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- [00:02]
A
The SpaceX IPO is almost here. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoyam, joined today by Lou Whiteman and John Quast. Guys, the big news of the week is that SpaceX's S1 is out. If you're not familiar with an S1, this is the document that gives all the financial information, the total addressable market, maybe something we'll talk about with SpaceX. Basically all the financials, all the things that we've been speculating on for years are now public and this is kind of the last big thing before the company actually goes public. So John, I want to start with you and I'm just going to start this wide open. This is a multi hundred page document. What stuck out to you?
- [00:47]
B
Well, the big thing that stuck out to me, ignoring everything else, is that I think that we thought that this was going to be a rocket company that, that had a little bit of AI on the side, but really the S1 is pointing to this is an AI first company that dabbles in rockets. I, I don't want to be too bombastic in stating it that way, but look, it has a total addressable market that it's putting out there of 28.5 trillion. We can talk about that all day long, but 80% of that TAM is for enterprise AI. That is extraordinary. But it's putting its money where its mouth is here. 76% of first quarter capital expenditures going to AI. In other words, what it is spending in AI is more expensive than putting rockets into space. This is a very big surprise to me.
- [01:43]
A
Yeah, Lou, I want to put these numbers out there because they are fascinating. Space is, and this is their total addressable market that they have published in the S1 space. $370 billion connectivity. So that's Starlink and Starlink mobile broadband and mobile $1.6 trillion and AI $26.5 trillion. This is from the company that is now renting its GPUs because its utilization for its own GROK products was so poor that that's what they needed to do. And yeah, John's right. They're spending in the past three months alone, capex was 7.7 billion billion for AI. Capex. Just fascinating how different this company is even than the name SpaceX.
- [02:30]
C
Yeah, I'm reminded of what Willie Sutton said about why he robbed banks in a way because when you're doing an IPO you have to sell your company. Now it really shouldn't be. Well, actually it really should be a reflection of what you want to do, what you want to accomplish. But in practicality it tends to be. This is why you should buy it right now. And AI is where the money is. As Willie Sutton said, we'll see where they go. You're right though. The thing that strikes me is that Grok is, shall we say, a very incomplete product. The thing that really stuck out to me of staying on the AI is that even without the R and D expense, and of course R and D expense is a huge expense for these hyperscalers. But even without R and D, Grok didn't make enough revenue in the first quarter to cover its just general expenses and cost of doing business. So backing it out, I mean it is a less than a billion dollar quarter of revenue in a time when Anthropic and Google and others are catching on. Look, here's the thing and we can talk about lots of different parts of this. I think Starlink is fascinating, but just like back in 2010 with the Tesla IPO, I don't think that anyone is going to be interested in this for what it is today. And I don't think that this S1 should be taken, I mean take it seriously. Not literally I guess, to use an expression used about politics.
- [04:02]
A
Let's stick on that Starlink piece because John, I thought these numbers were fascinating. This is from the connectivity section. The number of Starlink subscribers more more than doubled in the past year to 10.3 million. So that's a very significant number. ARPU or average revenue per user did drop to $66 per month. I have seen that they at least some people are reporting they're raising prices over even just in the past month. But this is the segment that is also profitable. Segment income from operations. 1.2 billion in the last three months and 4.4 billion in the past year. So that's actually seems like a pretty good business junk.
- [04:40]
B
Yeah, I, I really wish that it was being spun out into its own publicly traded company because it would be something I'd be very interested in owning. You look at the growth rate. I mean you look at the subscriber rate and then the drop in average revenue per user. Yeah. But that combination still leaves it with 30% greater than 30% revenue growth year over year. That's a really good growth rate. And the operating margin on this is pretty good as well. There are some economies here with vertical integration, but an operating margin that is quite attractive. And so this would be an attractive business on a standalone basis. Now you lump it in, in the bigger company there. I think that there's some question marks there. And if it was a standalone business, Right. It would probably be going public at a exorbitant valuation as well. But Starlink is the star of the show.
- [05:29]
C
Yeah, I agree 100% it's the star of the show. I actually think it works better inside a big company because I think some of what they're getting at cost you wouldn't want to pay the market rate for.
- [05:40]
A
You're saying for the launches.
- [05:41]
C
Yeah, for the launch and maintenance. The total addressable market is just all the numbers are fun. The total1's basically US GDP. But I think it's 1.6 trillion in Starlink is what they said. Right. I mean this is current day, not future, but global telecom connectivity revenue in 2025. So that's mobile, that's fixed broadband, that's fixed voice. That is what everybody spent on all of those things last year was 1.3 trillion. So they are going to, so they're
- [06:14]
A
going to capture all of that and then some. And by the way, those businesses are not really great businesses, have not been good, good businesses to investors anyways.
- [06:22]
C
They're fine. They're cash flow businesses when they work the unit. Economics, I think need to be watched because like you said, revenue per user was down. That's weak. Duh. Because they lowered prices and they are in the earliest days. So they do want to capture market share. So it's not a problem. But, but look, relative to signing long term leases for cell towers, this is a very capex heavy form of communication these satellites have. Some of them are going to have lives of a few years.
- [06:55]
A
And why is that?
- [06:57]
C
Space is hard, space is brutal and to some extent I'm oversimplifying, but you need so many of these. You are doing low earth orbit kind of cheap disposable satellites. You know, that's, that's the business model here. You're not, you're not building a satellite capable of looping around Pluto or something. So there is going to be a constant, constant cost. If you bring the unit economics down, that makes it a real difficult thing especially look, Amazon's doing this, ASTS is doing this. There are legacy providers who do this. And all by the way, the nature of physics, it is always going to be second best. It's, you do have a cell tower. So it is going to be for most things, for for most large markets, a complimentary, not a replacement product. I love Starlink and I love the potential here, but I'LL be honest, if it was a standalone, I don't think I, I don't think I'd buy it because even that, I think it's. There are question marks here, period.
- [07:59]
A
John, I want to touch on the AI piece because that is according to SpaceX, according to the biggest total addressable market for them. And this is something that is going to capture investors attention as SpaceX goes public. But it's really. There's a lot of questions about what the business model is even going to be here. We've seen over the past just few weeks that Colossus 1, which was, this was the big data center that they built in Memphis, that Jensen Wong just was. Oh my gosh, only Elon Musk can build a data center this fast. Then it turns out it's very, very low utilization because people just aren't using Grok. So they decide to lease out this data center to Anthropic. Now that turns into positive revenue, potentially positive free cash flow. The reports are it's about $1.2 billion worth of revenue per month. That's going to be starting to come in this month and I think it ramps up next month. But is that the business? Is this just another NEO cloud or is this, Are you buying Grok? I'm a little bit confused about what the AI business is actually going to be.
- [09:02]
B
Yeah, I mean, well, you look at it, you project forward. This, this anthropic deal is, is just brand new here. You project forward 15 billion in annual revenue. From that, you look at what the AI component of SpaceX generated last year in 2025, we're basically at an $18 billion AI business here. At a, at a run rate of 18 billion, you look at what SpaceX, the, the space part of it did last year, did about just less than 16 billion in annual revenue. So right now, if you look at a run rate perspective, about 55% AI, 45% space. That's really interesting, especially when you're looking at where is management's vision focused, where is it spending its money? I mean, and what are investors signing up for when they buy this ipo? I think they, again, to go back. I think that they want space, but we need to recognize that it is getting AI. Look, Grok aside, I think it is a good idea. If you have unused capacity and you have somebody willing to pay you 1.25 billion a month, sell it.
- [10:08]
C
Yeah, Travis, you're confused because seemingly they're confused. If you read the document, they say almost 23 trillion of that opportunity is enterprise applications. To me, that seems like layering on the hyperscaler models and actually helping companies do things with it, which is probably the best business to be in. But it is separate from the hyperscaler business. At the same time, in another part, they say their biggest single AI opportunity is data centers in space, which wouldn't be included in the enterprise market. So I think it is a. We'll see here. I'll take the under on data centers in space. Bottom line here though. Here's the thing. I'm kind of talking it down left and right. I'll bet a dollar that the IPO is a big success. And so you know, it is it. Let's just see how this turns out. We're all fascinated by this. We're all looking for clues in the prospectus. There's a lot of interesting things there. But this is going to be a long term story and a lot of people are excited about it. End of story.
- [11:09]
A
We definitely got a lot more information about what SpaceX is doing. I don't know that we got all of our questions answered about where SpaceX is going. So more to be determined. But they are likely to go public next month. We will definitely be following that here on the show. When we come back, we're going to talk about Nvidia and retail earnings. You're listening to Motley Fool, Hidden Gems
- [11:29]
C
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- [12:03]
A
Hidden Gems Investing earnings season is essentially over, but Nvidia is always a little bit late to the party. They reported earnings this week, Lou. Really good results. It's hard to see a company that's growing this quickly not impress the market. But the Stock was down 2% after they reported earnings. What did you think?
- [12:23]
C
Yeah, the market yawned, right. And again I sort of think, and I've thought this for a while because this isn't we saw this last quarter too to some extent that the market is both impressed by this and also kind of maybe doesn't think it can go on forever. And so it's like, you know, like, great, we're here, but how much can you really grow? Look though, they say they're growing, which kind of leads me to the theory B, which I'm going to steal this from our colleague Tim Byers, who I think was spot on here. The market is no longer capable of being impressed by AI numbers. We are numb to these numbers. And arguably that's okay for Nvidia because there's a real there there. Long term they can continue to deliver. But as an investor, if you accept this sort of, that the market that nothing impresses, that Jen could get up there and just scream, are you entertained? And this is a yawning, bored cr, what does that mean for investors in say more fragile AI stocks that are also overvalued? Can they sustain that? I think my takeaway is Nvidia is fine, but be careful out there. If you're an investor in Island.
- [13:32]
B
Yeah, I mean, look, this is the largest publicly traded company in the world. Went from 73% year over year growth last quarter. As incredible as that is 73% to 85% growth this quarter and projecting forward expecting 97% growth in the upcoming quarter. We are talking about the largest company accelerating the revenue growth rate. I think that Nvidia needs to come back out on stage and take another bow because I don't know if we've ever seen numbers like this. Just for perspective, it increased its quarterly revenue by 38 billion year over year. That's just the increase, not what it generated. You take a company like John Deere, been around for 200 years almost at this point. That's about how much it makes in a year. That's how much Nvidia increased its revenue from last year. So just incredible numbers.
- [14:25]
A
The numbers are wild. And they also announced an $80 billion buyback program which crazy enough would be about 2% of shares outstanding. So the numbers are getting just insanely. How about dividend?
- [14:37]
C
Yeah, 25025x increase or 25x? Yeah, increase. Yeah. To 25 cents.
- [14:45]
A
Yeah. I do want to touch on retail because this was interesting. The other thing is we're starting to get retail numbers. So they're about a month lag from most typical earnings reports. So we heard from Target and Walmart this week. Kind of canaries in the coal mine, if you will. And the numbers I thought were shockingly good. John Target said that revenue was up 6.7%, 4.7% increase in same store sales. Target specifically has really struggled with that recently. So it seems like things are turning around. Management is a little bit cautious that this is sustainable. So I guess that's understandable. They're new kind of in their roles, so don't want to set that bar too high. But then Walmart also said that their same store sales were up 4.1%. So is the consumer actually a lot better off than we thought?
- [15:32]
B
Well, more important than the number itself, I always like to look at the traffic. This is feet in the door. And for Target it was over a 4% jump in store traffic. That is real growth there. It's not just an increase in prices. And similarly, Walmart saw that 3% jump in traffic as well. So these are retail giants that are getting increased activity and that's a good thing. That is actually a really good economic indicator. So that may be surprising given the economic environment that we're in.
- [16:07]
A
Yeah, Lou, the other thing to point out is that this quarter, part of this quarter did happen after the Strait of Hormuz, you know, in the Iran conflict began. So the impact of oil prices doesn't seem like it has dampered consumer enthusiasm at least yet. But you know, there's, there's some things like inflation, higher gas prices kind of coming down the pipeline, but we're not seeing bad numbers despite the fact that consumer confidence is not great right now.
- [16:35]
C
Right. I mean, I don't think, look, you're right that the conflict had started, but gas prices in particular are a slow drip. So I don't think we should read too much into kind of the impact of that based on numbers that, that kind of, you know, from March, the whole thing. Like, look, I don't know, I don't know how much to read into it because for both Walmart and Target, it feels like regression to the mean in opposite directions. For Target, this is a good first step. But as they say, you know, a journey of a million miles begins with one step. They have a long journey ahead of them just to get back to break even. Good. They've started that journey, they've done good things in this quarter. You'd still rather have been a Walmart holder over the last five years. And we'll see on that with Walmart. The most fascinating thing, we have given them so much credit, and deservedly so, for kind of stealing Target's lunch and moving upstream into the higher net worth consumer. It feels like that's biting them a little bit because there's actually signs that instead of Walmart being the beneficiary of trading down, that maybe they're feeling a little bit. But either in product mix or just people going elsewhere, I think Walmart survives
- [17:49]
B
that meaning they've moved too high up
- [17:50]
A
on that consumer scale.
- [17:53]
C
Higher, higher, higher. You know, and so now like, like things like, like times when they used to be the clear beneficiary, it's just a little more wishy washy and, you know, that's who they are. That's fine. I think it's still a net positive. But it's funny, like it's a reminder that we can't let our conventional wisdom on these companies really rule us.
- [18:12]
B
Well, and I think that it's so tempting to say, look, the consumer is stressed and so it is trading down to a lower priced retailer. But that explanation doesn't totally cut the mustard because you look at the restaurant results here recently. Cava. Look, I'm not saying it's the most expensive place, but I don't think that we go there when we're trying to save money. We saw a 7% increase in guest traffic there, 10%. Same store sales growth recently. That's incredible. Meanwhile, Wendy's, same store sales in the USA, down nearly 8%. So not everything makes sense.
- [18:44]
A
Yeah. Trying to draw a through through line and make perfect sense has been impossible. And I think we've been trying to do it on this show. It just isn't there. But I was shocked that both of these nup companies reported really, really good numbers. So hopefully that's a good sign for the economy. When we come back, I'm going to have John and Lou pick some stocks for us. You're listening to Motley Fool. Hidden Gems Investing There are moments in
- [19:06]
D
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- [20:10]
A
Hidden Gems. Investing in this Section, we like to have a little bit of fun with investing and I want to get an idea of which stocks Lou and John like right now. So I'm going to give you guys two stocks and if you pick between the two, do something like an either or. Let's start with the topic that we started with here. SpaceX coming public. Lou, would you rather buy SpaceX's IPO figure? Are we going to be at a $2 trillion valuation? Sounds like something like that. Or would you rather own shares of Tesla?
- [20:40]
C
I mean, you know, obviously the answer is it doesn't matter because they're going to be one company in a year, so you're going to hold either in a year. But look, at least in the term, I'd actually take SpaceX and although my answer is probably neither. But here's the thing. I do believe there is at least a portion of the investing community that is more interested in investing in Elon's brain and Elon's potential to build cool stuff in the future than they really are interested in investing in Gro or an electric vehicle maker. So I do think that naturally, if you have two securities in which you can do that, they're going to compete with each other, right? One of them is a brand new flashy story with a total addressable market that basically equals US gdp. The other is I think, still an attractive story and, you know, with areas where they're trying to grow, but there's a lot of water under the bridge there. So I do think there's a real risk, at least in the near term, people will trade out Tesla to buy SpaceX to get the fresher, newer version of invest in Elon's brain. So in the near term, anyway, I think I'd rather be sitting in SpaceX right now.
- [21:51]
B
It's so interesting. Morgan Housel, the author, Morgan Housel he talks about how two very smart logical investors can disagree over something here. So I'm going to disagree with Lou. But Morgan Housel points out that oftentimes a disagreement is just over time horizon. And so when I make an investment, I'm thinking five years. If I am buying a stock today, for the next five years, I'm picking Tesla. And I. But I agree with Lou's point here that maybe over the nearer term SpaceX is the one to own. But when it comes to Tesla, and kind of the reasoning goes back to what Lou was just saying, investing in Elon's brain, for whatever criticism there might be, he does have this just incredible tenacity to stick with something, and I know that we disagree on that. But when you look at what he has been able to roll out in the electrical vehicle market, I've seen a lot of other players come into this market and give up before they reach the finish line. It has, he has really built this into an incredible business and I, I really think that he is going to see the Optimus program, the, the robots. I, I may have my doubts about that. At the same time, I do think that there is going to be a marketable opportunity there. And I, and I do believe he's going to stick with that and create something pretty impressive. So if I'm thinking five years out, I am thinking Tesla here. I have questions about SpaceX. Even though I do love the space economy.
- [23:14]
A
One of the things that's interesting with these two companies is it seems like the story is going in the same direction, meaning AI, and particularly the CapEx related to AI is happening at both of them. I think Tesla said in the most recent quarter that their AI investment is going to explode. To off the top of my head, I think it was $25 billion this year. So they're not going to be the biggest investor in AI. But then you see the SpaceX numbers and you're seeing the exact same thing. So is it almost like you're buying the same future, even though one of them is starting with space and satellites and the other one's starting with electric cars?
- [23:49]
B
I absolutely think that is true, Travis. I think that these are going to be very similar in direction and even similar in focus. You look at one of the big. We didn't talk about this. One of the big expenses coming up for SpaceX, like it or not, is the Terrafab project that Elon Musk wants to create.
- [24:08]
A
Tesla will also be involved.
- [24:10]
B
Yes, exactly. And that's the point, is that that's a joint collaborative effort and intel is also in the mix there. ASML CEO just going on record recently saying, hey, I've been talking to Elon Musk directly. He is very serious and so the ASML machines are necessary for everything that he wants to make in the Terafab and already having those discussions. So yeah, that's going to be a big capital outlay. They want to be vertically integrated in semiconductors, in AI. So definitely something to watch.
- [24:40]
A
It's definitely going to be interesting to see how investors are pulled when there's two Elon Musk companies. And if we do get to the point where they merge into one, as Lou said, let's talk about the Other companies that we talked about a little bit, Target and Walmart and I just want to give a couple numbers John, before, before I have you pick between the two. Target currently trades for a trailing price to earnings multiple of 17. Walmart has a trailing price to earnings multiple of 42. So very different valuations. But if you have to own one of these stocks, Lou said it, Walmart has been the better performer over the past five years. But if you had to buy one of these stocks now, which one is it?
- [25:18]
B
It would be Target and it has been Target for a while now. You know, I do believe that this is a company that is potentially able to run the same playbook that Walmart ran. Walmart was able to create more revenue and higher margin revenue thanks to the advent of its digital businesses and its rise in things such as its marketplace, its digital advertising, other things, even its membership program. Target is trying to run the same playbook. It's been slow to do it, it was slow to get started and but I think we're seeing some of that guest traffic coming back. We are looking at historically lower profit margins for Target right now. And it's trading at that cheap valuation, at the lower profitability. What happens when those margins start to improve all of a sudden? We could see a big jump in earnings and the stock would look quite cheap today by those standards.
- [26:13]
C
Yeah, I'll be honest, I'm not fully convinced the Target can execute from here. But look, there was a non zero chance that this was going the way of J.C. penney's or Sears and you know, just, and I know it wasn't likely but we've seen this in retail too many times. You do not have the right to exist. I think this quarter, if nothing else, has done a lot of work just kind of eliminating that possibility with Walmart. It's an incredible company. I still think it probably is the best, better ultra long term investment. But I'm not going to pay 45 times earnings for a company with decelerating sales. You know, same store sales and in a tough economy. I think my answer is neither. But I would invest in Target.
- [26:56]
A
It's going to be interesting to see what they're going to be able to copy from Walmart. The other thing to highlight with, from John's point is Target is leaning more into what they call their frequency, which is food and beverage and beauty are two of the things that they called out in the conference call. You know, they have not been driven by grocery the way that Walmart has over the past decade or two. They're trying to follow those footsteps. They're not there yet. And there's a lot of work with the physical infrastructure, you know, changing stores. You go into a Walmart, you know, it's almost a grocery store with a Walmart attached. Target is not quite at the same point. So it'd be interesting to see if they are able to copy that. All right, let's talk about the world of AI chips. Lou. Nvidia reported this week AMD stock is on fire. If you have to buy one of them right now, which one is it?
- [27:47]
C
I'm going with the winner. I'm going with Nvidia. I like what AMD has done. I think they've kind of positioned themselves as the insurance policy for the, for the industry. But look, for all we talk about Nvidia, look, we got what a 26 times multiple versus an almost 60 times multiple or so on a forward basis.
- [28:06]
A
We're at 22 right now. Right now, yeah.
- [28:09]
C
You get the undisputed leader. And mind you, even after, if this does turn out to be a bubble, a company that has multiple times been through a bubble and come out the other side and found ways to grow value again, I'm still going with the big dog here.
- [28:26]
B
I'll take the other side of that. I'm going with amd. This is actually one of the most recent additions to my own stock portfolio. And the reason being is agentic AI. You have the AI agents coming in and that is more CPU intensive than GPU intensive. And so Nvidia has been able to benefit from just this massive increase in GPU demand. In fact, CEO Jensen Huang saying, we think that our Vera Rubin system is going to be supply constrained through its entire life cycle. That's such an incredible statement to make. But with AI agents and you talk speaking of Wong, he says we're going to have all of our employees running 100 AI agents. Whether or not that actually is true, you're talking about an incredible increase in CPU needs. For some people that means an investment in intel, but for me that's an investment in amd. I really think that it's going to be a beneficiary here. And I think you're going to see those margins rise pretty fast. And that PE multiple that you cited, I think it's going to look a lot cheaper very quickly.
- [29:30]
C
Yeah.
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A
Their forward price earnings multiple just for comparison is 26. So there's a lot of growth in margins that are priced into the stock, but not quite as expensive as it may seem on the surface. If you're looking at trailing numbers. CPUs by the way. Also something that Nvidia is talking a lot about now that they are also in the CPU game, which is a fair point.
- [29:49]
B
A fair point and a fair risk.
- [29:51]
A
When we come back we are going to talk about the apparent cancellation of the saaspocalypse. What do John and Lou think you're listening to Motley Fool Hidden gems investing
- [30:01]
D
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- [30:47]
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. One of the things that we have talked about a lot on this show and the market has obviously been thinking about is the SaaS apocalypse. A lot of software stocks are down significantly in 2026. But John, as we get through the first quarter earnings season and we got a couple of reports this week, it doesn't seem like things are nearly as bad as projected a couple of months ago. So what should we be thinking about software right now? Is this an undervalued sector? We should be looking for opportunities.
- [31:39]
B
I think that some parts of this sector are undervalued, but definitely not all of them. I don't think that we saw any financial results this week that changed the big picture. And so I want to start with that for just a moment. Why should anyone listen to me? I'm just a dude, but if you're going to listen to somebody, how about we choose somebody who's smart and close to the situation. And I'm thinking Cloudflare CEO Matthew Prince. Prince says that there are three areas of work. There are builders, there's sellers, and there are measurers. And when it comes to software that helps you build a product or software that helps you sell a product, both of those things are fine. But when it comes to things that help you measure work results, that is where AI is disrupting. And so he actually gave two examples of this. First, it talks about finance. So think internal auditing. Think, you know, where's the money going? Are people spending the money correctly? That's one area. And then another area is marketing, always measuring, you know, are we hitting our campaign goals? Is it working just right? AI tooling can make that kind of instantaneous, more precise. And that is the areas of the software market that I really think the disruption is coming for AI. So the companies that are doing that, I'm actually worried if I'm Salesforce or Intuit here. This is customer retention management software. This is financial software. I think that these areas are being significantly disrupted by AI and I'd be a little.
- [33:10]
A
And is that because they're so established in a legacy workflow, you know, where, okay, this is how I do my taxes. And then if, if things are going to completely change and I'm just gonna, I don't know, put all my tax papers on a, on my desk and just take a picture and then AI figures it out, it's probably not going to be Intuit who wins that market. And you could say the same thing with Salesforce, where, you know, entire businesses are built on Salesforce. But if we change everything, why are we going to stick with Salesforce? Is that, is that kind of right?
- [33:37]
B
Yeah, that's kind of how I'm thinking about it. To be fair, with Intuit, I'm not really thinking TurboTax as much as I'm thinking QuickBooks, but. But yeah, this is definitely something. These domains are areas that I'm worried about.
- [33:49]
C
So here's what I'd say is that I don't think it's going to be a zero sum all or nothing, but, you know, but the examples you just gave Travis, maybe AI doesn't destroy these businesses, but what does it do to their pricing power? I've joked about this before, but if I was the purchasing manager at a big company, whether I intended to or not, when I got my renewal from all of these SaaS vendors, I'd say that's great. I'm just going to talk to OpenAI and then I'll be back with you in a week and see what that, see if I don't get in the next few days, I'm like, you know what? We found a way to make it work where we're not going to up your bill by 3% this year. So I don't think it is. I think what's lost in the SAS apocalypse talk is the all or it's an all or nothing zero sum game. I think the truth is probably somewhere in the middle that maybe these businesses aren't destroyed, but their attractiveness as a long term investment because of their ability to generate margins, growth, increasing profitability, that's where they're vulnerable. So I think it's just hard. The other thing is I'd really like to see it instead of just trade stocks down 70% on the assumption. And so far we haven't really seen it. But I do think that the answer is probably somewhere in this strange fuzzy middle where, yeah, the best times are over, but there are ways to adapt.
- [35:15]
A
Yeah, John, to talk about some of the specific results we got this week, workday, their revenue actually accelerated from 12.6% growth a year ago to 13.5% in this most recent quarter. Zoom also accelerating. A year ago they reported 2.9% growth and now it's five and a half percent growth, not quite as impressive. But Zoom, you know, arguably one of those huge values. So it seems like the numbers aren't that bad from the companies that you would think would be affected by this SaaS apocalypse disruption.
- [35:44]
B
Yeah, I don't know if I want to call Zoom's most recent quarter return to glory. I don't know if I want to own a software stock that is trading or that is growing revenue at 5%. I mean, that's just not enough to do it for me with workday, I want to be fair, I think it was a perfectly fine quarter, but, you know, I'm going to tap the brakes. Management kind of bumping its chest a little bit saying, hey, this is our moment. AI is great. If you look at the guidance for the rest of the year, it could potentially hit its slowest growth rate as a publicly traded company. So I don't know if AI is the catalyst that workday is making it out to be, but for now it is doing fine.
- [36:22]
A
We like to end the show with the stocks that are on our radar. John, what are you looking at this week?
- [36:27]
B
Yeah, this week I am looking at one that is definitely off the radar. And this is onto innovation. Ticker symbol onto. This is one that's already up a ton. I wish I brought it earlier. It's up about 60% this year. Trades at over a hundred times earnings. This might be the most expensive stock I've ever brought to the show, but I do think it can outgrow its lofty valuation. So what does Onto Innovation do? It makes equipment that inspects semiconductor products for defects. So as these products get smaller and smaller, we're talking about atoms at this point. The need for checking for defects gets higher and higher. It does become greater. Onto has been able to acquire other businesses and it's really kind of developed good technology for this. We're talking 2D measuring. We're talking 3D measuring. So really great equipment. As manufacturing for semiconductors is increasingly brought into the U.S. all of the major players are talking about this. We're talking Micron, intel, even SpaceX. We're talking about the terafab. These are coming into the U.S. i think that that provides a growing market for Onto innovations measuring products. Revenue is near records, growing, low double digits. Operating margin close to 20%. Balance sheet is debt free. I think it's a business poised for the long term.
- [37:45]
A
Dan, what do you think about Onto Innovation? This is a truly strange business, y', all, because it started in 1940, it's been public since 1999, does not even have a Wikipedia page, so I don't know. True hidden gem. Yeah, really? I'm not a huge fan of the big P E ratio, but I'm curious, Lou, what do you got? Maybe another hidden gem on the radar this week.
- [38:11]
C
Lou, again, I think this one probably has a Wikipedia page I didn't check. But Dan, I am looking at IBM. I think, you know the ticker is IBM. Shares of Big Blue were up 11% on Thursday after the U.S. commerce Department announced a $1 billion grant to fund the con, their quantum computing effort. I'm going to gloss over the discussion about government picking winners, et cetera, et cetera. Look, we're not going to solve anything there. It's always happened. And I also am not going to try to make the case that Quantum is really investable right now. IBM thinks it's a multibillion dollar opportunity, but in 2040. So I'm not going to try and say it's anytime sooner. To me though, the investment is a reminder that IBM, which has been what left for dead numerous times since the mainframe era, just keeps chugging along. And yeah, they are likely to still be in business doing things in 2040. Let's be honest, the jury's still out on some of these SaaS stocks or even AI stocks. And whether or not that's true for them too, and the company's mix of consulting and tech, it seems to be doing a pretty good job winning AI business these days, too. Based on the results, stock, even after Thursday's rally, is basically flat over the last year, priced at 22 times earnings. Not outrageous for a tech company. Probably not a 10x here, but Dan, if you want tech ballast in your portfolio, I think you can do a lot worse than this one. IBM, Big Blue for the win.
- [39:31]
A
Dan, have you been to IBM's Wikipedia page? Yes, I have. It does exist. I can confirm. Also, Lou was being funny before the show and he was, you know, introing his radar stocks and was like, dan, do you need the ticker? And so that was really funny. Lou, you're a hilarious guy. Dan, which one is going on your watch list? Like I said, I'm curious about Anto. So Anto it is. Congratulations to John for Lou Wiban, John Quast, and our production leader, Dan Boyd. I'm Travis Hoyam. Thanks for listening. We'll see you here next time.