Tariffs Loom, Tesla Underdelivers

Summary

Motley Fool Money: Tariffs Loom, Tesla Underdelivers – Episode Summary

Release Date: April 2, 2025
Hosts: Mary Long, Dylan Lewis, Ricky Mulvey
Guest: David Meyer

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Introduction

In this episode of Motley Fool Money, hosted by Mary Long alongside Dylan Lewis and Ricky Mulvey, the discussion centers around two pivotal topics impacting the stock market: impending tariffs announced by the Trump administration and Tesla's disappointing first-quarter performance. With the backdrop of President Donald Trump's scheduled announcement titled "Make America Wealthy Again," the episode delves into the uncertainties surrounding tariff implementations and their potential effects on various industries. Additionally, the episode examines Tesla's underwhelming sales figures, exploring whether this slump is a consequence of broader market trends or specific company-related issues.

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Make America Wealthy Again: The Impending Tariff Announcement

Mary Long opens the conversation by highlighting the significance of April 2 as "Liberation Day," coinciding with the day after April Fool's Day. The primary focus is President Trump's forthcoming announcement from the White House Rose Garden, branded as "Make America Wealthy Again." This event is anticipated to unveil new tariff policies, but the specifics remain unknown, leading to market anxiety.

Uncertainty and Market Reaction

David Meyer underscores the unpredictability of the announcement, stating at [01:30], “We literally have no idea. It could be anything.” This uncertainty is a significant source of market volatility, as investors grapple with the lack of clarity regarding the magnitude and scope of potential tariffs. Mary Long echoes this sentiment at [02:32], emphasizing that the prevailing anxiety stems from the unknowns surrounding the event.

Potential Outcomes and Investor Sentiment

Meyer discusses the possibility of various tariff levels, noting at [03:08], “We keep hearing 20% across the board, but it could just be reciprocal when other countries don't have big tariffs on us... we really don't know.” The uncertainty whether tariffs will be implemented at the expected 20% or if there will be exemptions could either dampen or boost market confidence. He adds that the postponement of the announcement from 3 PM to 4 PM Eastern Time indicates strategic timing to affect market closure dynamics.

Long-Term Implications for US Manufacturing

Mary Long prompts a discussion on the long-term goals of the tariffs, specifically boosting US manufacturing and American jobs, despite short-term economic pain. Meyer responds at [05:37], highlighting the gradual nature of such economic transformations: “You can't just build a plant overnight. That's not how that works.” He emphasizes the need for patience, as businesses will take time—potentially three to six months—to adjust and implement strategic responses following the announcement.

Corporate Responses to Tariffs

Mary outlines how various corporations are already adapting to the tariff landscape:

• Johnson & Johnson: Committing $55 billion in US investments over the next four years, including the development of three new manufacturing sites.
• Walmart: Negotiating with suppliers to cut prices, effectively absorbing some of the tariff costs to maintain low consumer prices.
• Target and Best Buy: Informing customers about potential price hikes to preserve profit margins.
• Nike: Absorbing the tariffs temporarily to maintain competitive pricing.

When asked how he would brace his company for potential tariffs, David Meyer suggests proactive measures such as advancing purchases to circumvent imminent tariffs and conducting scenario analyses to prepare for varying tariff rates, as mentioned at [08:46].

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Tesla's First Quarter Slump: Beyond Musk Backlash

Transitioning to the second major topic, the hosts examine Tesla's first-quarter delivery and production numbers, which fell below expectations. Analysts had projected sales exceeding 390,000 vehicles, but actual figures were closer to 340,000—a near three-year low.

Analyzing the Decline

At [11:45], David Meyer attributes the sales slump not solely to Elon Musk's controversial actions in the global political arena but also to existing challenges such as waning demand. He notes, “people have said, hey, this is not something that we agree with and they were able to vote with their wallets,” indicating a potential shift in consumer sentiment affecting Tesla's performance.

Impact of Tariffs on Tesla

Mary Long connects Tesla's situation to the broader tariff discussion, pointing out that while Tesla manufactures a significant portion of its vehicles in the United States, it still imports approximately 20-25% of its components internationally. With a 25% tariff on imported cars and parts imminent on April 3, the episode explores whether Tesla might benefit from these tariffs differently compared to other automakers.

Tesla's Strategic Positioning

David Meyer posits at [14:04], “One of the advantages of having less content produced outside the United States is that they have better visibility into the cost structure in a tariff world.” He suggests that Tesla could leverage its domestic production to mitigate tariff impacts better than competitors and might even secure exemptions for certain imports due to Elon Musk's influence with the administration. Furthermore, Tesla's strategy to reduce vehicle prices enhances its competitiveness, potentially leading to increased sales as other automakers grapple with tariff-induced cost adjustments.

Market Reaction and Future Outlook

Despite the initial drop in Tesla's stock following the disappointing sales report, Meyer observes at [15:46], the stock rebounded by noon, indicating that investors with a long-term perspective anticipate Tesla's strategic advantages and potential recovery.

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Conclusion

The episode wraps up with Mary Long thanking David Meyer for his insights into the volatile tariff announcement and Tesla's performance. The discussion highlights the pervasive uncertainty in the market due to impending tariff policies and underscores the importance of strategic adaptability for businesses. Additionally, Tesla's situation serves as a case study in how company-specific factors and broader economic policies intersect to influence corporate performance and investor sentiment.

As the hosts transition to other segments, the episode leaves listeners with a nuanced understanding of the complexities surrounding tariff implementations and their multifaceted impacts on different sectors within the stock market.

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Notable Quotes:

• David Meyer [01:30]: “We literally have no idea. It could be anything.”
• Mary Long [02:32]: “We have no idea what's going to happen. And that uncertainty is what's largely been tied to kind of the freakout that's been happening in the markets.”
• David Meyer [03:08]: “We keep hearing 20% across the board, but it could just be reciprocal when other countries don't have big tariffs on us... we really don't know.”
• Mary Long [05:37]: “When will we know if those intended long term effects... is actually starting to come true even in spite of some short term pain?”
• David Meyer [14:04]: “One of the advantages of having less content produced outside the United States is that they have better visibility into the cost structure in a tariff world.”

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This comprehensive summary captures the essence of the Motley Fool Money episode, detailing the critical discussions on upcoming tariffs and Tesla's sales decline while integrating notable quotes and timestamps to provide context and depth.

Transcript

[Jason Hall]

Foreign.

[Mary Long]

Welcome to Liberation Day. You're listening to Motley Fool Money. I'm Mary Long, joined on this Wednesday morning, the liberation day of all liberation days, by a Mr. David Meyer. David, great to see you. Happy to have you. How you doing?

[David Meyer]

I'm doing well. It's great to see you, too.

[Mary Long]

So today is April 2, the day after April Fool's Day. It's also, as I mentioned a few times already in this show, it's also Liberation Day. What the heck does that even mean? It's a great question. It's a fair question. We don't actually fully know.

[David Meyer]

No, we don't.

[Mary Long]

But we are set allegedly to find out later Today at full 4pm Eastern Time, when President Donald Trump is scheduled to make an announcement from the White House Rose Garden. This event is being dubbed Make America Wealthy Again. We're recording this at 11:30am Eastern. The show won't come out until right out right during, right after the Make America Wealthy Again event. So we're not going to talk too much or make too many predictions about what exactly is going to unfold during that event. But David, I will ask you to kick us off anything you're keeping an ear out for that you're especially going to be paying attention to or any bets you're making on what exactly might unfold.

[David Meyer]

We literally have no idea. It could be anything. We can't make any bets right now. And that's actually an issue that's facing the business community at large. So it's actually an important event where we're going to get some information. One, what's the magnitude? We keep hearing 20% across the board, but it could just be reciprocal when other countries don't have big tariffs on us, you know, there could be carve outs, there could be exemptions. There could be, it could be, there could be anything. We can go in different parts of the, you know, we can tariff certain parts of the world and not tariff certain other parts of the world. We really don't know. So it's going to be the thing that we have to do is just listen and digest the information that we get this afternoon from 4 to I think it's 4 to 5.

[Mary Long]

So you hit on this point. Many other people have hit on this point. It's worth hitting on this point again that so much of the, the anxiety wrapped up in this event is that there is so much we don't know.

[Ricky Moly]

Right.

[Mary Long]

We have no idea what's going to happen. And that uncertainty is what's largely been tied to kind of the freakout that's been happening in the markets. We know markets love certainty. Okay, it sounds like we're going to get some details from 4 to 5 Eastern Time today. The result of those details might not be something that people are rooting for, everyone is rooting for, but still it, it will be a bit, we'll have a bit more certainty then than we do now. Do you think that, that intel, that certainty, however, however great or small it might be, is enough to, or will be enough to calm investors?

[David Meyer]

I don't know. I don't, I don't. I know that's a horrible answer, but here's the thing. This is, this is the way markets tend to work. There's a set of expectations, right. And what we have seen for a little few weeks now, right, is some, you know, some days the markets are getting a little bit worried and the, the trend has been down. So market investors are definitely thinking that there's perhaps some bad things coming forward when they look out into the future. Right. There's a little bit of worry about recession, there's a little bit of worry about inflation coming up. If we get information where tariffs are higher than the market expects, what's that going to. That, that means that, oh no, oh no, I need to change my expectations as investors. Something like that could cause, put pressure on the market and cause it to go down. If we get something like if. So we've been hearing 20% across the board sort of as the, you know, the one thing that's been coming out pretty steadily, if it's 5% across the board, if that's not priced in, that could actually cause markets to jump. So as far as calming investors, we don't know. But again, there's a little bit of level set right now where there's again, sort of an expectation of something around 20% across a wide swath of the globe. Markets haven't really liked it for the most part if you look at the general trend. So again, we're just going to have to see. It's also interesting that he, that the White House moved this from 3 to 4 to wait until markets closed.

[Mary Long]

So yeah, the Trump administration argues that tariffs are just one part of Trump's large economic agenda and that ultimately the point behind them is that they will work to boost US Manufacturing and American jobs. So short term pain is expected to be a part of that process. Perhaps why we've seen this, this event move from three to four. It expl, kind of the, the, the downward moves that the market's been making recently in the past quarter. But let's zoom out and let's, let's run a little bit with this longer term trajectory. When will we know if those intended long term effects More American manufacturing, more American jobs is actually starting to come true even in spite of some short term pain, continued short term pain.

[David Meyer]

So it's a great question. It's actually a very foolish question because ultimately, you know, we don't want to necessarily be responding to the ultra short term. We want to figure out o what, you know, longer term, what is this going to mean? So I love what you've asked here. Unfortunately, increasing manufacturing both from a plant standpoint as well as a job standpoint, that just takes a while, right? You can't just build a plant overnight. That's not how that works. So when will we start seeing results? Well, first of all, we got again, we got to figure out what's being said. Business leaders need to start figuring out, okay, what does that mean? And then we'll start seeing some people have made some commitments already, you know, about, hey, you know, we, we want to be a part of this. We want to bring manufacturing back. But others are like the CEO of Ford in an investor conference the other day basically said right now, like it's all chaos and costs. Okay, so once you get enough information to remove the chaos and then actually figure out what the costs are, then we'll start to see businesses making plans. Then we'll start to hear, okay, this is what we're going to do in response to the tariff. You know, we're going to, we're going to go after this market. We're going to start making this many widgets. We're going to make them in this state by, by opening up a plant. Unfortunately, it's not going to be, you know, probably three to six months before we start seeing those business plans and, and ser plan. It's not just, hey, you know, we want to be a part of this, but here's actually what we're going to do. Here's how many dollars we're going to spend. Here's where we're going to build those plants. That's just unfortunately going to take a while. So we're going to have to be patient.

[Mary Long]

We are already, as you kind of allude to, we're already starting to see some companies respond to these tariffs and they're doing so in a number of different ways. Right. So, okay, you've got some like Johnson and Johnson which just announced, okay, it's making commitments to boost its own U.S. production. It's going to commit $55 billion in U.S. investments next four years. They're going. That includes the, the development of three new manufacturing sites. You've got other companies like Walmart that are turning to their suppliers for, in Walmart's case, many Chinese manufacturers and are asking those suppliers to cut prices and essentially shoulder Trump's tariffs for the company. You've got other companies, Target and Best Buy being two, two in particular, that have warned customers about higher prices as they strive to preserve their own profit margins. And then you've got kind of another, the opposite of that is Nike, which adjusted its margin gu and it's suggesting, hey, it'll attempt to absorb the tariffs for the time being. So, okay, there's still a lot of uncertainty, but we're already kind of starting to see these different, these different defensive moves come into play. If you are the CEO of David Meyer Enterprises, and I've intentionally kept that unspecific because these approaches seem to be, yes, it doesn't matter what industry these companies are in, but if you're a CEO of David Meyer Enterprises, how would you be bracing your company for whatever tariffs might be coming down the pike later today?

[David Meyer]

Okay, so I'm going to work on the assumption that I make something that I'm a manufacturer. Okay. Because I think this will help illustrate some stuff. First of all, we knew this was coming, right? This was something that the new administration campaigned on. They've talked about ever since. So hopefully I've already made, and we've seen companies do this too. Hopefully I've already made some advanced purchases of things that I think I'm going to need from other countries before the import tax, which is what a tariff is, gets put on the, the stuff I'm trying to buy. So that, that's the first thing. The second thing is I, I need to run some different scenarios. Like again, if it's 5%, if it's 10%, if it's something ridiculous like 50%, what does that mean for demand for my products? So hopefully I've also done some scenario analysis and then I'm going to actually talk about something real quick as it relates to Walmart and then assume that my company has this as well. So Walmart is, can be considered what is known as a monopsony. And that is essentially where one company is powerful enough to really control prices by their buying power. Think about Walmart, right? Huge company, lots of stuff goes through there. So of course they can go to their suppliers and say, look, you know, you don't have that many other options like we buy most of your stuff, sorry, but you're going to have, you know, we're not in a position where we're, you know, we can go and find other suppliers and work with them. We have plenty of people who want to work with us. So you know, you're going to have to take the pain here because we're not willing to bring that on the American consumer as Walmart. If I was fortunate enough to be, to be in that position, I would have been as CEO of an enterprise that could do that. I would be telegraphing that to my suppliers as well. Because again, what we want to do is try to make as many plans as possible before it comes. Then once we get the information, more, more information, better information to figure out, okay, this is the direction we want to go from this point forward. So that's how hopefully I would have been preparing for digest and then say, okay, we now have information. We, we now have the information to say this is the direction our business needs to go. And then go.

[Mary Long]

We'll move on to a related but also unrelated story. Tesla dropped their first quarter delivery and production numbers this morning. Yes, vehicle sales fell to an almost three year low. Analyst had expected the company to sell more than 390,000 vehicles in the first quarter. The real number was shy of 340,000. Is this sales slump attributable to, to musk backlash or is there kind of more to this story? How do you parse this out when you look at these numbers?

[David Meyer]

A good question. So there's actually a little more to this story and I will also, for a little additional context, I will also say that prediction markets were expecting about 356. So not only do you have experts, you know, say three, they were expecting 390. But you have, you know, wisdom of crowd saying 356. So this number is even lower, is really was lower than a lot of people expected. Recently Tesla has been having some struggles. So it's not just full Musk backlash around the world based on what he has decided to do, injecting himself into the global political scene. There was already a little bit of waning demand. Unfortunately I think that people have said, hey, this is not something that we agree with and they were able to vote with their wallets and say hey, we're not going to buy your car under these set of circumstances. It doesn't mean it won't change in the future. But right now. So I think some of it is that this is a continuing trend that Tesla has experienced. But there's been a little bit of a catalyst in terms of the. I believe that there's been a little bit of catalyst in terms of the backlash for what How Musk has interjected himself into the global political scene.

[Mary Long]

This Tesla piece does tie to the the tariff conversation that we were having earlier. Many Tesla vehicles are produced in the United States. The Model Y scores as number one on Cars.com's American Made Index. Still, though, they do Import an estimated 20 to 25% of goods from international sources. We don't have an exact number on that that estimate comes from. The National Highway Traffic Safety Administration doesn't specify which countries Tesla imports from, but we know that it does get a number of its goods from international sources. So a 25% tariff on all imported cars and car Parts starts tomorrow, April 3rd. Tesla is one of the carmakers that stands to be less affected by those tariffs because so much of its products are produced in the United States. But might that tariff change that's rolling out to all automakers, might Tesla expect to see an uptick in vehicle sales in the nearest future because of that and kind of changing dynamics in car prices?

[David Meyer]

I certainly think it's possible. And you are right. One of the advantages of having less content produced outside the United States is that they have better visibility into the cost structure in a tariff world, in a world where there are more tariffs. The other thing is Tesla's in an advantaged position, Right? Who's to say they can't get an exemption on all those parts that they bring in from other countries? It's a very real possibility given the relationship that Musk has with the current administration. So it is absolutely very possible. And one of the things that Tesla has been doing is bringing down the prices for their cars in order to make them more affordable. So in a situation where other substitutes. Right. The competitors have to figure out what to do with the tariff. That and the amount that's been levied on them. How much are they going to pass along in terms of prices? How much are they going to deal with in terms of their margins? This very well could give Tesla an advantage in the short term. And what's interesting is the initial market reaction today on April 2nd was the stock fell on the production and deliveries news. But last I checked, at almost approaching noon, the stock was up. So investors taking a longer term view may be seeing that very same thing that you're talking about.

[Mary Long]

David Meyer, always a pleasure to talk with you. Thanks so much for coming on the show. This morning and helping helping us sort through and make sense of all of the uncertainty that we're kind of seeing unfold today.

[David Meyer]

Thanks, Mary. I really appreciate it.

[Ricky Moly]

McDonald's meets the Minecraft universe with one of six collectibles and your choice of a Big Mac or 10 piece McNuggets with spicy nether Flame sauce now available with a Minecraft movie meal at participating McDonald's for a limited time. A Minecraft movie only in theaters.

[Mary Long]

How do you know if a company is walking the walk or just whispering some sweet nothings to shareholders? Up next, full contributor Jason hall joins Ricky Moly for a look at two semiconductor companies, Texas Instruments and Taiwan Semic.

[Jason Hall]

So Jason, we are recording this approximately 48, eight hours before Tariff Liberation Day as we talk about two semiconductor manufacturers. We shall see what happens on that day. But we're taking some time to check in on Texas Instruments in Taiwan Semiconductor primarily because I was watching Scoreboard on on Full live and saw your take that. You think that Texas Instruments will outperform Taiwan Semi over the next five years. I own both companies, so what an excuse to talk about them.

[Ricky Moly]

Oh, absolutely is a little bit of.

[Jason Hall]

An intro, you know, for people less familiar with this space. What is different about the chips that these companies make from each other?

[Ricky Moly]

Basically everything I think is a summary of it. But Taiwan Semiconductor called TSMC and the industry parlance, TSMC is the manufacturer of basically 100% of the leading edge logic chips out there. So you think about the chip in your smartphone that powers your smartphone. Obviously Nvidia's, GPUs. Anybody that follows that industry closely knows that TSMC is the company that makes the chips for their GPUs. It's like the CPUs and GPUs. Right? That's like logic chips. And then you have memory chips that companies like Micron and others manufacture. So semiconductors, the leading edge stuff, that's tsmc. They also make the bulk of all of the used to be leading edge stuff because they've built out the capacity and they're such an incredible operator that they do the contract manufacturing for the big fabless semiconductor design companies. Basically everybody that designs their own chips but doesn't make them. So if it's Apple, we mentioned Nvidia, AMD is a big TSMC customer. So those companies go to TSMC to actually do the manufacturing. Texas Instruments is a fully vertically integrated semiconductor manufacturing. They do their own design. They work with some clients to design special needs chips. But a lot of it is just stuff that they've designed over the past 50 years. And like some of the chips that they designed, you know, back in the 80s are still being sold to go in industrial machinery and that kind of stuff. They have a big direct sales channel on their website, over 100,000 customers. And a lot of them just go on their website and find a part off the shelf and order directly from Texas Instruments. Now here's the biggest separator is it ships are analog chips and integrated chips. So the best way to think about what they make is the logic chips that TSMC makes and the memory and all that kind of stuff. All that stuff operates in the virtual world, in the electrical electronic world. Those chips have to interface with the real world. They need to get power in, they need to send signal out. And that's what Texas Instruments chips do, is they're how electronic devices actually interact and interface with the real world.

[Jason Hall]

Both of these businesses, semiconductor stocks, have historically been cyclical businesses. Taiwan, semi, definitely at a high point right now, or high ish point I should say. Do you still see semiconductor stocks as cyclical businesses and does that affect the way that you invest in them?

[Ricky Moly]

Yeah, absolutely. Businesses are cyclical when their customers and end markets are cyclical. And the end market for chips are still cyclical because of that reality. What has changed, Ricky, is the size of some of those end markets. We think about logic, that's TSMC and memory. Those industries have benefited from this explosion in demand for accelerated computing infrastructure. And it's bigger than just AI goes before. AI is the cloud, right? This accelerated computing infrastructure. And now more recently, of course, AI has been like the nuclear explosion in demand. And that's led to this super cycle for TSMC and some other companies that are reaping those gains. And the demand is so big, this market, this new market is so big for those companies that they're more than making up for lost volume and revenue from other sectors that have been weaker, like PCs, consumer electronics, industrial and automotive.

[Jason Hall]

So now let's separate these companies a little bit. Both cyclicals, but both have different stories. Right now Texas Instruments has come off a bit of a weak period, 2024, a bit of a down year from a revenue and operating profit perspective. And that has a lot to do with their embedded processing business. Can you explain what's going on there?

[Ricky Moly]

Yeah, so there's, there's definitely some kind of asynchronous cyclicality between its analog business and it's integrated business. But the big thing that we're seeing broadly is that it's in the late stages of a transformation in its manufacturing. It's shifting to a larger form factor for its chip making. That's going to give it some structural benefits. But there's a protracted downturn in demand across multiple end markets. We actually just saw the last quarter that it reported was the first quarter in about two years where its analog business actually showed just a little tiny bit of demand growth. We can go back to 2023, when demand was really down for its analog business. This is the larger business too. And there were some periods where demand was actually up for the integrated business. So it's a little bit of a difference in how different parts of the cycle can affect those key businesses. But again, the big key right now for Texas Instruments is, is that not only is the business weak, but it's kind of exacerbating its bottom line because it's about three quarters of the way through this big capital project to spend to make some structural changes to its, its cost structure and its manufacturing that are going to eventually help the business do better. But the timing is just really tough.

[Jason Hall]

In the past few years, extraordinarily strong for Taiwan Semiconductor. Its shareholders have been rewarded quite a bit. Why are you seeing an opposite story for that chip manufacturer?

[Ricky Moly]

So, I mean, the easy answer here is AI, and it's largely the correct one. We've also seen some recovering demand in other areas like smartphones. But being essentially the only contract manufacturer that has both the capability and the capacity to make the most advanced chips, it's been a massive, massive boon for tsmc. In one sentence, if you're Nvidia's foundry, you're doing really, really well right now.

[Jason Hall]

And with tsmc, there's a different political component because it is sort of this national security infrastructure for, for Taiwan. China has had its eyes on Taiwan. It's an extraordinarily complicated story between the Taiwan and greater China relationship. All of that is to say, if you are sitting in the United States, this is a company that carries some political risk that you probably don't fully understand. I don't fully understand it. How do you think about this? If you're owning shares of tsmc, which I own a few shares of.

[Ricky Moly]

Yeah, I do too. It's. I mean, it's. I think it's definitely kind of in the too hard pile for most people. And even the people that are true experts in this area of geopolitics and military threat and risk would say the same thing. It's a bit of an unknowable, but it is a legitimate threat. So there's significant national security implications across every western country if those ships are made unavailable. TSMC of course is taking steps to address this expansion in the U.S. we know that's been ongoing for a while. There's also expansion in Europe. Multiple facilities are looking to bring online by around 2027. Now here's the thing. Those moves might be great for getting diversification of chips to the market if there were a military event in actually on Taiwan. But that's not really going to protect shareholders very much. I think it's important to kind of decouple those kind of things down from one another. But what it really comes down to me for is thinking about individual risk tolerance. How much do you have? If you have some tolerance to be able to be exposed to that too hard pile sort of answer, then position sizing comes into play. I'm sure there are a lot of investors, Ricky, that have done incredibly well with TSMC over the past five, 10 years that might find it prudent to reduce their exposure, take some of those profits now off the risk table despite there still being a lot of growth potential still for tsmc.

[Jason Hall]

So I, I own Texas Instruments as well. And when I, when I first, when I bought the stock a few years ago, I found this was a leadership team that was, it was saying all the right things. You know, we measure our performance on free cash flow per share. This is something that activist investors Elliott Management has more recently sort of held management's feet to the fire. They point out on their investor relations page. Look at us. We've reduced by almost 50% over the past 20 years. But during this time, over the past five years, I'll say over the past five years this total return has underperformed the S P 500. And for me, more importantly, it's underperformed the Schwab US Dividend Equity ETF SCHD, which is probably the more appropriate comparison. Big, strong companies that pay dividends. Management's saying the right things. But there's a little bit of a long term underperformance problem here. Jason, what's going on?

[Ricky Moly]

Yeah, we look at Rich Templeton who the company has basically built in his image over the past quarter century. Over the past five years we've gone from a transition to his second retirement to Haviv Alan who's a long term insider who's now running the company. And some people might say, well, what's going on? What's the shift here? I want to push back a little bit here, Ricky. Yeah, it's underperformed those indices. But over the past five years it's earned an average of 14.7% in annualized total returns. It's not like it's been a bad investment. It's just a period that the markets CAGR has been over 18%. So let's contextualize that a little bit. Also, again, thinking about the cycle, shares are down some 20% from the high back in late 2024. All this is happening during a period where its end markets are weaker right now. One more thing. If we've had this conversation just about any other time over the past few years, Texas Instruments total return would be a little bit better than the benchmark, even again during that persistent downturn in demand. So it's not like it's been a bad investment, it's just not doing as well as, as some of its peers. And again, it's trailed an incredibly good market.

[Jason Hall]

It's, it's, hey, I, I own the stock. Don't blame me. I'm just looking at the numbers here.

[Ricky Moly]

Jason, as a shareholder, I'm right along with you on this.

[Jason Hall]

Let's get back to the original premise of this conversation. TXN greater than TSM over the next 5 years. So investors have been more excited about Taiwan Semiconductor. Texas Instruments, it's doing boring stuff. It's checking the temperature on things. It's doing analog processes. This isn't the big explosive, exciting AI chip making stuff. Why are you more bullish for the long term future of Texas Instruments than Taiwan Semiconductor right now?

[Ricky Moly]

It gets back to the story of the cycle. And I think it's so important with these chip makers to remember that high fixed costs. You leverage those fixed costs when demand is strong to make more money. Take that money and reinvest in your business when the opportunity is there. And Texas Instruments has been steadily spending money through the downturn and I think that's made its stock maybe look a little more expensive on both earnings and cash flows. On the other side of the coin, TSMC's capex spending is actually down from the peak in 2023 and it's monetizing much of that spend already. Now its capex is about to start ramping back up. We talk about all of the capital commitments it's made in the US and Europe as it deploys that capital. It's going to be going, you know, for a couple years before it really starts to get a return on that capital. So chairs might look a little cheaper than maybe they really are. I also think that we need to acknowledge that we always over invest in these big build outs. History has shown us that that is the reality. All of these businesses are in a land grab mode and we're going to get to a point where there's going to be too much supply and that will lead to the cycle turning for tsmc. Now there's going to be a shift from the build out to the upgrade cycle and I think we might be maybe closer to that shift from build out to upgrade cycle than others do. The flip side of the coin here is that TSMC is going to continue to spend spend capital. TXN, on the other hand, is about 3/4 of the way through its current capex cycle, which means that its capex is actually about to fall. Just as it starts to leverage the 300 millimeter wafer size for its chip manufacturing, it's going to give it some real structural cost advantages versus its competitors. In other words, this cash flows could really begin to soar in the years ahead, making today's stock price that might look a little bit more expensive really compelling for long term outperformance.

[Jason Hall]

Jason Hall I'm going to end it there. Appreciate your time and your insight. Thanks for joining us on Motley Fool Money.

[Ricky Moly]

Cheers. This was fun, Ricky.

[Mary Long]

As always, people on the program may have interest in the stocks they talk about and 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 are not approved by advertisers. With the Motley Fool Money team, I'm Mary Long. We'll see you tomorrow.