Loading summary
Transcript26 lines
- [00:05]
Rick Nars
Potential buyout candidates, a potential shift in a popular automaker's AI strategy. I guess you can say that this show has a lot of potential. Will our play on words over promise or under deliver? Find out right now on Motley Fulmar. I'm Rick Nars and today I'm joined by fellow analyst Carl Thiel and Jason hall with bold predictions for what we believe could be the next rule breaker to get bought out. We'll also take a look at a whole new stock quote game. But first, Tesla taps the regenerative brakes on its generative AI supercomputer. Late last week it was reported that Tesla was scrapping its Dojo supercomputer team, which Elon Musk confirmed over the weekend, putting an end to at least this chapter of its in house AR hardware dream. Let's look at both sides of the story, dueling fool style. Jason will bring a bullish spin to the story. But Carl, let's start with you in the bear den.
- [00:56]
Carl Thiel
Yeah, it was almost exactly two years ago that a Morgan Stanley analyst suggested that Tesla's Dojo supercomputer could add a half trillion, that's with a T dollars to the company's valuation. Now it's dead. And as I'm sure Jason is going to discuss, the stock has been going up since that announcement. Bulls are obviously hoping that less spending means better capital management. But not so long ago, bulls believed that this project would give Tesla critical advantages. So look, not only was this supposed to allow the company to leverage all that data coming in from cars on the highway for, but it was a bet on other future possibilities that they could leverage. Dojo was going to save money because it would require the company to buy fewer incremental Nvidia GPUs. Moreover, it was supposed to be better. The D1 chip that was the sort of core of Dojo wasn't just a general purpose gpu. It had a massive parallel design, but it was application specific. It was supposed to cut training times. It was in fact supposed to be a kind of a triple winner for them. It was supposed to be better, better in performance. It was supposed to be cheaper to make and it was supposed to be much cheaper for them to own. Not only because it was going to be more efficient but also obviously you weren't paying Nvidia and paying for their profits. And you know, a lot of this sort of vision of the future came directly from Elon Musk and it was, you know, pretty much just accepted by the analyst community. The company and many analysts believe that Dojo could serve as the foundation for other future network services businesses like managing the hub of a robotaxi fleet or logistics and delivery fleets. It could handle vehicle infotainment. They even thought maybe they could rent out COMPUTE sort of AWS style to other businesses that were trying to do AI training. And of course, if you believe that a big part of Tesla's future is humanoid robots, you're probably counting on Dojo again for fast, efficient training of them. But the thing that kind of gets me, I guess, about this announcement is that, yeah, it was announced as you, you referred to Rick. It was announced simultaneously with the Dojo team kind of leaving. So specifically, leader Peter Bannon said he was leaving the company with about 20 other engineers, several of whom went and created a new startup called Density AI. Supposedly Density is going to be coming out of stealth mode relatively soon. So we don't know a whole lot about it, but from what little we do know, it sounds an awful lot, at least to me, like it's going to do kind of what Dojo was supposed to do, just not under Elon Musk. And that mass defection certainly isn't the only high profile departure from a Musk led company. I mean, we had just to pick one Milan Kovac, I guess it was earlier this year, left Optimus, which is their robot effort. So who's to say the defection stop here? I would put it to you this way. You know, you can value this company on its business, which is cars and a little bit of solar, which is kind of another troubled area, or you can value it on all the future pixie dust. And I'm not against assigning value to future potential that is not here today. But if the pixie dust keeps getting blown away, you should probably sit up and take notice.
- [04:31]
Rick Nars
Yeah. So addition by subtraction. Or in your case, Carl, it's subtraction by addition by subtraction. Now let's turn to Jason for a more upbeat take.
- [04:40]
Jason Hall
All right, so let's start with the analyst note a couple of years ago. I think we have to be careful because we've seen a lot of squinty math from analysts over Tesla over the past decade about future bets. So let's just cast that aside and talk about what investors have been asking for from Tesla and Elon Musk for a while now. And that's to refocus and we're seeing that. So I think this is Tesla and Musk making the sort of capital discipline decision that it needs to make going forward. If it's going to achieve that vision for a company that can transcend just automaking and become, as Tess has called it, as Musk has called it before, a vertically integrated energy and transportation company and now energy, transportation and automation giant. If you're talking about robotics and you're talking about autonomous transportation, we have to face facts bulls. The auto business is tough right now. And then there's the changes to federal regulations and incentives that are compounding the business environment for selling cars to all of the incentives that generate cash flows that Tesla is about to lose. Now, Tesla has a strong balance sheet. It's got about $30 billion of net cash, only about $6 billion of debt, and that's very manageable. But it has a lot of capital priorities and some serious risks. Its ability to generate enough cash to pay for it all. So smart place to pull back on cash outlays is an area where the market can actually still meet your technology needs. Right. So sure, dojo and building the hardware would be great if you can pull it off. And Carl, you're right. Those defections indicate that there's still an appetite from the people that were involved in it to go and do something in a pure play business that can raise capital and derive funding as a pure play business versus being part of the more of a, you know, kind of a conglomerate Tesla, where it's going to pull resources from something else. So you look at Tesla now and the company can focus that capital on things that are more likely to generate revenue in the near term, which is the most important thing that Tesla can do right now. The company had to reimagine how EVs are built to be a commercial success. It doesn't have to do the same thing with compute hardware to achieve those autonomous transportation, the robotics, other artificial intelligence goals. So as a result, I think Tesla did something we haven't seen it do in years. It became more focused on fewer priorities. And the ones that are focused on are more likely to drive revenue and cash flow sooner versus just being an expense line on the operating statements. That might be, to your point, Carl, just pixie dust in the future. Say what you want about Musk and his ability to end up with too many balls in the air. But when he's more focused, he is uniquely relentless. This move could represent his refocusing on what's most important to Tesla, and that's delivering the products already in development to the market more quickly and prioritizing the company's limited resources to do so.
- [07:29]
Rick Nars
So just play your hits. I get it, Jason. I can't wait to see if Tesla will regret this move or if it dojo to bullet. Coming up next, a few stocks we think could be treated to a bended knee proposal. Plan to stick around? Please say I do.
- [07:43]
Unknown
Hey managers, leaders and entrepreneurs, do you want to run your meetings more efficiently and productively, especially on those super busy skip lunch kind of days? Meet Plod Note A credit card sized AI gadget attachable to the back of your phone whether you're having business calls or in person meetings can be your ultimate business assistant. The gadget records audio and the app automatically creates accurate transcripts, summarizes key points, and even provides mind maps to visualize everything. Craziest part is that you can even talk to it and brainstorm with it because the AI not only takes notes but also understands them. Plot has been trusted by over 700,000 buyers globally and more than 200,000 managers and leaders are using it every day to save time and improve collaboration. So, ready to take your meeting to the next level? Tap P L A U D into Google and get $10 off with our code. Fool. That's F o o l. Check out the sleek look. Tell me it's not the best looking AI product you've seen. Get it for yourself or your best friend at work. The website is P L A U.
- [08:53]
Rick Nars
D and the eyes have it. Global eye care leader Alcon announced last week that it's buying rule breaker recommendations Star Surgical in an all cash deal to help expand its corrective vision treatment options Beyond Lasik. The $1.5 billion acquisition is a 51% premium to where its shares closed the day before the deal was announced. Buyouts are common, but a bittersweet experience for investors of disruptive growth stocks. Star Surgical joined Skechers and task us as rule breakers that have agreed to be bought out in the past couple of months. The short term premium is nice, but you likely bought in hoping for a much longer Runway before taking off. Who is the next rule breaker that will be prematurely snapped out of our hands? Jason, Carl and I have some bold predictions. Jason, let's start with you.
- [09:35]
Jason Hall
Yeah, so I'll talk about Lululemon and I think this is maybe a good fun thought experiment whether or not it's that likely to happen. But I think if we look in the past companies like Buffalo Wild Wings, Panera Bread, Skechers as just happened, different circumstances but there are times where you can see companies that have been long term winners end up getting acquired and in a lot of cases private equity is involved and I think maybe that's the situation for Lululemon. What's going on right now for Lulu. In short, it's an incredibly relevant and valuable brand with millions of loyal customers and the customer cohort. While stagnating a little in its mature markets in the US and Canada. More recently it's grown to include more men and internationally is still growing at a decent clip. But the company does face, if not a crossroads and some challenges to the rate of growth we've seen in the past. It's had some notable kind of flubs here with its tech approach with a mirror. You know, we like companies to take those swings and misses trying to find some optionality. But it does seem like there's just some struggles with the core business and getting to growth. Here's the thing though, still really, really cash generative generated about 12% in free cash flow margin over the past four quarters. But free cash flow is down about 25% from its peak a couple years ago, even as revenue is still growing and is at all time highs. And then we haven't even talked about tariffs. So it faces more profit pressure if President Donald Trump's tariff policies remain for the long term. In other words, this is a really high profile business that's going to need time to complete the sort of turnaround. Turnaround to reignite growth and the profits that management is promising. That's just hard to do in the quarterly pressure of today's market. Maybe becoming part of a bigger portfolio of brands probably under private equity might be, might be the path forward.
- [11:21]
Rick Nars
Yeah, Jason, so, so you see this happening private equity. So Lululemon doesn't have to post. They're sticking their quarterly report card on the refrigerator or any thought on a potential buyer from a publicly traded Athleisure, apparel, fitness or lifestyle or any other kind of company.
- [11:36]
Jason Hall
You know, it could, it could happen. It could happen. But I, I think the reality is if you look across that entire landscape and you think about the big players, I'll use Nike as just an example. They have their own problems that they're dealing with right now that buying their way out of it is not the right approach. So I don't think it would be very likely that we, we would see anybody that would be overlapping with customer base or already kind of in that, in that market that would, would want to take on that sort of risk.
- [12:01]
Carl Thiel
Right now I'm going to cheat a little bit and try to fit in two really quickly. One is Biomarin and this is a company that if it got Bought out. It would be bought out a little bit from weakness. Biomarin is kind of struggling with some competition, some new products and a diverse but, but somewhat aging portfolio. That said, they'd fit really nicely into a larger company's portfolio where, where some costs could be cut. And one nice thing about Biomarin is just a lot of the products that make are actually very unattractive to compete with. Even if patents weren't an issue, just because it's very, very small populations and your and they have close relationships with those populations that would make it honestly difficult for somebody else to come in and take that much share away from them. I think Viking Therapeutics is a really, is a really interesting one and anybody who follows this space knows that there's been a lot of anticipation around a possible buyout of this company because it makes so much sense and because there's been so much M and A in the obesity GLP1 segment. Vikings working on its own GLP1 GIP drug that's ahead of most competitors. So there's a lot of expectations there. It would certainly fit in for companies that have some spaces in their own pipelines. I'm looking at you, Pfizer in particular. But the only problem is that it's been seen as such a likely buyout candidate that every time another acquisition in the sector is announced, Viking goes down because everybody gets disappointed that it hasn't happened already. No one really knows what's going on behind the scenes, but I think we can, we can say that management's planning for a scenario where they can go it alone and they're undoubtedly asking for a lot in whatever private conversations they're happening behind the scenes.
- [14:02]
Jason Hall
Carl, I'm going to put the screws to you a little bit here and tell you you've got to pick one. Which do you think happens first? Is it either. Either way, we're probably talking big pharma here that's moving. Is it a big, well heeled company that buys the, I want to say struggling but company that would be better fit as part of somebody's portfolio or would it be somebody that really needs to get more aggressive and goes after Viking and is willing to pay up? Which do you think is going to happen first?
- [14:29]
Carl Thiel
I think we're at the part of the cycle where pharma is really looking to plug holes in its pipeline. That could mean either company. But I think Viking is just a really strong play to be competitive in what's obviously becoming a huge, huge market around obesity. And they get a company into the, into the market with a strong product and some strong follow ups. So if I have to guess, I'm going to go Viking first.
- [15:01]
Rick Nars
Yeah, well, I'm going to go with Roku for my prediction that there's a pretty impressive turnaround happening at the pioneer and leader in TV streaming. But to many growth investors, Roku remains a four letter word. The stock may be up nearly 60% over the past 12 months, but the shares are still more than 80% below their peak set four summers ago. Headwinds are turning into tailwinds and if a company wanted to buy Roku at this point and inherit the pole position in the growing market for streaming video operating systems, this train is about to leave the station. Roku has turned its business around over the past two years, as posted double digit revenue growth over the last nine quarters and trailing free cash flow in the last eight. It had a much longer streak of red ink, but it turned profitable in its latest quarter earlier than expected. Roku's reach and engagement remains unmatched despite competing against Alphabet, Amazon and Apple Mag seven titans with greater financial resources. Why wouldn't Microsoft, a $4 trillion company flush with nearly $95 billion in cash, not buy a company with an enterprise value of 10.5 billion that would catapult it over its MAG7 peers in a new frontier that matters to many of its businesses? The clock is ticking on an administration that may not object to the deal. Why wouldn't Comcast, a media company with large but fading cash cows, not make a play? There's never been a better time for a tech media or advertising giant to buy a ticket to the top.
- [16:18]
Carl Thiel
Yeah. You know Rick, when I look at that one, a question comes to my mind that a little bit has come to me about Viking Therapeutics as well, which is. It makes sense. So why hasn't it happened yet? There's, there's, there's certainly been activity around the margins of what Roku does. I'm thinking about Walmart buying Vizio. I'm thinking about Disney and Fubo. Is regulatory oversight, the Department of Justice or the Federal Trade Commission a major factor here?
- [16:45]
Rick Nars
Yeah. So this is a giant company buying a leader in a much smaller market. So it's not even, it's even worse than Walmart, Vizio or Disney Fubo. But I don't think that DOJ FTC oversight is going to be an issue in a case like this because again, Roku is a specialist, what it is. And it's competing against three other companies that would be competing directly with Microsoft or even Comcast. So I think the government will say, hey, better competitors. This is actually kind of combination that would create a new, stronger competitor to some of these giant companies, so I think it won't have much of an issue going through.
- [17:16]
Jason Hall
I wish somebody would buy Roku just so I could stop beating my head against it trying to figure it out.
- [17:21]
Rick Nars
And stating the obvious here. For all of our bold predictions. Never buy a stock solely as a bio candidate. Make sure you feel you can grow independently wealthy if your stock remains independently healthy. When we get back from the break, we'll third act this like no one's business with a different kind of stock quote game.
- [17:37]
Carl Thiel
Stick with us.
- [17:38]
Rick Nars
We're twisting balloon animals into shape.
- [17:41]
Unknown
Hey managers, leaders and entrepreneurs, do you want to run your meetings more efficiently and productively, especially on those crazy busy, skip lunch kind of days? Meet Plod Note, A credit card sized AI gadget attachable to the back of your phone whether you're having business calls or in person meetings can be your ultimate business assistant. The gadget records audio and the app automatically creates accurate transcripts, summarizes key points, and even provides mind maps to visualize everything. The wildest part is that you can even talk and brainstorm with it because the AI not only takes notes but also understands them. Plot has been trusted by over 700,000 buyers globally and more than 200,000 managers and leaders are using it every day to save time and improve collaboration. So, ready to take your meeting to the next level? Tap P L A U D into Google and get a 10% off discount with our code. Fool. That's Foo. Check out the sleek look. Tell me it's not the best looking AI product you've seen. Get it for yourself or your best friend at work. The website is P L A U.
- [18:40]
Rick Nars
D. Jason and Carl. I know the two of you know your stock quotes, but how well do you know your quotes about stocks? I'm going to read you a quote said by a rule breaker CEO. Take it in. There's a clue in there. I'll then give you the name of three company leaders. Let me know which one said it. Ready? Here's the quote. I work under the assumption that we have no idea how to build companies yet and that 50 years from now people will look back at the companies of today and they will seem like the black and white footage of the first hockey games. We have no idea how to build the best companies yet. So who said this? A Shopify CEO Toby Lucky, B Meta CEO Mark Zuckerberg or C former Chipotle CEO and current Starbucks CEO Brian Nicholas.
- [19:21]
Jason Hall
I think I know it, but, Carl, you go first.
- [19:23]
Carl Thiel
I do not. But I'm just going to go with Toby. Look, Gay from Shopify.
- [19:29]
Jason Hall
Yeah, it's the Canadian connection there, I think.
- [19:31]
Rick Nars
Yeah, the hockey. The hockey was a clue in there. Yeah. Yeah. This was like, he said this nine years ago. So we're now 41 years into away from what he was talking about, but yeah. Carl, Congratulations on the winning for the two of you. Carl and Jason, thank you for playing slaying and staying as always. People on the program may have interest in the stocks that 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 Motley fool 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 for Carl Thiel, Jason hall and the entire Mount 14. I'm Rick Menars. Voices carry till Tuesday.