1 00:00:00,080 --> 00:00:02,000 Welcome back everyone. Today on the Joseph Carlson 2 00:00:02,000 --> 00:00:05,840 show, I sold a stock, rather, I trimmed it significantly. 3 00:00:06,080 --> 00:00:08,920 I sold about half my position in one of my key holdings that I've 4 00:00:08,920 --> 00:00:12,520 held for around five years. This has been a massive winner 5 00:00:12,520 --> 00:00:15,400 in the portfolio, a company that I've talked about frequently. 6 00:00:15,720 --> 00:00:18,240 I'm excited to go into the details, explain why I'm taking 7 00:00:18,240 --> 00:00:21,080 gains in this company and which stocks I'm buying with the 8 00:00:21,080 --> 00:00:22,480 proceeds. So we'll be looking at the 9 00:00:22,480 --> 00:00:24,560 entire trade first thing in this video. 10 00:00:24,880 --> 00:00:26,880 Now we also have a lot of other news we'll be getting into in 11 00:00:26,880 --> 00:00:31,040 this episode, including the software is being eaten by AI 12 00:00:31,040 --> 00:00:33,000 narrative. That is a theme that's been 13 00:00:33,000 --> 00:00:35,120 around for a couple years now with Wall Street. 14 00:00:35,520 --> 00:00:38,080 There are people that believe that artificial intelligence is 15 00:00:38,280 --> 00:00:40,080 going to replace software companies. 16 00:00:40,080 --> 00:00:42,800 I'll be highlighting a couple reasons why I don't think that's 17 00:00:42,800 --> 00:00:45,280 going to be the case. Now, we also have a lot of other 18 00:00:45,280 --> 00:00:47,200 news. Apple is now going full speed 19 00:00:47,200 --> 00:00:49,600 into robotics. This is the first bullish thing 20 00:00:49,600 --> 00:00:51,080 I've heard from Apple in some time. 21 00:00:51,320 --> 00:00:53,480 We also have news that Perplexity is offering to buy 22 00:00:53,480 --> 00:00:55,720 Google Chrome with a complete bogus offer. 23 00:00:55,720 --> 00:00:57,400 We'll be looking at that publicity stunt. 24 00:00:57,680 --> 00:01:00,680 Mark Mahaney, the Wall Street analyst, outlines why his top 25 00:01:00,680 --> 00:01:04,720 pick is now a Duolingo. Amazon is pushing full ahead 26 00:01:04,720 --> 00:01:06,840 into grocery competing with Walmart. 27 00:01:06,840 --> 00:01:09,880 Paramount Plus bought their rights to USC, so Netflix isn't 28 00:01:09,880 --> 00:01:11,480 getting that. I'll share some thoughts on that 29 00:01:11,520 --> 00:01:14,400 as well as our own Qualtrum com. The website that I created and 30 00:01:14,400 --> 00:01:16,840 use was used on Fox Business News. 31 00:01:16,840 --> 00:01:18,400 We'll be looking at that segment as well. 32 00:01:18,600 --> 00:01:20,600 So we have a ton of news to get into in this episode. 33 00:01:20,840 --> 00:01:22,960 Let's go ahead and jump in now. We start things off today by 34 00:01:22,960 --> 00:01:25,520 looking at my latest trade. I'll go over it real quick. 35 00:01:25,520 --> 00:01:27,600 We have it here in the passive income portfolio. 36 00:01:27,880 --> 00:01:31,160 This is my larger of the two portfolios with a current value 37 00:01:31,160 --> 00:01:35,760 of around 908,000 dollars, $351,000 of that being gains. 38 00:01:36,120 --> 00:01:38,240 When we look at the trade, it's fairly simple. 39 00:01:38,720 --> 00:01:43,400 I am selling $30,000 of my Texas Roadhouse position, locking in 40 00:01:43,400 --> 00:01:46,440 substantial gains and I'll be deploying that capital into 41 00:01:46,440 --> 00:01:49,080 three separate companies. Now, if we look at the holding 42 00:01:49,080 --> 00:01:52,760 right now before I execute this cell, Texas Roadhouse is a 43 00:01:52,760 --> 00:01:55,920 $75,000 position. It's massive. 44 00:01:55,920 --> 00:01:58,600 It's one of the biggest positions in this portfolio, 45 00:01:59,040 --> 00:02:02,720 $40,000 of that. In fact, 41,000 is gains. 46 00:02:03,000 --> 00:02:05,360 So the majority of this position is made-up by gains. 47 00:02:05,360 --> 00:02:09,000 It's just quite frankly been an incredible out performer. 48 00:02:09,400 --> 00:02:12,840 In fact, Texas Roadhouse has not only outperformed many of the 49 00:02:12,840 --> 00:02:15,760 companies in my own portfolio, but it's outperformed most of 50 00:02:15,760 --> 00:02:18,240 the companies in the market since purchasing it. 51 00:02:18,280 --> 00:02:20,800 If you look back over the past five years, Texas Roadhouse has 52 00:02:20,800 --> 00:02:24,440 outperformed companies like Microsoft, Meta, Google, Amazon, 53 00:02:24,760 --> 00:02:27,560 many top tech companies. It's done better. 54 00:02:27,840 --> 00:02:31,120 It's outperformed the QQQ, and it's done this by having 55 00:02:31,120 --> 00:02:34,240 incredible fundamentals. Texas Roadhouse has grown its 56 00:02:34,240 --> 00:02:37,080 revenue at a substantial rate over the past decade. 57 00:02:37,440 --> 00:02:40,920 In fact, it's been growing around 17 to 18% revenue. 58 00:02:41,280 --> 00:02:44,520 That's very fast. It's also accelerated the pace 59 00:02:44,520 --> 00:02:48,320 of growth after the pandemic. So during a time period where 60 00:02:48,320 --> 00:02:50,680 other restaurants were struggling, Texas Roadhouse 61 00:02:50,680 --> 00:02:53,120 gained a market share. They took market share from 62 00:02:53,120 --> 00:02:55,840 other restaurants like Cracker Barrel, other ones like Outback 63 00:02:55,840 --> 00:02:57,880 Steakhouse. All these companies were 64 00:02:57,880 --> 00:03:00,840 struggling while Texas Roadhouse was continuing to climb. 65 00:03:01,320 --> 00:03:03,840 Now it's also grown in its earnings per share at a high 66 00:03:03,840 --> 00:03:06,720 rate, beating out most companies, growing around 18 to 67 00:03:06,720 --> 00:03:09,640 20% for the past five years. So we have incredible 68 00:03:09,640 --> 00:03:12,960 acceleration in the earnings per share growth and the free cash 69 00:03:12,960 --> 00:03:14,920 flow per share and all the other metrics. 70 00:03:14,920 --> 00:03:17,440 When I look at it today, there's a couple reasons why I'm locking 71 00:03:17,440 --> 00:03:19,640 in some gains and trimming this position. 72 00:03:20,120 --> 00:03:22,600 First of all, the valuation is simply higher. 73 00:03:22,960 --> 00:03:26,080 When I bought the company, I was buying it at a valuation of 74 00:03:26,080 --> 00:03:28,520 around A4 to 5% free cash flow yield. 75 00:03:28,920 --> 00:03:32,000 So we look at this metric and I was buying it right around here. 76 00:03:32,400 --> 00:03:34,440 This is a 5% free cash flow yield. 77 00:03:34,440 --> 00:03:38,840 For every $100 I invested, I got back 5 per year and that free 78 00:03:38,840 --> 00:03:41,720 cash flow grew. Today, Texas Roadhouse sits at 79 00:03:41,720 --> 00:03:46,760 more of a three percent, 2.7%. So the free cash flow yield is 80 00:03:46,760 --> 00:03:50,520 down around half, meaning that on a free cash flow basis, the 81 00:03:50,520 --> 00:03:53,480 company's roughly twice as expensive as when I first bought 82 00:03:53,480 --> 00:03:55,320 it. And while the valuation is also 83 00:03:55,320 --> 00:03:57,720 increased, the growth rate has also come down a little bit. 84 00:03:58,000 --> 00:04:01,600 Texas Roadhouse recently grew revenue by 12%, a slight 85 00:04:01,600 --> 00:04:04,880 deceleration from the 1617% it was growing. 86 00:04:05,320 --> 00:04:07,240 So we have an increasing valuation. 87 00:04:07,240 --> 00:04:09,440 We have a little bit of a deceleration in growth rate. 88 00:04:09,880 --> 00:04:12,400 None of this is terrible. It just means that Texas 89 00:04:12,400 --> 00:04:15,440 Roadhouse is not quite the deal today that it was five years 90 00:04:15,440 --> 00:04:17,320 ago. On top of that, I noticed that a 91 00:04:17,320 --> 00:04:20,440 lot of competitors like you can take Chili's for example, have 92 00:04:20,440 --> 00:04:22,000 gotten their act together recently. 93 00:04:22,000 --> 00:04:23,560 Chili's has upgraded their kitchens. 94 00:04:23,560 --> 00:04:25,720 They've redone their service, they completely redid their 95 00:04:25,720 --> 00:04:28,040 menu, they've lowered their prices. 96 00:04:28,040 --> 00:04:31,120 They're competing a lot more fiercely with Texas Roadhouse 97 00:04:31,120 --> 00:04:33,560 than they have before. And so I see a little bit of 98 00:04:33,560 --> 00:04:35,320 increased competition as well. Now. 99 00:04:35,320 --> 00:04:37,880 It's always difficult to sell companies that have done really 100 00:04:37,880 --> 00:04:39,600 well. They're great performers in the 101 00:04:39,600 --> 00:04:41,480 port portfolio. They're companies that you might 102 00:04:41,480 --> 00:04:43,080 even have a bit of an attachment to. 103 00:04:43,520 --> 00:04:45,600 Texas Roadhouse has been a company that I've talked about 104 00:04:45,600 --> 00:04:47,680 forever. So it's difficult to take any 105 00:04:47,680 --> 00:04:49,840 gains out of this company. But you have to do what you feel 106 00:04:49,840 --> 00:04:52,200 is best as an investor. And I don't believe having a 107 00:04:52,200 --> 00:04:55,600 small market cap or restaurant company as one of the largest 108 00:04:55,600 --> 00:04:59,080 positions in my $1,000,000 portfolio is a smart move. 109 00:04:59,320 --> 00:05:02,360 So what I'm doing is I'm simply paring down the bed, making it a 110 00:05:02,360 --> 00:05:04,960 little bit smaller relative to the other positions. 111 00:05:05,080 --> 00:05:08,720 Now with the $30,000 of gains, the proceeds from the sale, I'm 112 00:05:08,720 --> 00:05:11,320 going to be rolling those gains into three different companies, 113 00:05:11,600 --> 00:05:14,440 ones that I believe today offer a better risk reward. 114 00:05:14,800 --> 00:05:16,520 We have Equifax being one of them. 115 00:05:16,520 --> 00:05:19,440 I'm going to be buying $10,000 more of Equifax. 116 00:05:19,800 --> 00:05:21,320 This is one of the newer positions. 117 00:05:21,640 --> 00:05:24,600 Equifax is a deeply embedded data-driven company. 118 00:05:24,960 --> 00:05:27,120 They are accelerating the growth of new products. 119 00:05:27,120 --> 00:05:30,000 They already have an incredibly entrenched position with the 120 00:05:30,000 --> 00:05:32,000 work number. They have pricing power and 121 00:05:32,000 --> 00:05:34,320 they're heavily diversified. Now the next two that I'm buying 122 00:05:34,320 --> 00:05:37,200 are in the tech category. I'm buying $10,000 more of 123 00:05:37,200 --> 00:05:39,320 Google. Google has done incredibly well 124 00:05:39,320 --> 00:05:40,720 recently. The stock has had a big 125 00:05:40,720 --> 00:05:44,000 resurgence, but I still believe there's more room to run. 126 00:05:44,000 --> 00:05:47,160 Google, if you can believe it, trades at a lower E ratio than 127 00:05:47,160 --> 00:05:50,400 Texas Roadhouse. O, even though this company owns 128 00:05:50,400 --> 00:05:55,480 YouTube, it owns Waymo, it owns Google Cloud, it owns a ton of 129 00:05:55,480 --> 00:05:58,320 businesses outside of its core business of search, and it's 130 00:05:58,320 --> 00:06:01,560 still growing at a high rate. It's just incredibly powerful. 131 00:06:01,840 --> 00:06:04,520 It trades at a 20 PE. So even though the stock has 132 00:06:04,520 --> 00:06:07,000 recently done well and I believe investors are starting to get 133 00:06:07,000 --> 00:06:10,080 back on board, Google, I believe there's more room to run. 134 00:06:10,400 --> 00:06:12,840 Google should trade at a 25 PE ratio. 135 00:06:13,360 --> 00:06:15,760 It should be 30% undervalued today. 136 00:06:16,080 --> 00:06:18,880 Plus it's a heavily entrenched deep Moat business. 137 00:06:18,920 --> 00:06:20,680 Then we have the third one, which I'm buying with the 138 00:06:20,680 --> 00:06:22,960 remaining $10,000, which is ASML. 139 00:06:23,320 --> 00:06:25,960 This company is also deeply entrenched with its 140 00:06:25,960 --> 00:06:29,760 technological supremacy, with its EUV lithography machines. 141 00:06:30,120 --> 00:06:32,360 They make machines that nobody else knows how to replicate. 142 00:06:32,360 --> 00:06:34,320 They can't even figure out the technology behind it. 143 00:06:34,600 --> 00:06:38,760 And they have the distribution. And over time, ASML has a huge 144 00:06:38,760 --> 00:06:42,080 product pipeline. They projected revenue a decade 145 00:06:42,080 --> 00:06:44,200 out. The company is incredibly 146 00:06:44,200 --> 00:06:47,240 insulated from competition and should grow cash flows 147 00:06:47,240 --> 00:06:49,160 continually over the next 10 years. 148 00:06:49,520 --> 00:06:52,200 So this is another company that's deeply entrenched, a very 149 00:06:52,200 --> 00:06:55,720 wide Moat as technological supremacy, but it's trading at 150 00:06:55,720 --> 00:06:58,560 lower valuations. So Simply put, that's the trade. 151 00:06:58,560 --> 00:07:01,960 I'm taking $30,000 out of Texas Roadhouse, which has grown to a 152 00:07:01,960 --> 00:07:04,240 large position. It's been a big winner and I'm 153 00:07:04,240 --> 00:07:08,560 moving that money, $10,000 each into Equifax, Google and FML. 154 00:07:09,080 --> 00:07:10,400 Now let's go ahead and move on to some news. 155 00:07:10,480 --> 00:07:12,920 Now the first piece of news we jump into is addressing this 156 00:07:12,920 --> 00:07:17,440 narrative of AI eating software. For a long time period before 157 00:07:17,440 --> 00:07:20,040 artificial intelligence, we had the narrative that software was 158 00:07:20,040 --> 00:07:22,880 eating the world. Software were the most powerful 159 00:07:22,880 --> 00:07:26,080 companies, their high margin, reliable income, subscription 160 00:07:26,080 --> 00:07:29,240 based, they just grew and grew and grew and they were very 161 00:07:29,240 --> 00:07:31,600 profitable. Software companies outperformed 162 00:07:31,600 --> 00:07:33,360 the majority of other companies in the market. 163 00:07:33,920 --> 00:07:36,120 But now, since AI has come along, it's changed the 164 00:07:36,120 --> 00:07:39,240 narrative dramatically. Investors are now very concerned 165 00:07:39,320 --> 00:07:41,840 that artificial intelligence is going to make companies like 166 00:07:42,040 --> 00:07:44,840 ServiceNow and Salesforce eradicated. 167 00:07:45,000 --> 00:07:47,920 They're simply going to destroy them slowly, one bite at a time. 168 00:07:47,920 --> 00:07:50,200 We have different people on CNBC, different analysts like 169 00:07:50,200 --> 00:07:53,400 Jeffries, Brent, Phil saying that this is a problem for 170 00:07:53,400 --> 00:07:56,000 software. Yeah, I think the application 171 00:07:56,000 --> 00:07:58,000 software sector is is been crushed. 172 00:07:58,000 --> 00:08:00,160 I mean you look at Salesforce, you look at anything in 173 00:08:00,160 --> 00:08:02,720 applications, it's all down Monday included today. 174 00:08:03,080 --> 00:08:06,480 So I think that category is the category that's been hit the 175 00:08:06,480 --> 00:08:08,720 hardest and it's. The category that's been hit the 176 00:08:08,720 --> 00:08:12,920 hardest by this narrative is the application software category 177 00:08:13,000 --> 00:08:15,240 companies like Salesforce course and ServiceNow. 178 00:08:15,400 --> 00:08:17,640 Now again, this is a narrative that's been around for a while, 179 00:08:17,640 --> 00:08:20,320 but part of what's reignited this narrative just recently, 180 00:08:20,320 --> 00:08:23,640 just of the past week, is a guy named Ben Writes's. 181 00:08:23,800 --> 00:08:26,600 Let me read a bit of a summary of this note that he published. 182 00:08:26,920 --> 00:08:29,560 The core argument is that while software has been eating the 183 00:08:29,560 --> 00:08:33,200 world for the last decade, now AI is eating software. 184 00:08:33,440 --> 00:08:36,039 This shift is causing investors to re evaluate the stock 185 00:08:36,039 --> 00:08:39,120 valuations of SAS companies. The thesis draws a direct 186 00:08:39,120 --> 00:08:42,440 parallel between the rise of AI today and the rise of cloud 187 00:08:42,440 --> 00:08:44,680 computing years ago. In the past, companies 188 00:08:44,680 --> 00:08:47,680 maintained expensive on premise data centers, which was good for 189 00:08:47,680 --> 00:08:50,680 hardware providers like Dell, HP, and IBM. 190 00:08:51,040 --> 00:08:54,560 As cloud services like Amazon Web Services and Microsoft Azure 191 00:08:54,560 --> 00:08:57,760 emerged, these on premise hardware companies saw their 192 00:08:57,760 --> 00:09:01,080 valuations plummet and their price to earnings multiples 193 00:09:01,080 --> 00:09:04,000 contracted sharply. Today, SAS companies with their 194 00:09:04,000 --> 00:09:06,600 seat based subscription models are seen as being in a similar 195 00:09:06,600 --> 00:09:09,000 position. Melius Research argues that the 196 00:09:09,000 --> 00:09:13,600 rise of AI tools, particularly a gentic AI that can complete task 197 00:09:13,600 --> 00:09:16,480 without human intervention, will allow companies become more 198 00:09:16,480 --> 00:09:19,600 efficient, productive with fewer employees. 199 00:09:19,880 --> 00:09:23,280 This directly threatens the SAS business model as it could lead 200 00:09:23,280 --> 00:09:26,280 to significant reductions in the number of paid seats that 201 00:09:26,280 --> 00:09:29,240 companies need to buy now. This note goes even more in 202 00:09:29,240 --> 00:09:32,280 depth along the lines of this argument, but this is the reason 203 00:09:32,280 --> 00:09:35,120 why you've seen a huge fall in stock prices of companies like 204 00:09:35,120 --> 00:09:38,160 Adobe, Salesforce, ServiceNow, and Monday. 205 00:09:38,520 --> 00:09:42,200 Investors are very skittish about this thesis that AI is 206 00:09:42,200 --> 00:09:44,320 eating software. Now, every narrative like this 207 00:09:44,320 --> 00:09:47,160 has some truth to it. Artificial intelligence is 208 00:09:47,160 --> 00:09:50,040 changing the dynamic of how software is developed, the type 209 00:09:50,040 --> 00:09:52,760 of tools that we use, and agentic technologies. 210 00:09:52,760 --> 00:09:55,520 Real it can be useful in creating more efficiencies. 211 00:09:56,160 --> 00:09:58,920 But the argument here also leaves out a lot of counter 212 00:09:58,920 --> 00:10:01,040 arguments, things that are important to look at when we're 213 00:10:01,040 --> 00:10:03,760 assessing whether or not AI is going to replace companies like 214 00:10:03,760 --> 00:10:06,000 Salesforce, companies like ServiceNow. 215 00:10:06,200 --> 00:10:09,240 One of them is that if these tools do make companies far more 216 00:10:09,240 --> 00:10:12,240 efficient and productive, that should also apply to these 217 00:10:12,240 --> 00:10:15,280 software companies themselves. Companies like Salesforce and 218 00:10:15,280 --> 00:10:17,800 ServiceNow should be able to push out products at a much 219 00:10:17,800 --> 00:10:22,360 faster cadence if they do use a gentic technology like this bear 220 00:10:22,360 --> 00:10:25,640 case is outlining, and that should also be applicable to 221 00:10:25,680 --> 00:10:28,000 these companies. They should have fewer employees 222 00:10:28,000 --> 00:10:30,240 doing more. Their margins should go higher. 223 00:10:30,240 --> 00:10:32,360 They should also be able to use their massive distribution they 224 00:10:32,360 --> 00:10:35,520 already have to implement these AI tools to their customers in a 225 00:10:35,520 --> 00:10:38,000 very structured way. Now, with every bear case, there 226 00:10:38,000 --> 00:10:40,960 is some truth to it and I'll acknowledge that artificial 227 00:10:40,960 --> 00:10:42,960 intelligence is changing things dramatically. 228 00:10:43,160 --> 00:10:44,760 It does make employees more efficient. 229 00:10:45,240 --> 00:10:47,720 You can just look at ChatGPT, or Google Gemini. 230 00:10:48,000 --> 00:10:49,800 You can see that it does a lot of work for you. 231 00:10:49,800 --> 00:10:52,480 It speeds things up. But that doesn't necessarily 232 00:10:52,480 --> 00:10:55,120 mean that these companies will have fewer and fewer employees. 233 00:10:55,520 --> 00:10:59,800 In most cases, when an employee becomes more productive, when 234 00:10:59,800 --> 00:11:03,560 they get you a higher return per employee that you hire, you want 235 00:11:03,560 --> 00:11:07,520 to have more of them. That makes employees worth more. 236 00:11:07,800 --> 00:11:10,520 When something is giving you a higher return, you want more of 237 00:11:10,520 --> 00:11:13,360 it, not less. So while there may be some short 238 00:11:13,360 --> 00:11:16,120 term margin gains from some companies laying off some 239 00:11:16,120 --> 00:11:19,800 employees, most companies that have higher productivity per 240 00:11:19,800 --> 00:11:22,080 employee are going to hire even more. 241 00:11:22,360 --> 00:11:24,440 They're not going to reduce their budget, they're going to 242 00:11:24,640 --> 00:11:26,960 increase their budget. It's the same thing that I do. 243 00:11:26,960 --> 00:11:29,720 If I have an employee that's twice as productive, I want to 244 00:11:29,720 --> 00:11:33,000 give that employee more work. If agentic technology helps the 245 00:11:33,000 --> 00:11:35,800 employee become twice as productive, I want to pay them 246 00:11:35,800 --> 00:11:37,280 more. I want them doing more. 247 00:11:37,760 --> 00:11:40,240 So I don't believe that this is going to be a case where agentic 248 00:11:40,240 --> 00:11:43,080 technology makes it so all these these companies layoff half 249 00:11:43,080 --> 00:11:45,360 their employees. There may be some short term 250 00:11:45,360 --> 00:11:48,400 firing going on, but that is the cyclicality of the market. 251 00:11:48,720 --> 00:11:51,240 Overtime companies will hire more and more people. 252 00:11:51,240 --> 00:11:53,480 And also stands to reason that if these companies did 253 00:11:53,480 --> 00:11:56,880 theoretically fire half their employees, if suddenly half the 254 00:11:56,880 --> 00:12:00,080 workforce was gone on all these different companies, people that 255 00:12:00,080 --> 00:12:02,600 know how to use technology, people that are in the 256 00:12:02,600 --> 00:12:05,680 marketplace, wouldn't they start new businesses? 257 00:12:06,080 --> 00:12:08,240 Are we assuming that they'd never start new companies, 258 00:12:08,240 --> 00:12:10,800 especially with AI tools that make it easier to start new 259 00:12:10,800 --> 00:12:13,280 companies with? Those companies never need 260 00:12:13,280 --> 00:12:15,440 software to manage customer relationships. 261 00:12:15,920 --> 00:12:17,280 I don't believe that that's likely. 262 00:12:17,760 --> 00:12:20,600 The products that companies like ServiceNow and Salesforce 263 00:12:20,640 --> 00:12:24,960 provide are solutions to very common problems companies have, 264 00:12:25,320 --> 00:12:28,760 which is simple relationship management, having sales 265 00:12:28,760 --> 00:12:31,720 funnels, conversion funnels, reaching out to customers, 266 00:12:32,000 --> 00:12:35,400 tracking tickets, things that companies don't want to focus on 267 00:12:35,400 --> 00:12:37,680 themselves. They want to focus on their 268 00:12:37,680 --> 00:12:40,360 product, the thing that they offer that's of value. 269 00:12:40,680 --> 00:12:43,600 They don't want to rebuild a whole structure of managing 270 00:12:43,600 --> 00:12:46,280 customer relationships. So I don't believe it's as easy 271 00:12:46,280 --> 00:12:49,240 to replace companies like Salesforce or ServiceNow that 272 00:12:49,240 --> 00:12:50,920 these type of analysts would have you believe. 273 00:12:51,040 --> 00:12:54,040 It is true that if you look at the stock price, companies like 274 00:12:54,040 --> 00:12:56,040 Salesforce are just getting obliterated. 275 00:12:56,080 --> 00:13:00,240 It's down to $233 per share. Sentiment has literally never 276 00:13:00,240 --> 00:13:03,280 been lower on this company. I've never heard such negative 277 00:13:03,280 --> 00:13:05,960 talk about it ever. And if we look at the actual 278 00:13:05,960 --> 00:13:08,520 fundamentals, I just want to show a couple things here. 279 00:13:09,200 --> 00:13:16,040 Salesforce is now trading at a 5.6% free cash flow yield, 5.6%. 280 00:13:16,040 --> 00:13:19,920 Even when you factor in stock based comp, it's 4.21%. 281 00:13:20,480 --> 00:13:23,520 Now there's an idea that Salesforce pays their employees 282 00:13:23,520 --> 00:13:25,640 too much. They're just a highly dilutive 283 00:13:25,640 --> 00:13:27,720 company that has way too much stock based comp. 284 00:13:28,480 --> 00:13:30,720 But the stock based comp has actually come down dramatically 285 00:13:30,720 --> 00:13:33,560 relative to their free cash flow over just the past couple of 286 00:13:33,560 --> 00:13:34,800 years. They've really gotten this under 287 00:13:34,800 --> 00:13:36,640 control. We can take a look at it right 288 00:13:36,640 --> 00:13:38,400 here. Here's the free cash flow. 289 00:13:38,800 --> 00:13:41,000 Here's the free cash flow against the stock based comp. 290 00:13:41,480 --> 00:13:44,880 For the past two years, stock based comp has been flat and 291 00:13:44,880 --> 00:13:48,520 free cash flow has over doubled. So they are getting the stock 292 00:13:48,520 --> 00:13:52,000 based comp relative to their profits in order. 293 00:13:52,480 --> 00:13:55,600 It looks far better now than it did just in 2022. 294 00:13:56,080 --> 00:13:59,600 In fact, if you have criticisms about Salesforce's stock based 295 00:13:59,600 --> 00:14:04,200 comp percentage, Google also has a 25% stock based comp impact. 296 00:14:04,640 --> 00:14:06,560 In fact, Google's is slightly higher. 297 00:14:06,920 --> 00:14:09,640 So Google has a higher impact to stock based comp than 298 00:14:09,640 --> 00:14:11,560 Salesforce. We can look at Meta. 299 00:14:12,240 --> 00:14:15,600 This is another company that has a lot of stock based comp, even 300 00:14:15,600 --> 00:14:19,200 more relative to their free cash flow than Salesforce. 301 00:14:19,760 --> 00:14:23,320 So Salesforce is less dilutive by paying employees through SBC 302 00:14:23,600 --> 00:14:26,920 than either Google or Meta. The whole idea that they're this 303 00:14:26,920 --> 00:14:30,000 highly dilutive company, they just waste money on employees, 304 00:14:30,400 --> 00:14:32,160 that's an idea that's two years old. 305 00:14:32,200 --> 00:14:34,040 The narrative hasn't changed. Most people aren't paying 306 00:14:34,040 --> 00:14:36,760 attention to the numbers here, but Salesforce has addressed 307 00:14:36,760 --> 00:14:38,480 those concerns. They've said that they're never 308 00:14:38,480 --> 00:14:42,160 going to have stock based comp be more than 8% of revenues, and 309 00:14:42,160 --> 00:14:44,280 over time that scales better with the profits. 310 00:14:44,520 --> 00:14:47,480 So we'll see this stock based comp impact go down over time. 311 00:14:47,880 --> 00:14:51,040 With a 4.2% free cash flow yield, this makes the company 312 00:14:51,040 --> 00:14:53,000 roughly half as expensive as Google. 313 00:14:53,440 --> 00:14:56,000 It is trading at an incredibly low valuation. 314 00:14:56,360 --> 00:15:00,720 Even the PE ratio on a forward basis is a 19, on a trailing 315 00:15:00,720 --> 00:15:03,120 basis is a 36. And this is for a company that's 316 00:15:03,120 --> 00:15:06,560 rapidly increasing margins, even with the dilution from their 317 00:15:06,560 --> 00:15:09,440 stock based comp sales force reduced their shares outstanding 318 00:15:09,440 --> 00:15:12,160 by 1 1/2%. They're paying a growing 319 00:15:12,160 --> 00:15:14,000 dividend. They're returning more and more 320 00:15:14,000 --> 00:15:16,400 capital to the shareholder every single quarter. 321 00:15:16,800 --> 00:15:19,360 When we look at their expenses over time, their expenses have 322 00:15:19,360 --> 00:15:21,600 been flat while revenue continues to grow. 323 00:15:21,920 --> 00:15:24,600 This is a company that's exercising operating leverage. 324 00:15:24,840 --> 00:15:27,440 They have fixed expenses with revenue growth. 325 00:15:27,440 --> 00:15:30,160 So the margins are going up. As a result, gross margins are 326 00:15:30,320 --> 00:15:33,240 increasing 78% now higher than Microsoft. 327 00:15:33,480 --> 00:15:36,880 We have operating margins at 19% and stepping up every single 328 00:15:36,880 --> 00:15:38,360 year. And we have profit margins at 329 00:15:38,360 --> 00:15:42,160 17% also stepping up each year. And while this is happening, 330 00:15:42,160 --> 00:15:45,880 Salesforce quite literally trades at the lowest valuation 331 00:15:45,880 --> 00:15:48,200 on a free cash flow basis over the past five years. 332 00:15:48,320 --> 00:15:51,600 It is now at a 5 1/2% yield. It's never been this high 333 00:15:51,600 --> 00:15:53,440 before. We look at it on a price to 334 00:15:53,440 --> 00:15:55,240 sales. Lower means cheaper. 335 00:15:55,520 --> 00:15:58,640 We look at it right now and it's not the lowest, but it's getting 336 00:15:58,640 --> 00:16:00,400 close to it. The lowest is during the 337 00:16:00,400 --> 00:16:03,320 complete through in 2022 when the entire market was selling 338 00:16:03,320 --> 00:16:04,720 off. The biggest criticism that you 339 00:16:04,720 --> 00:16:07,120 can give for Salesforce is that the revenue growth has 340 00:16:07,120 --> 00:16:09,040 decelerated. A lot of people have outlined 341 00:16:09,040 --> 00:16:12,200 this is a substantial problem, but keep in mind as their 342 00:16:12,200 --> 00:16:14,680 revenue has decelerated, their operating margins have 343 00:16:14,680 --> 00:16:17,360 skyrocketed. So the revenue deceleration 344 00:16:17,360 --> 00:16:20,520 should be paired with increased operating margins and they've 345 00:16:20,520 --> 00:16:24,040 guided for continued expansion in operating margins as well as 346 00:16:24,040 --> 00:16:26,360 guided for 8 to 9% revenue growth. 347 00:16:26,880 --> 00:16:29,200 So they're guiding for increased revenue growth, increased 348 00:16:29,200 --> 00:16:31,640 operating margins. And if we look at the company's 349 00:16:31,640 --> 00:16:35,760 total performance obligations, which is contract growth, this 350 00:16:35,760 --> 00:16:38,400 is the amount of companies that in the future have decided 351 00:16:38,400 --> 00:16:40,560 contractually to do business with Salesforce. 352 00:16:40,920 --> 00:16:44,920 It grew by 13% last quarter. So the pool of revenue they have 353 00:16:44,920 --> 00:16:48,080 to pull from contractually, that pool's getting bigger. 354 00:16:48,360 --> 00:16:50,440 It's growing faster than the revenue growth rate. 355 00:16:50,520 --> 00:16:52,360 So we have a company that's growing revenue. 356 00:16:52,360 --> 00:16:55,080 It's growing operating margins. It's free cash flow per share is 357 00:16:55,080 --> 00:16:57,760 at all time highs. It's doing share buybacks, 358 00:16:57,760 --> 00:17:00,640 reducing the shares outstanding. It's got its stock based comp 359 00:17:00,680 --> 00:17:03,240 under control. It's at a record low valuation 360 00:17:03,240 --> 00:17:05,599 over the past five years. But if you're listening to the 361 00:17:05,599 --> 00:17:08,079 media and news analysts, the impression you'd get is that 362 00:17:08,079 --> 00:17:10,000 this company's being eaten alive. 363 00:17:10,319 --> 00:17:13,680 The artificial intelligence is destroying sales force, except 364 00:17:13,680 --> 00:17:15,880 for the fact when you look at the numbers, you don't see that 365 00:17:16,000 --> 00:17:18,160 anywhere. Not in the current numbers, not 366 00:17:18,160 --> 00:17:20,200 in the previous ones and not in the guidance. 367 00:17:20,560 --> 00:17:23,040 Even looking ahead, you don't see artificial intelligence 368 00:17:23,319 --> 00:17:25,960 eating Salesforce. Now the man behind this note, 369 00:17:26,079 --> 00:17:29,200 the one that created all this fair in software companies, the 370 00:17:29,200 --> 00:17:31,600 one that's responsible for this last week's sell off in 371 00:17:31,600 --> 00:17:34,400 companies like Intuit and Salesforce and Adobe and 372 00:17:34,400 --> 00:17:37,400 ServiceNow. His name is Ben Reitz's, and 373 00:17:37,400 --> 00:17:39,800 he's an analyst that published that note just recently. 374 00:17:40,160 --> 00:17:43,000 He's also the analyst that published this note not too long 375 00:17:43,000 --> 00:17:45,280 ago. This was earlier in 2025. 376 00:17:45,280 --> 00:17:47,160 How Google could go the way of Kodak? 377 00:17:47,560 --> 00:17:50,240 Google could be the next Kodak and that's bad for Alphabet 378 00:17:50,240 --> 00:17:53,200 stock, an analyst says Disruption is always a fear of 379 00:17:53,200 --> 00:17:55,240 technology investors for a good reason. 380 00:17:55,440 --> 00:17:58,000 The radio gave way to televisions, landlines to cell 381 00:17:58,000 --> 00:17:59,800 phones and flip phones and smartphones. 382 00:17:59,800 --> 00:18:02,200 Now chat bots using artificial intelligence are beginning to 383 00:18:02,200 --> 00:18:05,200 shake up Internet search. They feel dominated by Google. 384 00:18:05,200 --> 00:18:07,880 According to Melius Research. Analyst Reitz's says that 385 00:18:07,880 --> 00:18:11,880 Alphabet is down 25% from recent highs and is still cheap for a 386 00:18:11,880 --> 00:18:14,360 reason. So during the very bottom of 387 00:18:14,360 --> 00:18:18,480 April, this was April 1st, almost at the very bottom, Ben 388 00:18:18,480 --> 00:18:22,400 Reitz's published a note comparing Google stock to Kodak. 389 00:18:22,560 --> 00:18:25,000 And this is the very same analyst, the very same research 390 00:18:25,000 --> 00:18:27,600 group, publishing this long note saying that companies like 391 00:18:27,600 --> 00:18:30,920 Salesforce, Adobe, and ServiceNow are being eaten alive 392 00:18:30,920 --> 00:18:33,720 by artificial intelligence. Now, while this research by 393 00:18:33,720 --> 00:18:37,200 these analysts is thought provoking and provocative, it's 394 00:18:37,200 --> 00:18:39,680 not always true. Google was never going to become 395 00:18:39,680 --> 00:18:41,080 Kodak. Not a chance. 396 00:18:41,200 --> 00:18:44,320 There was never a 1% chance that Google was a Kodak. 397 00:18:44,800 --> 00:18:47,320 Not the company that owns Google Cloud, that owns YouTube, that 398 00:18:47,320 --> 00:18:50,360 owns Waymo, that owns the leading AI models, that has 399 00:18:50,680 --> 00:18:52,600 billions of users of distribution. 400 00:18:52,840 --> 00:18:56,600 It's so much different than Kodak, it's almost insane to 401 00:18:56,600 --> 00:18:58,720 compare it to Kodak. But that's what this analyst 402 00:18:58,720 --> 00:19:00,680 did. And the same thought process is 403 00:19:00,680 --> 00:19:03,560 now being applied to Salesforce. People are acting as though 404 00:19:03,560 --> 00:19:05,600 Salesforce is going to be destroyed overnight. 405 00:19:06,000 --> 00:19:08,080 The artificial intelligence is going to eradicate this 406 00:19:08,080 --> 00:19:10,120 business. And that shows an incredible 407 00:19:10,120 --> 00:19:13,440 lack of understanding of how deeply entrenched Salesforce is, 408 00:19:13,800 --> 00:19:16,680 how difficult it is to move from the product, how most companies 409 00:19:16,680 --> 00:19:19,440 don't want to deal with recreating this product even 410 00:19:19,440 --> 00:19:22,480 through a Gentek technology. Most companies do not want to 411 00:19:22,480 --> 00:19:24,840 focus on it. They'd rather outsource their 412 00:19:24,840 --> 00:19:27,960 CRM management to a separate company that's proven that 413 00:19:27,960 --> 00:19:30,320 structured, that has all the tools they need. 414 00:19:30,520 --> 00:19:32,680 And I don't believe that this is going to be much different than 415 00:19:32,680 --> 00:19:35,480 it's call on Google overtime, quarter after quarter. 416 00:19:35,480 --> 00:19:38,320 This narrative that artificial intelligence is eating all these 417 00:19:38,320 --> 00:19:42,000 software companies will get crushed by the numbers quarter 418 00:19:42,000 --> 00:19:44,440 after quarter. As you go through the years and 419 00:19:44,440 --> 00:19:46,720 you see that these companies still stick around. 420 00:19:46,960 --> 00:19:48,920 They're still buying back shares, they're still 421 00:19:48,920 --> 00:19:51,640 profitable, their margins are ticking up, and they're 422 00:19:51,640 --> 00:19:53,640 incorporating many of these products that are supposed to 423 00:19:53,640 --> 00:19:55,360 kill them. You're going to see this 424 00:19:55,360 --> 00:19:58,360 narrative fade just as you saw the Google becoming Kodak 425 00:19:58,600 --> 00:20:00,920 narrative fade as well. And that's why I just recently 426 00:20:00,920 --> 00:20:04,000 added to my Salesforce position. Obviously, I could be wrong. 427 00:20:04,000 --> 00:20:06,400 Maybe this time it's different, but I don't think it's going to 428 00:20:06,400 --> 00:20:07,440 be. Now moving on, we get to this 429 00:20:07,440 --> 00:20:10,360 article published here by Bloomberg's Mark Gernman. 430 00:20:10,360 --> 00:20:13,080 He's the one that covers Apple. He always has the best coverage 431 00:20:13,080 --> 00:20:15,880 of Apple. And he outlines how Apple is now 432 00:20:15,880 --> 00:20:19,320 in the AI robots play. For a time now, I've been 433 00:20:19,320 --> 00:20:23,280 outlining Amazon as my go to choice in AI and robotics. 434 00:20:23,280 --> 00:20:24,880 I think it's the best setup company. 435 00:20:24,880 --> 00:20:28,200 But now we have a new kind of entrance, a company that's been 436 00:20:28,200 --> 00:20:31,160 a bit forgotten about, that's really trying to drive into 437 00:20:31,160 --> 00:20:34,680 robotics, that is Apple. Apple is plotting an artificial 438 00:20:34,680 --> 00:20:38,000 intelligence comeback with an ambitious slate of new devices, 439 00:20:38,000 --> 00:20:42,320 including robots, a lifelike version of Siri, a smart speaker 440 00:20:42,320 --> 00:20:44,840 with a display and security cameras. 441 00:20:44,840 --> 00:20:47,640 They also report that there's going to be a tabletop robot 442 00:20:47,640 --> 00:20:50,960 that serves as a virtual companion, as well as smart 443 00:20:50,960 --> 00:20:54,520 speakers with displays. Now, if we move on and we just 444 00:20:54,520 --> 00:20:56,880 go into these categories. They say that the home security 445 00:20:56,880 --> 00:20:59,840 system is seen as another big growth opportunity. 446 00:20:59,840 --> 00:21:02,720 New cameras will anchor Apple security system that can 447 00:21:02,720 --> 00:21:05,760 automate household functions, an approach that should help 448 00:21:05,760 --> 00:21:09,400 Apple's product ecosystem become stickier with consumers. 449 00:21:09,880 --> 00:21:12,760 So they want to further entrench themselves in the home. 450 00:21:13,400 --> 00:21:16,360 You have the iPhone, you probably have a few Macbooks, 451 00:21:16,600 --> 00:21:20,200 you may have a a couple iPads, you maybe have Apple Airpods. 452 00:21:20,600 --> 00:21:23,320 But now you might get the Apple cameras if they're well 453 00:21:23,320 --> 00:21:26,840 integrated, they'll probably integrate them into the Apple TV 454 00:21:26,840 --> 00:21:30,000 that if I see can just display a array of cameras on your 455 00:21:30,000 --> 00:21:32,520 television if you want. I can already see the ways 456 00:21:32,520 --> 00:21:34,880 Apple's going to integrate this, and of course with speakers as 457 00:21:34,880 --> 00:21:37,120 well. It's all part of an effort to 458 00:21:37,120 --> 00:21:40,160 restore Apple's mojo. It's most recent Moon Shot 459 00:21:40,160 --> 00:21:43,240 product, the Vision Pro headset, remains a sales flop, and the 460 00:21:43,240 --> 00:21:46,520 sign of its best selling devices has remained largely unchanged 461 00:21:46,600 --> 00:21:48,800 for years. This is the first piece of truly 462 00:21:48,800 --> 00:21:51,160 bullish news that I've read from Apple in some time. 463 00:21:51,160 --> 00:21:53,040 The first thing that has actually got me excited about 464 00:21:53,040 --> 00:21:56,080 the company so far. Apple has been struggling for 465 00:21:56,080 --> 00:21:58,760 the past couple of years. They've of course struggled just 466 00:21:58,760 --> 00:22:01,480 competing with competitors in China, other phones. 467 00:22:01,520 --> 00:22:03,320 Then you also have the Vision Pro flop. 468 00:22:03,320 --> 00:22:05,720 You have Apple failing to implement AI into their 469 00:22:05,720 --> 00:22:08,280 smartphones effectively. They should already be smart 470 00:22:08,280 --> 00:22:09,960 devices and they haven't accomplished that. 471 00:22:10,240 --> 00:22:12,800 So it's left investors wanting to know what they can latch 472 00:22:12,800 --> 00:22:15,280 onto. Where can they anchor Apple in 473 00:22:15,280 --> 00:22:17,200 the future? We see a company that's 474 00:22:17,200 --> 00:22:20,480 struggling to execute over the past couple of years laying out 475 00:22:20,480 --> 00:22:24,480 this ambitious plan of pushing full steam ahead into robotics 476 00:22:24,960 --> 00:22:27,880 and eventually implementing artificial intelligence into the 477 00:22:27,880 --> 00:22:30,520 iPhone gives people something to anchor to. 478 00:22:31,120 --> 00:22:33,800 Now, it's still up for debate of whether or not they can execute 479 00:22:33,800 --> 00:22:37,040 on this as good as possible, but Apple has time. 480 00:22:37,400 --> 00:22:40,000 It's a company that still maintains an incredibly deep 481 00:22:40,000 --> 00:22:42,080 Moat. Everyone uses the iPhone. 482 00:22:42,080 --> 00:22:44,480 It is a go to high end product in phones. 483 00:22:45,000 --> 00:22:47,480 So Apple is still maintaining their Moat. 484 00:22:47,560 --> 00:22:49,920 They have time. They can figure this out and if 485 00:22:49,920 --> 00:22:52,560 they successfully expand their array of products into all of 486 00:22:52,560 --> 00:22:55,240 these robotics and home automation tools, I believe 487 00:22:55,240 --> 00:22:56,560 there's more upside for this stock. 488 00:22:56,880 --> 00:22:59,200 Apple could be really well positioned for the future. 489 00:22:59,480 --> 00:23:02,000 So it's a company that's going back on my watch list now. 490 00:23:02,000 --> 00:23:04,400 Next we get to this news of perplexity. 491 00:23:05,120 --> 00:23:08,640 Perplexity is like the Yahoo browser, the one that's AI 492 00:23:08,640 --> 00:23:10,520 enabled, but they don't really have their own models. 493 00:23:10,520 --> 00:23:11,760 They just plug in different ones. 494 00:23:12,560 --> 00:23:15,720 It's it's made a lot of noise because the CEO is very noisy. 495 00:23:16,000 --> 00:23:19,080 He likes to do a lot of publicity stunts, and he did 496 00:23:19,080 --> 00:23:22,040 another one. He gave an unsolicited bid to 497 00:23:22,040 --> 00:23:24,960 buy Google Chrome, and the bid was a massive lowball for what 498 00:23:24,960 --> 00:23:27,640 Google Chrome is actually worth. If we look at the details here. 499 00:23:27,640 --> 00:23:31,760 Perplexity bid to buy Google Chrome browser for $34.5 500 00:23:31,760 --> 00:23:35,240 billion, which represents A dramatic moment for Internet 501 00:23:35,240 --> 00:23:38,440 search giant a week before it celebrates the 20th anniversary 502 00:23:38,440 --> 00:23:40,480 of its IPO. Even if the analysts aren't 503 00:23:40,480 --> 00:23:42,960 taking the offer very seriously, Perplexity's move marks a 504 00:23:42,960 --> 00:23:45,400 turning point. It's the first time an outside 505 00:23:45,400 --> 00:23:49,000 party has made such a public and specific effort to strip out a 506 00:23:49,000 --> 00:23:51,680 key piece of Google, which currently awaits a judge's 507 00:23:51,680 --> 00:23:55,440 decision on whether it must take significant divestiture steps 508 00:23:55,440 --> 00:23:58,160 forward in its ruling. So right now we don't know 509 00:23:58,160 --> 00:24:00,720 whether or not the judge will actually force Google to sell 510 00:24:00,720 --> 00:24:03,320 Google Chrome. Most investors do not believe 511 00:24:03,320 --> 00:24:06,000 that's going to happen because frankly, it doesn't make much 512 00:24:06,000 --> 00:24:08,080 sense. The arguments for selling Google 513 00:24:08,080 --> 00:24:11,600 Chrome are not good ones, and every 3rd party analysis 514 00:24:11,600 --> 00:24:14,200 confirms that. That's why most people believe 515 00:24:14,200 --> 00:24:15,760 that that sale is not going to happen. 516 00:24:16,200 --> 00:24:19,720 Now, what Perplexity is doing here is showing them to be more 517 00:24:19,720 --> 00:24:22,240 of what they are, People that like publicity stunts that in 518 00:24:22,240 --> 00:24:24,240 most cases shouldn't be taken seriously. 519 00:24:24,840 --> 00:24:27,760 The bid itself for $34 billion, which was completely 520 00:24:27,760 --> 00:24:31,160 unsolicited, is not only a massive lowball, it's way less 521 00:24:31,160 --> 00:24:32,760 than what Google Chrome is actually worth. 522 00:24:33,120 --> 00:24:35,560 If you're to put a more accurate bid, it would be north of $50 523 00:24:35,560 --> 00:24:38,320 billion. So they're lowballing Google 524 00:24:38,320 --> 00:24:41,760 with this unsolicited bid, but they're also bidding twice as 525 00:24:41,760 --> 00:24:43,280 much as what their company's valued at. 526 00:24:43,280 --> 00:24:46,080 Perplexity's last valuation was $18 billion. 527 00:24:46,080 --> 00:24:49,720 The company likely runs close to a loss at this point in favor of 528 00:24:49,720 --> 00:24:52,720 trying to grow. So it's $18 billion and they're 529 00:24:52,720 --> 00:24:55,160 offering $34 billion to buy Chrome. 530 00:24:55,640 --> 00:24:57,240 So they have no money to buy Chrome. 531 00:24:57,560 --> 00:25:00,480 They're just saying we'll buy it and maybe we'll we'll find some 532 00:25:00,480 --> 00:25:03,280 investors to help us buy it. But that's like me saying that 533 00:25:03,280 --> 00:25:06,680 I'll bid $25 billion to buy Chrome and if they accept, I'll 534 00:25:06,680 --> 00:25:08,840 just find some investors to help me buy it. 535 00:25:08,960 --> 00:25:12,400 I have about the same chance and merit of buying Google Chrome 536 00:25:12,400 --> 00:25:15,360 with My Portfolio of $1,000,000 as Perplexity has. 537 00:25:15,920 --> 00:25:19,480 They have zero chance without substantial outside backing from 538 00:25:19,480 --> 00:25:22,240 multiple massive investors to the point where they're not even 539 00:25:22,240 --> 00:25:24,280 the ones really buying Google Chrome. 540 00:25:24,840 --> 00:25:27,360 But it's not the only reason that Perplexity should not be 541 00:25:27,360 --> 00:25:31,480 allowed to buy Google Chrome. The bigger reason is they just 542 00:25:31,480 --> 00:25:34,200 don't deserve it. They frankly don't deserve 543 00:25:34,200 --> 00:25:36,640 Google Chrome. Why should they be allowed to 544 00:25:36,640 --> 00:25:38,960 control it? The CEO has never built 545 00:25:38,960 --> 00:25:41,080 something as big. He's never managed something 546 00:25:41,080 --> 00:25:43,560 with as many users. Google Chrome has billions of 547 00:25:43,560 --> 00:25:46,520 daily users, people that count on that browser perplexity 548 00:25:46,520 --> 00:25:49,480 hasn't ever managed anything that big or even close to that 549 00:25:49,480 --> 00:25:52,640 big for that amount of time. They've proven no history of 550 00:25:52,640 --> 00:25:55,360 being able to have good stewardship, take good care of a 551 00:25:55,360 --> 00:25:58,440 product, grow it that much for that long, to treat the people 552 00:25:58,440 --> 00:26:01,720 that use the product that well. We have no trust in them in the 553 00:26:01,720 --> 00:26:04,640 same way that we have Google. Google has proven excellent 554 00:26:04,640 --> 00:26:07,520 stewardship over Google Chrome. That's the reason why people 555 00:26:07,520 --> 00:26:09,400 still use it. That's the reason why even 556 00:26:09,400 --> 00:26:12,360 though you log into a Microsoft product, you buy a new Microsoft 557 00:26:12,360 --> 00:26:16,040 laptop and Microsoft Edge pops up hoping that you'll keep it, 558 00:26:16,160 --> 00:26:19,040 wanting to be the default. Inevitably you'll search Google 559 00:26:19,040 --> 00:26:21,960 Chrome and download Google Chrome and then default Google 560 00:26:21,960 --> 00:26:23,920 Chrome. That's the type of loyalty that 561 00:26:23,920 --> 00:26:27,720 Google has built over a decade, and perplexity wanting to come 562 00:26:27,720 --> 00:26:30,160 out of left field to buy something they don't deserve, 563 00:26:30,160 --> 00:26:32,080 they can't afford, doesn't seem right. 564 00:26:32,320 --> 00:26:35,040 So hopefully Google Chrome stays with Google where it rightfully 565 00:26:35,040 --> 00:26:36,680 belongs. With the company that's grown it 566 00:26:36,680 --> 00:26:39,960 carefully overtime, with the customer base that's grown to 567 00:26:39,960 --> 00:26:42,520 love Google because of their stewardship over it, keeping it 568 00:26:42,520 --> 00:26:44,920 free and safe and constantly updated overtime. 569 00:26:44,920 --> 00:26:47,320 But even if it does get sold off, the last people that it 570 00:26:47,320 --> 00:26:50,680 should go to are the people that are known for publicity stunts 571 00:26:50,680 --> 00:26:53,560 and trying to grab attention headlines at every opportunity 572 00:26:53,560 --> 00:26:56,680 possible, which is perplexity. And moving on, we get to my most 573 00:26:56,680 --> 00:26:58,720 recent holding which is Duolingo. 574 00:26:59,000 --> 00:27:01,080 This stock has gone through a little bit of a roller coaster 575 00:27:01,080 --> 00:27:04,080 ride after earnings. When I first bought my $10,000, 576 00:27:04,440 --> 00:27:07,640 the stock went from 3:30 to around 4:40. 577 00:27:07,640 --> 00:27:11,920 So it gained around 30% in value just in one morning. 578 00:27:12,320 --> 00:27:14,960 And then it slowly faded and it faded all the way back down to 579 00:27:14,960 --> 00:27:16,760 where it was. And then even below where the 580 00:27:16,760 --> 00:27:20,360 initial bounce was, it gave up an entire 30% bounce in just a 581 00:27:20,360 --> 00:27:22,480 few days. When we look at Duolingo stock, 582 00:27:22,480 --> 00:27:25,680 it now trades around 3:30, right back to where it was before. 583 00:27:26,240 --> 00:27:29,720 My holding in it, I think it's down around 5-6 percent, but it 584 00:27:29,720 --> 00:27:32,040 changes everyday. This is a very volatile holding. 585 00:27:32,040 --> 00:27:35,120 It's a small market cap company. High growth trades around 586 00:27:35,120 --> 00:27:38,160 anywhere from 5 to 10% swings per day. 587 00:27:38,680 --> 00:27:42,240 If we look at the history of this company and even the 30% 588 00:27:42,240 --> 00:27:45,640 decline after earnings, when you look at the actual price history 589 00:27:45,640 --> 00:27:48,800 and price movements of this stock, that's not that unusual. 590 00:27:48,840 --> 00:27:50,840 In fact, it's quite common with Duolingo. 591 00:27:50,840 --> 00:27:54,400 Earlier in the year, it was 540. It came back down to 350. 592 00:27:54,720 --> 00:27:56,880 Before that, it got to a high of 440. 593 00:27:57,080 --> 00:27:58,880 It went all the way back down to 290. 594 00:27:59,120 --> 00:28:03,000 Before that, it was at 360. It went back down to 310 and 595 00:28:03,000 --> 00:28:04,400 then there's spikes all along the way. 596 00:28:04,400 --> 00:28:08,520 Back in 2024, it was at 2:44, it plummeted down to 176. 597 00:28:08,520 --> 00:28:11,880 That's a 30% decline. There's another 30% decline 598 00:28:11,880 --> 00:28:16,320 right here, more 1015% declines all along the way of growing 599 00:28:16,320 --> 00:28:17,960 over time. When we look at the actual 600 00:28:17,960 --> 00:28:20,680 fundamentals of the business like the subscription revenue, 601 00:28:21,000 --> 00:28:24,320 this is growing at 46% consistently over time. 602 00:28:24,600 --> 00:28:27,320 And this is what I'm more focused on, the actual growth of 603 00:28:27,320 --> 00:28:28,920 the company and the fundamentals. 604 00:28:29,040 --> 00:28:31,400 Now, one investor and analyst that I really respect, I've 605 00:28:31,400 --> 00:28:34,960 shown numerous clips throughout my series is Mark Mahaney. 606 00:28:34,960 --> 00:28:37,320 You've seen him before. He's talked about Uber, he's 607 00:28:37,320 --> 00:28:39,240 talked about Meta, he's talked about Netflix. 608 00:28:39,560 --> 00:28:41,920 He's usually before a lot of companies that end up doing 609 00:28:41,920 --> 00:28:45,120 really well. And he outlines Duolingo as his 610 00:28:45,120 --> 00:28:47,480 current top pick in small cap tech. 611 00:28:48,120 --> 00:28:52,360 Why is Duolingo your top pick for play for the small and mid 612 00:28:52,360 --> 00:28:53,440 caps? You like this? 613 00:28:54,600 --> 00:28:57,720 Yes, and it's you know, it's a little bit, you know, it's it's 614 00:28:57,720 --> 00:28:59,040 it's relatively small, but not that small. 615 00:28:59,040 --> 00:29:01,440 It's about nineteen $18 billion market cap name. 616 00:29:01,440 --> 00:29:04,760 Now it's a language learning app and it's a highly popular one. 617 00:29:04,760 --> 00:29:08,000 It's got about 30 million users in the US and out of a global 618 00:29:08,000 --> 00:29:11,200 language learning market in the US that I think is closer to 150 619 00:29:11,200 --> 00:29:14,440 million a 160 million. So there's a lot of room for 620 00:29:14,440 --> 00:29:15,680 this company to continue to grow. 621 00:29:15,680 --> 00:29:17,400 It's had a lot of controversy recently. 622 00:29:17,400 --> 00:29:20,120 That's what you know, we stepped in when we thought it was overly 623 00:29:20,120 --> 00:29:22,880 dislocated. They're also expanding into 624 00:29:22,880 --> 00:29:26,080 other verticals like math, music, chess, and I think they 625 00:29:26,080 --> 00:29:27,440 can do this a lot of different ways. 626 00:29:27,680 --> 00:29:31,240 Their core languages are English, German, French, 627 00:29:31,240 --> 00:29:33,360 Spanish, but I think there's about 30 languages you could 628 00:29:33,360 --> 00:29:35,200 spend time learning. And I think they're they're the 629 00:29:35,200 --> 00:29:38,880 leader in a segment and they've still got very low share of 630 00:29:38,880 --> 00:29:40,560 their end market. So I think you're going to have 631 00:29:40,560 --> 00:29:43,840 premium growth, call it 30% revenue growth for a substantial 632 00:29:43,840 --> 00:29:46,520 period of time. That's rare air for for most. 633 00:29:46,520 --> 00:29:47,760 Companies. I got about 20. 634 00:29:48,000 --> 00:29:51,400 So Mark Mahaney outlines this as his top pick, even though it was 635 00:29:51,400 --> 00:29:53,960 at $400.00 per share at the time of this clip. 636 00:29:54,240 --> 00:29:57,240 Now it's dropped down to 3:30. So it's at a better valuation 637 00:29:57,240 --> 00:30:00,080 today, and he has a price target for it at 5:40. 638 00:30:00,160 --> 00:30:02,320 Now, of course, there's no guarantees in the stock market. 639 00:30:02,320 --> 00:30:05,640 Maybe Duolingo really will be disrupted by all the AI tools in 640 00:30:05,640 --> 00:30:07,880 the future, but I think that's unlikely. 641 00:30:07,880 --> 00:30:10,560 And it's also nice to have someone else validate A thesis 642 00:30:10,560 --> 00:30:12,560 that you have. Mark Mahaney's one of the most 643 00:30:12,560 --> 00:30:15,280 well respected analysts and researchers on stocks. 644 00:30:15,480 --> 00:30:18,640 He's had numerous good calls. So I like having him on my side 645 00:30:18,640 --> 00:30:20,080 on this one. I like to see that he's still 646 00:30:20,080 --> 00:30:22,840 bullish on this company and he has a very high price target on 647 00:30:22,840 --> 00:30:23,960 it. So we'll see how this one ends 648 00:30:23,960 --> 00:30:26,000 up in the future. Now moving on, we get to news 649 00:30:26,000 --> 00:30:29,520 that Amazon is doing a major push into grocery expansion. 650 00:30:29,920 --> 00:30:32,000 When we look at the details of this, there's certain companies 651 00:30:32,000 --> 00:30:34,720 that this may impact. For example, the analysts say 652 00:30:34,720 --> 00:30:38,120 that Amazon's move is a directional negative for Uber 653 00:30:38,120 --> 00:30:40,560 and DoorDash. He said it would add likely 654 00:30:40,560 --> 00:30:44,240 pressure on the margins as this update raises the competitive 655 00:30:44,240 --> 00:30:47,320 intensity to their intra week delivery efforts. 656 00:30:47,640 --> 00:30:50,440 So all these companies are trying to do grocery delivery. 657 00:30:50,720 --> 00:30:54,960 Having Amazon brute force into grocery delivery certainly 658 00:30:54,960 --> 00:30:57,880 doesn't help the dynamics. When does it ever help a company 659 00:30:57,880 --> 00:31:00,640 to have Amazon fiercely compete in the same market? 660 00:31:00,960 --> 00:31:04,120 Amazon's willing to go through massive losses to lower margins 661 00:31:04,360 --> 00:31:08,760 to go for huge, huge gains in revenue at very low margins, 662 00:31:08,920 --> 00:31:11,200 which of course is difficult for these competing companies. 663 00:31:11,560 --> 00:31:14,160 But the one that's the most important by far, a company 664 00:31:14,160 --> 00:31:17,240 that's made a lot of progress in grocery delivery and one that I 665 00:31:17,240 --> 00:31:20,160 believe is the biggest competitor to Amazon today is 666 00:31:20,160 --> 00:31:22,240 Walmart. I think Walmart's the biggest 667 00:31:22,240 --> 00:31:23,920 competitor. When you look at the retail 668 00:31:23,920 --> 00:31:28,160 business of Amazon, Walmart is sneaking its way into online 669 00:31:28,160 --> 00:31:32,040 retail via grocery delivery. You have Walmart Plus, you can 670 00:31:32,040 --> 00:31:34,400 go in the app and just order all the groceries you want. 671 00:31:34,680 --> 00:31:37,160 There's these people that collect the groceries at Walmart 672 00:31:37,160 --> 00:31:39,880 locations, then they use a delivery service to deliver it 673 00:31:39,880 --> 00:31:42,160 to you in the same day. Now, I don't know if you've been 674 00:31:42,160 --> 00:31:45,280 into a Walmart recently. Sometimes we go there, not 675 00:31:45,280 --> 00:31:47,080 often, but I still go there once in a while. 676 00:31:47,760 --> 00:31:50,440 And when I go into Walmart, I notice that around half the 677 00:31:50,440 --> 00:31:53,880 people shopping at Walmart are the people collecting for 678 00:31:53,880 --> 00:31:56,520 delivery services. It's a huge portion. 679 00:31:56,520 --> 00:31:58,640 Just go in one an look at what's going on. 680 00:31:59,120 --> 00:32:01,840 Everyone is is going around. There's Walmart employees that 681 00:32:01,840 --> 00:32:03,760 have these huge carts and they're just collecting 682 00:32:03,760 --> 00:32:06,400 groceries to be delivered. But the Walmart Plus app is 683 00:32:06,400 --> 00:32:08,480 gaining ground through grocery delivery. 684 00:32:08,760 --> 00:32:11,160 This was a notable weak spot for Amazon. 685 00:32:11,520 --> 00:32:14,080 Out of my thesis on Amazon, this is actually one of the things 686 00:32:14,080 --> 00:32:15,720 that I was the most concerned about. 687 00:32:16,000 --> 00:32:19,720 So seeing Amazon push more into this, I see as a notable 688 00:32:19,720 --> 00:32:22,720 positive on the stock. Amazon said shoppers in more 689 00:32:22,720 --> 00:32:26,600 than 1000 cities and towns can now order fresh groceries with 690 00:32:26,600 --> 00:32:30,040 same day delivery and then this is included in Prime. 691 00:32:30,400 --> 00:32:33,040 So instead of having to sign up for a separate membership to 692 00:32:33,040 --> 00:32:36,440 Walmart Plus, you can just have this bundled in with your Prime 693 00:32:36,440 --> 00:32:38,560 Video service, your Prime 2 day shipping. 694 00:32:38,920 --> 00:32:41,920 Now Prime members are going to have same day delivery services 695 00:32:41,920 --> 00:32:45,680 for free on orders over $25. Now, again, you can talk about 696 00:32:45,680 --> 00:32:48,240 Uber or DoorDash, these delivery services. 697 00:32:48,240 --> 00:32:51,240 I don't think this is helpful to these companies, But ultimately 698 00:32:51,240 --> 00:32:54,200 the biggest competitor here that I believe Amazon is focusing on 699 00:32:54,400 --> 00:32:56,960 is Walmart. They know that Walmart Plus is 700 00:32:56,960 --> 00:32:58,920 gaining members. They know that Walmart is 701 00:32:59,120 --> 00:33:02,320 working its way into becoming a competitive service online. 702 00:33:02,640 --> 00:33:05,560 When people sign up for Walmart Plus, then they're in the app 703 00:33:05,560 --> 00:33:07,440 and they notice that you can buy other stuff just from the 704 00:33:07,440 --> 00:33:09,880 Walmart website. Have that delivered as well. 705 00:33:10,240 --> 00:33:13,240 Amazon does not want Walmart to make substantial share gains 706 00:33:13,560 --> 00:33:16,600 against their first party and 3rd party seller services. 707 00:33:17,160 --> 00:33:18,960 So now they're dealing with grocery. 708 00:33:19,200 --> 00:33:22,040 The big thing that they have to tackle, the one key advantage 709 00:33:22,040 --> 00:33:25,760 that Walmart has is grocery and seeing Amazon go full forced 710 00:33:25,760 --> 00:33:27,600 into this I think is welcome news. 711 00:33:27,640 --> 00:33:29,560 Now moving on, we have another news item here. 712 00:33:29,560 --> 00:33:32,160 This is another big move from one of the companies that we 713 00:33:32,160 --> 00:33:35,320 follow. Paramount buys UFC rights for 714 00:33:35,320 --> 00:33:40,920 $7.7 billion for a 7 year deal. So this is about $1.1 billion 715 00:33:40,920 --> 00:33:44,640 per year that Paramount is paying to have exclusive UFC 716 00:33:44,640 --> 00:33:47,040 rights. This includes UFC's full slate 717 00:33:47,160 --> 00:33:50,000 of 13 marquee events and 30 fight nights. 718 00:33:50,360 --> 00:33:52,520 So this is everything. This is like the whole bundle. 719 00:33:52,760 --> 00:33:54,320 This isn't just their main events. 720 00:33:54,600 --> 00:33:57,760 This is all 30 fights. So it's basically like every 721 00:33:57,760 --> 00:34:01,320 every week when you add this together, 43 fights, that's 722 00:34:01,320 --> 00:34:04,840 almost every week, give or take that you have some event with 723 00:34:04,840 --> 00:34:08,080 UFC now on Paramount or Paramount's networks. 724 00:34:08,080 --> 00:34:10,120 Now there's lots of companies that would have loved to have 725 00:34:10,120 --> 00:34:12,239 the UFC rights. Of course Netflix is one of 726 00:34:12,239 --> 00:34:14,480 them, but you also have companies like Amazon that we're 727 00:34:14,480 --> 00:34:16,840 surely bidding on it. You have companies like YouTube 728 00:34:16,840 --> 00:34:19,480 that were bidding on this as well, but you have Paramount 729 00:34:19,480 --> 00:34:22,000 winning this one. Paramount, which has the worst 730 00:34:22,000 --> 00:34:24,239 balance sheet of all of them, They're the ones that got the 731 00:34:24,239 --> 00:34:26,880 right, and that's because of this new deal and merger from 732 00:34:26,880 --> 00:34:29,239 Paramount. The owner of the company now has 733 00:34:29,239 --> 00:34:32,400 deep pockets and is bidding aggressively on these sports 734 00:34:32,400 --> 00:34:35,400 rights, bidding enough that no other competitor wants to even 735 00:34:35,400 --> 00:34:38,639 touch it because most companies realize that they can't make a 736 00:34:38,639 --> 00:34:41,080 lot of money with this type of property. 737 00:34:41,239 --> 00:34:43,760 Now I own Netflix stock. It's still one of my largest 738 00:34:43,760 --> 00:34:45,960 positions. When I look at the reasons that 739 00:34:45,960 --> 00:34:48,239 Netflix wouldn't want to buy this deal, I believe there's a 740 00:34:48,239 --> 00:34:50,639 couple of them. One thing is that Netflix is a 741 00:34:50,639 --> 00:34:53,360 heavily global company. They have so many viewers 742 00:34:53,360 --> 00:34:55,679 outside of the US. In fact, over half their viewers 743 00:34:55,880 --> 00:34:58,600 are outside of the US. The majority of this deal is 744 00:34:58,600 --> 00:35:01,880 exclusive rights in the US. So it wouldn't even be 745 00:35:01,880 --> 00:35:04,280 beneficial to the majority of Netflix's viewers. 746 00:35:04,280 --> 00:35:06,800 And I think that's one reason why they didn't go for this 747 00:35:06,800 --> 00:35:08,480 deal. The next thing is that it's 748 00:35:08,560 --> 00:35:11,360 absurdly expensive. Netflix has a content budget of 749 00:35:11,360 --> 00:35:14,640 around $18 billion per year. Over the next five years. 750 00:35:15,080 --> 00:35:19,320 This would be 118th of their content budget just on UFC 751 00:35:19,320 --> 00:35:22,560 rights alone every single year for the next 7 years. 752 00:35:22,920 --> 00:35:25,480 And that's far more than Netflix likely wanted to spend on this 753 00:35:25,480 --> 00:35:27,240 deal. There's too much other stuff 754 00:35:27,240 --> 00:35:30,160 they could create, too many more series and content and things 755 00:35:30,160 --> 00:35:33,480 that they could create with a billion dollars per year over A7 756 00:35:33,480 --> 00:35:35,080 year period. So I believe that the price 757 00:35:35,080 --> 00:35:38,200 being super expensive and the rights being exclusive to the US 758 00:35:38,560 --> 00:35:40,920 are different reasons why Netflix decided not to go with 759 00:35:40,920 --> 00:35:42,840 this deal. This will make it so that 760 00:35:42,840 --> 00:35:45,360 Paramount does have a consistent viewer base. 761 00:35:45,400 --> 00:35:47,800 Whether or not they can amortize his content and actually make 762 00:35:47,800 --> 00:35:49,800 money on it is a different discussion. 763 00:35:50,160 --> 00:35:53,480 Paramount already has struggled to become profitable and this is 764 00:35:53,480 --> 00:35:55,120 going to put a lot more pressure on them. 765 00:35:55,200 --> 00:35:58,240 Now finally we get to this last bit of news here, which is a bit 766 00:35:58,240 --> 00:36:01,640 of a a self plug. We have Qualtrim, the software 767 00:36:01,640 --> 00:36:04,640 that I created now making its way to national television. 768 00:36:04,640 --> 00:36:07,640 We have the show here making money with Charles Payne on Fox 769 00:36:07,640 --> 00:36:09,440 Business. This is one of the the business 770 00:36:09,440 --> 00:36:13,240 shows everyday and we have him referencing a Qualitrum chart. 771 00:36:13,360 --> 00:36:15,360 Some viewers noticed this so I wanted to point it out. 772 00:36:15,600 --> 00:36:17,600 Here's the clip. Option right? 773 00:36:18,320 --> 00:36:21,120 Software as a service. Assess that these stocks are 774 00:36:21,120 --> 00:36:23,480 getting annihilated. We've got a table behind us. 775 00:36:24,280 --> 00:36:27,480 Absolutely annihilate. Let let me you know the segments 776 00:36:27,480 --> 00:36:30,240 going over software getting annihilated and that's been a 777 00:36:30,240 --> 00:36:33,520 subject I've been talking about the chart being shared there in 778 00:36:33,520 --> 00:36:35,920 the background. You can see the Qualitrum logo 779 00:36:35,920 --> 00:36:38,240 on the bottom right and that's the dip Finder. 780 00:36:38,680 --> 00:36:41,320 The DIP Finder is one of the the products we created in Qualtrim. 781 00:36:41,640 --> 00:36:44,440 It shows the price change over different time periods, momentum 782 00:36:44,440 --> 00:36:48,560 factors, visually illustrated. And you have hubs and Atlassian 783 00:36:48,560 --> 00:36:51,200 and CRM, you have Salesforce there and all the different 784 00:36:51,200 --> 00:36:52,640 companies. So there you have it. 785 00:36:52,640 --> 00:36:55,280 Qualtrim has made it from YouTube on the cable networks. 786 00:36:55,280 --> 00:36:56,400 Who knows where it's going to go next. 787 00:36:56,400 --> 00:36:58,080 That's going to be it for this episode. 788 00:36:58,080 --> 00:36:59,640 Hope you enjoyed. See you in the next one.