B (2:54)

Yeah.

A (2:54)

How do these companies differentiate themselves? I think those two are really the most striking right now is that Target seems to be struggling. They did announce a new CEO. They, they picked somebody internal. So not doesn't seem like there's going to be any major changes there. Walmart seems to continue plugging away and this, the interesting comparison is to some of the restaurants which we've heard about from the last couple of weeks. People are not trading down in restaurants. In fact some of those fast casuals are actually doing pretty poorly and people are going to deciding to go sit down at restaurants if they're going to spend the money to go out. The opposite seems to be happening in retail where discounts and looking for deals is kind of the name of the game. Matt, what do you think?

D (3:32)

Yeah, no, it's definitely all about discounts. I mean we've seen you know, some other, you know, higher end retailers. I mean if we look back to even the first quarter, companies like Lululemon, Abercrombie and Fitch were all lowering full year sales forecasts. Pretty much that was a big trend among, you know, what I would call discretionary retailers. And, and we're definitely seeing, I mean I, some of them haven't reported yet. I would not be surprised to see the same happen in the second quarter.

A (3:59)

Johnny Commerce continues to be a trend, although it's not necessarily the trend that it was 10 or 15 years ago. But companies like Home Depot, which I, I've ordered a few things online, got them delivered from Home Depot. I thought it was a great experience but that is now at least a small driver of the business.

B (4:17)

Yeah, Home Depot's E Commerce was up 12% in the most recent quarter. You have Lowe's up almost 8%. TJ Maxx said its E Commerce was up. Walmart and Target in this world we're always chasing this shiny new thing. But I think it's good to remember that even trends that seem like they're played out are still real trends. And so this E Commerce trend in retail still has legs. And you start thinking through what that means there. It means growth in logistics, it means growth in digital advertising. So there' plenty of opportunity here for investors if they look to these old trends.

D (4:49)

Walmart particularly was impressive here. Their E Commerce sales were up 25% year over year. Delivery sales were up 50%. They're doing a great job of not just E Commerce, but general omnichannel retail. And that's been a big, big driver of growth for that company. And speaking of Walmart surprises.

A (5:06)

Yeah, having the option to deliver groceries along with a few domestic items is always great as a. We primarily use Target, but Walmart, Target, they're going to be probably in a pretty good position long term. We do have to talk a little bit about tariffs and this was something that I was really listening for in the conference calls. I don't know if we heard it as much as I thought maybe we would. We have a little bit of clarity on what some of those rates are going to be. Companies are starting to talk about increasing prices. But Matt, was that a big part of the story or was it just sort of an overhang that we're getting used to now?

D (5:43)

You're right that we didn't hear that much. And I don't know if it's because the management teams really don't know or because they're just trying to downtown or.

A (5:50)

Maybe they don't want to talk about it. They don't want to put a Target on their own backs.

D (5:53)

Right. But we are seeing some impact. Walmart actually was one of the biggest ones that actually commented on it and they said that middle and low income households have been the most sensitive, really only in discretionary categories. And they're being strategic, like speeding up imports before tariffs kick in. And I mean, Walmart imports about one third of its products. Target imports about one half of what it sells. So there is some impact here. But like I said, I'm not sure if the management team really knows what it is yet.

A (6:22)

John, what do you think?

B (6:24)

Yeah, I mean, it should go without saying, but I'll say it anyway. Every single retail company has different exposure to the tariffs and therefore they're feeling the pressure differently. I mean, Home Depot and Lowe's, they didn't even talk about it in the prepared remarks of their earnings calls. So, I mean, I think that shows how big of a deal it is to them. You look at somebody like Walmart, as Matt mentioned, not really that big of an issue when it's two thirds of its products are domestic. Of the companies that we're talking about today, it seems like Target does have the highest exposure to tariffs, the highest exposure to China. And so unsurprisingly, it's the one struggling the most with profitability.

A (7:01)

So it seems like discounters are kind of winning right now. But there is a huge spectrum of retailers of product companies. One of the things I think we heard, correct me if I'm wrong here, is that the wealthier consumers are doing relatively well while More budget conscious consumers are starting to trade down. Is that a fair way to look at this, Matt?

D (7:25)

Yeah, I mean Walmart even reported no noticeable change in consumer spending. But that's because Walmart's a discount retailer. I mean that hasn't been the case all year for higher end retailers and even things that people could put off like you mentioned John mentioned, Lowe's and Home Depot are reporting a lot of deferred home maintenance. For example, there's a quote that I love from Steven Tanger who's the head of an outlet mall company says in great times people like a bargain or people like a bargain. And in tough times people need a bargain. And I'd always bet on the need when it comes to times like where it's uncertain.

B (8:00)

Yeah, I read a report from the Chamber of Commerce that noted that consumers are increasingly enjoying a treasure hunt in thrift stores and closeout retailers. I think that that shows why TJ Maxx actually reported a solid financial report its last go round. It seems like expectations for Dollar General are modestly climbing. And one retailer that we haven't mentioned yet is Ollie's Bargain Outlet. That symbol O L L I it reports next week but its last report was encouraging. So I'd say keep an eye on that one. And it seems like discount is winning.

A (8:33)

Get some overall looks at what you guys are thinking because the other thing that's hanging over us, I think the, the Fed. Jerome Powell is actually doing his annual Jackson Hole speech as we're recording. So we don't know exactly what he said, but we've gotten a feel from earnings from banks who said that everything is going fine, from retail companies who say that you know what, people are starting to trade down from restaurants who are saying that consumer spending is changing a little bit. Add all of this together, Matt, and what's your takeaway from earnings season and the future of the consumer? Is it good, is it bad or is it just kind of murky?

D (9:08)

Yeah, I'd say it's murky. It's more uncertain than anything right now. Like you mentioned, banks, they're generally reporting strong asset quality, but loan growth is really weak. Deposit growth is really weak. So there's a mixed bag in a lot of these areas. I'm not sure if any sector just had a, you know, a fantastic earning season. So for me it's a little bit murky at this point. And the second half of the year is going to be interesting.

A (9:33)

What do you think, Jeff?

B (9:34)

I don't know who said it first, Travis, but never bet against the American consumer. That's my long term view here.

A (9:40)

That's probably a good takeaway. They do continue to spend and I will as well with with young kids that seem to always want some more stuff. I do want to know what your guys favorite retail stocks are today but I'm going to get to that in a game that I like to call Would you rather we'll that in just a bit. You're listening to Motley Fool Money.

E (10:01)

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A (10:34)

Welcome back to Motley Fool Money. Shares of Open Door have been some of the hottest on the market recently. Shares we are still down about 90% from their peak, but they're up 500% since the end of June. Matt, what in the world is going on with Opendoor?

D (10:50)

Yeah, well, if you remember the term meme stock, it kind of applies to Opendoor. Now a pretty notable hedge fund manager named Eric Jackson. Admittedly he has a pretty spotty track record of picking these home runs. But if you're looking for home runs, who doesn't have a spotty track record? He did call Carvana's 100x move, which is really his big claim to fame, posted on his X account and in a series of posts, I mean hundreds of them over the past couple months, that Opendoor is his next 100x idea. He posted it when the stock was at about 82 cents and it's about 350 today. That implies about an $82 price target. So when he called Carvana, I mean it's not surprising that people are taking this seriously.

A (11:31)

And these are really turnaround stories. This is not just I understand the fundamentals better than you. Carvana was in serious trouble. Opendoor, depending on the day, seems to be they could be closing their doors. I mean, an 82 cent stock is not one that investors typically have a lot of confidence in.

D (11:48)

No. And they had just announced a reverse split before all this started and they ended up retracting it. So yeah, it's not a successful business. It's never been, never been consistently profitable. It made money in the 2021 real estate boom, but that was really it.

A (12:04)

Now the idea Here is that there's some sort of AI story, some sort of data story. Is there really a there there? Because another one, that name that keeps coming up is Zillow. Zillow was in Opendoor's business buying and selling homes. They have, I would think, more data than almost anybody. And they said, you know what, this is too hard of a business. But can, can Opendoor actually get it right or is this gonna be another kind of boom and bust cycle?

D (12:32)

Yeah, There were really two parts to the thesis. One, you mentioned correctly that Zillow exited iBuying, Redfin exited iBuying. Zillow actually did the worst out of all of them when it came to that. So Opendoor really is the only national player left. And, and you mentioned the AI part of the thesis, which is really the big one. Opendoor has completed 200,000 real estate transactions on its own. No other company has done that. That gives it a lot of data and not just to create a better version of the Zestimate from Zillow, which is really one thing that they could do. They have a lot of.

A (13:04)

Do you think they could actually make a better Zestimate? I think that's an interesting take. Is that Opendoor could do it better? I don't know, because they're in the process or what's the thought process there?

D (13:14)

Yeah, well, they have a lot of transaction level data that Zillow does. And Zillow sees what a home sells for what the new person buys it for. Opendoor sees things like how specific repairs translated to more to better sales prices and things like that. A lot of different data points, John.

A (13:31)

An $82 price target seems high, but even at today's price, that would be a pretty nice gain. What are your thoughts on this being the next Carvana?

B (13:42)

Yeah, so Jackson's price target here of $82. This has a couple of assumptions baked in. First, he's assuming that it gets to 10 billion in revenue and that the market will value it at nearly six times sales. Now, I feel like those are pretty generous assumptions. If the market is going to value opendoor at 6 times sales, I would expect it to have better profit margins and in fact attractive profit margins compared to what it has right now. The problem is I'm not convinced that iBuying, its business model, can actually get there. So iBuying needs two things. It needs quick turnover and it needs good deals. I think that if you're in a market where you're getting good deals, you're not turning over your inventory fast enough. So I feel like it's a really difficult place for Opendoor to be. So I'm not sure it gets to 10 billion in revenue. I'm not sure if the market values it at six times sales.

A (14:36)

Yeah, this is one of those businesses I really want to like. I liked Zillow when they got into iBuying because in theory it makes a lot of sense. But then John touched on it. You get into the actual nitty gritty of the individual transactions and you end up buying homes you don't necessarily want to buy. It just becomes really, really complicated. Nobody's proven the ability to actually make it profitable long term. But Open Door was one of the hottest stocks when they came public because they were a SPAC. And it seems like SPACs are back. Chamath Poly Capita released another SPAC called the American Exceptionalism Acquisition a which as you would expect is a Cayman Islands company. I looked at their filing. The Cayman islands are mentioned 238 times and America or any derivative of America is mentioned 43 times. So I think that's a, that's a fun data point if you are betting on American Exceptionalism with this spacious but Matt, are we back in a spac spac boom?

D (15:33)

I'm hoping we don't get to the 2021 type of spac boom. I mean the worst thing you could hear invest in investing is this time is different and we're not seeing the, I mean I used to do the SPAC show and at one point there were 17, 18 a day going on to the market. I don't think we're going to get back to that. But it is a legitimate way for companies to go public when it's done right. The question is are they going to do it right this time?

A (15:59)

Yeah, that really is the, the question. And Chamath's track record is sort of hit or miss. I, I know that, you know, I've bought into a few of these over time. Virgin Galactic was, was a big winner for me before kind of the SPAC boom. And then I've, you know, proceeded to lose a whole bunch of money on that. SOFI is another one. But Matt, what, what would make this time different for the SPAC boom if this is actually going to be a little bit more sustainable?

D (16:27)

Well, you mentioned his record. He's launched 10 SPACs altogether and for long term investors I would give him a 1 out of 10. Sofi is the only one that's really made anyone any money. We could talk all about the other ones like Virgin Galactic, which is down 98% from its initial price, which I don't have to tell you that if you invested in it. So again, the worst thing you could say is this time is different. But he's making some tweaks to make this feel like it's not just a money grab for the insiders. So there's no warrants, which was a big staple of SPACs last time. And the founder shares, which is a nice way of saying that the sponsor essentially gets 20% of the SPAC for free, is actually being bumped up to 30% in Chamath's favor. But in order for him to cash it out, the stock needs to rise by 50% or more after he finds a deal target and the deal closes. So it's meant to align his interests with shareholders a little bit more than it was last time, which is really wasn't aligned at all.

A (17:23)

John, do those changes actually change the incentives enough for you?

B (17:29)

I was ready to write this off completely, Travis, and these incentives are drastically different. I think it was Charlie Munger who said, show me the incentive and I'll show you the outcome. Too many SPACs failed because the incentives weren't in favor of retail investors. It was all in favor of the insiders. This one gives Chamas some credit. This is very drastically different, especially with no warrants, with the vesting period. It. It has to increase in value before his shares can vest. So you know what? I. I'm going to keep an open mind with this one. This is very radically different from what we've seen before.

A (18:04)

And the devil's always in the details. The detail here is what in the world is the target? What do you think he's going to be going after?

B (18:10)

That is a great question. He was talking about needing unlimited energy in the United States. If you read between the lines, maybe he's looking at fighter robots for the US Military. And he says he's looking for a great company at a great valuation. These seem like very futuristic ideas and not so much a current reality idea. It seems unlikely to me that you're going to have a business that is at a great valuation. You're probably going to have more of an idea of, of a business that is going to. That he's going to take public. Not so much something that's already fully operational.

A (18:45)

Yeah. The challenge with SPACs is that you can make these grandiose predictions about what the future is going to look like. And we only find out in the future, four, five, six years down the road like we are with those original sps, whether they live up to them and a lot of them really haven't. Next up, we are going to play. Would you rather you're listening to Motley Fool Money all alone I got no.

B (19:08)

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F (19:38)

Martha listens to her favorite band all the time. In the car, gym, even sleeping. So when they finally went on tour, Martha bundled her flight and hotel on Expedia to see them live. She saved so much she got a seat close enough to actually see and hear them saw top. You were made to scream from the front row. We were made to quietly save you more Expedia made to travel savings vary and subject to availability. Flight inclusive packages are at all protected.

A (20:18)

Welcome back to Motley Fool Money. At this point in the show we like to play a game and I'm going to play Would you rather with John and Matt, Pretty simple game. I'm going to give you two stocks. Which one would you rather own in your portfolio? Let's start with the retail trend that we talked about a little earlier. Walmart is a much hotter stock than Target, but It's trading for 39 times earnings. Target is trading for 11 times earnings. John, would you rather own shares of Walmart or Target?

B (20:49)

I'd rather own shares of Target and my answer is predicated on an assumption that that assumption is that Target is not a Kmart. I believe that Target is going to find a way through this. It's going to stay one of those top retailers for a long, long time. And as you look at Target, one of the only things that's growing right now are its digital businesses. So things like its subscription services, it's third party marketplace. I think that those can continue to gain traction and provide some incremental, just an incremental boost to its profitability. And so that's why I like it at 11 times earnings. If I'm wrong, at worst case scenario you get a hu retailer at 10 times earnings and a 4% dividend yield.

D (21:28)

I, I'd agree with John. I, I'll go with Target as well on this one. I, I think the new management is going to get it right. They've identified the problem pretty early on. They're being proactive about it and I, I, I do think they're going to do all the right things to, to keep Target relevant. They're not another Kmart They've coexisted with Walmart for a long time already.

A (21:45)

One of the things I want to hear from some of these companies is how they're bringing autonomy into the business. You look at something like Target, but Walmart could be the same case where you're having autonomous vehicles all over the place. Why aren't we just filling those? And they can. I can, can be sitting in my driveway when I wake up in the morning. John, is there a sort of. We have the boxes, you know, the. These are big box retailers that, that's still a point of leverage. Whether you're looking at Target, which is going to be a little bit more urban, or Walmart, which is going to be a little bit more rural, that still seems to be like an untapped market, a lot like these digital services you're talking about.

B (22:25)

Generally speaking, I would say that autonomy is good for any retail business because you can drive a little bit of incremental profit from these huge operations. I think that's more of a, perhaps a 10 year, a 10 year boost to profitability. Not so much in the three to five year range.

A (22:41)

It's probably fair. I would like the future to be here a little sooner though. Let's stay in retail and look at Home Depot and Lowe's. Home Depot trading at a premium, but not all that much of a premium. 27 times earnings. Lowe's is at 21 times earnings. Matt, would you rather own shares of Home Depot or Lowe's?

D (23:00)

I'm going to go with Home Depot here. I think even with the premium valuation, I think Home Depot's done a much better job of omnichannel. Much better job of getting professional customers. Lowe's playing catch up with that with their recent acquisition, with getting like the contractor crowd to be customers there. And I just think Home Depot's done a better job of executing and that's worth something.

B (23:20)

Yeah, I can't disagree too much with Matt here. Home Depot just so reliable over the years. But I would go with Lowe's here at 21 times earnings just because I think it can continue to close its profit margin gap with Home Depot. Home Depot's historically have better margins, but you know, I think Lowe's can still slowly and surely chip away at that. And for that reason I think it may have more earnings upside.

A (23:43)

These two have been such an interesting comparison over the past 20 years or so. Even just my own shopping. Well, I would prefer to shop at a Lowe's. I never go to Lowe's. I always go to Home Depot. So John, is this just momentum that allows Home Depot to sort of be that center of gravity for home improvement, for contractors? It just seems like there's something that they're doing a little better. I can't always put my finger on it, but from an investment perspective, this has been the better stock for really since these companies went public.

B (24:15)

Yeah, I, I think that's just right. Travis. It is hard to put your finger on exactly what Home Depot does that's so much better than Lowe's. And so I, I guess that's why I say why bet on the, the guy who's already won rather than bet on the guy who can improve and close the gap? Man, they're always across the street from each other, right? I mean, they're not that different. So I just feel like Lowe's has opportunity.

A (24:39)

We're going to have one more retail comparison here. Let's stay with discount companies TJ Maxx and Costco. A little bit different business model here with the membership model at Costco. But John, TJ Maxx is trading for 31 times earnings. This has actually been a phenomenal stock over the long term. Costco another huge winner for investors long term at 56 times earnings. Which one would you rather have in your portfolio?

B (25:07)

I'd prefer to have TJ Maxx. And that said, Costco is a top tier company, but ultimately single digit growth at 56 times earnings is just too steep for me. And look, as you mentioned, TJ Max stock is up over 150% in the last five years, beating the S&P 500. It's really putting up some solid operating results. And so of these two companies, yeah, I think that TJ Maxx is going to be better for investors from here.

D (25:33)

In full disclosure, this is a category I wish I didn't have to pick one. But TJ Maxx I would have to go with. I mean, just from a risk reward standpoint, I see a lot more upside potential from here than with Costco to justify that multiple. I mean, I'd go with TJ Maxx if I had to pick one, but it's just, this isn't. I choose Walmart or Target before either of them.

A (25:54)

Since 1990, TJ Maxx stock is up 28,000%. Just phenomenal results for a company that, you know, if I, if I was, when I was being dragged to TJ Maxx in the early 90s, I should have told my parents, just buy their stock instead of buying whatever thing I wanted to buy. Let's go to a tech comparison and These two are in an interesting position because they're both investing a ton of money in artificial intelligence. They have a little bit different strategies, but they do seem to have a bright future, whether we're looking at AI or just their core businesses. Meta Platforms, aka Facebook, trading for 27 times earnings, or Alphabet at 21 times earnings. Matt, which one would you rather have in your portfolio?

D (26:40)

Alphabet. It's the best value of the Magnificent Seven. It's a high margin business. Tons of cash generation, tons of cash on the balance sheet. Google Cloud has so much potential and it trades like a value stock. 21 times earnings is less than the S&P 500 average for one of the best companies in the world.

B (27:00)

Man, I really can't disagree with what Matt is saying too much. This one for me was the hardest of all of the. Would you rather that you put before us here, Travis? But I'm going to go meta, and the simple reason I'm going to go meta is because Mark Zuckerberg is so willing to swing for the fences when it comes to a big idea. Now, granted, that hasn't worked out with things like the Metaverse. We'll see if it works out with AI. But when a business is already rock solid, taking a swing for the fences with something new is something that I appreciate as an investor.

A (27:33)

John. His reputation among investors has really improved over the past few years, and I think there's good reason for that. There's a lot of operational improvements. But you're talking about swinging for the fences. The last swing for the fences was the Metaverse. That's. I don't even know what the number is. 15, $20 billion a year, they burned on that. Nothing really to show for it. The VR business hasn't done much of anything. AI kind of came out of that. But if you go back to the original, the business was Facebook. That's more than 20 years ago. Instagram, they acquired. They've obviously built a business around it. But has Zuckerberg shown that he is somebody that you can trust? Spending tens of billions, potentially hundreds of billions of dollars investing in this next big thing? I mean, is he just sort of earned it because he is a. One of the richest people in the world and most successful tech entrepreneurs?

B (28:26)

Yes, it's hard to answer that. I mean, yeah, hey, the other bets haven't really worked out so much. It does seem like, hey, maybe we're being a little bit too loose with our money. But as I've said before, this is a company that is still thinking about shareholders paying that Dividend repurchasing shares. It's just printing money like crazy. And so you know what, you have a responsibility when it comes to the rest of that cash. And so if you're willing to, to spend it to grow the business even at this scale, that's something that I'm willing to give them the benefit of the doubt.

A (29:01)

Final. Would you rather is on holding or on running as they're kind of popular. Becoming popular. Becoming called right now by investors. Ticker symbol is onon if you're Interested in that one versus Nike NKE on is trading for 4.2 times sales. We're using sales here instead of earnings because ON is not really optimizing for their earnings or net income yet because they're still a very high growth company. Nike on the other hand is in a turnaround. They're trading for two and a half times sales. So on is trading at a premium, but not a massive premium. Matt, I want to start with you. Which one would you rather have in your portfolio?

D (29:41)

I'd go with On. And it's really like a Peter lynch invest in what, you know, type thing. I notice at the gym more and more people are wearing on shoes than ever before. Nike is very much in turnaround and they're really trying to win back their cool factor. That's one thing that's really hard to do. Like you know, think of when, in the 90s when we were growing up how cool Nike shoes were. They kind of got away from that. They're in turnaround. I take on because it's just, it's a high growth company and it's, it's a. Their product's cool.

B (30:11)

Yeah, I agree with Matt. I would also take on stock here and for two reasons. One, growth. So its growth is better now and its long term growth potential is more promising I think than Nike. Two, its profit margins are better. And so you look at the gross margin, on is over 60% Nike around 40%. And so I think that it deserves a higher sales multiple that it does. But I also think that it's going to pay off better for investors. It's hard to invest in a turnaround such as Nike. You really have to have a lot of faith even at 2.5 times sales. I mean that's not necessarily a great valuation for Nike if it doesn't dramatically turn things around.

A (30:54)

The one thing I took away from on's conference call is their comments about tariffs are very different from most companies. They just simply say, you know what, we're going to raise our prices and we've got a premium consumer. They're going to pay it and that's exactly what's happened. So it will be interesting to see what happens to those two companies because I think there's a lot of debate and a lot of big investors betting on Nike. Next up, we're going to talk about stocks on our radar. You're listening to Motley Fool Money. Maybe this town rips the balls from your back It's a death trap It's a suicide rap we gotta get out.

B (31:48)

While we're young.

C (31:52)

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A (32:28)

As always, people on the program may have interest in the stocks they talk about. The Motley fool may have formal recommendations for or against. So don't buy or sell stocks solely based on what you hear. All personal finance content follows Motley fool editorial standards. That 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. Meta Platforms has been an AI story for a couple of years now, and Mark Zuckerberg was actually scooping up a one hundreds when Nvidia was writing them off right before the ChatGPT moment. But Meta's now at something of a crossroads. They've spent billions of dollars acquiring talent, but then the news this week was that they had some sort of hiring freeze. So John, what is going on here? Is this growing pains or is this actually a change of directions just in the last few weeks with Meta?

B (33:20)

No, I don't think it's a change of direction at all. To me. I liken it to a sports team. So if you had a brand new sports expansion team in a league, let's say that the owner goes out there and spends all the money he has, spares no expense to acquire the biggest and brightest names in that game. Right? You're going to bring them in house, but then you're going to say, all right, well who's playing for this team? Well, you're going to let those minds that you brought into the room have some time to get organized and develop a plan, develop a team identity. Who do we want to be? And I think that's what's going on with Meta here. It spent its money to bring in the talent to form the team, but now it still needs to spend some time and develop a strategy.

A (34:02)

They've also been spending a lot of money on data centers, chips, all of that stuff that all these big hyperscalers are buying. But their capex isn't quite as big as companies like Microsoft, Amazon and Alphabet. 65. $70 billion is what they're expecting to spend this year and they can use a lot of that internally to make their core products better. The interesting announcement this week, John, was that they said that they were going to spend $10 billion with Google Cloud G over the next six years. So at least putting some of that off on Google. Is that a notable shift in their spending patterns and what does it mean for Google and Alphabet?

B (34:39)

Whether or not it's a shift, I can't say, but I think it's a brilliant move because here's the thing, Google has a third party cloud service. So no matter what Google has to spend on AI to stay relevant in this space or you give up your cloud service, that's just how it is. Meta on the other hand, doesn't have a third party cloud service. And so it's trying to figure out where it's going with AI. It can actually use Google as it builds out the infrastructure and kind of push the envelope with what it's doing with AI. And then as it develops a strategy, it can bring things in house. And so that's what I see going on here.

A (35:18)

Matt. This could potentially allow Google to be sort of the overflow, turn that instead of having that fixed cost capex into a variable cost in the future. So is that the right way to think about this for Meta and is that the right thing to do? Because a lot of these companies are vertically integrating, they seem to be at least going a little bit of a different direction.

D (35:39)

One good thing I can say about Meta is they definitely seem to be adaptable when it comes to their AI strategy. You mentioned the hiring freeze. One of the things I found most interesting is that they internally label one of their AI teams as the TBD team. Maybe like they're giving people, in some cases nine figure signing bonuses and not giving them a job to do, which to me sounds like the neat this.

A (35:59)

Is taking the hire good people and leave them alone thing to another level when you're paying them that much money.

D (36:05)

Right, to not give them a job then. So the pause makes Sense. And the $10 billion deal with Google Cloud, it gives credibility to that narrative that they are in fact taking a pause. It's not a shift in their strategy. They're still investing heavily in AI, but they just want to make sure everyone's doing what they getting their value out of all these new hires.

A (36:24)

So Matt, is this a win win for Meta and Google?

D (36:28)

Yeah, it's not as much of a needle mover for Google. I mean $10 billion over a six year deal, which is what this is. It's not nothing. But for a, you know, a multi trillion dollar company, it's not that big of a deal. I think it's definitely a bigger win for Meta. It shows that their AI strategy is proceeding as they want it.

A (36:45)

Yeah, Google Cloud is doing $49 billion in revenue right now, so I think it's notable. And they can count OpenAI as a customer as well. We like to end the show with stocks on our radar and get some thoughts from Dan Boyd behind the glass. Matt, you're up first. What's on your radar this week?

D (37:01)

One that's a little out of character for me, NXP Semiconductor. But it's not as out of character as it seems because it's trading like a value stock. It trades for less than 18 times forward earnings. This is a business with stellar margins. They are a big, big chip maker, especially in the automotive industry where 60% of their revenue comes from the autonomous vehicle industry, which is a big driver of chip demand is expected to grow at a roughly 30% annualized rate through at least the end of the decade. This is trading as a value stock. It has a great dividend, almost 2% dividend yield on top of being a cheap stock. So I'm looking for chip exposure in my portfolio and being the value investor of the group, this is where I think I'm going to get it.

A (37:44)

Dan, what do you think of NXP Semiconductors?

G (37:47)

Molly fool money listeners know that I love a dividend stock. Travis and Matt but here's the thing. I was looking up this company and I read that their name is an abbreviation of Next Experience and they've capitalized the N of Next and the XP in Experience and I just think that's dumb.

A (38:12)

Deep thoughts from Dan behind the glass. John, which stock is on your radar this week?

B (38:18)

Okay, if Dan likes dividends, then I've got one for you. Dollar General symbol DG. It reports its next earnings on August 28th and it goes back to what we were talking about earlier. It seems like the discount retail is where the consumers are going right Now, I think that plays into Dollar General's favor. But more than that, you know, it trades at 21 times earnings right now, which is cheaper than the market average. But if you look at its profit margins, they're actually down right now for some self inflicted mistakes. It took on too much inventory in 2023. Its sales kind of stalled out and so it's had to mark down merchandise to bring its inventory back down. It's down about 12% now. I think that we're getting back to a place where it's kind of optimized for its inventory. And so I think we're pushing past that headwinds. I think it's profit margins are poised to bounce back. And so with a sales boost on the horizon from shifting consumer behavior, I think that Dollar General is in a good spot.

A (39:16)

Dan, do you have questions about Dollar General?

G (39:18)

Well, you know, Dollar General love me some cheap stuff. Who doesn't? But interestingly enough, Dollar General used to be a big sponsor for Joe Gibbs Racing and nascar. And Joe Gibbs, of course, won two Super Bowls with the Washington football team, my favorite football team. So I'm feeling pretty good about them right now, gang.

A (39:37)

All right, Dan, you have two very different companies, NXP Semiconductor and Dollar General. Which one is going to end up on your watch list?

G (39:44)

I'm not going to lie, Travis. I'm a simple man. I do understand discount retailing. I don't understand semiconductor production. So we're going to go Dollar General.

A (39:53)

That is probably the right call right now given how complicated it is in the semiconductor space. NXP does have to deal with a little company called Nvidia as well. But Matt, that's one I want to dig into a little bit more over the next few weeks for Jon Kwast, Matt Frankel, and our production magician, Dan Boyd and the entire Motley fool team. I am Travis Hoyam. Thank you for listening to Motley Fool Money. We'll see you here tomorrow.