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hidden Gems investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoyam, joined today by Lou Whiteman and John Quast. And we have to start with the news of the day. That is the SpaceX IPO. This has been coming for a while. It's been a huge topic. Retail investors, who are, who are the people that we talk to, are going to be a huge, huge piece of this. So I want to go through kind of an overview and get all the way down to when are some of these big owners going to sell. But Lou, let's start here. For investors who are maybe new to this IPO process, who've never bought an IPO or a stock that has started their initial trading, like SpaceX is going to do today. What is an IPO and why is it important?
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So an IPO initial public offering is the process through which a private company becomes a publicly traded company. All companies have shares, private or public. But before the IPO, SpaceX shares were held by investors who had invested early on, venture capitalists, insiders, not easily traded on the open market. So what SpaceX is doing is they're selling a small sliver of themselves, some percentage of their shares, in this case, you know, I think what, under 10%? Over time, all of the shares will become tradable. This allows both retail investors, like us, non venture capitalists to get in. It also allows for big holders to get out. So it is, it's just the process of becoming more easily tradable or as we call it, public.
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Yeah, we'll get to that selling piece in just a moment. But John, why is this IPO in particular such a big deal?
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Because it's the biggest IPO of all time and it's not even close. So 2019, Saudi Aramco went public in its IPO. It raised about 25 billion. SpaceX is looking to raise 75 billion, so three times the size of the last biggest IPO. So this is absolutely enormous. And when you think about the timing here, I know we're going to get into this more. But when you look at anthropic OpenAI also looking to go public in the near future, you look at even a company we shouldn't forget about, S.K. hynix from South Korea looking to go public here in the us, already publicly traded in Korea, but publicly traded here in the US at maybe a trillion dollar valuation as well. So we have a cluster of four potentially trillion dollar companies going public at the same time. Maybe 200, 250 billion raised in IPO proceeds all at once. That's, I don't know. We haven't seen that before.
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Lou, this does seem like a unique moment and we had a little bit of this during the pandemic. There was a lot of those spacs, spac mania. That was very different companies that it seems like we have today. SpaceX is a very real company doing very real things. We, we've done shows, if you want some deep dives, we have some of those in the back catalog for Motley Fool Hidden Gems investing. And you're going to be doing some content on the Motley fool today and over the next few weeks or so about this. But this is a moment where you're going to see potentially 3 trillion dollar companies coming to public markets in 2026. The scale of that is just something we've never seen.
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Yeah, this is not what the IPO market was made for, if we're honest. And some of these things, all this talk about, well, they're bending these rules, they're changing these rules. I'm sympathetic to that, but also the rules never envision companies this size. It's important to say yes, a lot of money is coming on. There's a lot of questions and I don't think any of us really know the answer to what this will do for the market because it should pull money away from elsewhere. By the St. Lou, there is $8 trillion on the sidelines, as they call it. That's money and money markets. Not all of that is looking to get in, but there is a buffer there. I trying to do the back of the envelope. If all three go public, what we're thinking, maybe 5 to 6% of total market capitalization of the US markets. So that's a huge number, but it's not a relatively massive number. I think over time the market can handle this. But I do think that, yeah, we could be in. Even if you have no DEs to get in on this offering and just want to watch it from the sidelines between your index funds and just what it does, the pulls on other stocks, almost everybody invested in US markets is going to feel this somehow, at least in the short term.
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Yeah. John, let's be honest about what this is for a lot of investors. This is liquidity, a liquidity event. This is an exit for them. You know, I follow a lot of venture capitalists on Twitter and places like that. They're looking at this as a huge day because this is when they get the their money out. So talk to me about exactly what that means and what The IPO means if you're Elon Musk or if you're investors in SpaceX, you don't typically want to do this in a down market. You want to do it in a market like we have today where, hey, what's a trillion dollars here or there when you're talking about valuation?
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Yeah, absolutely. And I think that that is the clearest of all signals for why are potentially $4 trillion companies coming public at the same time. It's because that the getting is good and you've got to get when the getting is good. You've heard of sell high and buy low. Well, these companies and these venture capitalists who own shares of these privately held companies, they want to sell high. And this is an opportunity. The market is quite hot right now. I believe that we could even say it's overvalued right now. And I think some of our listeners just heard me say the market is going to crash. I didn't say that. I said the market is overvalued right now. This is a good time to be a seller if you want to raise some money. And that goes for the companies themselves. But as you point out, the venture capitalists. Right. I love the Warren Buffett quote. The only reason to put money into a company so you can have more money later. These venture capitalists, they want to have a way to have liquidity, get their returns on investment that they've had so far. So they need this.
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Just one thing on that liquidity in terms of how it affects the market. Because that is sort of my focus right now. What we know is, is that venture capitalists over time will be freed to do something with their shares. We don't know what they're going to do. A lot of these institutional owners, what they'll do is distribute, not sell. They will give it back to their limited partners in the form of shares and let the limited partners decide what to do with it.
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It depends on this would be who are those limited partners? Let' that a little bit because this is not just rich people. This is actually a lot of people who are listening to the show probably have some exposure through something like a
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pension fund, pension funds, endowments. Definitely rich people too. A lot of people. But yeah, no, and look, there is no one size fit all answers. There will be liquidations, there will be partial liquidations, but there will be some that say, I believe in SpaceX, I want to own these shares. So this is, and I hate to be. I know you're here for answers, but there is just no way of knowing there will definitely be an impact here, There will definitely be people seeking liquidity. That also creates new opportunities because if there's a lot of cash created, then that's money that could be buzzed spent to buy other companies. If you're selling SpaceX, there's going to be a lot of near term just movement. How it all nets out, I don't think any of us really know. I think the market can digest it over time. But look, indigestion happens even if it's short term and we could get indigest question here.
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Now this is an IPO that I don't plan on buying. So I'm just put that out of the way. Do you guys fall in the same boat?
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Yeah.
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Yes. So. But I do have exposure to this and this is something that I think we should touch on is a company like Alphabet is a big holder of SpaceX, invested $10 billion or so, what over a decade ago. At this point they have about a hundred billion dollar stake Lieu. That's money that if they sell that hundred billion dollar stake they could just turn around and pour that into artificial intelligence. We talked this week about they are raising $80 billion in equity because they don't want to take on a whole bunch of debt to do this AI build out. What do you think a publicly traded company like Alphabet is going to do with their shares of SpaceX?
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So we'll get to that in a second. The first thing though I think we should say is that as retail investors we should not take this as a signal. We always talk about we don't give individual financial advice because everyone's sit is different. Alphabet's situation is different than yours. Right. And you're going to hear it like, well, if Alphabet thinks it's worth holding, then it's worth holding for me too. And read it that way. That is the wrong answer here, but it's a great question because it's a lot of money, right? There are a lot of ways that they could hedge their economic exposure or even monetize that stake without selling. So even if we see it stay on the books, that doesn't mean they aren't finding ways to put it to work. I would assume that over time it's not core, but I would also assume they're not going to be in a hurry. They still own a huge, huge portion of ASTs, just kind of for the same reason they could monetize that at a huge gain. My guess would be that they will hold tight with it for now at least. On the surface, from what we can see, again, there are ways to monetize it or put it to work elsewhere. I guess they'd be more inclined to do some of that than they would just to sell this in the near term.
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Yeah. John, historically, what do we know about what a company like Alphabet will do with their shares?
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Yeah, I mean, it might be surprising to our listeners that Alphabet owns shares of a company, but it's actually not unusual at all with its Google ventures in the past. I think it's just called GB now. But it's invested pre IPO in companies such as Uber, Lyft and Robinhood. And when those companies went public, it didn't sell right away. Now it did afterwards sell. But Robinhood, it waited a couple of years. Uber and Lyft, it waited longer than that. It did eventually sell. But, you know, it patiently held those stakes even as they increased in value early on. And I think that that would point to probably Alphabet, if it is going to be a seller, probably wouldn't be a very quick seller here, would probably hold onto the stake. Just using history as a guide. That said, back when it held those stakes in the other companies, it wasn't looking at potential negative free cash flow like it is right now. So, I mean, there it is different circumstances this time than in the past. So take it with a grain of salt. But the historical pattern is hold.
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Yeah. The other thing that I think is interesting, especially with a lot of these tech companies, when one of these big tech companies invests in a company that could potentially disrupt them or, you know, they like, could play a big role in the market and they sell, that's usually the wrong time to sell. You know, Microsoft had a huge stake in Meta, for example, or Facebook back then. So, you know, sometimes if they just hold onto these stakes, that's the right thing to do. SpaceX, obviously different for a million different reasons, partly because it's almost a $2 trillion valuation as it goes public. When we come back, we are going to get to another publicly traded company that is not going in the right direction. That's Adobe. You're listening to Motley Fool. Hidden Gems Investing.
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Welcome back to Motley Fool. Hidden Gems Investing shares of Adobe are down over 8% in trading on Friday. That's after falling yesterday even before they announced earnings that came out after the market closed yesterday. Lou, There's a lot going on with Adobe. This is seen as one of the companies that could potentially be an AI loser and yet their numbers look fine. So what in the world is going on? Yeah.
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Down 8.5% this morning after what looks like a great earnings report to me. And this one frustrates me because I am on the camp that thinks they are not going to be wiped out by the AI software invasion. So I own this one. So not enjoying this. But look, the numbers were really solid. They were great. They beat on the top and bottom line. They raised revenue and earnings guidance for the year. They're seeing good traction with their AI products. I think AI related recurring revenue was tripled. But there is C suite turmoil and this is not a good time for that. The CEO who's been with the company since 2007, not retiring until a replacement is found. I didn't find that particularly scandalous. It's not great timing, but look, you know, this is retirement. He's earned a good gold watch. The latest news is CFO Dan Dern will report to me. It will leave. Sorry, not report to me. This is more of a sign that Dern was not going to get the job. There are internal candidates. There is a process. If I'm Dern and I am not on the short list to get the CEO job, maybe I move on again. I don't think this is red flags, but it adds to the turmoil. There are some things that we can get into it. I don't think the quarter was perfect, but I think this is just like I don't Know, it's hard to just ignore all the noise and look at the numbers, because the numbers could change. The SAS apocalypse could be right around the corner. But I just refuse to think these businesses are going to be destroyed until I actually see it in the numbers. I think absent just the natural CEO lifestyle cycle playing out, I gotta think the market would be happier today.
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Yeah, John, the odd thing looking at this is as I looked through the numbers, I didn't see any major red flags. I need to dive a little bit deeper. But you do. Look at that C Suite turnover and it has you scratching your head a little bit. The CEO leaving, like Lou said, been there forever. But the cfo, then you look at his history and where he's going. Look, Marvell going from a company that's going a stock that's going down to a stock that's going up in a hot segment of the market. Probably got a great offer. I don't know, I, I go, maybe this is just about getting a bigger paycheck elsewhere.
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Yeah, it, it is possible that Adobe was passing Dern over for the CEO role. He feels slighted and is going outside the company now. That's possible, but let's not kid ourselves here. This is a promotion in many ways. It's a better career opportunity for Dern, in my view, because as you point out, Marvell much bigger and growing faster. It just seems a way brighter outlook for the company as opposed to Adobe right now. So if I'm Dern, I think I take this as well, regardless of what's going on at Adobe, because everything looks so great at Marvell. You know, you look at this, you, you asked Travis before the show, at what point is Adobe worth buying or something like that? Because you know, it's trading at 8 times forward earnings right now. The numbers did look good and I'll concede that point. So at what point do we start to believe this? And here's the question for me, I think that the struggle to believe Adobe right now is what is the plan and who is bringing the plan? Because the CEO and the CEO fo are, are now both out. So they're not bringing the plan. And the plan that they are presenting. There might be some question marks there.
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Yeah, Lou, this gets to. We talk a lot about management. It's, it's sometimes really hard to judge management. This is where the board of directors earns their paycheck because the job of the board of directors is to set the vision for the company and then hire the people that are at the top. When you have to hire a new CEO, especially at this moment when there could potentially be disruption. You talked about the SaaS apocalypse. This almost seems like a time where you're either going to go in the wrong direction. It's like a binary outcome. If you have a company trading for eight times forward earnings, you're either going to go in the wrong direction and we're going to look back on this and go, and look, the market saw this coming a mile away or you're going to do a turnaround and it's, you know, maybe not Steve Jobs coming back to Apple, but somebody comes in with a new plan and says, hey, I have the ability now that the stock is down, now that we're kind of unloved by the market to come in and shake things up and say this is where we need to go.
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Yeah. I mean, if I could ask anything of Shantanu Narayan, the CEO, like why now? You know, you've had a good run, can't you, they, can't you stay on a little longer? Because you know, to John's point, you're right, this is a terrible time to have to be saying we don't have, you know, long term certainty. They don't have a credible plan right now because whoever, whatever they come up with, it's, is not going to be around to implement it. So they need a new CEO to just say exactly that. I do think that as you say, this is a great opportunity for someone to come in and do it. I think messaging can be improved from here. But yeah, look, they are. I mean the quarter wasn't all great. They are delaying pricing initiatives that lower their outlook for recurring revenue. They are trading growth for active users right now. Just trying. I think the, I think the idea is, the thought is, is let's make sure the foundation is great for the next person. But again, it is just a crummy time to be waiting, wait and see. We're going to get someone in here who will know what to do is not a message the market wants to hear right now. So yeah, maybe just stay on another two years or something, I don't know.
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Yeah. John, is this just one of those instances where it seems like we fall into this with something like PayPal too, where, gosh, it does look cheap, but that doesn't mean the stock's going up for a while.
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That's absolutely right. And why do stocks go up over the long term? They go up when they are able to grow their businesses and become a better profit machine. There are some legitimate question marks there. It wasn't screaming red flags, it wasn't a terrible quarter, but there are questions. And so to lose point, you know, kind of chasing user acquisition more, the CEO saying we're going to chase lifetime value with more freemium offerings, so chasing those free tier products, but you're going to have to spend to advertise to get those users there. And so little data point here. First half of fiscal 2026, sales and marketing up 15%. Revenue only up 12%. That's just a minor little thing that we need to be watching here, especially with questions about the long term vision.
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Definitely some questions, but the valuation is very compelling. So one I'm going to be digging more into when we come back. I'm going to get some thoughts on some valuations and which stocks John and Lou like you're listening to Motley Fool Hidden Gems Investing.
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welcome back to Motley Fool Hidden Gems Investing. In this segment, we like to have a little bit of fun with stocks that we follow. So I wanted to play either or neither. And I'm going to give John and Lou two stocks. I'm gonna say which one do you like better? But I do give you the option to say, you know what, I don't like either of these. So We've talked about SpaceX, but let's talk about the other Elon Musk company. Crazy that somebody's gonna be the CEO of two multi trillion, two trillion dollar companies, I guess now multi trillion and potentially be a trillionaire himself. Lou Tesla or SpaceX stock or neither. Which one do you like here?
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You know, I mean I want to be that guy here and say, I mean in six months they're going to be one company. So you don't have to choose, right? But no, I'd probably, I do think they'll merge. I don't think it's that close soon. I would probably go with SpaceX just because I do think it's the newer, fresher story without Dents My honest answer is neither though. I mean, valuation I can't really get my head around either.
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John.
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I think I would take Tesla and mostly because I see multiple ways for it to win. You just have to have a very long time horizon when it comes to Tesla, because one thing is for sure, whatever it's saying it's going to do, it will not be on time. So, you know, just take that with a grain of salt. But I mean, battery technology, I think that that is an increasing potential avenue for. I mean, I just think it's a huge area of growth in our world. Battery technology, you do look at the robotics that it's working on. Yeah, not on schedule, but very interesting work that's happening. And you do look at the Robotaxi efforts. I mean, definitely the rollout was supposed to be a billion times bigger by now, but I think it is going to happen and I do think that that is accretive to the business. So I think I see many ways for Tesla to win SpaceX, on the other hand, I'm uncertain with how much capital expenditures it's plunging into AI. The economics.
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You're not worried about Tesla's increasing? I think the 25 billion that they're putting into AI compute. That one doesn't worry you as much?
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Well, I think it's even higher with SpaceX. And then on top of that, you have rockets that you need to build that are also expensive. So, yeah, I see better economics for Tesla.
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All right, let's get to the other company that we talked about, Adobe. Another one that I'm looking at. This sort of falls into this. Is this a value or a value trap? Intuit. John, you're up first. Do you like either of those or neither?
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Well, my honest answer would be neither. I wouldn't be investing in either of these companies right now. On a personal level, however, if you did make me choose, I think I would choose Adobe over Intuit. And the reason why is that Intuit does more of its business. It does have a large enterprise customer base, but the consumer base is much larger of a percentage of the business. And, and that kind of worries me. I think that consumers are curious about other tools right now. Adobe, I think there is a little bit more stickiness with its enterprise revenue base. I do think that that is a little bit more sticky. I think that enterprises in particular are looking for a company such as Adobe to come in and help me do AI, not how do we replace Adobe with AI? So I think that Adobe has a little bit more staying power.
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Lou, I want to give you a couple numbers here. Forward priced earnings multiple for Adobe is 8. We talked about that earlier. For Intuit it's 16. But is John right that the potential for disruption of just, I don't know, sticking your, your tax information in ChatGPT, is that the disruption? I, I've never thought of paying a hundred or two hundred dollars to, for, to TurboTax to do my taxes for me essentially is all that big a deal. Like that's a pretty valuable service.
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I don't think the ta, the, the consumer tax side of it is the part that, that we're really worried about here. There's a lot of just, you know, back end, small business number flows that maybe I, I bigger risk. And I do think that sort of application where it's just, you know, kind of zero creativity, zero judgment, shall we say, is more ripe for disruption. I mean, I've already told you my bias. I own one of these. It's Adobe. Part of it is I just don't like Intuit. I think Intuit is done. You know, they've played games with the tax code to kind of. That's true. So, so, so that's just a personal bias here. But I do think of the two. If either is disrupted, it's going to be the one that is basically just a spreadsheet joc and not, not, not a creative or a human judgment type of business.
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All right, I kind of buy that argument. Guys, you're, you're talking me out of Intuit. Let's get to the home improvement side. Home Depot's Shares trade for 23 times trailing earnings, not growing all that much, just 3% a year over the past three years. Lowe's trading for 19 times earnings actually down in terms of revenue over the past three years. Lou, do you like either of these or neither?
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So Home Depot has always been the stock to own. It's always been the better of the two really good companies. Not for growth, but because they generate cash and they use that cash to buy back shares. So it is a total return story. They and to a lesser extent Lowe's, have changed focus of late. They're spending a lot of money on acquisitions, trying to build other sides of the business that is going to slow at least in the near term returns to shareholders because they have a lot of debt to pay off. I actually think if I had to buy one of these today, I would buy Lowe's. And I think it's the first time in my investing career I felt that way. I just think they are operating a little better, a little more focused, and you do get a little bit of a better deal. I look, the real striking thing to me about this is, is that everybody knows these are great businesses. For that reason, they have not fallen as much as home builders in some of these other areas with interest rates up. And with the home builder, I don't know where you even start on the home issue issues I think though, so you're not getting as good of a sale. So maybe I'm less incline to jump in right now, but these are quality businesses.
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There have been times in the past where I felt like Lowe's was clearly the better value and clearly had opportunities to improve its business.
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I totally agree. Yes.
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To have that relative outperformance. And I wouldn't say that right now. I feel like they're kind of both in the same place right now. Same outlook, more or less in that scenario. And with a higher dividend yield, I would take the historically stronger business and that's Home Depot and you know, nearly a 3% dividend yield. That's, that's pretty good compared to Lowe's, just two. But I don't think you go wrong with either company here if it's just a set and forget it kind of investment.
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It's one of those businesses that I think is, is a really good learning lesson if you just look back through their history. Because Home Depot has been the outperformer. And, and I don't know what the magic sauce is there because I go to Lowe's stores. I actually like the stores better. You know, the, the, I don't know, the lighting's a little bit brighter or something, but there's never anybody there. Maybe that's a regional thing where we are here. But you kind of see it in the numbers too. They just don't do the same that volume that, that Home Depot does. Home Depot is just always busy. There's people there buying stuff and that's what the business is all about. All right, let's go back to big tech. Microsoft trading for 23 times trailing earnings. About 20 times forward earnings estimates. Alphabet trading for 27 times trailing earnings. A year ago this was completely backwards, but Alphabet has been an absolute tear. And 27 times forward estimates. John, do you like either of these stocks or neither?
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Yeah, I love Alphabet. I think that this is just a great business all around. I mean, yeah, I wish I would have bought it a year ago, but I don't think it's a bad investment today.
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Are you worried about the money that they're putting into AI and potentially diluted, you know, 2% dilution with their $80 billion RA. You know, uncertain if there's going to be ROI on that. I think that's what the market's starting to think about.
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I mean, fair point. But of all the companies out there doing it, I think that Alphabet is the one that is going to get the roi. If other companies aren't going to, Alphabet will. And that is because of how Alphabet can monetize it throughout its entire ecosystem. And so I think that's a really important distinguisher.
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C
Yeah, if anyone's going to win, they just have so many ways to win here. That's the important thing. I mean, look, just, just to play the game, I will say Microsoft because it is a slightly better deal right now. But the truth is that investors aren't playing a game. You can buy both and in this case you're fine by. These are two excellent companies. Both have, I mean, even among the MAG7, these are the two companies that just have the most ways to win, the most irons and different fires, the most different customer bases to deal with. These are the cream of the crop and you really shouldn't choose one or the other.
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All right, let's end on this. The retail battle that I think is fascinating for investors. Walmart currently trading for over 40 times earnings. So you can get Microsoft for about half of the price to earnings multiple as Walmart Just, just kind of wild where we are with the market today against Target now even after a really nice run, still only trading for 18 times trailing earnings, 16 times forward earnings. Lou, if you've got to pick one of those, which one do you like or is it neither?
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So I own Walmart here, so I guess I can't say neither. I would say it really depends on timeframe right now. If you're talking short term, I think Target will outperform Walmart over the next six 12, maybe 18 months. A lot of that is regression to the mean in both ways. Target was really beaten down and they are actually showing signs that they have a pulse and they're not going the way of J.C. penney's. That's good. And that is causing a value re rate there. Walmart on the other hand has been on an incredible run. Not a sustainable run the way they're going. And so the stock is coming down to earth a little. I think that's probably going to continue longer term. I love the way Walmart is positioned. I still don't know what Target wants to be when they grow up. I don't know what like urgent need they fill that you can't do elsewhere, which is a tough place to be in retail. I think they have to answer that question for me. So long term I'm sticking with Walmart, but near term I would expect Target will outperform John.
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A
Yeah, I mean you look at both of these business, I don't think the growth outlook is anything to write home about for either company right now. And that is important when it comes to investing. How much can this business grow? That said, you know, when you don't have the growth, you do look at, okay, what is the margin opportunity here? And hats off to Walmart. It's doing really well on the profit margin front right now. And that is part of the reason why investors have been so excited about it. Does that keep getting better? Oh man, it's already pretty good. Target, on the other hand, has opportunities to turn around and to lose point. They show that they have a pulse. They are starting to show that maybe a little bit of this opportunity that we have to do our business better is starting to pay off. But that still has a long way to go if it is indeed the early stages of a turnaround. So I would take Target here.
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B
Of the two interesting thoughts on companies across the market, we can see that the valuations are are just wildly different depending on where you're looking at stocks today. We'll see how this plays out long term when we come back. I want Lou and John's thoughts on the latest from Apple. You're listening to Motley Fool.
- [31:36]
A
Hidden gems.
- [31:36]
B
Investing
- [31:41]
D
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- [33:07]
B
as always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Guys, I wanted to touch on wwdc. This used to be one of those huge events from Apple. They had a couple events every year that in the late aughts, early 2010s, these were some of the biggest moves for the market because this is when new products came out, when new software came out. But WWC was, I would say a little bit of a dud this year. Just not a lot happening. There's a lot of under the surface things that are going on. Siri is apparently what they promised a couple of years ago and they talked a lot about parental controls. If you're a parent, maybe this is going to be really helpful. I'm kind of excited about some of those features. But Lou, when you look at something like wwdc, is Apple just kind of moving out of the spotlight? They're not spending a bunch of money on AI. You know, it's not, there's not a really a huge AI story. But maybe from an investor standpoint that means they're not burning a bunch of cash and maybe that's okay.
- [34:23]
C
Yeah, I think they're fine on AI. We've talked about this. But using someone else's stuff and getting it out over your massive customer base, that's the way to go. That's a lot better than reinventing the wheel. But look, Apple has replaced Microsoft as the most boring big tech company. Whoever thought this company could be so boring. And I mean that as a compliment implement. The good news is this is a well protected franchise that makes Money and should be able to do that well into the foreseeable future. This is a massive, profitable business. The bad news is there's no sign that the next big thing will ever arrive. Maybe that'll change with new management. They got a product guy coming in. But it is just the expectations game is now slowly turning in Apple's favor. We are just all accepting like, all right, this is what it is. And fortunately what it is is a fantastic generator of revenue and profits.
- [35:12]
A
Yeah, I mean you, you point out the parental controls there, Travis. I mean that is not innovation. That's just a business doing business. And that's what WWDC was.
- [35:19]
B
It was just a lot of the things that they introduced I thought they had, that we had the capability of doing as parents, to be honest.
- [35:26]
A
And that's exactly right. There is no big thing here and I think it's okay. And actually as I've, as I look at where we are now, I don't think this was true of every company. But the way that Apple played this entire AI super cycle, I think it played it perfectly because to Lou's point, it's having other people do all the expensive stuff in creating the AI models. And it's like, okay, I'll pay for that and use that now, I'll integrate that into what I offer, but I'll just focus in on the hardware. And that's actually been where the money has been right now. And I think that's where the money could continue to be for Apple. There's a trend that's going to emerge. I'm calling it now, it's called local AI. This is basically I'm going to start moving some of my AI compute to where I am. And actually Apple devices are incredibly proficient at handling that because of how they're made. They're more energy efficient because of the ARM based architecture. They are the high bandwidth memory. They can get a lot done. So. So I think that Apple's going to lean into the hardware angle and that could be where the more money is made.
- [36:35]
B
Yeah. To that point they did not introduce a new Mac Studio. That's the product I'm actually waiting to get, the next generation Mac Studio because their chips were a little bit goofy in the last generation, but that has been delayed theoretically into the fall because of the massive demand that they have for chips. And you know, this AI shortage for chips is now starting to hit Apple in that way. So it is interesting where they sit. I think you're right, John. They have a very strong position with their Products. The downside is they're now behind companies like Nvidia. When you go to tsmc, who gets their chips first. Apple's no longer running the show over there, so that's starting to impact products like that. But it definitely seems like if we do more on device compute, they're sitting in a pretty good spot. We like to end the show with stocks on our radar. And we bring in Dan, Dan Boyd from behind the glass for his thoughts. Lou, you're up first. What's on your radar?
- [37:27]
C
So, Dan, this week I am going to Casey's General Stores. Ticker C A S Y. This is one of the biggest gas station chains in the Midwest, but also, oh, so much more. Dan, would it surprise you to hear that Casey's is also the fifth largest pizza chain in the US and unlike a lot of other fast casual restaurants that have taken an agenda of late, Casey's is thriving. The company beat on the top and bottom line thanks to strong gas sales and yes, pizza inside same store sales. So excluding gas were up 5.5%. Margins increased 120 basis points. They have all sorts of pricing power with their pizza either. Casey's is forecasting 8 to 10% full year EBITDA growth next year, likely to open more than 100 new locations. It also just raised its dividend by 14%. A lot to like here. Not just a pizza.
- [38:19]
B
Pizza. Dan, what do you think about gas and pizza? Well, I mean, what are we doing here, gang? Pizza from the gas station. Come on, we can do better Midwest. We can do better Southern United States. Come on, let's.
- [38:34]
C
Let's do a road trip. Let's go eat the pizza. I'm dying to try it.
- [38:38]
B
I think we should do that. We could do a show from the road. The other thing, John made this point before the show, but in a lot of places, Casey's is kind of the local place to grab a pizza if you want. If you're driving through, you know, I live in Minnesota. If you're driving through a small town in Minnesota, Casey's is the only place to stop. All right, John, what's on your list this week?
- [38:56]
A
Yeah, this week I'm highlighting a company called form factor, that is ticker symbol F O R M. About a $10 billion company. So let me set this up. Nearly every AI chip in the world passes through a probe card before it ships out. So basically, a chip can have problems and you don't want to package up broken ones. And so the probe cards basically ch check the chips for electrical problems. Most people have never heard of Form Factor, but it's actually one of the world's leading companies in making these Probe cards, doing over 800 million in trailing twelve month revenue. Here's what's really interesting to me. Its largest customer is South Korean memory giant SK Hynix at nearly 30% of revenue now. Last week Nvidia and SK Hynix signed a multi year partnership to create more memory products. And so more memory means more Probe cards. That should also mean more business for Form Factor. And I should also mention that Nvidia itself is a 10% customer for this company as well. So there are risks trades at over 25 times 2030 earnings targets according to management. So it's not cheap. But this isn't a bet on which model will win. This is a bet on that there will be more chips and that they will need to get more complex. And so that's more business for Form Factor.
- [40:09]
B
Dan, what do you think of Form Factor? Brother, I've barely understood a single word he said said in any of that. But you know what I do understand, even though I was poo pooing it just a moment ago is gas stations and delicious pizza. So I think I'm gonna go with Casey's this time around.
- [40:24]
C
Props to John with pizza.
- [40:27]
B
Props to John for bringing a new stock to my attention. So I appreciate that. But yes, I appreciate Casey's business maybe a little bit more. That's all the time we have for today. Thanks to Lou and John and Dan and behind the glass, I'm Travis. William. We'll see you here tomorrow.