
B
John yeah, my heart wants to say over. My head wants to say under and I think I'll go with Lou here on under. But you know, I think it's still going to be higher than it is today, just not over 10 trillion by 2030. And if we were having a longer time horizon then I would feel more comfortable saying over 10 trillion. I can't believe that I'm even in a world where anything at any point over 10 trillion I'm somehow comfortable with mentally. But yeah, one of the things that we do need to look at is yes, there is some constraints when it comes to the electrification of what's going on. And so I think that that's going to come to bear at some point when it comes to the build out and how many Nvidia products are being placed. Can we power things up fast enough?
- [22:58]
A
Well, the other question, John, is is the competitive dynamic going to change? You know, if we go Back to the ChatGPT moment, everything was built on Nvidia chips and Cuda. You had a little bit of TPU stuff on inside Google, but a vast majority of the rest of the industry was building on Nvidia chips. Now you have the ecosystem starting to be built out for other chips and other components. You have a deal this week with OpenAI and Amazon and they're going to be building on bedrock. Just meaning that, you know, Amazon is going to kind of obfuscate away what the actual chip is running. Is it, is it a gpu? Is it their Trainium chips which they're investing heavily in? The customer isn't actually gonna see that because they're just gonna be interacting with aws. So does that ultimately lead to one of these potential valleys? And I also wanna give this stat, Nvidia has had negative revenue growth 4 years and almost, almost 6 years in the past 20 years. So it is a pretty regular occurrence for them to, you know, grow a ton and then shrink a little bit for a year or two. But John, how do you think about those competitive dynamics?
- [24:08]
B
I see validity on both sides of the argument. I see validity on the side that says no, Nvidia is going to continue to dominate this market and there's no real need to worry about the competition. But I also see the validity on the other side of the aisle, as when you look at a company that is commanding 56% net profit margins, there is incentive for these other companies to come in and say, I don't want to give them pure profit for their products. I would like to create my own products to replace some of those. I think that watching the custom silicon players is a good idea. So your Broadcoms, even your ARM holdings I think is a good one to watch from here. But I Don't know. I'm torn, Travis. I can see validity for both arguments.
- [24:50]
A
All right, John, I'm gonna have you go first on this one. Will Alphabet, same question, $10 trillion by 2030. Will Alphabet be over 10 trillion at that point?
- [25:00]
B
Yeah, and I'm in the exact same answer here, Travis. My heart wants to say over. My head wants to say under. I think that that's not qu. However, however, it is impressive how quickly the adoption rate for Google, Alphabet, Gemini, all of its products are really hitting this inflection point, it seems, and it's already worth nearly $5 trillion. And it feels like just now some of these things are coming to fruition. And as we mentioned here at the top, Google Cloud growing 63% in the most recent quarter. That is a real tangible inflection point. And so how much momentum does that have between now and 2030? This could be over by that time, Lou.
- [25:39]
C
I kind of feel like they're more of the slow and steady, although I'm not sure it's slow.
- [25:43]
A
So I think, yeah, it was shockingly fast in the first quarter. Search is still growing at 19.
- [25:49]
C
Right, right. So I probably, you know, I don't know, I'd probably slightly favor Nvidia long term, but I think Alphabet probably has a better chance of being at 10 trillion on January 1, 2030, just because, you know, I don't think it's, it's, it's so much a wave. I can't get there, though. I mean, I, I'm not to try, try and time the market, but we have had an unbelievable run where things have just grown at a rate that isn't normal. I do think regression to the mean at some point is going to happen. For all of our sakes, I hope it doesn't happen between 20 now and 2030. I hope they get there next year for all of our sakes. But I think I'd probably have to guess that the next five years aren't going to be as amazing as the last. And take the under.
- [26:35]
A
Yeah, and just to be clear, if you are a index investor, you own a pretty big stake in Nvidia and Alphabet, especially in the S P500. All right, let's go to a company that is not yet public, that's OpenAI. They recently raised money at an 852 billion dollar valuation. So, Lou, let's, let's have that be our over under. One, are they public by the end of this year? And two, are they over under that 852 number? When they do hit Public markets and maybe trade for a couple of weeks.
- [27:05]
C
They better be public. It's funny, I don't honestly know if they're going to be public, but I think the answer is yes, they will be because they simply just need to open up all of the access to capital that they can and public markets are part of it. Over under 800 billion is really tough. I think that they are going to struggle to sustain what they go out at unless things turn around for this business. So I will say yes, they'll be public, but they will be, say, a month after the ipo trading below the IPO price.
- [27:39]
B
John, let's quote the late great Charlie Munger here who said, never ever think about something else when you should be thinking about the power of incentives. This is a once in a lifetime opportunity for investment bankers. I really don't think that they're going to screw this up. I think that OpenAI does IPO this year. I believe that it does IPO at above its latest funding round. I'm with Lou here. I don't know if it's still trading there a month after it goes public, but I think it's definitely going public at a greater than $800 billion market cap.
- [28:19]
A
You're right. There's a lot of incentives to keep it up there. I wonder if those investment bankers are going to be tired after somehow getting SpaceX to a $2 trillion valuation when they go public. I don't know how many.
- [28:30]
B
They'll be energized.
- [28:32]
C
Yeah, I was going to say if they get that, they will have their. Yeah, they'll be watching their new yachts be built.
- [28:39]
A
Yeah, the bonuses on Wall street are going to be a little bit wild. All right, let's move to the world of energy. This is going to be maybe a little bit more economic and you know what's going on with Iran. Gasoline, I think, is the thing that we need to watch. So we talk a little bit about, you know, crude prices and things like that, but gasoline is what people actually. So, John, at the end of this year, 2026, will gasoline be over or under $5 per gallon?
- [29:06]
B
I believe it'll be over $5 a gallon. Travis, you look at what is causing it right now and it is the ongoing issue there in the Strait of Hormuz. I think that the only way that that gets resolved quickly is a much greater escalation on the part of the US and my current read on the. The President, I don't believe that's what he wants. I think that he wants this issue to be resolved with minimal intervention. And yet I don't think that that is where we're at. I think it's going to take an increase of intervention and I think that the longer we kind of hope that it goes away without greater effort, I think the longer this goes on, I think that the more the gas prices are going to go up because it just continues to compound. So I think that's where we're at, Lou.
- [29:57]
A
Currently, as we're recording, the average national gas, gas price is $4.30. Interesting. Going back to 2023 prices never actually got over $4. So if we, I want to know what you think over under $5. But also is that going to ultimately hit the economy? Because that is something people see every day. Whereas something like electricity prices going up is, you know, that's an auto withdrawal for me. I guess I'll notice it over time, but I notice it would have to pump a lot more.
- [30:27]
C
Yeah, I mean, look, we already discussed the economic thing. Yes, I think it will, you know, how much it does and what it does to the economy we'll have to see. But it's definitely going to hit. But you know, look, these things go up slowly and we are still a long way till five. John, I don't know what to think of how. I think it's probably what a three or four month lag from when oil flows normalize to when prices get back to normal. So we only need to be like by end of summer, I think to hit your bogey and under. I'm going to go under. I'm going to lean into. Actions speak louder than words. I don't know how this resolves, but I think the lack of fire between the two speaks to both parties. Would like it to end even if they're not saying it. Again, the rhetoric's going to be weird, the rhetoric is going to be nasty. But again, wars end when both sides are just tired of fighting. It feels like both sides are tired of fighting. So I'm going to hope we figure it out by August and we do have things normalized by year end.
- [31:28]
A
All right, let's end on this. I want to know about the future of SaaS stocks. John, you made the case that AI is going to replace all other software early in the show at the end of 2026. If you just take a basket of the SaaS stocks in the S&P 500. So some of the biggest software companies in the world, are they going to be up or down over under where they are today?
- [31:50]
B
As a basket, I think they're going to be down now. There will be individual companies for sure that are going to excel and thrive. I think that there's going to be some very big software companies that are going to quickly lose relevance. I forget who said it. I think it may have been Motley Fool CEO Tom Gardner who says, remember that AI is as bad as it's ever going to be right now and it's already showing itself so useful, especially with more of the database software kind of an application. And so yeah, and it's only going to get better from here and it's only going to speed up the rate of innovation. So I think that we are under today's price as a basket and I think that there are some companies that are going to do really well because they are prepared, leaning into and innovating into the future.
- [32:41]
C
So this isn't a long term call, this is just a year end call. And I want to stress that because back to the top. We have no idea what's going to happen with AI or what it's going to do. But here's what I think. I think if you just look back to Liberation Day and look back to the war and stuff, the market normalizes things that shock it very quickly, surprisingly quick. We have seen the first quarter results. I'm yet to see real signs of a SaaS apocalypse, of just things falling off a cliff. What we're seeing is maybe margin pressure and, and stuff like that. I'm going to take the under on whether or not we really see in the next few months results just kind of get blown away. And I think also investors will sort of normalize or less freak out about the SAS apocalypse. Even if it's coming. I think the basket is going to be higher. I don't know what that means long term, but I do think that this will kind of be old news and it won't have played out to the point where its thesis settled yet. So I think we're just going to kind of adjust and move on.
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Yeah, the results have not been terrible in SaaS and there's got to be some sort of value there. I'm still trying to figure out exactly where that is, but trying to do a little bit of dumpster diving recently. When we come back, we're going to get to the stocks on our radar. You're listening to Motley Fool, Hidden Gems Investing. Yeah, this one's for the workers who turn out and dead than my brain to run your pay for centuries long Pass for no more than your bread, have bled for your countries and counted your death. Hey, it's Parker Posey. How did I get here? I love improvisation when it comes to acting, but when it comes to a
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possible loss of principal.
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Alps Distributors Inc. Distributor
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as always, people on the program may have interest in the stocks they talk about, and the Motley fool may have former 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. All right, John, let's get to the other big earnings report from the week. And this is another one of the biggest companies in the world. Apple seems to do nothing wrong at this point. Their growth for the quarter 16.6% like we saw with Google Cloud. That seems crazy given how established they are in the market, but they still are hitting on all cylinders.
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Yeah, if you like growth, profits and dominance. I reckon that you would like this report from Apple. Just a lot to like. And by the way, who says that Apple isn't an AI player? The company essentially sold out of its Mac Minis and Mac Studios and it's just because consumers are buying them up to deploy their own ajax. AI systems just kind of emerged as like the preference for the general community on this whole trend. And so yeah, they're selling out a ton of products. It's great. One interesting thing to watch is on the profitability side of things, Tim Cook said that they're finding ways to mitigate the memory issue. You look at SanDisk, for example, gross margins have gone from basically 20% to 80%. That's higher than Nvidia. Tim Cook says beyond the June quarter, we believe memory costs will drive an increasing impact on our business. So they have ways to mitigate it now, but they're looking down the road and saying this could get a little bit hairy for our costs.
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John has most of the details here. The thing I want to focus on is China, where Apple has struggled and there's been real questions of is Chinese preferences just move to domestic revenue is up 28% to 20.5 billion in China, well ahead of the $18.9 billion expected. That is really good news if that's sustainable. I think the big question, always the question. Lots of promises but no real details about the future products in the pipeline. We either need to answer that question or convince Wall street to stop asking that question. But the, the, the business is solid and the business just continues to hum along.
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I have a feeling we're not going to stop asking that question, especially with John Ternus who supposedly has almost a dozen options for next products coming in. As CEO, we like to end the show with stocks on our radar. And we'll bring Dan Boyd in from behind the glass. Lou, you're up first. What's on your radar this week, Dan?
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For years Textron ticker txt has struggled to get the market's attention. Part of it arguably was Textron's fault. The company is a vast array of businesses. They make business jets, they make golf carts, they make military helicopters, they make auto parts. It makes it all hard to value. And seemingly every quarter at least one of those businesses underwhelmed. In fact, I think it was five years ago I said if they're not careful, some activists come along and say you got to break this up. Well, I was wrong. The activists never came. But Textron is finally moving to simplify its business. They announced they're going to exit all of their industrial portfolio through either spin outs or sales and become a pure play aerospace company. For context, they're shedding about 3 billion of 15 billion in total revenue. So it's small parts, but it's the parts that stand out. This will be messy for a while, but right now Textron is trading at about 10 times expected earnings. If you factor in debt, pure play peers in the aerospace business trade closer to 14. I think that Textron's remaining businesses are set up to do well. Bizjets had a great book to build. Bell Helicopter is going to replace the Blackhawk for the army. So that's a huge contract. So you have both a good set of products and a chance to re rate the company to be closer to its peers once it makes more sense. Patience has been required here, but I think that patience is about to pay off. I really think Textron is set up well here, Dan.
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Aerospace, defense and a little value. What do you think? I mean the text in Textron is meant to be textiles, but I guess not anymore. I love the Historical context there. John, what's on your radar this week?
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I'm bringing Circle Internet Group to the show. And that is ticker symbol crcl. This is perhaps the riskiest of the stocks that I've brought here on the radar segment. But I think that it is a company positioned right trend, right time. This is a stablecoin company, and so its main stable coin here is usdc. This, a stablecoin is something that's pegged to a currency. It doesn't fluctuate in value, unlike a cryptocurrency like Bitcoin. And basically the way it generates revenue is it has reserve assets that it can bear that bear interest, and it can generate revenue that way. From a circulating supply perspective, Tether's far and away the leader. From a transaction volume perspective, USDC is pulling even. So that's good. But you look at the trends in AI, particularly agentic, right now, when we do digital transactions, it's all on the front end where we're interacting. If agents take that over, it's going to be happening on the back end. That really plays into stablecoin infrastructure. This is why companies such as Visa, I think, are partnering with Circle. Very interesting. Down. Down over 60% from its high trading at 45 times free cash flow. Don't love that. But the growth is real. I think the trend is real and it's here for the radar.
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Dan, what do you think about stablecoins? He lost me at stablecoin, I'm not gonna lie. So we're gonna go text run this week. Travis. I thought it was a good case. John. Thanks, everybody for listening. That's all the time we have. We'll see you here. Tom.