Motley Fool Money Podcast Summary

Episode: S&P 500: New Highs, Same Valuation Questions
Release Date: January 24, 2025
Hosts: Dylan Lewis, Jason Moser, Asit Sharma
Description: In this episode of Motley Fool Money, the hosts delve into the current state of the S&P 500, explore significant AI investments, analyze recent earnings reports from major companies like Netflix, GE Aerospace, and Twilio, and discuss emerging trends in venture capital within the AI ecosystem. Additionally, they share personal insights on New Year's resolutions and highlight stocks on their investment radar.

1. Market Overview: S&P 500 Reaches New Highs Amid Valuation Concerns

The episode opens with a discussion on the S&P 500 achieving new all-time highs as the market responds to the new year and the incoming U.S. administration.

• Jason Moser (01:04):
  "There are certainly some concerns there that the market is maybe a little overvalued or valuations are getting a little frothy."
  He references comments by Jamie Dimon of JP Morgan, who remarked on asset prices being in the top 10-15% of historical valuations. Jason also cites Stanley Druckenmiller's perspective on shifting business administrations and CEO sentiments being "relieved and giddy."

• Dylan Lewis (02:18):
  Discusses the Wall Street Journal's analysis of market valuations on a Shiller PE basis, highlighting the unprecedented high valuations inherited by the current administration. He attributes this to significant capital inflows from retail and global investors.

• Asit Sharma (02:47):
  Notes the impressive 53% return for U.S. investors over the past two years, driven by robust performance and AI-driven productivity. However, he cautions about the U.S. market's disproportionate concentration in global capitalization and suggests a potential "reckoning" due to stretched valuations.

• Jason Moser (05:02):
  Explains the Shiller PE ratio currently at around 30 times trailing earnings and 23 times full-year 2025 estimates, breaching the traditional "rule of 20." He emphasizes the balance between investor enthusiasm and valuation sustainability.

2. AI Investment Trends: The "Stargate" Joint Venture and Oracle's Strategic Role

The conversation shifts to the burgeoning investments in AI, spotlighting the newly announced $500 billion joint venture, Stargate, led by OpenAI.

• Dylan Lewis (05:02):
  Introduces the excitement surrounding AI investments, particularly the Stargate venture, which aims to expand data center infrastructure in the U.S.

• Jason Moser (05:23):
  Describes Stargate as a collaboration between major tech players including OpenAI, SoftBank, Nvidia, Microsoft, and Oracle. He notes the substantial commitments from Microsoft and Meta to their capital expenditures in AI.

• Asit Sharma (05:27):
  Provides an in-depth analysis of Oracle's strategic pivot. He credits CEO Safra Katz and Chairman Larry Ellison for reinventing Oracle's cloud architecture to efficiently support AI workloads, positioning Oracle as a competitive player in the AI infrastructure space.
  "They have partnered up with a lot of companies and they are plowing money to build more data centers themselves. They've flown under the radar... but they've certainly caught investors' attention now." (07:24)

• Dylan Lewis (08:28):
  Compares Oracle's revival to Microsoft's resurgence over the past decade, suggesting potential for Oracle to capture more market share in AI infrastructure.

• Asit Sharma (08:48):
  Highlights Oracle's aggressive investment in infrastructure, aligning it with tech giants like Meta, Microsoft, and Amazon, and expresses anticipation for Oracle's future developments.

3. Netflix Earnings: Strong Performance and Strategic Shifts

The hosts analyze Netflix's latest earnings report, highlighting significant subscriber growth and operational improvements.

• Dylan Lewis (09:09):
  Segues into the topic of Netflix's impressive earnings, mentioning the addition of 19 million subscribers and an increase in operating margins.

• Jason Moser (09:42):
  Praises Netflix's quarter as "really impressive," noting:

  • Subscriber Growth: "Adding somewhere in their neighborhood of 19 million additional subscribers, very, very impressive."
  • Operational Efficiency: "Operating margin was up 5.3 percentage points from the same quarter a year ago."
    Jason underscores Netflix's ability to extract profitability from its model and foresees continued improvement.

• Asit Sharma (11:16):
  Discusses Netflix's introduction of ad-supported tiers and ongoing price hikes. He applauds the company's ability to monetize its platform through advertising without alienating core subscribers.
  "They have a virtuous cycle where you maybe get priced out of the full tier. You're content to watch the supported tier and they have phenomenal uptake of the ad-supported tier." (11:16)

• Jason Moser (12:40):
  Highlights the doubling of ad revenue in 2024 and the strategic shift towards integrating ad-supported memberships. He notes the positive reception from consumers transitioning to lower-priced tiers rather than abandoning the platform.

4. GE Aerospace: Solid Performance in a Diverse Aerospace Market

The discussion moves to GE Aerospace, a key player in the aerospace industry, which reported a notable 10% increase in shares following strong earnings.

• Dylan Lewis (14:35):
  Introduces the topic, noting GE Aerospace's performance and the broader excitement around the aerospace industry's space ventures.

• Asit Sharma (14:48):
  Elaborates on GE Aerospace's role as a supplier of high-performance jet engines. He emphasizes their robust spare parts business, likening it to a "razor and blades model," ensuring continuous revenue from maintenance and service operations.
  "Total orders this quarter were $15.5 billion, up 46% year over year... All these startups and other companies... are finding that if they run their AI on Oracle servers, they actually get pretty good return for their money." (This quote seems misplaced and may belong to earlier AI discussion. Corrections may be needed based on accurate timestamps.)

• Dylan Lewis (15:52):
  Asks Asit to compare GE Aerospace's stability to more speculative space companies like Rocket Labs and Intuitive Machines.

• Asit Sharma (16:09):
  Agrees, positioning GE Aerospace as a diversified and stable player compared to niche space-focused companies. He suggests building a "basket" of core companies within the aerospace sector for balanced investment exposure.

5. Twilio Earnings: Leadership and Growth Propel Success

Twilio, a prominent cloud communications company, reported a significant 20% rise in shares following strong earnings results.

• Dylan Lewis (16:56):
  Transitions to discussing Twilio's earnings surge.

• Jason Moser (17:09):
  Attributes Twilio's success to effective leadership and strategic operational focus. Highlights the company's first GAAP profitable quarter and reduction in stock-based compensation, which have reinvigorated investor confidence.
  "Operating with a lot of rigor and pursuing a lot of growth opportunities, reigniting that growth. It's certainly understandable the enthusiasm in the stock today." (17:09)

• Dylan Lewis (18:07):
  Reflects on Twilio's transformation from a struggling growth stock post-2022 to a flourishing business under new leadership.

• Jason Moser (18:18):
  Credits leadership changes, particularly the shift to a more operationally focused CEO, for Twilio's turnaround. Expresses optimism about the company's future growth prospects.

6. AI Venture Insights: Early-Stage Opportunities and Investment Strategies

The podcast features a segment with Frances Schwepp, a partner at Two Sigma Ventures, discussing the landscape of early-stage AI investments.

• Dylan Lewis (19:38):
  Introduces Frances Schwepp and the focus on identifying cutting-edge AI companies within the venture capital sphere.

• Frances Schwepp (20:18):
  Discusses the current AI and machine learning (ML) landscape, emphasizing the shift towards tools that enable application developers to build AI solutions.
  "We're just starting to see exciting true AI applications that are not just being tested in the experimental budgets of the enterprise, but they're actually being used in the day-to-day workflows of those employees and individuals." (21:18)

• Tim Byers (22:28):
  Expounds on the advancements in AI-enabled hardware, particularly edge AI, citing Nvidia's Jensen ORI platform as a breakthrough in energy-efficient, high-performance computing suitable for devices like robotics and autonomous vehicles.
  "In 2025, [companies] building the hardware around this new computing technology will be the focus." (23:03)

• Frances Schwepp (25:05):
  Summarizes the impending ubiquity of AI across devices, affirming the tangible realization of previously anticipated AI integrations.

• Tim Byers (25:39):
  Elaborates on the balance between scientific analysis and the intuitive "art" of investing, highlighting the importance of identifying founders with a "glimmer of greatness" who can drive innovative technologies forward.

• Frances Schwepp (27:45):
  Requests insights on standout founders exemplifying relentless focus and the ability to make strategic trade-offs.

• Tim Byers (28:26):
  Cites the founder of WHOOP as an example of relentless focus and effective product development, emphasizing the importance of maintaining a clear vision to foster innovation and customer loyalty.

• Frances Schwepp (30:33):
  Concludes the segment by advising entrepreneurs to clearly articulate the necessity of their product and their unique capability to execute, ensuring a successful pitch to investors.

7. New Year's Resolutions and Stock Picks: Personal Insights and Strategies

The hosts share their personal New Year's resolutions and highlight stocks they are adding to their investment portfolios.

• Dylan Lewis (33:47):
  Initiates the conversation on New Year's resolutions, referencing Baylor's statistics on resolution success rates.

• Jason Moser (33:47):
  Shares his resolution to adopt a more optimistic outlook and improve his investment portfolio by adding three new companies, with one already being Nike (NKE).
  "I bought shares the other week... focusing on balancing digital business with wholesale partners." (35:15)

• Asit Sharma (34:20):
  Reveals his stock pick, Garmin (GRMN), appreciating its diversified business model and consistent free cash flow generation.
  "It's trading around 28 times forward earnings. Not too expensive. And the company is Garmin." (37:02)

• Jason Moser (35:15):
  Discusses Nike's current challenges due to past leadership decisions but remains optimistic about the company's recovery under new CEO Elliott Hill. Advocates for a long-term hold strategy, emphasizing Nike's strong brand and dividend yield.

• Asit Sharma (37:17):
  Expresses confidence in Garmin's leadership and resilience, noting the company's successful turnaround and focus on product innovation.

Conclusion

The episode concludes with a reminder to listeners to consult Motley Fool’s premium content for more in-depth analyses and encourages engagement with the hosts' investment strategies. Dylan Lewis wraps up by reinforcing the importance of patience and strategic investment decisions, leaving listeners with actionable insights and a positive outlook for the markets.

Notable Quotes with Timestamps

• Jason Moser (01:04):
  "There are certainly some concerns there that the market is maybe a little overvalued or valuations are getting a little frothy."

• Asit Sharma (02:47):
  "53 percentage points of returns in just the last two years... It almost feels like we're due on a few fronts for a little bit of reckoning in valuations."

• Jason Moser (05:02):
  "The rule of 20 is being broken."

• Asit Sharma (07:24):
  "Oracles have re-invented how they're going to service the cloud from scratch and it's paying off so nicely for them."

• Jason Moser (09:42):
  "Operating margin was up 5.3 percentage points from the same quarter a year ago."

• Asit Sharma (11:16):
  "You're content to watch the supported tier and they have phenomenal uptake of the ad-supported tier."

• Jason Moser (17:09):
  "Reigniting that growth. It's certainly understandable the enthusiasm in the stock today."

• Tim Byers (22:48):
  "Fast acceleration in AI-enabled hardware than we've ever seen in the history of venture investing."

• Frances Schwepp (25:05):
  "The beginning of AI everywhere in every device. So that's, that's..."

• Jason Moser (35:15):
  "I bought shares in Nike... I believe it'll get back closer to its historical norm in the coming years."

• Asit Sharma (37:02):
  "It's trading around 28 times forward earnings. Not too expensive. And the company is Garmin."

This comprehensive summary encapsulates the key discussions and insights shared by Dylan Lewis, Jason Moser, and Asit Sharma in the January 24, 2025 episode of Motley Fool Money. From market valuations and AI investments to earnings reports and personal investment strategies, listeners are provided with valuable information to navigate the current financial landscape.