The Fed’s Inflation Conundrum & an AI Billionaire Battle Royale

Summary

Motley Fool Money Episode Summary: "The Fed’s Inflation Conundrum & an AI Billionaire Battle Royale"

Release Date: August 1, 2025

Host and Contributors:

• Travis Hoyam (Host)
• Lou Whiteman (Investment Analyst)
• Jason Moser (Investment Analyst)

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1. Federal Reserve’s Inflation Conundrum

The episode kicks off with a deep dive into the Federal Reserve's recent decision to maintain interest rates between 4.25% and 4.5%. Host Travis Hoyam emphasizes the Fed's heightened focus compared to his 30 years in investing.

Key Points:

• Interest Rates and Mortgages: The Fed's decision to hold rates steady might disappoint some investors hoping for lower mortgage rates. However, mortgages remain high, ranging from 6.5% to 7%, making significant rate cuts unlikely in the near future.

  Notable Quote:

  Jason Moser ([01:06]): “Most people have refinanced and got that 3%, 30-year fixed rate. So it's going to be sort of a new paradigm here.”

• Inflation Metrics: Recent data shows the Personal Consumption Expenditures (PCE) price index at 2.6% for June, the highest since February, and core inflation at 2.8%. While there's improvement, inflation remains a concern.

  Notable Quote:

  Jason Moser ([02:15]): “Inflation picture is improving from, from some time ago. It's we're not out of the woods yet.”

• Unemployment Stability: With the unemployment rate steady at 4.2%, the Fed's dual mandate of maximum employment and stable prices appears to be on track.

  Notable Quote:

  Travis Hoyam ([03:32]): “With this dual mandate that doesn't seem to be a problem.”

• Fed's Decision-Making: Both Lou Whiteman and Jason Moser commend the Fed for basing decisions on data rather than political pressures, signaling a cautious and disciplined approach.

  Notable Quote:

  Lou Whiteman ([04:07]): “Rates are the primary blunt instrument that the Fed has. And I don't think they were enjoying life when rates were at zero.”

2. Earnings Reports: Meta, Apple, and Amazon

The discussion transitions to earnings reports from major tech giants, highlighting their performance and strategic moves.

Meta (formerly Facebook)

• Financial Performance: Meta reported a 22% increase in revenue to $47.5 billion and a 36% jump in net income to $18.3 billion. The company also added 6% more daily active users.

  Notable Quote:

  Lou Whiteman ([08:48]): “The core business, that advertising business is just a fabulous business.”

• AI Investments: Meta is significantly increasing its capital expenditures (CapEx) to between $66 billion and $72 billion, indicating a strong commitment to AI and other technological advancements.

  Notable Quote:

  Jason Moser ([09:50]): “Meta is using AI to make their core business more efficient in driving that net income number.”

Apple

• Earnings Beat Expectations: Apple exceeded expectations with a 10% top-line growth and 12% earnings growth, despite warnings of potential tariff impacts.

  Notable Quote:

  Lou Whiteman ([13:47]): “This quarter didn’t answer any of those big picture questions, but it does remind us of the obvious, the thing right in front of our face.”

• Growth in China: Notably, Apple saw a resurgence in the Chinese market, a significant turnaround after periods of stagnation.

  Notable Quote:

  Lou Whiteman ([13:47]): “We even saw a return to growth in China, which was a nice surprise.”

Amazon

• Steady Growth: Amazon reported a 13% increase in revenue to $168 billion and nearly a 50% rise in net income to $18.2 billion. AWS remains a major profit driver but faces growing competition.

  Notable Quote:

  Jason Moser ([15:34]): “Amazon's ad business just brought in $15.7 billion this quarter alone and it's continuing to grow at those double-digit rates.”

• Advertising Business: Amazon's ad segment is thriving, generating substantial revenue and expanding its reach through partnerships with companies like Roku and Disney.

  Notable Quote:

  Jason Moser ([15:34]): “Amazon's ad business is responsible for double the revenue of companies like Trade Desk.”

3. AI Billionaire Battle Royale

A spirited segment where the hosts and analysts pit four AI industry leaders against each other in a hypothetical battle royale.

Battle 1: Mark Zuckerberg (Meta) vs. Sam Altman (OpenAI)

• Lou Whiteman’s Verdict: Lou favors Sam Altman, scoring him 10-8 over Zuckerberg, citing OpenAI's strategic advantages despite Zuckerberg’s substantial ad revenue backing.

  Notable Quote:

  Lou Whiteman ([22:14]): “This ends up flashy. Coming in, looking really great. I'd give Sam Altman a 10, 8.”

• Jason Moser’s Perspective: Jason aligns with Lou, ultimately also favoring Zuckerberg but acknowledges Altman's strengths, settling on a narrow victory for Zuckerberg.

  Notable Quote:

  Jason Moser ([24:35]): “I think Meta has so many more ways to really raise that capital and continue building out these AI aspirations.”

Battle 2: Sundar Pichai (Alphabet) vs. Satya Nadella (Microsoft)

• Jason Moser’s Verdict: Satya Nadella wins 10-8, highlighting Microsoft's clear AI strategy and robust cloud infrastructure.

  Notable Quote:

  Jason Moser ([26:45]): “Satya Nadella has a very clear vision and has executed brilliantly.”

• Lou Whiteman’s Take: Lou also favors Nadella, emphasizing Microsoft's monetization capabilities and strategic foresight in AI investments.

  Notable Quote:

  Lou Whiteman ([29:00]): “Microsoft has the clearest path to actually monetize all of this AI stuff.”

Final Championship: Zuckerberg vs. Nadella

Both Lou and Jason crown Satya Nadella as the champion over Mark Zuckerberg, citing Microsoft's strategic investments and leadership in AI.

Notable Quotes:

Lou Whiteman ([31:05]): “I think it's probably a closer fight than I thought when I sat down. I'll crown a champion of Microsoft and Nadella here.”

Jason Moser ([32:08]): “I would give it 10 to 9 in favor of Satya Nadella.”

4. Stocks on Our Radar

The panel highlights specific stocks to watch, focusing on PayPal and Met Aerospace.

PayPal (Ticker: PYPL)

• Earnings Performance: PayPal reported revenue up 5% and earnings per share (EPS) up 18% year-over-year. Venmo's revenue surged by 20%, indicating growth beyond peer-to-peer transactions into broader commerce.

  Notable Quote:

  Jason Moser ([38:52]): “Venmo continues to gain traction, growing beyond peer-to-peer money transfer.”

• Valuation Concern: Despite strong fundamentals, PayPal’s stock is trading at approximately 14 times full-year earnings projections, suggesting potential undervaluation.

  Notable Quote:

  Jason Moser ([38:34]): “Valuation is just going to be one of the biggest risks with holding a company like this.”

Met Aerospace (Ticker: HWM)

• Strong Demand: Met Aerospace, known for manufacturing fasteners and small parts for aircraft engines, reported a 28% revenue increase, surpassing the $2 billion annual run rate.

  Notable Quote:

  Lou Whiteman ([40:00]): “Stock is up 84% over the past year. It’s a very well-run company.”

• Future Prospects: With rising demand from airlines due to ongoing Boeing issues, Met Aerospace is well-positioned for sustained growth, though Lou notes limitations in potential for doubling again within the next year.

Conclusion

This episode of Motley Fool Money provides a comprehensive analysis of the current economic landscape, focusing on the Federal Reserve’s monetary policies, quarterly earnings from key tech players, and a playful yet insightful comparison of leading AI industry figures. The discussion offers valuable insights for investors, emphasizing the importance of focusing on fundamentals amidst market uncertainties and technological advancements.

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Note: This summary excludes advertisement segments and non-content sections to maintain focus on the core discussions and analyses presented in the episode.

Transcript

[Jason Moser]

Foreign.

[Travis Hoyam]

There was a flood of earnings this week, but the Fed was investors focused. Motley fool money starts now. I'm Travis Hoyam, joined by longtime fools Lou the legend Whiteman and Mr. Pop Culture. Jason Moser, Today we're going to cover earnings from Apple, Amazon and of course some AI news. But first, the Federal Reserve. The Fed continues to get more attention than I can remember in my 30 years of investing. They decided to keep rates steady this week at 4.25 to 4 1/2 percent, much to the dismay of some. But let's get beyond the catchy headlines. If the Fed cuts rates and they control the fed funds rates by let's say, 1%, something that, you know, a big cut that a lot of investors would love, that's, that doesn't necessarily mean that your mortgage is going to go down and become cheap again like they were a few years ago. So Jason, what is signal and what's noise here from the Fed?

[Jason Moser]

Yeah, I'm glad you brought that mortgage point up there because I think that's, that's been a narrative, I think that's been going around for a while is we need to bring these rates down so we can kind of loosen the housing market back up. But I mean, listen, if mortgage rates right now at six and a half to 7%, we start seeing these little incremental cuts, I mean we're not going to be seeing those 4%, 3% mortgage rates for, anytime soon if, if ever again. And most people, I, I know I certainly took advantage of it when I could. I mean most people have refinanced and got that 3%, 30 year fixed rate. So it's, it's, it's, it's, it's going to be sort of a new paradigm here. And I think in regard to the noise, I think the noise is the ongoing battle between the administration trying to push for these rate cuts. And you know, I think we can all agree that the Fed should be making decisions based on data and not plan political demands, right? I mean that mandate that, that we typically refer to in regard to the Fed, it is essentially to conduct monetary policy with two goals in mind, right? Maximum employment and stable prices. And they're using data to make these decisions and not sort of catering to, to the political demands that we see every single day it seems like now. So I for one am actually relieved really to see that the Fed is kind of standing its ground here. And Jerome Powell is, I think diplomatically sort of playing his hand. And you know, when we look at where inflation stands today. I mean we saw right on Thursday the report that personal consumption expenditures price index, right. That that main forecast engage it moved up to 2.6% in June. That was the highest since February. And then core inflation which excludes food and energy was even a little bit higher at 2.8%. So while inflate the inflation picture is improving from, from some time ago. It's we're not out of the woods yet and I think that's the Fed is doing the right thing and really sort of, sort of playing this deliberately. They're not taking any knee jerk reactions, not kowtowing to, to, to the political sort of rhetoric that's going on out there. Maybe we see a rate cut or two here by the end of the year but like you said, it's going to have such a modest. I think we got to probably keep our expectations in check.

[Travis Hoyam]

Well, and let's put some more data to that too. The unemployment rate just came out this morning, 4.2%, same as it was a year ago. So with this dual mandate that doesn't seem to be a problem. So yeah, if you're Jerome Powell, the worry is inflation. We haven't really seen the impact of something like tariffs yet. The other thing to bring into this is that the Fed controls short term rates, the market controls long term rates. And it's been interesting as there's been more speculation that rates are going to fall, sometimes those long term rates actually go up, which is a market reaction, not necessarily something the Fed can control. But what do you think, Lou?

[Lou Whiteman]

Yeah, spot on what you guys are saying. I continue to believe the Fed will be much more reluctant to cut than what conventional wisdom, what everybody's saying. Rates are the primary blunt instrument that the Fed has. And I don't think they were enjoying life when rates were at zero and they didn't have any levers to pull. So signal noise, I think the signal is the actual decision is the fact that look, hey guys, we're fine here. The noise is all the commentary around it. The economy looks, I don't know if it looks great, but there's things to worry about, but it actually looks pretty okay. We should be celebrating that. Be careful what you wish for here. If the Fed suddenly goes into dramatic rate cutting mode, I don't know if that's going to be something we're going to be celebrating.

[Travis Hoyam]

We should touch on inflation at least a little bit. Like Jason said, we did get some data this week and you know, anecdotes are always a little bit dangerous. But my wife went back to school shopping. It's apparently time to start thinking about that already in July. But she went back to school shopping. The first thing she said when she got home was, it's not even fun anymore because prices are so high. So how does this murky inflation picture sort of play into things and how we should be thinking as investors? Jason?

[Jason Moser]

Yeah, I mean, it is, it is. The cost of living has seemingly gone up across the board. And just as a father of two college students, I mean, boy, you want to talk about back to school shopping. I mean, you're moving from, from like shirts to mini fridges and whatnot. Lou, you know what I'm talking about. Oh, yeah. So it definitely does, it definitely does seem to only, only be getting more expensive in. We've been talking about this all year. It's starting to get a little bit frustrating. But write the T word tariffs. And how is this ultimately going to impact us? And it seems like every week when we have these discussions, it all boils down to we just don't know, right? I mean, Amazon CEO Andy Jassy even said it in the call, right. In regard to tariffs. They simply just don't know because every day it's a headline that seems to counter what was said the day before. And the one thing that we do know is that tomorrow there is going to be another headline that says something else. And so until we actually get a little bit more clarity and a little bit more certainty and understanding as to exactly what the administration's trying to ultimately accomplish or what the end goal is, I mean, we are going to see a lot of that noise like we were talking about before here. And it just becomes very difficult for investors to fully make sense of it all. And that's why I think, you know, when you look at the way the markets performed to date, right? Year to date, I mean, the market's, it's performing okay, right? I mean, today's obviously a little bit of a sell off there based on the unemployment data. But, but overall, I mean, the market has had a decent year thus far given all of the noise that we've been hearing. I think the market, I think investors are, they're starting to kind of throw their hands up and say, you know what? We just, we're going to admit it, we don't know what we don't know and there's only so much we can control here. And so it's, it's important for investors, I think, number one, to remain focused on that, on that, on that longer term picture and just focus on the fundamentals. Right. If you're indexing, keep on indexing. And if you're focused on investing in individual companies, focus on the fundamentals. Businesses that can weather storms like these, times of uncertainty like these. Because one thing is for sure, this won't last forever.

[Lou Whiteman]

Yeah, it really feels like I call it kind of a boiling frog economy. Right. You know, investors have been focused for months on headlines. You know, inflation, tariffs on Main Street. It's not really about headlines. It's about these things just creeping in over time. I'm still hopeful we're strong enough to kind of weather higher costs and it's not going to just crash the economy. But if nothing else, yeah, it feels like the second half of the year. I don't know if there will ever be that clarity. I don't know if there will ever be that headline that just solves things. But I think it's just going to be a slow grind if we're going to hear more and more about costs. And I do think at some point it starts impacting consumer decision making and maybe the investor debate is to what extent. And we just, like Jason says, we're just going to have to wait and see.

[Travis Hoyam]

Someday this won't be a lead topic on mly fool money, but that day is not quite here yet.

[Lou Whiteman]

Not today.

[Travis Hoyam]

As we move to earnings. Meta was one of the big earnings reports this week. Revenue was up 22% to $47.5 billion. Net income jumped 36% to $18.3 billion. Just one quarter they made $18.3 billion. Somehow they found 6% more daily active users than they already had. Lou, what jumped out to you in the quarter?

[Lou Whiteman]

That's it. Who knew there were actually more people out there that Meta hasn't found yet? That's always amazing when it goes up. But kidding aside, you hit on it. The core business, that advertising business is just a fabulous business. 8 billion in free cash flow in the quarter and that's with all the investments that's actually down. But yeah, the other thing that stands out, I'm not the first to notice this, but Travis, they are putting that money to work. CFO Susan Lee said, we really believe this is the time for us to make investments and investing. They are Capex more than doubled in the quarter. They made it crystal clear that will continue. They're making all the money, but boy are they spending it.

[Travis Hoyam]

Yeah, that Capex number, they didn't actually raise it the way that Alphabet did, but they did pump it up a little bit to 66 to 72 billion dollars. Kind of the higher end of their previous range. The other thing, Jason, they talked about was this super intell intelligence plan that Mark Zuckerberg has for kind of bringing personal super intelligence. And he kind of threw some arrows at other big tech companies.

[Jason Moser]

Yeah, he did. And it's, it's sort of this difference in, in opinion there on, on are we going to be using AI to, to lift ourselves up at the personal level, or are we going to be using AI to ultimately replace what we as people, as employees do today? And he's taking, he's taking the, the bet that we will be able to use AI to, to lift ourselves up more, become more productive. And I mean, I, I, I like that vision. I mean, I think that that's something we all kind of are aspiring to do with this technology. It's been interesting to watch the evolution of, of Facebook a la Meta, right? I mean, social media company to Metaverse company now to AI company. And I think that with Meta, the, the important thing to know this is still an ad business like, like Lou mentioned. And, and they're using AI to make their core business better. Right. And they're seeing greater efficiency and gains in the recommendation model for ads. Right. It drove roughly 5% more ad conversion on Instagram for the quarter and 3% on Facebook. And, and it's, it's bringing more engaging experiences to users. Right? Helping users discover content they find most useful. And AI technologies leading it led to a 5% increase in time spent on Facebook and a 6% increase in time spent on Instagram for the quarter. So I, I think it's interesting to kind of note how the company is using, it may not be so explicit for us as users, for users of the platforms, but, but what they're doing with that technology to make their core business more efficient in driving that, that net income number, like you said, I mean, 36% of it. What, 30, 38 growth in earnings per share. That's just amazing to see.

[Travis Hoyam]

And it's not driving results yet, but they did talk a lot about momentum that they have in glasses. I know, Lou, you've got to be an early adopter of these glasses, right?

[Lou Whiteman]

Yeah. I mean, for one thing, can we just say that some of this Zuck talk, it's, it's kind of got an imaginary friend vibe, and I'm not sure what I think about that. So, so we'll see. But yeah, the glasses like Zuck. First of all, I wear glasses. You got to fill my prescription if you want me to wear these because, you know, I don't know if I have a lot of desire, guys to spend more than I already am, even with, you know, Warby Parker. Thank you. But just to use my phone less, I don't know if I'm really there. I. Travis, I can't really think of why I would be an early adopter here. The tech is neat. I think it's really cool. But if all you're really doing is meaning I look at my phone seven times less because I'm always looking at my glasses. Yeah, pass.

[Jason Moser]

You're still looking at something.

[Lou Whiteman]

Yeah, that's true. That's true.

[Travis Hoyam]

Well, when we come back, we're going to get to more earnings reports from this week. This is Motley fool money.

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[Travis Hoyam]

Quints.com motley Apple reported earnings after the market closed on Thursday. Market seems to be happy with the results and the momentum strong in everything but wearables. Lou, what do we need to know about Apple's second quarter?

[Lou Whiteman]

So for a Mag 7 stock, we came into earnings season kind of with a lot of uncertainty with Apple. The company had warned of a potential $900 million tariff hit and single digit growth this quarter. Much better than that. 10% top line growth, 12% earnings growth, 46% gross margin stronger than expected iPhone sales. Travis we even saw a return to growth in China, which was a nice surprise. We haven't seen growth in China for a while now. Sure there are a lot of unanswered questions and those questions remain unanswered. Some of this momentum could be A tariff pull forward. So we'll figure that out. They're still trying to figure out AI. They're still in search of that, that next big thing. The must have device. This quarter didn't answer any of those big picture questions, but it does remind us of the obvious, the thing right in front of our face that Apple is a fantastically profitable company with a terrific franchise and a lot of options to partner for AI. A lot of ways to win. Bold prediction here, guys. I know Apple, maybe they do have some drama, maybe they have some questions, but they're going to be fine. And this quarter is a good reminder of that.

[Travis Hoyam]

Yeah, they even opened up the possibility of making some acquisitions in artificial artificial intelligence, which could get them from kind of nowhere to at least kind of in the ball game. Jason, Amazon has been in the Molly Fools portfolio and recommendations for about 30 years now, has made a lot of investors a lot of money. But the company isn't the gross growth engine that it once was. Revenue for the second quarter was up 13 to 168 billion. Doll net income jumped almost 50% to 18.2 billion. What was your takeaway from the quarter?

[Jason Moser]

Yeah, I mean, I think you're right. I'm thankfully one of those investors. I've been able to hold on to these shares for a long, long time and it's, it's obviously done very well for a lot of our members, a lot of investors everywhere. But, but you're right, this isn't the same growth story as it was before. I mean it just, it's such a big company now. I mean those numbers just kind of have to pull back a little bit. I think you're looking at 13% top line growth there. I think that was relatively impressive. Right, But I think when you look under the hood with Amazon, that's when you start really realizing that this is not just an E commerce business and there are so many other powerful parts to this company that are helping drive growth. Now I think what we talk about often with Amazon is aws, right. Amazon Web Services. And that has really grown to become a, a big driver of the company's overall profitability. I mean it's essentially responsible for most of its operating profit, if we're being honest. And in that growth there, 17 to $31 billion of the core, that was good. Now it seems like the whisper numbers out there, the market was expecting a little bit more somewhere in the neighborhood of maybe 20%. And when we see the competition coming from companies like Alphabet and Microsoft as they build out their Web services aspirations, their cloud businesses. I mean we're starting to see Alphabet and Microsoft, they're taking some share and I think that's something at least to keep an eye on there. In regard to Amazon, I mean Amazon had a big head start, right? They used that, that philosophy of just continuing to drive down prices and offer new services and features for users and that did a great job of gaining a dominant presence in the market really fast. But you look at companies like Alphabet, Microsoft, they are, they're catching up and, and I think that's something that investors will want to keep an eye on here in the coming years. Now the other thing with Amazon that I think it just doesn't get as much attention but the thing that continues to stand out to me is this advertising business that they build. And Travis, I don't know if you've looked at this lately with, in, in regard to their ad business, I mean this is sneaky but it's really powerful. They grew revenue in the advert 22% for the quarter and they continue to ink important relationships with companies like Roku and Disney. I mean they're reaching 300/million household of 300/million users out there on a daily basis with all of their, with all of their content, the many ways they have to distribute it. And then the other part of the business, you know we talk about that demand side platform business, right? The DSP and the company that we always shine the light on there is the Trade Desk. And at the Trade desk, tremendous company, a company that has done very well for investors, I'm included there, so I'm thankful for it also. But let's put it to context here. The trade desk trailing twelve month revenue is two and a half billion dollars. Amazon's ad business just brought in $15.7 billion this quarter alone and it's continuing to grow at those double digit rates. So I think it's just, it's worth looking at Amazon and saying, you know what, this is a business that's made up of a lot of different parts and they're executing very well. But definitely when you look at that web services side of the business, I mean the competition is heating up there and I think it's going to be a little bit tougher days ahead for them to really maintain that dominant position.

[Travis Hoyam]

That will be the thing to watch. And to the advertising point it's interesting that the market is very concerned about Google's 10 blue links and artificial intelligence disrupting that. But not as concerned about Amazon's ad business 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 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. Next up, we're gonna have a battle of the AI billionaires. You're listening to Motley Fool Money.

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[Travis Hoyam]

We already knew that big tech was going to go all in on artificial intelligence, but the stakes have gotten even higher over the past week or two. Alphabet up their capex budget from $75 billion to $85 billion this year, promise to even increase that next year. Amazon and Microsoft are spending about $30 billion a quarter, and Meta's capex is going to be right around $69 billion for the year. There are still a few VC companies involved here like OpenAI, Anthropic and Perplexity, but a lot of the small players are kind of falling by falling by the wayside. So I thought it would be fun to look at artificial intelligence and put these companies and their leaders in a battle. I'm going to call this the AI Billionaire battle Royale. I'm going to give you guys the opportunity to pit these, pit some of these leaders against each other and give us a score like a boxing scorecard. So 10, 9, 10, 8. If it's really a landslide and if there's a draw between both of you, I'm gonna decide the winner here. So let's choose wisely. Our. And the four players that we have here, we don't. I'm not going to put Elon Musk in this, but we have Sundar Pichai of Alphabet, Mark Zuckerberg of Meta, Satya Nadella at Microsoft, and Sam Altman of OpenAI. I think those are the really big names in artificial intelligence really guiding the industry right now. So our first battle has real beef today. Mark Zuckerberg versus Sam Altman. Zuck has been buying up OpenAI's talent, reportedly $100 million offers for AI engineers. And he's spending that money kind of money because he's trying to go from laggard to hopefully leader in AI. Lou, give me some blow by blow on who wins this battle.

[Lou Whiteman]

So my mental picture here is Sam Altman comes out dressed to the nines. Perfect. You know, just. Just looks the part. Zuckerberg almost comes out like a street fighter. Right. But when the actual fight starts, it's not even close the other way. Yeah. So Zuckerberg is playing catch up, but Zuckerberg's got this mass massive ad business generating capital at his back as he's throwing punches. Altman has to beg for money and has done a lot of deals because the nature of OpenAI, he's actually in the background while he's fighting his opponent. He's also fighting Microsoft and things like that. As he runs off to the side.

[Travis Hoyam]

He'S doing a dual battle here.

[Lou Whiteman]

Yeah, yeah. So this ends up flashy. Coming in, looking really great. I'd Sam Altman, he gets a few punches in. I don't want to be too dismissive of OpenAI, but that advertising business, those the muscle to. To play the game that goes with that. This ends up 10, 8. Zuckerberg kind of running away, just. I mean, it could even be a technical knockout here.

[Travis Hoyam]

So Lou thinks the balance sheet is going to be more important than kind of the mind share that ChatGPT already has. What do you think, Jason?

[Jason Moser]

Yeah, well, one of these things is not like the other, Right. I mean, we've got Metta, which is publicly traded company, I mean, has many more levers to pull in regard to raising capital. Right? Just many more avenues towards. Towards raising that capital. Whereas, as Lou noted there with Sam Altman, I mean, he has to kind of sell the sizzle. Right. He has to get out there and sort of keep that mind share going and figure out ways to raise that money. Now, will we see OpenAI go public eventually? Who knows? If they do, then obviously that Opens up some avenues for them, I tell you. Look at what Mark Zuckerberg has done with Meta to date. I mean, the IPO back in, I think, what, May of 2012, the stock is up better than 1900% since then. I mean, he's doing something right, and I think he's doing something right in the face of making some questionable decisions along the way. Right. I mean, we were talking earlier about the evolution of Meta from social media company to Metaverse company, and I mean, that Metaverse thing just hasn't really worked out, right?

[Travis Hoyam]

Yeah, he was able to burn $15 billion or so a year, and it just didn't really matter.

[Jason Moser]

It didn't matter at all. And I mean, look, I mean, they're doing some cool stuff, but it's not having any kind of a material impact on the business, really. It's still, at the end of the day, this is an advertising business, and I'm not saying that as an insult. It is a very powerful advertising business. And he's finding ways to utilize AI technology to make that advertising engine more powerful, more efficient. In April, Zuckerberg said that Meta is focused on developing an AI model that can in turn build as much as half of other AI models within the next year, which I think is just kind of amazing to think about. Altman, he sees a unique guy. He's got all sorts of interests. I think it's fascinating. He's got his pilot's license, he's expressed his dreams of starting his own airline one day. So you do have to kind of wonder where his head's at sometime and if this is really what he wants to be doing for the long haul. So I'm in agreement with Lou there. I'm not going to go with a 10, 8 blowout. I would probably just go 109 in favor of Zuckerberg in this case, just because I think Meta has so many more ways to really raise that capital and continue building out these AI aspirations.

[Lou Whiteman]

Let's remember here, guys, one of these two is actually a trained kickboxer too. So, I mean, I know we're not talking about physically fighting, but that has to come in somewhere, right?

[Travis Hoyam]

And there was that planned actual fight with Elon Musk at one point that never actually happened.

[Jason Moser]

It's amazing, too, to think, you think about these two, two guys that dropped out of college, right? Mark Zuckerberg drops out of Harvard, Altman drops out of Stanford, and I mean, these guys are living the life. It's just. It's fascinating to see.

[Travis Hoyam]

It's interesting that you, you both had it pretty decidedly for Zuckerberg. I, I don't know that I would have guessed that going in because ChatGPT, you know, everybody kind of thinks that they're the leader in the clubhouse. All right, to the second one. This is the non founder battle. We have Sundar Pichai from Alphabet, Satya Nadella from Microsoft, also St. Alton's partner, sometimes on again, off again. Jason, you're up first here. These companies have more money in infrastructure than anyone else we're talking about. But who wins the battle?

[Jason Moser]

Yeah, two really amazing businesses, two very impressive leaders there. And you look at Satya and Adeli took over the CEO role in February 2014. Stock is up better than 1300%. It was close to 1350%, I think, since he took over. And if you remember during the Balmer years, what was like 10 years where the stock did nothing at all. So, so shareholders have got to really be loving him. And he's, he's a thoughtful guy, this guy. He, he reads poetry, Indian American poetry. He loves Russian novels. I mean, he's, he's, you know, he's, he's a thoughtful guy. And, and he clearly has the background master, master's degree in computer science, master's business administration. And he said back in April that as much as 30% of the company's code is now actually written by artificial intelligence. So they certain AI to their benefit. And I think when you look at Sundar Pichai, I think he's been a very effective leader as well. Right? I mean, Google share, Alphabet shareholders have won. Right? They've done well. Stock is up, I think 200% since he took over in December of 2019. But I think he's, he's dealing with a little bit of a different situation here at Alphabet, particularly in regard to, to the regulatory issues. Right. I mean, there are a lot of unknowns in regard to the remedies that might be suggested as, as far as what regulators want Alphabet to ultimately do if they want them to split off part of the business, whether it's YouTube or search or sell off Android or whatnot. So I think there's a little bit more uncertainty there right now. And I think that with Nadella's position being with the company a little bit longer than Pachaya has been with, with Alphabet. I'm gonna give Satya Nadella the, the lead here. I, I'm gonna go 10, 8 in this case, actually. I really have been so impressed with what Satya Nadella has done with Microsoft during his tenure and it seems like he really is ent looking to keep it going.

[Travis Hoyam]

Interesting. So the fact that Sam Altman and OpenAI have been sort of a ungrateful partner after really, really Microsoft funded the company, gave him $10 billion. I think that was almost immediately after ChatGPT was released. That doesn't, that doesn't take too much away. Lou, who do you have in this battle?

[Lou Whiteman]

This is the heavyweight battle. So not, not to switch sports, but if this was the final four, we'd all be complaining that the two best teams were meeting in the semifinal. That's, that's my. Because Jason's right. Two great businesses, two, I think, heavyweights. The two will come out swinging. I'm going to end up with Nadella here. In part what Jason said, kind of. They can both throw a punch, but we have to see about how Pichai can take a punch. I think because of all of the, there are questions about the advertising business. I think it works out fine, but there are those questions. The other thing I'd say that I think gives Microsoft and Adela the kind of leg up here is when they go on the offensive of all of these big companies. Microsoft with the nature of their business and all of the conduits they have into corporate customers. With office with 365, with so many products, they to me have the clearest path to actually monetize all of this AI stuff outside of like internal use, outside of just building their business. It just seems like their existing connections work so well when you go on the offensive. So yeah, they both come out swinging, they both land some blows, but Nadella is just a little bit stronger on the punch. And Pichai, between kind of the advertising business, the regulatory, you know, maybe, you know, can't take the blows the same way or it has to take a few more blows. I'll go 10, 9 here, but I get it. Definitely. I don't see this as a knockout, but I think Nadella wins for me.

[Travis Hoyam]

All right, so our championship is Zuckerberg versus Nadella. Lou, I'm going to go to you first between those two. So we've got basically founder led company in meta platforms, changed his name. So gone from, you know, social media to Metaverse now to artificial intelligence. But it is a founder and I think it's, it's pretty clear that he's been a good leader, especially over the past few years. And Nadella running one of the biggest, most established tech companies in the world. Who do you have?

[Lou Whiteman]

So this could really be fun to watch. And no disrespect here. But if this was wrestling and not boxing, you can see Zuck playing a little dirty here, can't you? And I mean that with respect. So I think this would be a fun one to watch. I do think though, again I said I thought the second bout with two heavyweights just Microsoft's not just what they're investing, but Nadella, his plan to monetize it and actually get it out. I mean, I'll be honest with you, I'm kind of annoyed with some of the prompts. I'm Microsoft. I will let you know if I need OpenAI. Okay. You don't have to ask me every time if I want to use it. But I do think that as annoying as it is, just like Clippy, it works. I think that they are the grand champion here. Zuck will get some blows in. Zuck will definitely go on the offensive all over the place. I think it's probably a closer fight than I thought when I sat down. So I'll say 10, nine. But I am going to crown a champion of Microsoft and Ndela here, here.

[Travis Hoyam]

What about you, Jason Travis?

[Jason Moser]

I'm going to have to agree with Lou here. Okay, I'm going to go ahead and give you the answer first. I would have to give, give the nod to the Della here. And I think part of it, I think the market is kind of telling us something along the way here, right? I mean, we're looking at Microsoft. It just crossed over that 4 trillion dollar market cap this week. Joining Nvidia is one of only two companies to ever do that. Now, Microsoft, yes, generates a little bit more on the revenue side than Meta does today. But I think what we've seen with Satya and Adela during his tenure at Microsoft is very clear vision. We've seen him lay out the strategy. He knew that the puck was going towards the cloud. He started skating there immediately. He laid out that strategy from the very beginning and it was just very clear we could see what he was doing. We talk about Amazon before being a company with a number of different ways to win. They do a few, few, few things. They're doing very well. I mean, Microsoft's a similar business, right? They have a number of different ways that they can win and just the scale that the company has in the operating platform and the cloud services that it provides. I mean, I think it just does a lot of things very well. And it's not to take anything away from Meta and Mark Zuckerberg here. I think that the one, the one concern I Have. And I'm not, I'm not a shareholder of either company. But the one concern I have with Meta is, is Mark Zuckerberg can kind of be all over the place. Right. We talked about that before. Social media to Metaverse, to AI, to what's going to be next. Right. He does say a lot of things and then it kind of doesn't materialize. He sort of pushes it by the wayside and then goes towards something else. And what we ultimately have here is just a massive social networking company with a tremendous advertising business behind it. And I think that's something that's going to continue. You. But, you know, as we've seen with Facebook, Right. Facebook is kind of starting to go on the. Not, I don't want to say the decline, but more interest is on the Instagram side. Right. It's. So social networks aren't forever. I think they live their life and then people go elsewhere. And so I, I would be a little bit concerned just in regard to the lifespan of things like Facebook and ultimately Instagram at some point now they have WhatsApp, obviously, which is. Got a lot of potential there as well. So I think, think we probably could expect to see Meta make, you know, more acquisitions down the road to try to expand that portfolio of platforms it has. But, but for me, if I'm looking at it from a confidence level, I just feel more confident with Satya Nadella. Nadella and his, the clarity of his vision in what he's done with the company to date. I'm going to give it 10 to 9 in favor of Satya Nadella.

[Travis Hoyam]

Interesting that there's regulatory concerns for Alphabet, but, but, but Meta could make acquisitions. I don't, I don't know if the government would let any of these companies make any real acquisitions. Although that's not what they're doing anymore. They're just buying talent. So maybe that's the way around that.

[Jason Moser]

Yeah, definitely be under the microscope for sure going forward.

[Travis Hoyam]

Well, interesting that you guys were basically in agreement and I completely disagreed on every one of your. Your choices. I would have had Sundar Pichai in the lead here for sure. But this is going to be fascinating to watch because there's literally hundreds of billions of dollars at stake for these big tech companies. Them, that's a lot of money. Next up, we're going to get to the stocks on our radar. You're listening to Motley Fool Money.

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[Travis Hoyam]

We have time for one quick earnings take and Cloudflare is one of those interesting companies in technology. Jason, what did we learn this quarter?

[Jason Moser]

Yeah, interesting reaction right after the release. Stock was up like 6% that we saw this morning. Down like 6% now it seems like it's about flat, but I think it was a very encouraging quarter from a number of perspectives. For one, we did not hear mention of elongated sales cycles in the call anywhere. Travis so that may mean that their enterprise customers are feeling a little bit better about the money that they're spending and that is definitely showing up in the numbers. Revenue is up 28%. They crossed over the $2 billion annual run rate. It is a company that continues to sign on to develop relationships with large customers now 3,712 large custom spending at least $100,000 annually. That was up 22% from a year ago and those customers now account for 71% of total revenue. That's up from 67% a year ago. And encouragingly, dollar based net retention rate, which is a metric we pay attention to, that tells us how they're expanding those relationships. That rose to 114 for the quarter. That was up from 112% a year ago. Again, that's just a sign that they continue to keep those customers and develop new relationships, expand those relationships. So I, you know, not a lot to. I think this was just another solid quarter from Cloudflare and CEO Matthew Prince seems really amped about the company's future.

[Travis Hoyam]

Does the fact that the stock is trading for 40 times sales make you nervous?

[Jason Moser]

Yes, I think valuation is going to be the biggest risk for a company like this until they can get to actual profitability and cash flow. Valuation is just going to be one of the biggest risks with holding a company like this.

[Travis Hoyam]

We like to end the show with stocks on our radar. Jason, your first up. What are you looking at this week?

[Jason Moser]

Yeah, PayPal reported earnings and it was a, a good quarter. Nothing, nothing crazy one way or the other. We saw the, they exceeded guidance that leadership set a quarter ago. They raised guidance for the full year, saw revenue up 5% with earnings per share up 18% from a year ago. They saw transaction margin dollars, gross 7%. Total payment volume grew 6%. And encouragingly, Venmo continues to gain traction. Revenue There was up 20% with total payment volume in the Venmo network up 12%. It's growing beyond peer to peer, right. They're developing more commerce relationships and users are using it more for things like shopping and transactions as opposed to just peer to peer money transfer. So that's all very encouraging. Yeah, it was a good quarter, right? Shares have had a tough year so far, down something like 18% year to date. Certainly underperforming the market while all the key performance indicators continue to trend in the right direction. So with shares at around 14 times full year earnings projections today, it just seems like the market's taking a glass, a glass half empty view on this one.

[Travis Hoyam]

What about you, Lou?

[Lou Whiteman]

All right, I'm going to look at how Met Aerospace Ticker hwm. This is okay. It's kind of boring, right? But they make fasteners, other small parts, mostly for aircraft engines. They reported the classic beat and raise this week. Really, really strong demand. Travel is holding up and as we all know, Boeing has had some drama. So that's causing airlines to lean on their existing fleet more and that's creating huge demand for spare parts. Helmet is riding that wave, investing in its future, building out its manufacturing capacity. It's also aggressively reducing its share count. Guys Stock is up 84% over the past year. Some of that was low hanging fruit. Some of that is just they went from being poorly managed to well managed. I don't think they can do another double in the next year. But this is a very well run company. I and I think it's setting up to be a long term market beater.

[Travis Hoyam]

As I look at both of these, I, I can't get past the fact that PayPal is so cheap. This seems like one of these companies that just continues to perform well quarter after quarter. I don't love the products, I don't really use many of them but they just, they seem to have a really, really sticky business. So if I get a pick out of those two. Sorry, Lou. I'm going to go with PayPal. For Lou Whiteman and Jason Moser in our production, production leader today, Bart Shannon and the entire Motley fool team. I'm Travis Hoyam. Thank you for listening to Motley Fool Money. We'll see you here tomorrow.