Welcome back everyone. We have a busy week to get into
and we're starting it off with a bang.
If we look at the market today, as the kids say, the market is
getting cooked. Everything is just bright red.
It's red across the board. We have NVIDIA down 5%, Apple
down 3%, Amazon's down 3%, Google down 3, Meta down 3.6,
Tesla down 7%. We have one company sticking out
there, this green one that's Netflix.
We'll be going into that a little later.
They just reported earnings. But other than that, overall,
the market is getting crushed today.
Now, as our portfolios are getting cooked, we do have a
chance of redemption here. It's earnings week.
We have a chance for our companies to prove that they're
worth more than what they're trading for.
And they can do that by reporting their earnings and
giving strong earnings and strong guidance.
And this week, we have some of the most important companies in
the market reporting earnings. We have companies like Google,
Tesla, Moodys, Equifax, Chipotle, ServiceNow all
reporting earnings this week, and I'll be going over all of
them. We're going to be going over
some predictions with what Google is going to say, what
Tesla is going to say, what I believe these companies are
going to be doing this week. So we have a lot to jump into.
We have continued news of the political battles, like
President Trump is now really going after Jerome Powell.
He's ramping up his attacks on Powell, saying that he's a
loser, demanding the Fed chair lower rates.
Now we'll be going over what this means, how it impacts the
market and the likelihood of President Trump firing Jerome
Powell. So we have a lot to get into.
Let's go ahead and start off with the biggest earnings
reports of the week. We have a handful of really big
companies that are reporting this week, but I think we should
start off with the most important ones of the week.
Thursday after market close, we have Google reporting earnings.
Now let's go out and bring this up and look at a few things with
Google specifically. Google usually beats on their
earnings per share estimate. We can see that here.
The times they've missed her in red, the times they've beat are
in blue. If we look at how much they beat
by, typically it's by a decent margin.
Now last quarter was really close.
In fact, they they barely beat on their earnings per share.
And last quarter they also missed on their revenue just
barely. Even though this is mostly in
line across the board, Google traded down after their last
quarterly report. So there's no guarantee that
even if Google beats on their earnings per share and they beat
on their revenue, that the stock will go up.
In fact, I believe there's a strong chance that Google will
report a beat on the top and bottom line and the stock will
still trade down. And that's because investors
really aren't too concerned with what the report was over the
past three months. So much has changed in just the
past couple of weeks that they're more concerned about the
future. Everything with these reports
isn't really going to be about what happened, it's going to be
more so about their commentary of the future.
It all depends on if Google can paint a bright future ahead, a
very prosperous future, and one insulated from the many
challenges they're facing. For example, if we look at what
to watch for, this is where we feed Qualtrim a lot of data and
their earnings transcript. We ask it to look for what is
the most important things coming up this quarter, and it outlines
5 different things. The top one here is by far the
most important, which is AI integration into core products.
We've seen this happening over time.
Google's integrating artificial intelligence into Google Drive
with their spreadsheets. They have AI functionality in
them now. They're integrating AI into
Gmail. They're integrating AI into
search with AI overviews and AI mode.
They're integrating AI into YouTube with AI summaries, and
you can prompt questions about YouTube videos and every single
property of Google. They're now integrating AI into
all of them. Now, of course, it's not just
Google doing this. Every company's trying to
integrate artificial intelligence into all of their
products. You can see basically every
company doing the same thing. But Google has a lot of
properties to be able to leverage AI more than most
companies. So they have a lot of
opportunities for growth here in artificial intelligence.
But this is also probably one of the biggest questions of concern
for Google. We know that one company in
particular, a private company, is growing very, very fast.
Open AI. Chachi PT, I believe, presents
the biggest existential threat for Google.
Now, Google faces a couple threats.
Of course, there's just the normal level of competition that
Google faces. And then on top of that, there's
all the regulatory issues they face with potentially selling
off Chrome and breaking up the company.
But even beyond all of that, I believe the biggest existential
threat that Google faces is the growth of Chachi PT.
I really think that that's the number one thing that investors
are going to be focused on going into this quarter.
Let's take a look at one graph as a piece of evidence here.
Right here we have the ChatGPT VS Gemini monthly active users.
I'll move myself out of the way so you can see the growth in
each of these applications. Gemini, the orange one is
Google's version of ChatGPT. It's the LLM app, and then you
have the blue one there, which is ChatGPT.
Even though Google has all of these properties of owning
YouTube, owning Gmail, owning Google Drive, they haven't so
far launched this product successfully enough to gain
massive traction. Chachi PTS growth is insane.
To put this in perspective, if Chachi PT continue to grow at
the same rate it has for the past six months, it would
surpass Google searches traffic by the end of 2026 in only two
years. Now that's a big assumption to
make that it will continue growing at this rate, but it
just shows how fast it's grown. They now have over 500 million
weekly active users. Sam Altman just said a couple
weeks ago that ChatGPT traffic has caused so much strain on
their server that the usage has nearly doubled in only a couple
weeks. If all these people flock over
to ChatGPT and fall in love with these LLMS, they're consuming
all this information in a different way.
And even though the use cases are different, the way that
they're consuming the content is different.
It does present a relative threat, at least down the road.
ChatGPT could change their service to have greater overlap
with what Google does. So I see that right now as the
number one concern for Google. They need to show their strategy
for how they're addressing so many people using LLMS, how
they're addressing so many people going over to ChatGPT.
They need to stem the flow. They're starting to do that with
AI overviews. They now have an AI mode in
Google, and they're now promoting Gemini to a greater
degree. They're also allowing more
things to be free on Gemini, which I think is all the right
move. They should put Gemini in front
of people more. They should really market this
product to get it into more hands.
Next up, we have the brightest spot for Google, which is the
cloud business growth and expansion.
Alphabet has achieved significant growth in its cloud
business, noting an increase in customer commitments and
strategic deals. The focus on enhancing AI
powered cloud offering is expanding data center capacity
is crucial for meeting growing demand, indicating continuous
revenue growth, market penetration in the cloud sector.
Additionally, they also just purchased a cybersecurity
company specifically for multi Cloud, which is another tool
that they can use to sell cloud to different businesses.
And while that cloud revenue is growing quickly, we also have
the cloud operating margins moving up substantially to now
17 1/2%. Investors will be laser focused
on what the cloud revenue looks like.
This is going to be a major part of Googles report.
If they disappoint on cloud, if they don't get as many
commitments, if it doesn't look like it's quite as strong, then
the stock will likely go lower. And then finally with Google, we
have to take a look at their commentary regarding
infrastructure and investments. Remember that last quarter they
said they were going to put way more into cloud infrastructure
than investors anticipated. And that's part of the reason
the stock sold off. Investors were a little
concerned with how much money they're flowing into CapEx.
That money takes money out of free cash flow.
So even though Google's a company with fast growing
revenue, fast growing EBITDA and net income, the free cash flow
really isn't growing that fast because the free cash flow
subtracts out CapEx, filter out everything but the capital
expenditures and see it double over just the past year.
We want to know as investors what they're spending this money
on and what the expected return is and when.
We want to know the ROI that we're getting.
So investors need to demand that information.
We'll be listening for it on the earnings call and in the
commentary. Overall, Google investors can
expect a very strong Q1 of 2025. They're going to post some great
numbers, but more importantly, investors will be focused on
what's happening now and the future.
The commentary with four key things to focus on.
One, what is the LLM landscape look like?
What is their plan to deal with Chachi PT?
This is top of mind for investors, and Google has to
answer these questions with very good answers #2 what does the
landscape look like with the amount of lawsuits and
regulations that they're receiving?
What is your expectations with all of this uncertainty with
regulation three? What is cloud look like?
Are they growing in cloud? Is the margins increasing?
Do they still remain very bullish on cloud?
And then #4 what is the CapEx outlook look like?
Are they going to spend the same amount that they already said?
Are they going to raise the amount or lower it?
And what is the expected ROI? We want answers on that as well.
So going into Google's report, I think there's going to be a lot
of questions that need to be answered.
If Google management doesn't answer these questions well, the
stock will struggle. Now Next up, we jump into Tesla,
which is reporting earnings this week Tuesday after market close.
So tomorrow after market close, typically around 20 minutes
after the market close is when Tesla reports their earnings.
And for Tesla investors, this is going to be a really interesting
one because Tesla is really likely to miss on the revenue or
the earnings per share this time.
They just are. There's a lot of unknowns.
There's a lot of uncertainties because there's been some brand
damage by Elon Musk. There's been protests, there's
been outright backlash and attacks on Tesla owners.
There's been a lot of things that's happened with Tesla that
makes it highly unpredictable this quarter.
And when we look at the historical performance of Tesla
with their expected earnings, they miss frequently.
In fact, out of the past six quarters, they've missed on five
of them. So recently, they've missed on
the majority of their reports. Now, missing on your earnings
per share in revenue estimates is not the end of the world.
Investors in Tesla are investing for the long term.
They're investing for step changes in disruptive and
innovative technology. So if you're invested in Tesla,
let's be honest here. Your biggest concern is not
whether or not they meet their earnings per share or their
revenue estimates. Your concern is on the next five
years of Tesla and whether or not they meet some of their
major initiatives. We have a couple really
important things to focus on with Tesla.
One of them is the production and delivery records, and I
would say even more so, the overall demand outlook.
What does it look like across the globe?
What does demand look like in China?
What does it look like in Europe?
We know that there's been significant backlash against
Elon Musk's politics in Europe, specifically Germany.
Now Elon Musk seems to have responded to that.
He seems a little less politically focused on Europe.
He's not really as involved in it as much, and there's reports
that he's leaving Doge soon. Both of those should help heal
some of the issues caused by the brand damage with Elon Musk in
Europe. But then you also have the
question of China. Tesla does a lot of business in
China, and the tariff battle between the US and China
certainly hurts that business. And investors will want to know
the extent of that damage. How much is it impacting their
sales in China? Tesla has likely suffered both
significant demand decrease in Europe and China.
Not only is Tesla a car company right now, at least a large part
of their sales comes from vehicles.
And that's already a cyclical business.
It's a tough business in and of itself.
When you layer upon that political commentary, feuds
between different countries, it only adds to the intensity of
that cyclicality. So Tesla has had some major
headwinds fighting against it. We want to see clarity on this
going forward. Tesla investors want a brighter
story ahead, one that's less politically involved and one
that has greater clarity with the tariffs.
Hopefully, these large tariffs against China will resolve
quickly so that companies like Tesla can operate with greater
clarity. Elon Musk is likely to talk
about version 13 and 14 of the full Self driving, which
reportedly is much better than previous versions.
A lot of people are raving about version 13.
He's also likely to talk about the future deployment of their
robotaxi network. Elon Musk has promised
driverless rides this year. That means no one sitting in the
driver's seat as you have passengers taken from point A to
point B, no one in the driver's seat.
Even though Elon Musk has repeatedly kind of given
timelines and he's extended those timelines, he's been very
definitive on this timeline of it happening this year.
So that's going to be a real test for Tesla.
What does the progress look like?
The other big thing that they're focused on is humanoid robotics,
specifically Optimus. We see little previews of the
technology that it's now walking more normally.
It's not walking like an old man.
Optimist now looks a little bit more agile, little bit younger,
and this is something that's a bit further off.
This could be 5 to 10 years off, maybe even further.
But investors are excited at the prospect of owning a company
that's working on humanoid robotics.
My expectations are, again, that if Tesla has a poor quarter and
they don't have good numbers this quarter, they'll spend a
lot of time focused on humanoid robotics and robotaxi.
When we look at the differences of these two companies reporting
this week, it's important to know the differences in how they
look going into this week. For example, Google and Tesla
both face many challenges. Google has to deal with LLMS.
Tesla has to deal with all this evolving technology with Waymo,
with disruption as well. So both of these companies have
challenges and risks to their investment thesis.
But when we look at the valuation, one of the key
differences is that Google trades at a 16 Ford PE ratio.
When we look at Tesla stock, I evaluate it as being much higher
risk than Google because it trades at an 80 Ford PE ratio, a
100 PE on a trailing basis. So while you have valuation
support with Google, with Tesla you do not.
And it's more reliant on the narrative.
Elon Musk and the management team needs to paint a very
convincing narrative to keep this stock higher.
Now Next up, we have Moody's and Equifax.
These are two companies that are in My Portfolio.
We'll start off with Moody's here.
I think overall, Moody's is going to be much more mundane, a
little bit more boring than the likes of Tesla or Google, but
there's still some interesting things to look at with this
company. My prediction is Moody's will
have a great report. I think they're going to post
some really good numbers. I think there's been a lot of
debt issuance, a lot of companies doing business.
Companies are likely to pull back on that a little bit with
the tariff concerns. So I believe that we're going to
see some commentary there. But overall, when we look at
these different things happening with Moody's, I see them
happening in directionally the right direction.
There's going to be strong revenue growth.
Moody's Investor Services, which is their credit rating business,
is going to get forecast of what they think global debt will be,
what the issuance will be. That's a major part of this
business and a very lucrative part.
This part of the business will do well.
Now, I'm not expecting interest rates to drop anytime soon, but
Even so, I think that Moody's Investor Services is well
position. We also have the expansion of
Mooby's analytics. This is the other half of the
business where they package all of this data and sell it as
analytics. They have decent revenue growth
and they're usually deeply embedded in companies, so it's
not that exciting of a product, but it's one that really is
profitable and growing. When we get to Equifax, this is
another company that's new to My Portfolio.
I have a small position in it, but I'm still building it up.
My prediction for Equifax is that this report is going to be
mostly negative. Equifax has almost every
headwind you could imagine. Almost every aspect of their
business, cyclicality and macro wise, is moving in the wrong
direction. For example, with the mortgages,
the company has seen a significant decline and mortgage
credit inquiries now forecasting a drop of approximately 12%.
This is a credit Bureau offering the raw data of different people
wanting their credit rating whenever they get a mortgage.
So when people are buying homes less frequently, their business
declines. We also have hiring market
weakness. There's already a notable
decline in hiring volumes with expectations of an 8% decrease
in 2025 relative to 2024. I think that Equifax is likely
to say that this decrease will be great, greater than 8%.
It's going to be 10 to 12% because they said this before
tariffs, before all of this economic and political
uncertainty, before a huge trade war with China, before tariffing
all of our allies 10%. With this trade policy rolled
out the way that it has, it's certainly caused companies to be
more cautious about their hiring practices.
If they pull back on their hiring at all, then the work
number one of the key products from Equifax is going to be
impacted. So that's macro effect #2
impacting this company to a greater degree.
Some bright spots with Equifax is they're currently becoming a
more lean business, more efficient with app deployment
and service deployment because they've moved everything to
Google Cloud. That's been a very expensive
thing to do. But now they're mostly through
that process. So we're going to see commentary
on that as well. But overall, my expectations
with Equifax is going into this week, it's going to be a rough
1. The earnings reports going to be
really tough. I believe there's going to be a
lot of negative commentary, negative data pieces being
shown, and the stock is likely to fall further.
If that happens, I'll continue to buy because I'm not buying
this company for the next two months or the next three months.
I want to own this one through this entire market cycle.
Through the other side of this, I believe that intrinsically
Equifax is worth a lot more than it is today.
Now Next up, we have the burrito company Chipotle reporting
earnings Wednesday after market close.
This company typically beats on the earnings per share because
they have a, they have a huge degree of control over their
margins, but it's iffy whether or not they'll beat on the
revenue. So the top line is, is very
iffy. I think there's a 50% chance of
them beating the earnings per share they're likely to beat.
My concern for Chipotle is in their guidance.
I think they're going to be a bit cautious because we've seen
what's happened with other food companies.
Texas Roadhouse noted A notable slowdown the past few weeks
prior to them reporting earnings.
So overall, I'm cautious about Chipotle this quarter.
I think there's a good chance that management will warn about
demand. Now finally, we have a company
that I've mentioned a few times, it's reporting earnings this
week, but it's one that I've never invested in.
It's ServiceNow. ServiceNow is very similar to
Salesforce in a lot of ways. In fact, if I just give a brief
summary of it, Salesforce is more for like the marketing
salespeople, customer service. It's your communication between
your company and the customer. It tracks all your leads and all
the interactions you've had and it has a lot of marketing tools.
ServiceNow is like the other side of things where it's more
on the IT side, the process side, the HR side, all the back
end things that happen with the company.
So while Salesforce is more outwards customer facing,
ServiceNow is more internal facing.
Both of them serve different parts of organizations, but
ServiceNow is a company that I've been looking at because on
paper it matches the philosophy of the compounding machines
better than Salesforce. They don't do as many
acquisitions, More things are organically grown within the
company. The company has substantial
revenue growth, it has margin expansion, and it's even shown
to have more operating leverage than even Salesforce.
So this company in terms of compounding machines, looks like
it has better overall characteristics than even
Salesforce. The only issue with this one is
it's substantially more expensive than Salesforce.
So while I'm evaluating both of these companies, the
characteristics and the valuations, I'm making judgement
calls. And right now, even without good
ServiceNow is how incredible the characteristics of this business
are. I believe there's just better
opportunities in this market, companies that are still really
good that are selling quite a bit cheaper.
But ServiceNow is just an incredible company.
For example, if we look at what to expect this earnings report,
we can see the history. This isn't a mistake.
They never miss on their earnings per share.
So statistically speaking, based on history, they have a very low
likelihood to miss. Now with ServiceNow, I'm going
to be looking at this report and seeing what type of new products
are coming out with and specifically how they're
leveraging AI because like all of these companies, they are
implementing AI into every aspect of their business.
But ServiceNow is a highly. Integrated product.
Last quarter, ServiceNow reported a remarkable 150%
quarter over quarter deal with their growth in their Pro Plus
AI offering. So this is their version of
implementing AI. It grew 150%.
Obviously, that's from a very small base, so we want to see
how that grows throughout 2025. Investors, of course, will be
looking at their growth prospects for their top and
bottom line. For example, ServiceNow is
leaning more heavily into HR capabilities.
We want to see whether or not they're able to continue taking
market share there. Overall, I'm more bullish on
these type of companies. I actually think that Salesforce
and ServiceNow alike will have a decent report.
They're not directly impacted by the tariffs, and if there's not
significant economic weakness with people being laid off left
and right, these companies should be able to still grow.
But we'll see how things go this Wednesday.
Now moving on, as we look at today's market that's deeply in
the red, it continues to just go down further and further.
Right now, it looks extremely red across the board.
Even Netflix is just hanging on by a thread.
Even Netflix is now just .3% in the green.
So across the board, we have deeper and deeper red numbers.
And most of this is spurred by commentary from President Trump
over the weekend from CNBC. President Trump on Monday
ratcheted up his pressure campaign against Federal Reserve
Chair Jerome Powell, calling him, quote, a major loser and
warning that the US economy could slow down unless interest
rates are lowered immediately. Trump has said that there's
virtually no inflation and that the cost for energy and most
other things are on the decline. Quote, with these costs trending
so nicely downward, just what I predicted they would do.
There can be almost no inflation, but there can be a
slowing of the economy unless Mr. Too late, a major loser
lowers interest rates. Now, End Quote.
Trump is ramping up the attacks on Jerome Powell, and the market
doesn't like this for a couple of reasons.
One of them is that Jerome Powell is a good Fed chair.
He's actually been decent in terms of what Fed chairs are
able to do. Now, it's very easy to criticize
the Fed chair from a standpoint of sitting on the sidelines and
looking at data after it comes in.
But the Fed has to make very difficult decisions, and they
incorporate a lot of data into those decisions.
The Fed also is supposed to remain apolitical, not giving in
to political pressures like what the president is doing now.
And the market is concerned about this for a couple of
reasons. First of all, the market does
not like the idea of President Trump firing Jerome Powell.
And it seems like it's getting set up that way a bit more and
more as the criticisms get more ramped up, more ratcheted up, it
seems like he's getting closer to actually taking steps to fire
him. And that would cause chaos in
the market. The market would look at that is
another unpredictable thing happening now.
We don't even know who the Fed chair is or what their history
is. We know that Jerome Powell's a
very stable, level headed person.
That's data dependent. Who would be the new person
that's put in as a Fed chair if Jerome Powell gets fired.
So that's a big uncertainty. And I believe that if President
Trump fires Jerome Powell that it will cause the market to go
much lower. Scott Bessent knows that and I
believe that he's advising Trump to not fire Jerome Powell.
Another thing that investors are concerned about in particular
with these attacks on Jay Powell is that it lays the framework,
the pretext for if the US economy goes into session, it
can be blamed on Jerome Powell, on him not lowering interest
rates fast enough, him being too late.
When in reality, the biggest factor going into that would be
the tariffs, the additional tax, the friction that that puts on
businesses. So it's also a little bit of a
blame game, Saying this is going to be Jerome Powell's fault,
he's too slow, it's going to cause economic slowdown are the
words that President Trump used. In reality, these massive
tariffs are causing businesses to slow down as well.
So while there's multiple factors here, this also sets up
for playing the blame game if we get into a recession.
Now, even though President Trump is attacking Jerome Powell on
these different Truth Social posts and tweets, it is still
unlikely that he's going to take the action of firing Jerome
Powell because he's likely been informed that that will cause
more significant uncertainty and the stock market to react
negatively in a very big way. I believe that this is more of a
concern of setting the pretext of laying any type of upcoming
slow down in the economy on Jerome Powell.
Now moving on, we get to the report that Netflix reported
last Thursday before the long weekend in the market.
The report overall was really strong, being on the top and
bottom line, giving very strong guidance, very optimistic
management. Another thing the management did
was they talked about the different rumors, the different
reports, reports from the Wall Street Journal, the report that
they're aiming for a $1 trillion market cap by the end of 2030.
They're aiming to double their revenue, triple their operating
profits, become a substantially bigger company.
And they basically, without saying so, confirm the report.
They said it was disappointing that it was leaked, deeply
disappointing. But overall, they're long term
thinkers. And I think there's a lot of
room for Netflix to grow and become a more global company.
And that brings us to phase two of this company.
I've been invested in Netflix for some time.
And in fact, right now, I must admit, Netflix is basically
carrying My Portfolio. It's, it's just carrying the
whole thing on its back at this point.
If I didn't have Netflix in the story fund as a major position,
the story fund would be doing dramatically worse.
So this stock has been one of the best picks.
It's now become my biggest position, $56,000 in gains,
which is more than the entire rest of this portfolio combined.
As Amazon, Google continue to plummet, Netflix continues to
soar. Year to date, Netflix is U past
13%. Over the past one year with the
QQQ being up 3%, Netflix is up 80%.
So the relative performance of Netflix against the QQQ or the
S&P 500, it's not even close. It's dramatically better and
that's the reason that this portfolio has outperformed the
S&P 500 to the degree it has. But so far, up until this point,
my thesis on Netflix has been that it is the best position to
win the streaming war. The whole debate is over all of
these different streamers like Disney, HBO Max, Peacock, Apple
TV and Amazon. The whole debate was what will
win, who will come out on top. And I made a heavy bet that
Netflix would be that winner. And about a year ago, I made the
call. Netflix is 1.
They beat the competition and now I think that that's become
more clear over the past year, almost indisputable.
Nobody even argues that Netflix won the streaming war.
And I think it's time to move on to phase two of this battle.
So far the battle has been Who Will Win the streaming war.
Now the next phase of Netflix's story, I'll call it Phase 2, is
global domination. Which company in entertainment
will become the globally dominant, total addressable,
market saturated company? Which one will offer global
entertainment to every country, every single culture and be the
one that everybody turns to? There's going to be huge network
effects that carry one of these winners.
And now Netflix has moved firmly on from that phase one category
of just winning the streaming wars, becoming the first scaled
streamer to be profitable to much bigger and larger
aspirations. Now they've moved into the
category of chasing the entire world as their market, becoming
a total addressable market, saturated company in streaming
and entertainment, expanding their value proposition, being
just as saturated in all over the world minus China and Russia
as they are in the United States.
They have a huge task ahead of them.
The reports right now show that Netflix has around 300, maybe
310 million subscribers after this most recent quarter.
And the total addressable market of broadband enabled households
X China and Russia is 750 million.
So they're only 40% of the way through their total addressable
market. And as they work their way
through that market, that total addressable market will continue
to grow as more households become Internet connected.
So Netflix is now into phase two global domination.
I'm going to continue to hold the stock throughout that
journey. But this report was fantastic.
Netflix deserves to be at the price that it is.
And I think over the fullness of time, the next 5 to 10 years,
this stock will still outperform the market.
That's going to be it for this time.
See you in the next one.