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- [00:02]
A
Is AI the new villain on Main Street? 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. And guys, the big story of the week. I think we gotta start with Apple. They've raised prices and this is partly an Apple story. Lou. You know, I'm looking for a new computer. I'd love to get one of those Mac studios when they get the new processor. It's supposed to come out in the next few months, but the prices just went up and they went up a significant amount. What in the world is going on?
- [00:37]
B
Yeah, Tim Cook got that job because he was the supply chain guru and he says he's never seen anything like this in 40 years. The problem is memory costs, and that's all about AI. As Travis said, Apple just announced a huge across the board price hike. Memory is the culprit here. We know data centers need Nvidia chips, but they also need a lot of other things, including memory. And they are devouring the supply of the world's new memory. Simple laws of supply and demand are kicking in and it's raising prices for everyone. The reality here is even worse because AI wants a special kind of memory and companies like Micron are racing to make that and not the memory for phones, just because it's higher margin. But that's the idea. There is just suddenly a ton of demand and demand from rich pockets and it is affecting prices in a big way.
- [01:28]
A
Yeah, John, this seems like one of those things where AI doesn't necessarily spill over onto Main Street. You know, when I take my kids to sports, AI is not something that generally comes up. But now it's just starting to spill into things that we spend money on. When you go to buy the next generation iPhone, if that's the phone you use or lose Pixel, you are going to see higher prices. And that's something where it almost seems like Silicon Valley in general because it's Silicon Valley driving all of this demand. AI stuff is going to make themselves the villain. We're already having enough trouble building data centers. Now people are going to be mad
- [02:05]
C
about smartphone prices, to quote the mad Titan Thanos here. Dread it, run from it. Destiny arrives all the same. Yeah, I mean, last I checked, these companies aren't really asking my opinion on the changes that they're making to their products or their pricing. I'm still protesting the getting away with the headphone jack. I still want the headphone jack in my phone.
- [02:28]
A
And.
- [02:28]
C
And they didn't ask me about taking that away. No, the thing is, I mean, yeah, the prices are going up. And as you mentioned, I mean, Travis, you're talking about the new Mac studio coming out, but the big thing here is that these prices are going up on existing products. They're not going up on the new generation. Yeah, this is the stuff that's out now. The prices just got hiked. So that is, that is very interesting. It is possible that consumers are going to be very confused about this, but I don't know what consumers can do about this. They vote with their dollars, but there's not another candidate on the ballot here. The prices are going up across the board because memory itself is going up. And that's not an Apple problem. And there's really not much that Apple can do about it.
- [03:08]
A
Yeah, Lou, this does seem like it isn't an Apple problem. And I sort of think that Tim Cook and team, you're right, maybe they could have seen this ahead of time. But also, memory is a commodity, always has been a commodity. Commodities do go through these boom and bust cycles. This reminds me a little bit of rare earths, if you might remember that from about a decade ago when rare earth prices went crazy and we thought, you know what, we're not going to be able to make EVs anymore, so this will come back down. But it does seem like this is a PR problem in general for the tech industry. If they're saying, you know what, you got to pay more for phones because we got to build this AI stuff, that's going to steal your job anyways.
- [03:48]
B
Yeah, I don't know how easily that translates to Main Street. I don't really think it does. So I don't know if AI has a PR problem here, but increasingly AI has a political problem. And I do think that sentiment around stuff like iPhones going up is a great talking point for politicians in what could be a nasty November for AI. So I do think that this is worth watching. I don't think the consumer is going to say my iPhone went up. You know, maybe they will. I mean, I think the energy cost thing is too, is sort of resonated. Does that just, you know, so, so there is like a vibe here. But I do, I think where I worry about this or where I'm really watching this is that it may not be enough to stop AI. But I think we are seeing more and more friction to the rollout at a time when they desperately are scrambling to go as quick as possible. Look, some of them and we won't name names have just ignored the EPA and things like that. So I guess maybe the political problem isn't as big a deal as I want. But it does feel like that if you are modeling AI hyperscaler growth, you have to increasingly assume it's not going to be as quick and as easy as their projections because there are just more and more vibes going against them.
- [05:10]
A
John, I want to stick on this consumer side. Do you think that the companies that have consumer facing products, Apple's going to be the biggest one out. But you know, we could talk about other companies that are making phones. We could talk about Nintendo and the price of the Nintendo Switch 2, which wouldn't be surprised. If that is another one of these products, it gets a price increase. Do you think that that is going to impact how much consumers are willing to spend? Is there going to be sticker shock or is this just going to be kind of like the inflation we've seen over the past few years where you know what it's, this is what happens. Prices go up a little bit. I'm not going to necessarily change my spending habits just because I got to spend a little more on my phone. It's such a central piece of my life.
- [05:52]
C
Yeah, I mean, to go back to what I said earlier, I don't think that consumers have much option or much option here if, well, they could just
- [05:59]
A
not, not buy the next phone, extend those lives even further.
- [06:03]
C
Based on what I know about the American consumer, that isn't going to happen. They will find a way to continue to spend. Even as you think about it now, do we really need a new iPhone every year? Not, not necessarily. I've had the same one for several years now. But it still happens all the same because people do want that new latest version. So I do think that that continues to happen.
- [06:24]
B
So I do think that. Yeah, I mean that is the point to watch though. And I think that's why Apple went down. We've been waiting for years for this replacement super cycle. This is just another reason to think that that's not right around the corner. Be ironic if it offsets all of the good work they've done with Siri to implement AI there which was supposed to spark the refresh cycle. But yeah, no, I think the answer is that do you really need a new iPhone this year?
- [06:51]
A
All right. I want to have a little investing takeaway because we are investors. I know that if you're thinking about buying tech products, if you're thinking about the impact on energy prices, that is something you're probably going to think about a little bit more as you see these prices go up. But Lou, I'll start with you from an investing perspective as we look at some of these companies that have seen tailwinds from memory. So Micron is kind of the poster child right now. But there's a half dozen companies that have gone through this parabolic rise. We've seen the drop in stocks like Apple as they've increased prices. How are you thinking about this as an investor? Is this just an area to stay away? Are you finding these higher prices to be an opportunity? Is it a threat? Where's your, your head at?
- [07:34]
B
So it's hard to figure out. It seems like it's almost impossible that it is forever. But how long matters? Like, how long can these prices stay elevated? There's a tension between the competing bull narratives. Right? AI is going to work because it's going to make everybody more efficient. That implies it's not going to get crazy expensive itself. However, hyperscalers work because they are going to generate tons and tons of revenue from these models relative to what they're doing, which means prices have to go up and their suppliers will work because they can continue to charge all of these huge prices which demand even higher prices from the hyperscalers to earn a margin. All of those things are in tension. The most commoditized part of that equation, I think, are memory suppliers like Micron. So I think there could be cracks everywhere here or at least some scaling back of expectations. But I certainly am avoiding the more commoditized or the more cyclical side of these. And to me, that's, that's a big issue for Micron from here.
- [08:42]
A
John, where are you seeing opportunities and threats?
- [08:44]
C
Well, I mean, I'll push back a little bit. I'll take the other side of what Lou just said. But still acknowledging his point that I think there is fragility in some of these hot parts of the, of the stock market. But at the same time, I mean, just look at what's happening here. So just one data point on memory. 128 gig DDR5 memory. This is one of the products that is out there. The average price right now, $2,900. It was about 800 a year ago. So that incremental $2,100 is essentially pure profit for a company such as Micron that makes this, that it's not costing it necessarily more to make, but it is getting a lot more when it sells it. So that just drops down to the bottom line. You look at what Micron has just put up. So Nvidia for example, it, it crossed a trillion dollar market cap when it had about 10 billion in trailing twelve month net income. Micron just passed the trillion dollar mark and it has 50 billion in trailing twelve month income. So five times more and just cross the same market cap milestone. So I think there's an argument that you could make that Micron is undervalued today and to lose point it it matters how long the imbalance lasts. If it is another three, four years of imbalance, then the Micron actually could be a good buy here. If it is, if the imbalance is about to be solved in the next, you know, six months or something like that, then yeah, there is a fragile stock here with Micron.
- [10:06]
A
When we come back, we're going to talk about that imbalance. And who says enough first you're listening to Motley Fool Hidden Gems Investing.
- [10:13]
D
Do you have individual stocks, a 401k or retirement accounts? Urgent warning. The United States securities and Exchange Commission plans to eliminate quarterly reporting. This would blindfold investors from the information needed to make smart financial decisions. It would be good for corporate insiders and bad for you. Go to bettertakeaction.org to speak out before it's too late. It only takes two minutes. Join us now.
- [10:37]
A
Bettertakeaction.org welcome back to Motley Fool Hidden Gems Investing. As memory costs rise, hyperscaler spending is going to go up. They're going to get less for that spending. My question, and this is something I've been thinking about a lot as an investor, is who says enough, okay? We can't spend more money. We're not getting the ROI that we need. You've got so many players involved. There's the hyperscalers, you know, there's the consumer companies that we've talked about, like Apple. There's the companies that haven't gone public yet, like Anthropic and OpenAI. So John, who is it that is going to bring some maybe rationality or maybe it's, you know, we haven't gotten to that point where rationality is even in the picture yet. But who is going to say, you know what a 6x increase in prices for memory or whatever component you want, that's just too much, we can't do that?
- [11:28]
C
Well, when it comes to capex, among the hyperscalers, I don't think that any of them voluntarily say enough. I think that they've internalized a narrative. Whether the narrative is true or false, they've internalized it all the same. And the narrative is that they're playing a game of musical chairs and they have to sit their butt in the chair before the music stops. Otherwise they don't have a chair in the next round. And that chair is spending on AI. They have to spend on AI or be left behind.
- [11:54]
A
And so does that mean that ROI doesn't matter? This, this is, I think, the thing that's so confusing because all these companies have had such strong return on investment, return on assets, whichever metric you want to use. Are you saying that's just like out the, out the window in the boardroom these days?
- [12:09]
C
I think to a degree, yes. Because I think that if you believe that narrative, you've also believed the narrative that you no longer have a competitive advantage that is sustainable, because the AI models from the other companies are going to allow them to catch up in record time. So you have to keep spending to stay where you are in the pack.
- [12:29]
B
Yeah, I think there's a. Some cost fallacy at work here. You know, the hyperscalers have said AI is the future, and with enough time, we will get a return on investment. If they now pull the band aid and say, nope, never mind. That's a huge, huge issue. That's a bigger issue. I think the motivation is, even if they're wondering that, seeing that, to not say that right now, especially not to say that alone. But honestly, Travis, I want to push back at the premise too. To me, the interesting question right now is why would a hyperscaler say enough is enough? You know, yes, there's a psychological aspect, but I kind of think it's working. It's not, you know, look, and I don't know about the ROI yet, and I'm worried about that AI, whatever it is, it's not the imaginary friend on your shoulder from a few years ago, but there is real productivity happening, real revenue happening in the tens of billions. So I don't know if there is enough evidence here to say, yeah, we need to run away from this. Instead of lean in and again, to change behavior, you're going to have to see real evidence. There is enough at least out there to give hope that I don't think anybody. I'd be really surprised if any of the hyperscalers just say, all right, never mind. Enough.
- [13:45]
A
Well, let's talk through. We have second quarter earnings are going to be coming up. That earnings season starts probably in a. In about a week and a half or two weeks. But we talked a little bit before we started recording about some of the things that we're potentially looking for in those quarterly results. And so Lou, I think you're right that a lot of these companies are just going to keep spending as much as they possibly can to try to win this game. But also we've heard a lot from companies who are the end customers of those hyperscalers or of those model companies saying, you know what, we need to see an ROI if we're going to spend a hundred million dollars on tokens, we got to see an roi and we maybe we didn't see that in the first quarter. What did they see? What did they think? What did they spend in the second quarter? Louis, is that something that's going to start this or is it something like the bond market or the stock market that is going to push companies and it's going to be individual companies. You know, one domino is going to fall first. Which one of these is going to be more important or is it just sort of a smorgasbord of everything?
- [14:52]
B
So again, you know, there's, there's pushback, there's complaining, but what are they seeing right now? AI revenue is growing. And so maybe if we see that flat line, then maybe that adjusts. But I'd be surprised if that's the case. I think it's going to be a pretty upbeat whether or not they're wishcasting or not. I don't I expected to be a pretty upbeat talking points on AI from these companies. Here's what I would look for which I'd find interesting. Some of them have already telegraphed that look, we've ramped spend in the last few years. Maybe we're done ramping soon and you know, so at least maybe they can plateau for a while. I would be really curious. I don't think anyone wants to shock the market, but I'd be really curious if just they start telegraphing something like, look, obviously we're going to only spend as the market dictates. We're not going to be stupid and spend the money if we don't see it. Which at least is a hedge to prepare for if they want later in the year or early in 2027 if they want to pull back and not shock the market. But I genuinely think it's going to be all for all the gloom and doom today. I think it's going to be a rah rah cheerleading AI earnings season and we'll see how the market reacts.
- [16:09]
C
I think there's a little bit of a difference between needing to see an ROI and just needing to make sure that you're keeping your costs under control. And what I mean by that is some of these companies did budget $100 million for AI and oops, now we got the bill and we spent 300 million. Right. So it's not so much that the ROI is lacking, but it's that we're spending way more than what we anticipated to spend and we can't be doing that. And so we've already seen companies such as Accenture and Uber saying, hey, we're going to have to start limiting what's happening here. Even Microsoft saying, okay, we're going to need to cut back on Anthropic's Claude here because our expenses are just running away from us faster than we can, we can keep up with it. And this is why I've been pounding the table on local AI, because some of these token costs are hard to project for the CFOs. And so with local AI on my own hardware I can download a free model such as something from China's Deep Seq, I can handle bulk operations in AI on my own hardware for free and then I can finish it off with a Frontier model from Cloud or OpenAI. So I think that that is going to be a trend that we see and it's because these companies do want to use AI, but they want to be able to predict their costs.
- [17:24]
A
John, do you think that is going to be the theme for this quarter? Not necessarily saying, you know what, we're going to pull back CapEx, we're probably not going to get those numbers until third quarter, maybe even the fourth quarter, but more the customers of these big companies going, you know what, I got to show that my costs aren't out of control because if I got operating margins that are declining because we're using so many tokens, then shareholders aren't going to be happy.
- [17:52]
C
Yeah, precisely. I think the hyperscalers are going to continue to spend on capex. I think that the people using these services, that's more of a margin issue. And they're going to cost of operations and they're going to say hey, we've got to be able to have some predictability. And so yeah, we're going to change how we're doing things. And now how does that impact how much revenue companies such as Anthropic are bringing in? That remains to be seen.
- [18:14]
A
Yeah. A couple interesting data points to keep in mind as we look through earnings season is I've seen some data that some of the high end models are not necessarily getting the market share that we once thought that may have to do with some of the increased costs that we have. You saw when the new Gemini Flash model came out, it was more expensive than the old one. It's more capable, but it is more expensive. So it's not deflationary the way that it once was. So it seems like customers, particularly those corporate customers, are saying, hey, is there some sort of open source model? We'd be happy to stick on Azure, but we want to use an open source model that's going to be cheaper than something like Anthropic. So lots of things that to keep in mind when second quarter reports start coming out. When we talk, when we come back, we're going to talk about disruption in the market. You're listening to Motley Fool Hidden Gems Investing.
- [19:02]
D
Support for the show comes from Fundrise. For the past 70 years, there's been a room in finance most people couldn't enter. A room where you could have invested in some of the biggest names in tech companies like Airbnb and Uber before their multi billion dollar IPOs. I'm talking about venture capital. Fundrise recently took a sledgehammer to those closed doors by launching a venture capital product that's available to anyone. Their mission is to give everyone the chance to invest in the best tech and AI companies before they go public. You can visit fundrise.com fool to check out Fundrise's venture portfolio and get in early. Today, all investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertising.
- [19:46]
A
Welcome back to Motley Fool. Hidden Gems Investing. In this section, we like to have a little bit of fun with investing. And I want to talk about disruptive innovation versus sustaining innovation. As we talk about a lot of these companies that are doing really interesting new things and new technologies, as an investor, you got to decide, is it a disruptive innovation? So an example there would be Netflix comes in and says, hey, we're going to stream content rather than putting it on cable. And the incumbent companies don't really have a great way to respond. In fact, Netflix paid a company like Disney money for their content. And Disney was like, cool, free money. I'll happily take that. Next thing you know, they look up and Netflix is eating their lunch. But then there's sustaining innovations, which is an innovation where the incumbent companies actually get stronger. And it's not the disruptors that actually take the market share, it's actually the existing companies. So what are these new technologies and which companies are going to win? As we look at this through an Investment lens. Let's start where we have been discussing so far. Artificial intelligence models are something that I think we all use more and more all the time. But Lou, I'm going to start with. You are model makers, so anthropic OpenAI. You could even put Gemini or Grok in there. Are those disruptive to the existing SaaS, companies like Salesforce, Intuit? There's a whole of bunch, a ton of companies in that realm. Would you rather be those disruptive companies or do you think this is more of a sustaining innovation and we're still going to be using that software a decade from now?
- [21:15]
B
Are they disruptive? Yes. Which do I want to own? That's really hard for me. I think I will still take the incumbents here because I'll be honest, I'm still worried that the models themselves kind of get commoditized and I don't know where that huge profits come from. But look, even if that happens and even if they can't put layers on it, that makes them super profitable on the model side. This feels like a race to the bottom for both because I do think it takes some of the margin out of the incumbents as well, even if they can implement AI into it. So I don't know honestly how deeply I want to go in here either.
- [21:54]
A
Does it sound like an all losers innovation?
- [21:56]
B
Well, yeah, I think the winners here are the customers because I think the customers will get better products for a lower price, which is, hey, AI efficiency. That's where we're going in. So, you know, it's funny, the core thesis sort of works here that AI makes businesses more efficient. I'm just not sure who profits from that other than the end user.
- [22:18]
C
This is so hard. I will say that there are some AI innovations that are very interestingly disruptive. And one of the ones I was just recently looking at was in the insurance industry. You know, you have most of the time that's a human interaction. You have independent agents out there who can kind of shop around coverage for you from, from hundreds of different providers. That's a very menial task for a human agent. But there are companies now being built onto these frontier models that are able now to shop around that coverage more efficiently and faster. And those insurance companies are actually growing pretty fast. So it depends on the model. What are exactly we disrupting? I think that there are good use cases for AI, but then there are other companies, I think, such as a ServiceNow. I think that a lot of the Companies that use ServiceNow's products in HR and elsewhere in the organization that is a little bit. Once it's in the system, it's hard to switch off of that. Not impossible, but it's pretty embedded. And then if you can layer on AI on top of that, which they are. Everyone's talking about agents now. ServiceNow is saying, hey, we'll make agents for you. I think that that is an easier sell to these companies that are maybe not so tech focused. I can just use agents from ServiceNow and not have to figure this out on my own.
- [23:44]
A
Yeah, we always forget with software too. A traditional way of making software is you build it once and then you distribute it a million times. If you're trying to vibe code something, that means you're building it a million times and distributing it maybe once or twice or 10 times. So the economics doesn't necessarily work, but we'll see how this one plays out.
- [24:03]
B
I want to wait one more thing there, because it's just trying to think this through, is that while that might be true, the only reason a company would say, like, let's go to ServiceNow, make agents for me, is if they're gonna see a savings there. What disrupts the status quo on the customer side is better pricing. Right. So that's, I think it's my point, like, even if ServiceNow survives, keeps the customers, are they as profitable from here in this new world, they, I, I think they win the battle for the customer, but I think it might come at a cost to their margins.
- [24:36]
A
I kind of like Lou's argument that everybody loses. Let's talk a little bit about chips. And I'm actually going to put Nvidia as the legacy company here in AI chips. They were the dominant company when ChatGPT came onto the scene. They're still the dominant company today, but we're seeing everyone come out with custom chips, with custom inference chips. OpenAI showed off their custom chip this week. So, John, I'm going to start with you. Are these new chip companies that are built or started in an age of AI understanding that, hey, this is what we're building for? Are they the disruptors that a company like Nvidia is going to have a hard time responding to, or is Nvidia just going to keep getting better and keep their spot on the top of the mountain?
- [25:24]
C
I will answer your question like this. I believe that we are seeing real bottlenecks in this industry. I think that is pushing profit margins to ridiculous highs, and that is going to push innovation somewhere in this market. Your margin is my opportunity. As Jeff Bezos Once famously said, but take memory for example. I'm going to pivot from Nvidia to memory. Memory prices rocketing sky high. And we've already talked about that on today's episode. But you know, AMD just acquiring a company, Me X T. And it is essentially an AI memory efficiency play where.
- [26:04]
A
And there's a bunch of these announcements coming out. Hey, we did something that made Mar memory 10x more efficient. Yeah, it seems like there's a lot going on in that space.
- [26:12]
C
Yeah. In this case, AMD saying we can be two to four times more efficient with memory. Essentially we can do the same processing and need less memory than before. That's an innovation that could be very material if you're a Micron shareholder all of a sudden. Oh, maybe that's what brings things back into balance. It's not increasing the supply, it's just lowering the demand. Even though you're not really lowering the compute demand, you're just being more efficient with what you have. And so that kind of an innovation is something I am watching closely.
- [26:44]
B
So you asked, which would we rather own? I'd rather own Nvidia here, but I do think the disruptors are going to leave their mark. Similar to what I said before, but Nvidia is a long term survivor. They have been through waves before. Remember when they were only a crypto company or they were only a video game company? So as an investor, I want to own Nvidia here. But I do think, how does this wave end or how does it at least stop going up? I think we're seeing it right now with some of these disruptors and I do think if I did own Nvidia, I'd be sort of bracing for again. I don't know if it goes down from here, but I think it stops going up as fast because of these disruptors, because they are for real.
- [27:28]
A
Yeah, it's crazy how fast things are moving in the chip space right now. And these companies that didn't exist three or four years ago are now going public, are introducing commercial products that seem to be, you know, at least having an impact on some of the biggest companies in the world. All right, let's move over to autonomous vehicles. This is something we, we've talked a lot about electric vehicles and autonomous vehicles in the past, but it seems like we're at an inflection point here where there are so many companies that are bringing autonomous vehicles to market. So I want to, I want to leave this a little bit wide open. How do you think about autonomous vehicles? Like the waymos the werides mobileye Neuro kind of the upstarts that are providing either technology or a vertically integrated solution like Waymo does to the incumbents in the market. And that could be gm, it could be Tesla and it could be companies like Uber. John, where do you want to be? Do you want to be the companies that's trying to disrupt the market or the incumbents who are trying to hold off those disruptions?
- [28:35]
C
I think I would want to be with a disruptor here. I have really liked mobileye for a while now. Not invested in it yet but mobileye I do appreciate data rich companies. Mobileye is a company that has embedded its technology on so many vehicles getting that real world driving data. And you know, that is what a lot of people argue Tesla's moat is for its self driving is the fact that it has this real world driving data.
- [29:01]
A
Well, mobile, you may be driving a mobile I vehicle that is sending data mobileye and you may not even know it.
- [29:07]
C
Yeah, exactly. Because of the partnerships that they have now. I thought that that data was pretty valuable to be licensed. Mobileye just announcing that hey, we're actually going to try to vertically integrate a taxi solution with this. Now that is very interesting and I'm still processing that announcement but I think that I would want to own a disruptor here because I do think that there are innovations that are going to happen.
- [29:31]
B
So I spent most of my pre investing career with the automakers and because of that I will not own an automaker. That is just the most complex industrial manufacturing business I know. Even when times are good, the margins kind of stink. So by default the question again was what do you want to own? By default I'm going with the disruptors. I will say this though about them. This future that everyone had a few years ago where nobody's going to need cars anymore because these robot cars are just going to show up. That always sounded like balderdash to me and I'm convinced not in my lifetime, probably not, you know, for generations maybe. Maybe there's a case for going from three cars to two in some families over time as these build out. So I don't really think these disrupt the automakers in the way we thought they were. But it's just, it's a better business or it's a potential to be a better business than the automakers. So by default I will invest in those.
- [30:32]
A
Do you think those automakers could just become modular players in the industry where you know, a we'll, we'll take Mobileye as an example, they're not going to build a vehicle themselves. They're going to have somebody else do it as a. On a contract basis. Could that potentially be. I don't know if an attractive business is the right thing, but kind of, you know, the way that they survive
- [30:54]
B
long term, I think even that's overstating. Look, I'm not a car guy. I want a car that, you know, I just want to know the pedals work and I can go from places to place. But I have seen and I have enough neighbors with a 1952 Ford pickup or something like that. The idea, like in all the sci fi movies, that all the cars just look the same and they're just a utility, I, I'll believe that when I see it. I think there that these companies have a lot more staying power than just being module equipment providers to these tech companies. I think if anything, the tech companies will integrate onto the automakers at least for the next coming decades anyway.
- [31:35]
A
All right, I want to end on an area that I'm at least very intrigued. That is robotics and all of the attention and investment that's gone into the robotics industry. Lou, I know you follow the industrial space. There's a lot of robots in a lot of factories all around the world. I think a lot of people that are talking about how humanoid robots are going to make everything more efficient maybe haven't been in a factory where you. There are hundreds of people maybe making billions of dollars worth of product every single year. When you look at the robotics space, does this humanoid form factor in particular? And all the companies, including Tesla, you have companies like figure there are some other public companies, Boston Dynamics, who are looking at or building these humanoid robots. Is there anything disruptive there? Or are we going to find out that a lot of the incumbents either have this technology already or can kind of fold it in with maybe a, a robot that doesn't look as human.
- [32:32]
B
This is a pet peeve for mine because you go back probably a decade now when Elon Musk unveiled the factory of the future, the alien dreadnought. Remember that? And I remember reading it and thinking, wow, like three weeks earlier, I had been in a Ford plant in Kentucky and it was more advanced than this white paper was already. You know, so that's kind of. And to your point, I think we greatly overrated the humanoid form factor for most things. Robotics has been a massive trend in warehouses and industrial all over the place for decades now. That will continue to be the case. And in most cases the humanoid form is not, I mean, the classic example. Why do we need Rosie, a humanoid robot operating a human vacuum when you can just have a rumble? Okay, I think that's a really, really good thing to think of. That said, last mile delivery, some of these things, if the drones can't do it, you know, there, there are, I think, some opportunities for robots with legs, robots with arms. So I'm not entirely discounting it, but I do think that most of the humanoid robot demonstrations we see is more theater than it is actual business. The good news is there's tons of business outside of that form.
- [33:52]
C
I love the fact that you bring up Rosie from the Jetsons because I think that is a perfect example. Yeah, there's a more efficient form factor for a vacuum, which is a Roomba, but a Roomba can't cook my dinner. And so I think that the versatility of a humanoid robot that can now do multiple functions in different settings, the fact that it isn't a humanoid factor, maybe it's not the most efficient factor for that specific job, but it can do a wider range of jobs. And I think that that's a key thing to remember now. It all hinges on autonomy. Can it truly get to a place where it is functioning independent of an operator? That's the key. And that's what makes the humanoid form factor actually something that's compelling long term. We're not there yet, but I do think that there is a case to be made for why we're making these robots the way we're making them.
- [34:41]
B
But John, just to push back on that, I mean, the Optimus is going to cost 30 grand. You can buy a robot oven that actually links to a robotic fridge right now for a fraction of that. I just, I, I don't think the form factor is really as necessary as we think it is.
- [34:58]
A
As long as there's a robot that will clean up after my kids after everybody goes to bed. I, I don't know what I would pay for that. But it, it is a lot of money. It's probably worth more than the cars that we have in the driveway. So there's got to be something there. Whether it's a humanoid form factor or not, when we come back, we're going to get to the stocks on our radar. You're listening to Motley Foolhood Gems. Investing.
- [35:23]
B
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- [35:55]
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 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 before we get to Stocks on our Radar John, you brought up that we are in extreme fear on the Fear and Greed Index. What does that mean and what should we take away from that?
- [36:25]
C
Well, it means that there are several factors that would seem to indicate that investors are fearful and one of the biggest ones right now is is that the stock market is close to an all time high, but actually most of the volume is happening in just a few of the top stocks on the market. And the rest of the stocks there's actually more down than up. So that kind of indicates that investors are a little bit scared to buy stocks right now.
- [36:49]
A
Interesting indicator, but we'll see if it actually means anything because we were actually in extreme greed just a month or two ago. All right Lou, what do you got for radar stocks this week?
- [36:59]
B
All right Dan, I want to talk about Lockheed Martin Ticker LMT. This week the company finalized a 7 year 35 billion with a B deal with the Pentagon to dramatically boost production of thaad missile defense systems and other armaments. That was part of a long awaited munition restocking that we've heard so much about. The Pentagon wants 4x what they thought they would want just six months ago. They're also going to come back, or expected to come back in the next few weeks with a separate PAC3 missile order that is a 3x increase over current rates. This locks a lot of future revenue in for Lockheed Martin and should elevate missiles to yet another massive tentpole franchise along with the F35 helicopter space systems. Here's what's interesting for investors. Defense contractors all have one customer and that customer has a vested interest in making sure they all stay healthy. So the stocks all tend to move together and the best way to pick individual stocks in defense can be the focus on the laggard and figuring eventually it'll rebound. Lockheed Martin is the worst performer of the defense big five or the last three years and it is at the bottom in terms of valuation. This contract is a reminder of Lockheed's strengths and I'd say now looks like a really interesting time to buy.
- [38:11]
A
Dan, what do you think about Lockheed Martin? I mean Lou said it right, they all have one customer and the customer is going to keep them afloat no matter what. Seems like it might be a good investment.
- [38:21]
B
The customer could even print its own money. So how about that?
- [38:25]
A
All right, John, what are you looking at this week?
- [38:27]
C
Yeah, this week I'm looking at tractor supply company. This is ticker symbol TSCO. This is a retail chain of about 2,400 stor, about 200 of its pet store brand. You can get things like overalls and feeding troughs there. But about half the business is in animal care which includes feed. This can be like a cattle animal, like a horse, but also dogs and cats. That is the bulk of this business and why I think that it is a very sticky business. Now this is the first time in the last 10 years that it's fallen 50% or more from its 52 week high. The dividend yield is at 3% for the first time ever. It's raised at 17 years in a row. I think this is a rock solid business that is just down right now in cheap. So I think it's a good buy.
- [39:11]
A
Dan, Tractors and dividends. Yeah, well, you know, a couple of years ago or maybe even more recently, somebody was shopping at tractor supply company and found a bunch of Magic the Gathering cards for sale there. So you never know what you're gonna get at the old tractor supply company. Alright, which one is going on your watch list, Dan? Hey, let's go tractors. Congrats. Congratulations to John. I like that one. I gotta look at that this week. That's all the time we have for the show. Thanks to Lou and John and Dan behind the glass. We'll see you here tomorrow.