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- [00:02]
A
Is there a new problem with the layoffs in tech? Motley Fool Hidden Gems Investing starts now. Welcome to Motley Cool Hidden Gems Investing. I'm Travis Hoyam, joined today by Lou Whiteman and Emily Flippen. And we are going to get to the hot topic of the day. That's the SpaceX IPO and the acquisition of Cursor that was officially announced this week. But, Emily, I wanted to start with some of the layoff news around the market, around technology companies. We had Rivian announce some layoffs. This week. We had Robinhood announce layoffs. And the other big thing is Meta's layoffs, which was, I think, 8,000 people over the past couple of weeks. Kind of a rolling layoff that they've had seems to be hitting their culture now. We're investors, and so we're looking at this from an investment standpoint. Typically, layoffs have kind of been cheered over the past few years because it's cost cutting, companies are going to be more profitable. But it seems like, especially at a company like Meta, we're starting to see the downside that, hey, if that comes at the cost of your culture and people actually wanting to work for you long term, maybe this isn't the right strategy. So how in the world should we think about some of these layoffs as they're announced?
- [01:10]
B
Well, I'm just feeling shocked that Meta is still claiming to have a culture after all of these years of the number of directions that Zuckerberg has taken that company. I'm shocked that anybody at the company still feels like there's a cohesive culture. So I understand the complaints there. But there's no doubt that layoffs, of course, reduce morale across the board. Nobody likes to see their friends, their coworkers leave the company. Nobody likes to feel like their own livelihood is threatened. But what I think is really interesting about this dynamic is that to your point, this is really only a recent development, the idea of layoffs being cheered. I mean, prior to, like, 2022, the market really didn't like layoffs. I mean, it usually meant a slower economy, less people employed. But after this pandemic, the narrative has really shifted. I think the narrative has become layoffs do stuff like lower inflation, which of course, everybody's concerned about. They also boost earnings, even temporarily, for a. And that's all coming after what many perceive to be over hiring that took place during and post pandemic throughout 2020-2021. There's actually been some research about this that I think is really interesting. And reactions do, of course, and should I mean significantly change from company to company. But on average, layoff announcements do tend to be followed by poor stock returns for the companies that announce layoffs. And I think that yes, culture has a part to do with that. Travis but it might be, interestingly enough, just that layoffs actually really produce less cost SA than a lot of people assume. So they had the moment of being like, oh, maybe we're going to see a bump in EPS next quarter, but then it's followed by months and years of bad feelings.
- [02:42]
A
It's like synergies when you make an acquisition. LOU it does seem like one of these things that's really new is, hey, we're announcing layoffs, but we're doing it from a position of strength. And that's supposed to be the kind of, it's kind of the buzzword. That was what Robinhood said this week. Hey, like we don't really want to do this, but we have a great business, a great balance sheet, lots of profits and we want to make sure that, I don't know, we're getting ahead of what could be coming down the pipeline. It seems like an odd position.
- [03:10]
C
It is. And I mean, just I'm going to state the obvious here, but I think it needs to be stated because of some of what the companies say. Layoffs happen for a reason and that reason normally isn't good. I mean, sometimes an external reason, sometimes internal, like you can make the case that right now it's happening because AI gives them cover. Maybe. So it might not be a warning sign, but there are very few CEOs out there who are going to just do layoffs for fun. If you are cutting people, it's probably because you see something, as Emily said, the reaction, the positive reaction is relatively new and it's far from universal. Just this week we've had companies doing layoffs where some it was cheered and some it wasn't. So it's not a universal thing. Here's the thing though. I mean, at the end of the day the market is always forward looking. All right, Layoffs I take as a sign that things aren't going as well in this moment as they could be. But since I'm trying to invest in the future, the question is, does this position the company for success in the future? Rivian is one we talked about earlier in the week. I mean, Rivian things are not going well today and they are doing layoffs because they need to save cash. But if they work, it could make them a better investment. So it's very nuanced we never invest on or we hardly ever invest on just the conditions today. We are always trying to take a look at the future. A CEO's job is to try to position their company to succeed in the future. Layoffs can be a part of that. So they can be a long term positive. But they certainly aren't just layoffs of stock goes up or layoffs fund, something like that. It is a sign that something isn't going to scrape.
- [04:47]
B
What always drives me insane about this narrative is when companies say that we're laying off from a position of strength. I mean what is that? If you actually look at the data for companies, the most expensive thing that a company can do is hire somebody. The resources, the time and the literal money that is spent to bring a single full time employee into the company's universe. I mean that is an expensive decision. What you're telling me when you laid off is that you made a lot of really bad decisions in the past. I care less about what that means for next quarter's earnings and much more about what it means for your ability to allocate resources effectively.
- [05:19]
A
Yeah, there always seems to be this narrative too that companies can easily pick out the top performers and the bottom performers. And you know, Lou, you probably remember Jack Welch, you know, what was it, cut the bottom 10% every year. And that's a really easy thing to say when you actually get into a company. You know, the CEO, the vice president who's making these decisions. I've been in big, big companies, as these have happened, they don't really know what an entry level person is doing and who is a phenomenal engineer and who just got put on a really bad project. So it also seems like there's a level of randomness to it. And so if you are taking away from that long term culture that you've been building. I'm going to pick on Robinhood here. But you know, Robinhood has been a phenomenal growth business over the past few years even since it started. If you start, you know, eroding that like maybe Meta has over the past few years, Lou, that seems like a poor trade off short term versus long term.
- [06:15]
C
It is. But I mean look at the end of the day, Emily's right. If you over hired in the first place, shame on you. But you probably need to do something about it. But yeah, again I, I don't think no matter how they spin it, any CEO says layoffs are a good idea. I can think of one CEO who danced on stage after doing layoffs, but it wasn't his company. So I'm not gonna even put that in there. It's a cautionary tale, but I think it's something CEOs already know, like whether it's layoffs, buyouts, anything. These survivors are maybe looking over their shoulder a little. You've lost a friend, you've lost the person you eat lunch with. There's a lot of reasons why things can go just even among the remainders, you have a net negative Companies again, and this again, if you want to signal as an investor, nobody goes through this if there isn't something else going on. And I think the best signal is that there's probably a reason if this press release came out.
- [07:12]
A
All right, let's go to one of the interesting merger and acquisition items for the week. That is Roku being acquired by Fox. Emily One of the things that was interesting as we got more news about this. I think it's fascinating that Fox is buying a tech company and I think we can debate whether this is a great move or not. But there's also other potential buyers like Netflix, who are at least sniffing around this deal. So it seems like Roku was a bit of a hot commodity despite being kind of a dud for investors for quite a while here.
- [07:43]
B
Yeah, hot commodity up until they made their decision to move to Fox. To be honest, like, I I'm probably the worst person to talk to about this because I am not lacking emotion when it comes to this company. I'm a big fan of Roku. I've been a Roku shareholder and a big believer in really what has been happening in terms of the turnaround, especially as it relates to their ad business in recent quarters. And I was incredibly shocked and disappointed to see the news that Roku was opening itself up for acquisitions here. I don't see the logic in my opinion from Roku's perspective, but I do think it's a boon to whoever in this case Fox could purchase them. Roku's business has been massively turning around as they improve their ad stack, and it seems like, in my opinion, founder and CEO Anthony Wood just wanted to free up time. That's the best guess I can get for for why he would pursue this deal. He does own 55% of the voting shares for the company. The deal has already been approved by both boards, so it seems like virtually nothing except for regulators, which I doubt will do anything, could step in to stop this deal. Again, I can't rationalize this for Roku. I mean, look, companies are still like when I saw the deal announced. I saw articles from CNBC and others that were still referring to Roku as a, quote, streaming device hardware maker. Like they don't understand the business at all. So there's been this fundamental misunderstanding from investors about what Roku is and could be for the future. Fox is getting a good deal here, in my opinion. I think Roku shareholders like myself are getting a bit of a dud deal. But you're right. Share prices coming out of the pandemic have been obviously depressed for Roku for many years now, despite the fact that its business has performed strong. And I don't understand the logic of combining with this legacy cable media business. Roku shareholders will own just under 30% of the combined company, so it won't be nominal to Fox's results. But you have to hope that Fox doesn't ruin the asset that they just purchased. Because part of the value of Roku was the fact that it was the only connected TV independent platform provider. And that will no longer be the case after this acquisition goes through.
- [09:38]
A
Somebody's going to be disappointed to find out that I disable Roku as quickly as I can when I buy a TV because I just want my Apple TV to work. But Lou.
- [09:47]
C
Yeah, I'm the other way. I have a Roku stick working on a Amazon fire TV because I love it. But look, Emily, I'm going to try it. I don't know if this will pass the Emily flipping smell test, but I will try to explain it. I don't know if I believe this, but this is my best guess, please. Well, we'll see about that. I think for the Fox side, it just kind of confirms existing narratives. It's another reminder that traditional cable and television businesses are on the decline and you need to jump onto a lifeboat that's future looking. So I do think that that sort of works from that side, for it is harder to figure on Roku, but I think it's possibly that they looked at that hardware business and I know it's not just a hardware company, but you need those boxes to get all of that ad tech goodness. So at the end of the day, you have to have those boxes out there.
- [10:32]
B
To be clear, it's not boxes, it's the actual TV itself. It's an awkward.
- [10:36]
C
Well, I know, I know. But, but, but you, but you have a lot of competition here. That's. That. That's what I mean.
- [10:41]
B
And they have more market share than the next three competitors combined. They're killing it. Their market share has only gained since the company went Public.
- [10:47]
C
They, they do. But you also have Walmart in the game. You have Alphabet Share. Right, Right. But what are they seeing that we haven't? The other thing is too is, and this is what I'm more thinking about, about how I can't switch channels the way I used to. If I want to watch two games and one's on Peacock and one's on Paramount. It's like a 10 minute process and the future stinks. Versus the way I think that they're beginning to solve this is, is that I have YouTube TV and YouTube TV is now integrating Peacock into that and they're beginning to integrate ESPN and all of these things in it. I think we are getting back to the future kind of where imagine just turning on your screen and you just have basically go to the channel. You, you're living inside maybe the YouTube ecosystem. I think there's a lot of ways where the future doesn't look better for Roku between these big pocketed other systems and just kind of bypassing it all together. I think maybe that's what they're seeing, but otherwise I don't have a clue. This is just kind of I'm dreamcasting the future I'd like to see.
- [11:51]
A
I think it seems like everybody involved here does need to bring scale to the market. Whether you're Fox looking at advertising and competing at companies like Amazon now or whether you're Roku going, hey, we've got a, we've got a nice advertising business. It's growing, but it is absolutely nothing compared to all these other platforms. And that's something that advertisers think about. When we come back, we are going to get to the big news of the week that comes from SpaceX. Once again, you're listening to Motley Fool Hidden Gems Investing.
- [12:20]
D
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- [12:44]
A
Bettertakeaction.org welcome back to Motley Fool Hidden Gems investing. We know SpaceX, the newly public company that is controlled by Elon Musk as a space company. But this week they finalized an agreement that is going to make it more of what it actually is, which is an AI company.
- [13:02]
C
Lou.
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A
They are buying Cursor for $60 billion. This is a deal that was kind of pre announced before the ipo, but we actually got the details and it's interesting that this is a huge acquisition, really finalized less than a week after going public.
- [13:15]
C
Yeah, so as you say, it was finalized before, basically, but they didn't want to have to go back and rip up the S1 and slow the process. So this is just them doing what they want to do, whether or not it work. Look, I read the S1 and I still don't really know what the SpaceX AI business is. Can I admit that maybe I have reading problems? But it basically, it does seem like
- [13:38]
A
one of those things where it can be whatever you want it to be as an investor, which is everything. Yeah, it's a NEO cloud, it's a
- [13:44]
C
model maker, and let's be honest, you know, I mean, that is the only way you get a total addressable market basically equal to US GDP is to make it everything. But I do think at some point they are going to have to narrow down exactly what they want to do with AI. I don't think the bull case is GROK is going to just whoop Claude. I'm not even sure they're even trying with Grok anymore, if I'm honest with you. The way, I mean, they're farming out data centers, things like that. The way I see it though, Musk kind of has a blank canvas with AI here and he's got a big checkbook in which to spend. So the idea now is to find a way to build value with AI and justify the valuation cursor feels like a step in that direction. I think if anything, looking at I would expect it not to be the only step or the first step, I think they'll probably do more of this. Look, it's really hard to look at this business because the way we're looking at the AI business from Xai that we saw six months a year ago, but I think what will actually emerge, either good or bad, is something very different that is still just kind of now coming into focus internally and we don't have a clue what it looks like external.
- [14:57]
B
I think that's fair. Lou and I agree. I mean, $60 billion, it's so much money. I don't want to say that it's not. SpaceX only raised around $85 billion through its public offering for contact, so it's not nothing, but it is just a drop in the bucket when we're talking about the valuation that is being attached to both Xai and SpaceX itself. Given the fact that it has a market cap north of two and a half trillion dollars. So it really doesn't actually move. The acquisition itself doesn't move the needle much for the company.
- [15:25]
A
But.
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B
But this, you only get to 2 and a half trillion dollar valuation by selling a story, by selling potential. And that potential for AI includes things like data centers and space, which I've had way more conversations in the past two weeks of my life about data centers in space than I ever expected to if you had asked me it just a handful of years ago. But that is what's driving the perception of value. And while I recognize that XAI looks bad today, right, and it looks, it's lagging behind financially, looks challenged, but I love to play devil's advocate, I can't help myself here. It's hard with SpaceX sometimes and it's valuation. But I do think the biggest mistake investors make with this company and AI in general is that presuming that what is true today will be true tomorrow. And a year ago, Grok's chatbot market share was less than 2%. Today it's nearly 20%. If you look at Google, it launched a bard and it was ridiculed for that. And then that has evolved into Gemini, which in my opinion is excellent. So same with Microsoft, and it's OpenAI bet, right? They struggle with Copilot, but now GitHub Copilot's dominating. So the industry is moving fast. We shouldn't extrapolate what exists today as if that's always going to be the case for the future. But I do think to your point, Lou, they're using these resources to try to build the future AI business that is needed to justify today's price.
- [16:38]
A
Emily, just a little pushback on that because it does seem like the Grok app and sort of using that the way that you would use something like Gemini or Claude is maybe not exactly the same. I assume a lot of that usage that you're talking about is people in Twitter going, hey, Grok, is this true? Or you know, answer this question for me. And it's always funny when you see a popular thread, there's like 15 questions for Grok in that thread. So I assume that's a lot of that usage. But that isn't necessarily monetizable in the same way that it would be for, you know, paying a subscription fee for Claude or something like that. So it doesn't seem like that's part of the challenge here is what are they actually? What's the actual use cases? When are people actually going to pay for it. At least cursor brings something in house that is a growing business. Whether or not that has a mode around it with Grok now, you know, kind of in house is maybe a bigger question, but is that at least part of the theory?
- [17:34]
B
Yeah, I was really hoping you just wouldn't push back on me there, Travis. Just take, just take my market share data at face value and let's move on. No, you're, you're certainly right that as Grok has been rolled out, it's been rolled out in avenues for accessibility that are not directly being monetized right now. Twitter is a big one. Sorry, excuse me. As well as obviously and Tesla vehicles themselves. Now, there's always opportunity to put in subscription fees, that sort of thing. But I do think the opportunity with AI, I mean, it's not monetizable, it's not a unique Grok problem. It's a challenge that all of these chat bots are experiencing. And I think ultimately it comes down to the idea that you're never going to get from the consumer market, which you could get from the enterprise market. So I think it becomes less how do I get a user on X to pay for this and more, how do I get this to where the real money is, is with the enterprises that are driving the vast majority of AI usage. So it is a challenge. Cursor is certainly a step in the right direction.
- [18:23]
A
Lou, does this at least give some relevance to the enterprise addressable market that they talked about?
- [18:29]
C
Enterprise is what it is. What is their enterprise business though? I still don't know.
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A
Seems like it's cursor.
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C
Is it?
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B
I guess.
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C
Is that worth $27 trillion?
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We'll see the market that thinks it does.
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C
Right now.
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A
When we come back, we're going to play a World cup style game with investing. You're listening to Motley Fool Hidden Gems Investing.
- [18:53]
C
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- [19:20]
A
Learn more@schwab.com trading welcome back to Motley Fool Hidden Gems Investing. We like to have a little bit of fun with investing in this segment and we're going to play a World cup style game where we're going to have companies from around the world battle to see who is the ultimate champion. We've got a group of South American companies, European companies, Asian companies and companies from the Americas. Lou, you have the first group from South America and we have Petrobras versus Mercado Libre. Who takes the championship there?
- [19:50]
C
So this reminds me of an actual game we saw played in this World Cup. This is Morocco versus Brazil where one of them is just the established titan and one of them is the plucky upstart. And they ended up playing to a draw. But we won't do that here. The Petrobras is the, is South America's largest energy company. They are kind of the old school, the classic titan. Mercado Libre didn't even exist when Petrobras was at its heyday, which you can say about the Brazilian soccer team these days too, I think. But it is the new up and comer and I think Mercado Libre is the winner. Here they are emerging as South America's champion. You know, who knows what's going to go on with them with their lending business. It is, if nothing else, I think a speed bump. It's hard to do lending, especially at first. You need to adjust. But Petrovas, I don't think they can. Hopefully we're getting back to normal in the Middle east and I don't think maybe their momentum is going to carry. So I'm going to go with Mercado Libre.
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A
Emily, you are looking at Europe. We have ASML from the Netherlands versus Spotify.
- [20:56]
B
And I think both of these companies are probably upset they're going against each other in the first round here because I think they'd both rather go against the state controlled oil giant. They're both incredible monsters in this bracket. I mean, I mean ASML obviously the largest between the two. Market cap north of $700 billion. And that's all because they have effectively a monopoly on EUV lithography, which is the only tool right now that can make the leading edge AI chips that are needed to drive. I don't know everything that we're seeing in the market today. It's really hard to go up against asml, but I think Spotify is holding its own in this matchup. I mean, it's a beloved consumer story. It's a company that I think has a little bit of the underdog effect. Everybody said the gross margins will never get north of 30% because of the way that they have their contract and license set up with record labels. And that's true for part of their business. But Spotify said, you know, hold my World cup beer here because there's so many different ways that we can pivot with the average consumer to monetize them more deeply. And I am, unfortunately, or fortunately, depending on which side of the site you're on, one of those consumers that is now paying extra on top of my Spotify membership every month to access things like audiobooks. And while I do love Spotify and I think that it's underappreciated, I mean, how do you beat asml? I recognize they're getting a lot of the near term benefit here as they sell these EUV machines, but the world that we're seeing today cannot operate without it. And I think that level of market dominance is just hard to compete with. I have to give the edge to asml, but let's say it's a close match.
- [22:25]
A
I swear, you must have had Spotify leading this entire match and then coming from behind from asml, because with that argument, I thought Spotify was going to come out ahead.
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C
All right, I'm going to say let's be honest though. Sweden and Netherlands, that's a good match too. I'd pay to watch that one.
- [22:40]
A
I like it. All right, Emily, I'm going to stick with you. Let's turn our attention to Asia. Samsung vs Tencent, another really close match in my book.
- [22:51]
B
I mean, Samsung, obviously based out of South Korea, they're the cheap giant here. They're in the global top 10, or at least we're in the global top 10 in terms of market cap size. And a lot of that's being driven by the memory shortage that we're seeing right now. That's driving prices up significantly. They're still chasing market share from the South Korean company Hynix and hide bandwidth memory. Hynix does hold the majority market share there, but it is incredible how much the operating profit has grown. I mean, last quarter I think it grew something like north of 700% again, all driven by the same things that's driving ASML up today. But Tencent is not to be underappreciated. I think it's a really quality business. This Chinese business owns WeChat. Weishin has billions and I mean that's billions with a B of monthly users and revenue that is still managing to grow in the double digits. I come down to low, like, what can the market not operate without? And while I do think that Samsung is absurdly cheap, it's mining cash. But I also think it's a really cyclical business most. I mean, virtually north of 90%. All of the profits here drive on this one commodity on memory. And I think the moat that Tencent has built with its everything app, how integral it is to life in China and has been for years now, is, is kind of the one that advances in my book.
- [24:10]
A
This is exactly like the World cup because all of these companies, I know them as stocks, but I have never used any of their products. I've never bought an ASML machine, I have never shopped with Mercado Libre. I've never used a 10 cent product. This is just like watching the World cup and going, oh my gosh, these players from Brazil are amazing. Or the Netherlands, who I, you know, never see on my tv.
- [24:32]
B
Well, hearing you say that makes you feel like, gosh, maybe Samsung should have won because you couldn't include Samsung in that.
- [24:38]
A
I at least know them. Okay, well, these two companies, I have used their products. Lou, you have the America's Alphabet versus Nvidia.
- [24:46]
C
So quick, shout out first to our colleague Jim Gillies and acknowledge that, yes, we could have put Enbridge, Brookfield, even TD Bank. There's a lot of good companies in Canada, but yes, we are going with two American company U.S. companies here. It's in North America. And what a matchup, right? This is like France versus Portugal. France, probably the deepest team in the tournament, just all over the place. They can hit you from everywhere. Versus Portugal, who's best known right now for that one shining star Ronaldo, but actually has a lot more depth than we give it credit for. That's kind of what I see with Nvidia. Both of them have held trophies up. They're both really, really great companies. At the end of the day though, France usually wins this matchup because they're up because of their depth, because of their ways to win. And Alphabet, I just, I mean, we've been joking about this, but Alphabet is the cheat code for everything investing right now. You want autonomous, how about Alphabet? You want AI? Well, there's Alphabet. Even chip making. Hey, you ever think of Alphabet? Internet search, maybe even programmatic advertising, who knows? Get back to that in one day. But so Alphabet's going to win here in one of these all time classics. Our grandparents will be talking about what a wonderful matchup that was and dreaming back to that day when they took the field against each other.
- [25:58]
A
I like how my easy button in AI has caught on with you, Lou. So I still think that is the easy button in AI. All right, we have now Mercado Libre versus ASML to go to the final. Emily, I'm going to start with you. Which one of these companies is going to win? And then I'll, I'll be the tiebreaker if we need one. Yeah.
- [26:19]
B
This comes down to. Yeah. Who is, who is the judge standing on the sideline here and how are they making these calls? Because this is a, a really formidable matchup. And if I'm the judge on the sideline and closely examining, I don't know too much about soccer or football as I should say, you know, but judging whether or not there's been any out of bounds plays, any penalty kicks here, I will say I think Mercado Libre does quietly as the underdog, maybe pull ahead here. And that's because the same challenge that I think Samsung has, ASML has, it can be a bit of a cyclical business. They're selling EUV machines that are worth hundreds of millions of dollars. There's large purchase contracts. While they've done an incredible job of maintaining that that can lead to a bit of lack of predictability, cyclicality. There's also the issue that a lot of these rest that the U.S. government and foreign countries have put on China has forced innovation within China itself. So they're in the process of trying to develop a competitor to asml. Whereas Mercado Libre has proven time and time again there is no second in command. There can be no second in command. I go back to when SEA Limited tried to expand the Shopee out app across South America and failed miserably. No offense, C limited but Mercado Libre is turning this like flywheel effect from its E commerce business into a financial powerhouse. And Lou is right that there's risk associated with that financing business. And I think it's one worth watching carefully. But the reason why that financing business is so important is because they're effectively working as a pseudo government agency in the countries in which they operate operate providing banking services where nobody else is. And they're doing so in really volatile times while also still growing their operating profit at record rates. So it is just such a high quality fintech business today that I think they score.
- [27:57]
C
This is the classic, like the young athletic team that might make some mistakes, but they can run all over the field versus just a strong fundamental team solid in defense, not going to make a lot of errors. Mercado Libre looks flashy at times and I think, you know, we're wondering but can they keep it going? At the end of the day I think they do. And I think the cyclicality to kind of make it a business thing instead of just soccer. Emily's spot on there that ASML just with the cyclicality, Mercado Libre is going to make more mistakes. They probably give up an own goal somewhere, but at the end of the day, they are the winner over 90 minutes, which is a long time, if you've ever tried to run around that long.
- [28:34]
A
To bring some analytics to this discussion, I think it's fascinating to look at asml. I think this David Gardner called it one of those companies that passes the snap test. If they disappear, a lot of the world changes very, very quickly. But they've only grown revenue at a 12.6% compound annual growth rate over the past five years. You look at Mercado Libre, that growth rate is 35.1%. So Mercado Libre is the growth story. So I'm not surprised that it wins this battle. Okay, Lou, you're up first. We have 10 seconds versus Alphabet. Who do you have winning that one?
- [29:06]
C
This is a classic, too. I mean, I, to me, though, again, I just, I. I hate rooting for France in these tournaments because it is so boring. But at the end of the day, you know, France is going to look real good. And the other day against Senegal, they just looked so good. And Alphabet, I almost hate rooting for them here. And I almost, like, it's the boring choice, but boring wins for me. Alphabet is just again, exposed to so many areas where we look like we're in the early stages of really interesting growth. They only need to some of the things, right, the depth they have on their bench, their. Their just ability, if one thing isn't working, to lean into another. Tencent is a great company, but Alphabet, I think they win here.
- [29:46]
B
I will say it doesn't seem like we're going to need your tie breaking here, Travis. I mean, it's. It's kind of an unfair matchup because, you know, Tencent, like I said, it's a quality company, pretty well diversified, but they're. They're kind of isolating their own AI losses here across a really profitable legacy business. And when I compare the environment in China versus the United States almost, we've seen so much incredible innovation and AI come out of China. I do not want to discount that. There are also more rules and regulations for the companies that are trying to develop models in that country than there are here in the United States. Despite all the concerns we've had around the lack of access to, you know, mythos and anthropics models, of course. But I do think in this Case Alphabet pulls ahead. I mean, their, their pitch is kind of the opposite of a lot of these chip makers, right? They make money from search, but also chips and Cloud and YouTube and Gemini. And it's, it's the everything AI company. But even when you strip AI out from alpha Alphabet, it's not, it's not like the thesis breaks down. It's not like the company ceases to exist. And that's not to say that I think there isn't risk with Alphabet. I certainly think there is. But between these two, I just. It's hard to see a world. Oh, I should really knock on wood. But I'm gonna say it. It's hard to see a world where Alphabet does not outperform Tencent. And that alone, I think, gives me Alphabet's bet.
- [30:56]
A
It's wild that we can have this discussion about Alphabet. And I don't think either of you have mentioned YouTube, just an absolutely massive business, bigger than Netflix, and yet it's just kind of an afterthought when you, when Alphabet. So I agree this is just one of the best companies in the world, and not surprised that it won. A nice matchup. Okay. We now have for the championship, Alphabet versus Mercado Libre. Lou, you're making your pitch first. Who wins this one?
- [31:26]
C
You know what's funny is I, just for fun, I put into Gemini, who would win a soccer match between Mercado Libre at Alphabet and Gemini. Do you know what Gemini said? Gemini said 3 to 1 to Mercado Libre, which, you know. Oh, yeah, I know, dude. They're boss. Do their bosses know that? I don't know. I think Gemini took it a little too literally and just talked about the, the, the South American tradition of, of soccer and all of that. So I think I'm gonna see the
- [31:50]
A
Silicon Valley elite playing a lot of great soccer game.
- [31:54]
C
Yeah, Yeah. I, I, I am going to have to go with Alphabet. I think here, too, there's a classic case where the underdog wins in the semifinal and gets our hopes up, and we're like, wow, if they could beat asml, they can beat anyone. And then we are just. Again, it's the France. Gosh, they're good and I respect them, but it's always so boring when they just show up and just overwhelm the opposition. That's what happens here. It's a good game. Mercado Libre deserves a lot of credit, but Alphabet takes the win.
- [32:23]
B
Oh, man. I, I spoke too soon. Travis, you are going to have to be breaking a tie here, because I'm the judge here. And I think Mercado Libre by far pulls ahead. Let me see. I, I agree with the AI in this case. I'm kicking myself for doing it. And the way that I'm framing up this, this match off in my head is, you know, I'm putting, let's say $500 behind a recommendation today. Am I putting that money behind Mercado Libre? Am I putting that money behind Alphabet? And I think there's of course a valuation argument that is boring and not worth getting into today. But the real reason it comes down is to growth. And in Mercado Libre, the opportunity in front of it is a fraction the size of Alphabet while still innovating and its fintech offerings that are just barely getting off the ground. I mean, um, last quarter revenue grew nearly 50%. That was, that was the fastest pace for this company in nearly four years. It's an accelerating business and they're doing it without spending oodles and oodles and oodles of capital on AI. In fact, when you strip out all of the, the narrative around AI today, I think Mercado Libre's thesis, it remains exactly the same. So the credit book is a risk, of course, but I don't think it's any less or any more risky, I should say, than a lot of the valuation that's driving, you know, the, I guess, speculation behind companies like Alphabet. So Mercado Libre wins.
- [33:36]
A
In my book, Mercado Libre had some tailwinds from a weak US currency, right, which would be headwinds for Alphabet. I just, I just wanted to bring that in. You know, 50% is a massive growth rate, but we do have a relatively weak dollar. Okay, I am the deciding decider here. I'm going to give this to Alphabet and I'm going to go to something that we haven't talked about. We've talked about their artificial intelligence, their chips, we talked about Waymo, we talked about ut, YouTube. They also own, what is it, 100 $150 billion worth of SpaceX stock and another hundred $150 billion worth of anthropic stock. Alphabet is not only one of the biggest, most powerful operators in the world, they are arguably one of the best investors in the world as well. And all that value is just kind of hidden on their balance sheet. So we are going to get a line item now. We'll end up in their next quarterly report now that SpaceX has gone public and they have to mark that to market. So something for investors to, to consider next time they release earnings. But this was a lot of fun. I think it's a good tour around the world and some of the most most powerful companies in the world, great investment ideas, hopefully their Alphabet coming out on top in penalty kicks. When we come back, we are going to get to the stock center radar. You're listening to Motley Fool Hidden Gems Investing.
- [34:55]
D
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- [35:59]
A
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. We like to end the show with the stocks on our radar. Emily, you are up first. What are you looking at?
- [36:25]
B
I'm looking at Lifetime Holdings. The ticker is lth and this is the kind of premium positioned gym chain. They have massive big build outs all across the country here. That's an asset light sale leaseback model growing pretty rapidly double digits here. They target really affluent memberships. Their median household income is north of $150,000 a year so it should be more resilient during pullbacks. But the real pitch I have for you year Dan, and the reason why I think you should pick Lifetime is because you have children, if I'm not mistaken, right?
- [36:56]
A
I do, yes.
- [36:57]
B
And what sounds better to you than paying a relatively low couple hundred bucks, let's say a month membership fee to go to a gym that will give you free child care while you and your partner go to, say, the pool at Lifetime, sip a drink, lay back, and just have to spend a nice Saturday afternoon without your kids involved. That sounds really nice, right?
- [37:18]
A
I mean, like, I would probably be doing deadlifts and not like going in the pool. But yes, that does sound nice.
- [37:24]
B
Well, that's why you and I are different people. But yes, that's my pitch here for Lifetime. They have a lot of affluent child and child free, I guess, but lots of people who use it for their daycare as well.
- [37:33]
A
Dan, what do you think about Lifetime? I mean, it's a good pitch, Travis. I can't argue with that. Emily, is this one of those companies that also owns all their buildings and real estate stuff?
- [37:43]
B
No. So they did initially, but they're in this process of doing sale leasebacks to free up capital so they can build even more locations that might hurt the long term economics, I'm not going to lie to you. But for the near term, it's actually doing a lot to improve their capital structure.
- [37:56]
D
Emily.
- [37:56]
A
This is a rare occurrence where Emily brings something interesting and good to the show. So I'm very happy about that. Emily trying to get me to spend $659 a month on my local Lifetime membership.
- [38:08]
B
Worth it?
- [38:09]
A
Maybe.
- [38:09]
C
I don't know. Drinking by the pool is the kind of workout I can get into. Well, that's even more, maybe.
- [38:13]
A
All right, Lou, what are you looking at?
- [38:15]
C
So, Dan, since Emily brought something good, I feel no obligation to do that to you. I'm looking Rivian. All right, Ticker, R, I V N. And this was supposed to be a fantastic moment for this maker of electric trucks and SUVs. The new R2 SUV, a mass market vehicle starting at a reasonable, I guess, $58,000 is hitting the market. The R2 has a substantial waiting list, and the plan is for Rivian to see a huge uptick in cash flow and start that slow inch towards profit. Alas, this week, the company said it was going to lay off about 2% of its workforce to save cash. The jobs they're laying off, marketing and customer support jobs, not the jobs you want to see go during a time when you're ramping up your customer list. This feels like a pivotal moment for Rivian, a company that lost more than $3 billion last year. It has been over time, almost impossible to build a new automaker from scratch. There's one big exception. And they almost went bankrupt. Rivian really needs this R2 to take deliver on its promise, and fast. I'm just watching close here for the
- [39:23]
A
ride, shall we say, Dan, Are you on the R2 reservation list? Absolutely not. Couldn't catch me dead in those dorky loser mobiles. Well, at least we have a strong opinion. So I assume Emily takes the cake today. We're gonna go with lifetime holdings today, Mr. Travis. All right. Thank you. To Lou and Emily. Emily and Dan behind the glass, I'm Travis Hoyam. Thanks for listening. We'll see you here tomorrow.