Welcome back everyone. It's time that another busy
earnings season has officially started.
We're just past halfway through the year, which means companies
are going to start updating us on what happened in Q2 of 2025
and what their plans are of the future.
This is like a ongoing report card for these companies and
this week kicks things off. Now, if we take a look at the
earnings calendar here, this gives us a full overview of the
week. We have the biggest companies,
the most important ones in the market reporting earnings Monday
through Friday. The top group are companies
reporting before market open. The bottom group reports after
market close. Now, Monday, today we don't have
that many interesting companies, basically just Schwab.
It gets a little bit more exciting tomorrow, but we do
have JP Morgan, Wells Fargo, BlackRock and Citibank all
reporting tomorrow morning. Wednesday of this week is where
things get interesting for me because that's when we have a
SMLASML, of course, is that dominant monopolistic company
that many high quality investors have in their portfolio.
Notably Dev Kantasaria owns ASML and it's one that I really like.
I have it in My Portfolio as well.
You can see here that I have $53,000, almost $54,000 of value
in this company. So of course, we're going to be
going over ASML. And then moving into Thursday,
that's the biggest day of the week.
We have TSM, which is one of the most important companies in the
world, not just the markets. They're reporting earnings
Thursday before market open. Thursday after market close.
We have Netflix, the juggernaut itself, the unstoppable stock.
Netflix. I, of course, have Netflix in
the story fund. It is the top position, the best
performing company in My Portfolio.
It's now a $146,000 position. We'll be going over my
expectations going into Netflix this week and American Express
will be reviewing as well. So we have a ton to get to in
this episode. Let's go ahead and get started
starting things off tomorrow morning.
We have a row of banks and investment companies that are
reporting earnings, the biggest of which is JP Morgan Chase.
Now if we look at JP Morgan, let's bring it up here on on
Qualtrum Insights. I look at this company and I
really like it. I've always liked JP Morgan.
In fact, this is one of the banks that I invested in in My
Portfolio. If you go back to around
20/20/2019, I held a lot of JP Morgan Chase.
It was a company that I just really like.
A lot of investors today are focused on fintech companies, so
they invest in things like Sofi, Ally Financial, Robin Hood, All
those are great as well. But many people discount, or at
least they don't give proper credit to JP Morgan as being a
tech first company. This company has thousands of
developers and engineers. Their app is really, really
good. The tool set they have is
incredibly good. They're venturing into fintech
in lots of different spaces and areas.
So Jamie Dimon has LED this bank aggressively to compete with the
likes of Apple, to compete with the likes of different tech
companies. So I would not view JP Morgan as
some old stodgy bank that's not updated with the times.
They are very forward thinking and aggressive with this
company. The performance of it has also
been really, really good. We look at JP Morgan over the
past year up 37%, the past five years up 189%, not counting
dividends, of which they pay pretty hefty dividends.
So this is a by far market beating return.
And when we look at this company on the earnings calendar, we can
bring it up here. JP Morgan is also on track to
continue doing really well. For example, if we look at their
historical performance, they don't miss on earnings that
often. They've done it three times
since 2023, times out of every quarter since 2020.
So they have a very high success rate.
I don't expect them to miss on earnings and they're also
beating estimates by a wide margin on most of these.
When we're looking at what to watch for going into this
earnings, we can highlight a couple things here.
We have macro uncertainty and credit quality.
This is the discussion primarily with banks.
The biggest thing is basically their loans and the quality of
their loans. If people are paying them back,
that's the biggest question for banks.
If everybody paid back their loans, banks would be incredibly
wealthy. They lose money when they lend
out money that people aren't paying back.
So Simply put, the quality of their loans, the credit quality
is incredibly important. The previous quarters management
commentary emphasize elevated macroeconomic uncertainty,
particularly due to policy changes like new tariffs and
ongoing global domestic risk. This prompted JP Morgan to
increase the weightings for downside scenarios in its credit
risk modeling, driving a $973 million allowance for credit
losses. So in the last quarter, JP
Morgan decided because of all these uncertainties, to give
themselves a bit more margin of error, to give themselves a
little bit more downside scenario with their credit
losses. That doesn't mean they're going
to lose money. That just means that they're
modeling it in, they're preparing for it.
Investors should closely watch weather actual credit
performance to rates or remains in line with expectations and
how further economic geopolitical developments
influence the bank's reserve and loan portfolio quality.
So this is again the top thing we'll be looking at, at not just
JP Morgan, but every single bank.
If you bring up Bank of America or any of them, it's going to go
over these as well. Now, I don't believe this is
going to be as bad as the downside scenario.
Banks are modeling in their position for the worst.
They're a bank. They always have to be on edge,
they always have to be a little bit anxious, a little bit
terrified. Jamie Dimon is always warning
about hurricanes in the future, about big problems that could
happen. And that's the right type of
attitude you have to have to run the world's biggest bank.
So I think they're doing the right thing, being very
cautious, being conservative, even being a little bit anxious
about the future. But overall, they're likely to
come in more profitable and better than expected.
So Tuesday's all about the banks and the financial institutions,
which I believe, again, they're going to do better than
expected. When we get into Wednesday, we
have another bank, Bank of America.
We'll know how that one's going to do by all the reports on
Tuesday. So there's going to be no
surprises with Bank of America. But then things start to get
interesting when ASML reports. Now ASML is a very interesting
company in and of itself. I'm AUS based investor, so I
invest in a lot of US tech companies.
I really like the companies we have here.
Many of them are right in Silicon Valley.
They're based out of Washington or California or Texas or
different areas around here. So I'm familiar with those
areas. ASML, on the other hand, is from
the Netherlands. When I think of the Netherlands,
I think of, for some reason in my head, I think of cow pastures
and Greenlands and those old homes that are really pointy.
They have the pointy roofs, right?
Windmills, that type of thing. It just seems like an area that
there's not much high tech happening, but in the
Netherlands they have one of the most sophisticated science
experiments ever of humankind going on, and that's the
creation of their ultraviolet lithography machines.
These are incredible machines. They're massive, and they cost
hundreds of millions of dollars. And ASML is the only one that's
capable of doing this. Other people are trying to copy
them, and so far they haven't been able to do it.
ASML is now trading with a bit of momentum.
It's actually not doing that. In fact, this company continues
to move up 15 now almost 16% year to date, beating out the
indices and IT it got as low as $595 during the April lows
because of the tariff dip. Now one thing I'll note with
this company is that it is a bit more lumpy in its sales than
most other companies. For example, if we look at the
trailing 12 month metrics, you can see that the free cash flow
spiked in 2022. Then it went down to $2.7
billion. It went down like 70% and then
it spiked again. They got a bunch of receipts.
They basically accumulated all the money that they've been
selling these devices for. And this just means that the
cash flow is not a subscription based cash flow.
There is some service oriented cash flow, but most of it is
from selling these devices and then collecting payments and
sometimes more of those payments are collected in one quarter
than the other. But that doesn't mean that the
business is unpredictable because these customers have to
buy these devices. So even though the cash flows
make the company appear highly volatile and unpredictable, the
underlying company is very predictable.
They have a device that people have to buy.
Whether they buy them today or tomorrow is up for debate, but
they do have to buy them on a trailing basis.
It trades at a healthy 3 1/2% free cash flow yield, A25 4PE
ratio. In the meantime, they're growing
their earnings per share rather fast.
You can see the EPS growth here. I like everything I'm seeing
fundamentally with the company going into these earnings.
Now we can bring up ASML hair on the calendar.
We can take a look at how they do historically during earnings.
The blue dots are where they beat their earnings per share
estimates and since Q3 of 2020, they've missed on earnings 2
times. They are highly likely to be
earnings. If we switch over to the
revenue. They have far less control over
their revenue. Again, a lot of this comes down
to the lumpiness of their sales. O, the earnings can be accounted
for with the net income. The top line revenue is far less
predictable. O we could see a situation where
they have a slight miss on revenue and they be on their
earnings per share. When we look at things to watch
for with this one, it highlights a couple of the biggest points
here, the EUV system sales and productivity milestones.
SM LS first quarter showed strong performance in EUV system
sales, contributing to 3.2 billion and 5.7 billion net
system sales. Notably, gross margins exceeded
expectations at 54%, driven by productivity milestones, already
installed EUV systems and favorable mix.
Investors should keep an eye on how these factors affect the
upcoming quarters, margins and overall profitability.
Now we have a metric for how many systems are actually
selling in. We go down.
It's this brown graph right here.
And keep in mind, these systems are dramatically more expensive
today than they were two years ago.
The other thing that they're going to be commenting on in
this earnings report is tariff and macro uncertainty,
especially with just this past week with President Trump
launching a set of new tariffs threatening Europe with a 30%
tariff. They're certainly going to have
some commentary on it. My guess is that they're not
going to be as concerned about it as they once were.
We know how this works. There's a reason that the market
is not concerned about it. There's a reason that ASML
investors are not selling out of the company out of threat of
Trump's tariffs. It's because investors are
realizing how Trump does deals. He does a lot of big, bold
moves. He uses his negotiating tactics.
We know that that's part of his strategy and investors aren't
quite as concerned about it. The other big thing we'll hear
about with ASML in particular is part of the huge growth of this
company is reliant on artificial intelligence.
Now my thoughts are AI is not overstated.
It's not reaching an end. We are just getting started with
AI. I believe that we're literally
just getting ramped up with it. We're in the first or second
ending with it. I think that this is going to be
a massive long term trend. It's like the beginning of the
Internet. If you didn't get through the
Internet after year 2, that's just getting started.
ASML realizes that growth in artificial intelligence is one
of their key drivers of revenue, they say, with memory and
manufacturing playing substantial roles.
ASML forecasted install base management revenue to exceed
2024 levels due to its increase in service demand.
So ASML is going to install more devices this year than last
year. So if you think things are
slowing down, it's just not the case.
Another thing I'll highlight about ASML is their financial
position in cash flow management.
This is a company that's incredibly profitable.
They generate far more money than they know what to do.
So it's not a CapEx heavy business where they're
constantly making money, throwing it all back in capital
expenditures. Although CapEx and R&D is a
significant expense, they have more than enough money, so much
so that they do buy backs and boy, does ASML love buybacks.
Let's take a look at the balance sheet here.
We'll look at it over the past five years and we can look at
the cash balance. Again, this is in USD, so we
have $10.62 billion USD. If we convert that, we can look
at it. It's $9.1 billion in euros.
Now this is going to go down for a third quarter in a row.
So you'll see the cash balance step down and step down every
quarter, and that's intentional. That's a good thing.
The reason why is what they're doing is buying back shares
every single day. The share count decline should
speed up, not slow down. Overall, looking at ASML this
week, I believe it's a good week to be a shareholder.
The company could trade up or down a little bit with some
headline news of a slight miss or a slight beat on earnings per
share. But the longer story, the bigger
picture here, is that ASML is incredibly well positioned to be
a key component in the overall AI sphere.
It's a company that will continue to grow, gain market
share, and even, as would be competitors, China working on
their EUV machines. Even if they do catch up to some
degree, FML has massive distribution.
Technological superiority is only one part of their overall
dominance. There's other aspects to it.
So I'm still invested in ASML. I'm not selling a single share.
Moving further down the week, we get into Thursday, which is the
biggest day of the week, and we have TSM to kick things off.
Let's go ahead and take a look at this one.
TSM is a company that's had incredible performance over the
past five years. In the past five years, they've
returned 246%. So massive outperformance by
holding this one. And investors may be asking if
the ride is over for TSM, if the best days are behind it.
I don't believe so. I believe that TSM is well
prepared for the future. TSM is again similar to ASML,
one of the most fundamentally strong companies in the world.
If we look at some of the metrics here, for example, the
past year, they've grown revenue by 40%.
So massive growth in overall revenue.
Just incredible to see the EBITDA and the financial metrics
follow. They even have faster growth
here, 42% EBITDA growth, net income growing 52%.
We have free cash flow. This has also grown
substantially, 72%, so it's a bit more lumpy, but again, over
the long term it's highly predictable.
TS Ms. earnings per share growth are growing at 52% over the past
five years. It's a bit slower at 26%, but
you can see the trends. In a lot of ways, ASML and TSM
are similar in their investment thesis.
They both are uniquely positioned to manufacture the
hardware required for AI to do its thing.
For companies to build lots of AI devices, they have to go
through TSM. It is the bottleneck to creating
the hardware to run it. Now TSM has a couple
competitors. So ASML actually has fewer
competitors than even TSM. But TSM is not in a highly
competitive market. It is very concentrated, leading
TSM to have incredible financials.
When we look at the company again, many of the things that
we look at are very similar to ASML.
TSM almost never misses on their earnings per share.
They've missed one time since Q3 of 2020.
You'll see that they miss a little bit more frequently on
the revenue. So again, we could see a
situation where they beat on their earnings per share, they
miss slightly on the revenue. That's not a problem.
If you see that headline, there is nothing wrong.
They've done so in the past and they still have incredible
gains. We look over the biggest things
to watch for going into this earnings and it's a lot of the
same points. We'll look at the AI related
demand projections. We've already heard a lot of
commentary from ASML, but we'll get a second opinion on it with
TSM. We'll look at their capital
expenditure plans. We'll look at the geopolitical
risks and tariff impacts. They're, of course, going to
have commentary on that as well. But overall, my thoughts are the
same on TSM as they are on ASML. These companies are
indispensable. There is an AI wave that's
continuing to happen, and I don't think you should bet
against it. These companies will continue to
live up to the hype. Now moving throughout the week,
we have GE reporting earnings. This is one that I I was never
going to invest in this company. It's so far out of my
wheelhouse. It's so far out of what I focus
on, what I know. GE seems like a company that
would have lots of struggles and operational complexity, lots of
issues, and they're proving just the opposite.
This company has done incredibly well.
Look at their actual performance compared to their estimates.
They're beating almost every single time and they're beating
by a wide margin. When we look at the performance
of this company's stock price, it's also just astounding.
GE has been an astounding investment over the past five
years. One of the investors to
highlight this is Chris Hohn, one of my favorites.
He is an incredible super investor.
I've done a lot of content on Chris Hohn, but he invested in
GE knowing that they're creating these engines that in many cases
no other companies doing. So it's the same type of thing,
a little bit like ASML. They have this unique, very
advanced manufacturing process that no other company has the
time or wherewithal to even invest in or create themselves.
When we look at the performance of GE over the past five years,
it's up 631%, just remarkable. Year to date, it's up 54%.
And congratulations, every GE investor that realized this is
going to happen before the market did.
But I don't feel bad for missing this one because it was really
one I was never going to get. This is one that I could never
see myself investing in. Now moving on to Thursday after
market close, we get to a company that I have invested in
that's also done incredibly well, Netflix.
Netflix's stock price today is $1269.
It's up 1.9% on the day. If we look at the performance of
this company year to date, it's up 42.6%.
The past one year it's up 92%. So it's one of the the best
performing, outperforming basically all the big tech
companies over the past year. And then in the past five years,
if we look at Netflix, at the Lowe's, it got below $200 per
share. And again, today it's near $1300
per share, making Netflix A6 X from the Lowe's.
So an incredible performer buying it during almost any time
period. You don't have to time the
actual dip. You could have bought it all
along the way, which is precisely what I did.
It is true that I did some buys during the very lowest point of
Netflix. I was still optimistic during
that time period, but I also bought it all the way up when
investors said, oh, I missed the dip in the recovery.
Netflix kept recovering. Now it's at nearly $1300 per
share. Netflix is the largest position
in My Portfolio. Overall, it's around a 12%
position, and it's the biggest gain in My Portfolio.
And I felt strongly about this company for a long period of
time. I've made so many videos
outlining Netflix, trying to get investors interested in this
company, and there's always been a bit of resistance.
People always seem to underestimate the Moat the
company has, how powerful the earnings could be, and even
professional investors, some of the biggest ones in the world,
are very skeptical of it. In December of 2022, I authored
a paper on Netflix and went through the overall state of
Netflix. At this time.
Netflix traded at $316.00 per share, so it was still at a
remarkable deal. Looking back, and this is right
after Bill Ackman had sold out of the company, stating that it
was too unpredictable for his concentrated portfolio.
I stated that I strongly disagree with both the market
and Bill Ackman. I don't think things are so bad
for Netflix and I don't think that the company is
unpredictable. In fact, I believe Netflix is
one of the most predictable companies in the market.
I ended this note by saying that the business is more stable and
predictable than it's ever been before.
That was at $300 per share. Over the course of a year or so,
Netflix stock price doubled from $300 per share up to $718.
This was in August of 2024. I wrote another note.
This one is another five page summary going over my ongoing
thesis of Netflix. And at the end of all of this, I
summarized it by saying that I believe Netflix stock would
still need to rise significantly to make the long term future
expected returns in line with the market.
IEI believe it's undervalued. After doubling from the lows,
this company is still dramatically undervalued.
Since August of 2024, Netflix stock has almost doubled again,
going from 718 to now $1300 per share.
And it might be time for me to write my third note on Netflix
because once again, I believe the stock is not fully valued.
In fact, I believe there's still more upside for this company.
The overall thesis on Netflix relies on some simple
assumptions. When we look at Netflix, it's
really easy. As humans, one of the the
biggest mistakes we make is anchoring bias.
It's a killer of returns. Anchoring bias is where you will
not buy a stock because you could have previously bought it
for a cheaper price. Why would you buy it today when
you could have bought it then, or then, or then or then?
It stings to know you could have gotten a better deal and you're
not getting the best deal possible.
That bias is not present in ETFs.
It's not present in disciplined or sophisticated investors, and
in many cases, that's why ETFs outperform humans.
ETFs have a total lack of anchoring bias.
Investors should behave the same way.
We shouldn't judge Netflix based off of how far it's come.
We should judge it where it's going.
Netflix today trades at roughly $1300 per share, let's say.
Well, if we look at the company, where is it going to be in five
years? My thesis remains that the
management team of Netflix is mostly correct in saying that
the company will roughly double in revenue over the next five
years. Management stated that their
internal goals are to double the revenue, triple the operating
profits of the company, and gain an extra 100 million paying
subscribers in the process, all in a five year period.
And I believe that that's practical and achievable.
They also stated that if they accomplish those goals, the
company could be worth around a trillion dollar market cap in
2030 or 2031 around that time period, which right now it's at
$540 billion market cap, meaning that Netflix could roughly
double in returns over the next five years if the management
team executes well. Doubling the market cap in five
years is also not the only way you get returns.
They're doing share buybacks as well, meaning the total return
would likely be higher. So even as we see the aggressive
share price moves, we see Netflix move up like crazy.
We see investors get a little wary that it's gone up so fast,
so quick. So while it's true that Netflix
trades at a high PE ratio based on next year's earnings, it's
also true that investors should not be valuing companies just
based on one year out. We're investing in them based on
the next 20 years, the next 30 years and Netflix is uniquely
positioned to make a lot of money over a long period of
time. So when I look at this company,
it's one of these ones that stuck in this difficult
situation where today it looks expensive.
And I could certainly see some short term volatility.
If Netflix has any weakness in this report, if they say the ad
tears growing slower than expected, if revenue estimates
are a little bit below expectations, they give any
semblance of weakness whatsoever.
The stock is down 7 to 10%. So we have a 7% drop with any
weakness in this report and I think that's fine.
Again, I look at the long term potential of the company, not
this quarter or the next quarter, but even looking at the
long term potential, it's good to be prepared for different
outcomes. This is a highly volatile stock.
The move will likely be 7% up or 7% down.
They show any weakness in revenue in the ad care, in any
part of their business. That's a core part and the
stocks down 7%. And if things go really well, if
Netflix continues to show more strength, which I believe is a
high likelihood, we could see another day where this thing is
up 7%. Now it is true that Netflix
previously dropped 75% when they lost subscribers.
They lost the confidence of Wall Street and investors.
And I think that that's very unlikely to ever happen again
for a couple of reasons. One reason is that Netflix
transitioned from a company that was valued based on subscriber
editions now to a company that's valued based on revenue growth
and free cash flow, operating margins, their actual financial
metrics of which they have a lot more control.
The subscriber numbers have stopped being reported since Q4
of 2024. So we don't know them Q1 of 2025
or Q2. They're not going to report them
this quarter either. They'll probably give us an
update when they reach 350 million, which I don't believe
they're going to get to this quarter.
So my prediction is no updates on the subscriber metrics.
The thing that I believe gives a lot of downside protection is
the free cash flow. We look at the free cash flow
over the trailing 12 months. It's nearly $8 billion and it's
also remarkably consistent. I believe this is going to be
the case going forward. Netflix is not going to go down
in free cash flow. They'll continue to generate
more and more money, more cash flow for investors every
quarter. Now, top of mind for every
Netflix investor is the ad tier. And this is important because
Netflix found out a way to basically double dip.
They get you to pay a small amount.
So you're paying 7-8 dollars a month, right?
It's the cheapest amount. But then you're also seeing ads,
which if you watch a lot of Netflix, if you watch a couple
hours a day, those ads throughout the day, every day
throughout a month add up to around an extra $10 per month.
So you're paying $8 in just money, and then you're paying
another $10 in your time for watching ads.
Netflix earns a total of $18.00 from you as a user, which is
more than many of their paid tears.
So Netflix would rather have you on an $8 ad tear than a $12.00
non ad tear. It's just far better for them
and they're doing a lot of things to make their ad tear
even better for the user, more targeted ads.
They're building out proprietary ad tech suite and we're going to
see if this boosts their capabilities and their
commentary around it. But this is going to be one of
the biggest things that we look at.
The other thing is content slate and engagement and retention
trends. Simply put, Netflix has to
continue making great content all the time.
Not everything's going to be a hit.
Netflix will certainly miss with a lot of content, and with any
type of content, there is some risk to it.
The Osama bin Laden documentary from Netflix was incredibly well
done. It was one of the best
documentaries I've seen. Then you have Squid Game season
3, which wasn't so good. I don't believe it was their
strongest piece of content. O With Netflix, you're going to
have some stuff that does really well, some stuff that's really
highrated and lowrated, some that just doesn't hit quite as
well. That is the inherent risk of
creating creative content and that's not a problem for the
company. I believe that going forward,
they're going to have so much content that they will have
enough things that hit and that's really what matters.
Now. We do want to see commentary on
what they plan on doing throughout the year.
Their content slate. The upcoming quarters will see a
return of major titles and heavier film slate in Q4, an
additional live events such as high profile sports broadcast
all expected to bolster engagement.
Investors should monitor whether these content investments Dr.
sustained growth in members and other Netflix continues to
outpace competitors and securing and retaining audience share.
On the operating margins, I believe they just need to grow
their operating margin. Simply put, we need to see year
over year growth 2 to 3% at least.
If Netflix is able to continue growing their operating margin
becoming more profitable, I do not see the stock price moving
down for long. So while the short term
valuation leaves Netflix in a bit more risky of a position on
a day-to-day basis, I believe the long term price for
investors willing to wait is still massive.
Netflix represents again, one of the most unique investments in
the market, a fully subscription based company with a huge total
addressable market that is one in the streaming war and created
a business that's nearly impossible for anybody else to
replicate. So it's one-of-a-kind and I'm
still holding every share. Now to cap off the week, we move
to Friday before market open. We have American Express
reporting earnings. I went for the more pureplay
with MasterCard. The difference here is if you
want to have more of an ecosystem, we have a bank and
you have a network. It has seamless integration with
each other. It caters to high end clients.
It's really remarkable business. It's kind of like the Apple of a
credit card that's American Express.
So it's a really good company. But then you have the other end
of the spectrum where you have Visa MasterCard, which have the
bigger share of the dominant network effect.
MasterCard is a more pureplay tech company and I went for that
network effect. Now, either way, American
Express is still a great company.
We're going to get more insight into how this one performs based
on JP Morgan and Wells Fargo. So they'll kind of give us a
little bit of a heads up of what's going to happen with
American Express, but just to give some general thoughts.
I think it's going to be good. You have consumers on the high
end and you have consumers on the low end.
If you're investing with consumers on the low end, I
think you have more reason to be concerned than the ones on the
high end. I would tell you if I could find
any real reason to be concerned about this one, but I just
don't. I would be shocked if they show
any huge weakness. And that's an overview of the
entire week. And make sure you subscribe to
the channel because next week it gets even crazier.
We have companies like Google and Tesla reporting earnings.
I'll be going over those in depth as well.
That's gonna be it for this episode.
See you in the next one.