Welcome back, everyone. Today on the Joseph Carlson
Show. We're about to get into the
busiest earnings week of the entire season.
This is a monster week full of juggernaut companies, ones like
Microsoft and Meta and Apple and Amazon.
They're all reporting this week. Plus we have a lot more.
There's just simply a ton of companies reporting earnings
this week that are notable, meaningful.
This is by far, I think the one that's going to move the market
the most. Either the S&P 500 goes up as a
result of this or it pulls back. Now going into Monday, we don't
have anything too notable today, but Tuesday's where it all
begins. Tuesday morning, we have Sofi,
we have Spotify, and we have United Health Group.
We'll be looking at all of those.
I love Spotify, it's a great company.
United Health Group is going through a massive sell off.
We'll look at what to expect with United Health Group.
We have Visa reporting earnings aftermarket close on Tuesday.
This is 1 where we've already seen American Express, but
Visa's the biggest, most notable credit card company, so we'll be
looking at that one. Then at the same time, we have a
personal position of mine, booking holdings.
This is a company that I've already made some money on.
What are they going to be reporting tomorrow after market
close? Well, I have some predictions.
We have Starbucks, Big Food chain, we have Cheesecake
Factory, both reporting earnings after market close tomorrow.
So just on Tuesday, we have a whole list of companies.
It's a big day tomorrow, but moving into Wednesday, it
doesn't slow down. We have Microsoft, Meta.
I'll give you a playbook of what I expect from each one of these
companies. When we go into Thursday before
market open, we have MasterCard. We'll already know a little bit
about that one through Visa. So we have a little bit of
insight into MasterCard at that point.
Then we have another holding of mine, S&P Global.
This is in fact one of my largest holdings in My
Portfolio, so I'll be sharing some thoughts on that one.
Then we get to Thursday after market close, which I believe is
the biggest of them all. We have Apple and Amazon both
reporting earnings. I've owned both of these
companies significantly at one point or the other, I was a Big
Apple investor. I've sold most of my stake.
We'll be going over that company and how I view it now and of
course, Amazon. This is growing to become one of
my biggest, if not my biggest bet in My Portfolio.
I'm extremely bullish on Amazon going into these earnings and
I'll be sharing why. So we'll be going through the
week Monday through Friday, company by company and what to
expect for each of them. This is going to be a jam packed
episode. Let's go ahead and get started
Now. We start things off looking at
Tuesday before market open, tomorrow before market open.
We have United Health Group, we have Spotify, an we have so OFI
reporting earnings. Let's go over all three of these
companies. We'll start things off with
Spotify. Spotify is one of the companies
that I wish I had in My Portfolio.
You know those companies that you wish you owned, but you just
never made the leap to actually building a position.
There's a couple of those. There's Spotify and DoorDash and
Shopify, Uber, you know those type of companies where they're
great companies. You kind of knew they're great
companies, but you never owned them.
That's Spotify for me. I've always loved Spotify.
I have tons of people that I know that you, Spotify and their
lifelong customers. The lifetime value of a customer
of Spotify must be massive. People never cancel it.
They just use it for year after year and I love that
subscription based revenue. Now, the problem with Spotify,
or at least the perceived problem years ago, is that the
operating margins would never move up.
They would just always be poor operating margins going
negative, you know, never positive.
And then all of that changed in 2024 when they rapidly went to
11%. So you've seen this with some
platform based businesses like a Netflix, like a Uber, like a
Spotify, you're seeing the same thing.
The lesson here is it companies that can hold lifetime value of
a customer for a a long period of time.
They can just hang on to customers forever.
Whether it's Costco, Netflix, Spotify, Amazon, these companies
typically can find out ways to turn a profit in the exercise
operating leverage. And you're seeing that here.
The free cash flow is just going parabolic.
It went from basically nothing up to around $3 billion in free
cash flow over the trailing 12 months.
If we look at this in the euro, it's 2.6.
So so we have massive free cash flows from this company.
Spotify's also growing in a lot of important ways.
They're growing in premium users, ad supported.
They're being led by Daniel Eck, I believe, in a really good way.
They're growing in engagement, the amount of consumption hours
on the platform. They're moving into different
verticals of audiobooks and podcasts, video formats of
podcasts on their platform. They're integrating comments.
They're doing more and more. The company's on the move all
the time. They're hyper focused on audio.
So huge opportunity here. The monthly active users last
quarter was 678,000,000. So we're getting close to that
billion user mark and I believe this is going to go up another 8
to 12%. We'll see it up likely another
10% just like it has been. I don't think we're going to see
much of A change of trajectory, which is a good thing for
Spotify. When we go back to the calendar
and we bring up the what to watch for, this takes a look at
their latest earnings reports and it tries to gauge what are
the most important KPIs and metrics to look at with this
business. With Spotify, it's a subscriber
based company. So that's of course the big
metric. Investors want to see continued
subscriber growth, continued engagement, and I think they're
going to get it. I believe investors are going to
keep getting this because I see nothing changing.
There's no notable new entrance of a competitor.
There's no one venturing in. There's no real disruptive risk
right now. Do you see any disruptive risk
to Spotify? I don't.
YouTube's existed for a long time, TikTok has.
These companies have been around and Spotify continues to grow.
I don't see any change to their subscriber growth or engagement
trends. We have advertising revenue
momentum in market dynamics, they're growing and advertising
as well. We're going to see them continue
to do that. Profitability and operating
margin expansion. This is where I'm most
interested. Spotify got a big boost in their
cash flows by cancelling some of their podcast investments.
Is that going to continue? Outside of that, we have
different formats in different AI enabled tools.
Overall, I expect a solid report from Spotify.
I believe the stock is going to put up huge numbers.
I think they're going to be on their subscribers and engagement
trends. I don't know about the revenue
or earnings per share. Sometimes they miss on that,
sometimes they don't. But I believe overall the core
business is really strong. My suspicion is we could have a
scenario similar to Netflix where Spotify reports decent
earnings, but the stock trades down a little bit simply because
evaluation. The stock is up huge like
Netflix this year, up 53%. So I wouldn't be surprised if
there's a bit of a fade after earnings, but that wouldn't
concern me as an investor. If I own Spotify right here, I'd
be happy just holding on to it now.
Next up, we have United Health Group.
Let's go ahead and take a look at this one.
The simple story of United Health Group is this is a
company that decided to cover too many things for too low of a
price. They underpriced their services.
They try to gain too much market share, and then more people use
their services. They use the insurance more than
expected, which cause immense losses.
So that's the way to kind of dumb down what's going on.
There's also Department of Justice investigations and other
litigations going on, as there often is in this industry.
If you look at some of the metrics here, we have people
served. This is declining over time.
So the past couple of quarters is actually going down.
Never a KPI you want to see go that way.
The revenue continues to go up are offering more crossover of
services, but the number of people, the volume continues to
decline and it's going to be tough to grow revenue on a
consistent basis with the number of people they're serving going
down. When we look at the what to
watch for, the biggest problem here, the top thing highlighted
was United Health reported that care activity in its Medicare
Advantage MA business increased at twice the expected rate in
the first quarter with physician and outpatient services most
notable. Investors should closely watch
whether this trend persists or abates in the next quarter, as
sustained elevated care utilization could continue to
pressure medical ratios and earnings.
So basically it's highlighting here that the number one thing
we should be looking at is whether or not people continue
to use their health insurance at the same rate that they're doing
last quarter. If they are, it's bad news for
UNH, at least in the short term. The problem with this company
again, is too many people are using the services.
They underbid it. They wanted to gain market
share, so they gave way their services at a lower price than
their competitors. And now everybody's using their
health insurance and this is a retroactive problem.
You can't go back and fix it. So if we have a situation here,
which I believe is very likely that this upcoming quarter,
people are still using their medical services and physician
outpatient services as much as they were the previous quarter.
I think that's likely that's going to hurt earnings in the
short term. The stock will likely fall, at
least in the short term, or you won't see a rapid recovery as
it's already fallen. But I want to highlight here
that this is a temporary problem.
Over time, over the next couple of years, they're going to
reprice these plans. You'll have the rollout and
initial fallout of the previously priced plans, but
those will slowly fizzle out. So I believe we're going to see
a situation where United Health Group may not recover as fast as
investors like it might not be a thing where you see a recovery
in a month. So maybe we don't see that
happen, But I still believe this stock is undervalued.
I think that over the next three or four years, you'll see a
gradual recovery back up to the four hundreds to four 50s back
up to where it was previously. So on United Health Group, you
could call me short term concern, but long term bullish
on the stock. I think that's a way of putting
it. Now another one we have here is
Sofi. I get asked about this stock all
the time. Investors want to know what I
think of this company. Sofi is a classic fintech
technology company and bank mixed together.
You get Sofi. When I look at this company, it
has some incredible KP is for example, the members, just the
amount of members they have on their platform, it increases
every single quarter. It's incredible to see this to
10.92 million. I don't think this quarter
should be any different. I don't see any big changes in
the competitive landscape. When we look at the amount of
products, we also see that they're doing a lot more
financial service products basically every quarter, another
basically linear graph going up over time.
They have a minority of that being lending products.
So I like that the majority of this is service based.
I see a lot of competitors in the fintech space.
You have Sofi, you have Ally Financial, you have Robin Hood,
you have all these companies competing for the same
incremental dollar, the same wallet of everyone.
And I think it's a little bit too diverse of a competitive
landscape where I like owning one of the companies that's a
huge winner in the category. And I have a hard time
predicting what this one will do.
The valuation is elevated, but this is the type of stock that
if investors get a little bit of good news on it, it could rock
it up another 5 to 10%. Now after we get through Tuesday
before market open, we have Tuesday after market close, we
have a couple big companies reporting earnings.
Then now we're going to get to the big tech companies, Meta,
Microsoft, Apple, and Amazon later, but we have to get
through these smaller ones first.
Tuesday after market close, we have Visa, Booking Holdings and
Starbucks all reporting earnings.
Let's go ahead and start off with Visa.
When looking at Visa, I'm going to go ahead and group MasterCard
with this one because they have so much overlap in their
business model and Mastercard's going to trade.
However Visa does. So Visa posts really good
earnings and Tuesday MasterCard will likely move up.
If Visa posts a little bit underwhelming, MasterCard will
likely move down. They trade very similar.
When we look at both of these companies, my simple prediction
is you're going to see very steady, predictable earnings.
Simply put, they're going to be business as usual.
I see no reason to believe in any of the data that Visa or
MasterCard are going to blind side us with terrible reports.
I look at companies that have reported earnings, companies
that give up monthly updates, and so far it just looks like
people are spending money. Netflix reported great earnings,
Costco shares their monthly revenue update, and people are
spending money at Costco. Costco only accepts visas, so
this company should buy the consumer.
And some of the data points we have post steady predictable
earnings. Now, I also expect to see on the
calls of these two companies, a lot of commentary about stable
coins as a competitive potential disruption.
They're both overwhelmingly going to embrace stablecoin and
they're going to embrace crypto. I don't see stablecoin being a
disruptive risk for these companies, and I believe
investors can sleep well owning Visa, MasterCard.
Now, we also get into another one here that's been under a
little bit more debate, which is Booking Holdings.
I own a fairly large stake of Booking Holdings in my consumer
category. It's currently a $77,000
position, around $26,000 in the green.
I bought this one looking hindsight at a really good time.
It dipped for what I believed was no reason whatsoever.
They posted a great earnings report, then the stock dipped by
10%. I bought a big stake in the
company and it since recovered. Now I want to be very clear with
my prediction on Booking Holdings.
I believe that their report's going to be incredibly strong,
likely better than expected, because I believe the travel
industry is far more resilient than what investors are
expecting. This is usually considered one
of the weaker industries. Like you'll hear old analysts
say that when the economy goes, travel's the first thing to go.
But really what we've seen with the numbers is that that whole
narrative doesn't really add up. I look at the quarterly revenue
of this company and maybe some segments of travel struggle, but
the only time this company has ever really ran into trouble is
during COVID when people are literally locked down.
So I guess if you literally imprison people in their own
homes, make it illegal to travel, require them to get
vaccinations and go to that extremes, yeah, their product
may take a hit. But outside of that, just look
at the chart. There's nothing that keeps
people in their houses forever. People want to go out and have
experiences. Booking holdings is a
representation of that wrapped up in an incredibly profitable
business model. So I look at this and whether or
not it's it's slowing down a little bit, we can look at the
past five years. So I guess it's tapering down a
little bit in revenue, but we still see continual all time
highs. We still see continual all time
highs in their merchant and agency.
They're moving to a Better Business model over time.
We see all time highs in their room nights sold, meaning total
volume of people traveling and booking rooms is growing.
And I think we're going to see more and more of this in the
future. Again, outside of a one time
pandemic that will never be repeated again in my lifetime,
outside of that type of event, this company is growing like
crazy easy. If we look at the ratios of this
company, let's go ahead and just take a look at their gross
margins. This isn't a lie.
It's literally 100%. Sometimes it bounces down to 96%
or 97%. We have operating margins that
beat the gross margins of most companies, 31% operating margins
and then profit margins which are 25%.
So not quite as good as a Visa or MasterCard, but incredibly
good. And the margins are recovering
from 2020. They're going to get better over
time as they keep optimizing their service.
What we expect to see in this upcoming calls is commentary on
the macroeconomic environment. And I've listened to enough of
these calls that I know what the CEO is going to say.
He's going to say that we've operated during pandemics and
wars and financial crises and recessions.
We've we've operated during all of it.
And look at our company record high profits.
People still want to travel. He believes that travel is
innate to humans. It's just a part of our DNA.
We don't want to stay in the same place forever.
We want to go out and have experiences.
So if you believe that that's true, if you believe the
narrative that people are always going to travel, then you're not
as concerned with the macroeconomic uncertainty or
geopolitical uncertainty. That type of stuff has always
happened. Yet this company continues to
grow. You're going to see direct
booking and loyalty trends. They'll show off how many people
are now using their apps instead of using the website.
One of the big efforts of booking is getting people more
accustomed using the mobile app, and that usage has gone up.
You have more partnerships that they're doing.
You have alternative accommodations, connected trip
expansions. They're trying to make their
service more robust, connect to different companies.
The last thing is artificial intelligence integration.
Management has noted that they're integrating AI into
their service. That can be looked at as a
threat to Booking Holdings or a benefit to this company, but
management is leaning in on AI. When I look at Booking Holdings,
the big threat that I see down the road is the potential for
artificial intelligence to completely book a trip for you,
do it in a Safeway, do it in a way that people enjoy, and do
that at scale. I think that could potentially
be a threat, but I don't believe we're there right now.
I think people like the rewards, they like the system, they like
the UI of booking Holdings, and they have a huge advantage in
advertising. So right now, I don't see that
as a present thread. I'm holding all my shares going
into these earnings now. Next on Tuesday after market
close, we also have Starbucks and Cheesecake Factory reporting
earnings. We'll group these two together
as well because they're both food companies.
They're in similar industries even though they they are a bit
different. Starbucks is QSR quick service
restaurant. Get in and out with your coffee.
Cheesecake is to go and have an experience, go and have fun, sit
down with some family and friends and enjoy their huge
menu. When I look at each of these
companies, they both have different risks.
The risk with Starbucks is luck and coffee and every other
coffee joint that's popping up left and right.
I see Starbucks is having an increase in the amount of
competition over the upcoming years.
I think the company still has brand value.
I think it will be fine over time, but I do see it as a more
highly competitive place. And I see Starbucks at a point
where they don't have as much pricing power.
They've extended and exhausted all of their pricing power.
You just can't raise prices anymore.
And in fact, Starbucks is trying to win back customers by
offering discounts and offering different app benefits to try to
get people to use their app again.
We want to see the amount of stores increase over time, as
well as the amount of rewards member and overall the revenue.
We've had flat revenue over the past year.
So Starbucks hit a wall. They price people out of their
stores. There's an increase in
competition, and it still trades at a relatively healthy
valuation. So this isn't some super
undervalued company. When we look at Cheesecake
Factory, this one has some risks, but I believe they're a
little bit lesser than Starbucks.
But the thing that I don't love in Cheesecake Factory and the
thing that's kept me out of the company is simply the revenue
growth. It's typically anywhere from 4
to 7%. Most of the gains from this
company, which I've been quite good over the past couple years,
have come from multiple expansion.
So this company is volatile. It goes down into big dips.
You see it going back up to a spike right now, and a lot of
that is the multiples moving back up because the company's
been trading at a cheaper PE ratio.
Out of the two, I'd rather own Cheesecake Factory than
Starbucks. I believe it has less disruptive
risk, even though it's slower moving, it's at a better
valuation. All right, now we finally got
here. We have our first big Tech
company of the week Wednesday after market close.
We have Microsoft and Meta both reporting earnings at the same
time. Let's go ahead and start things
off with Microsoft. Now, the first thing I have to
say about Microsoft is I've owned this company for a long
period of time. I've been super bullish on
Microsoft. It's always been one of my top
positions. If we look at the weighting of
my combined portfolio, we have S&P Global at the top, Amazon,
Netflix, then in fourth place at 8.6%, we have Microsoft and this
one is around a $109,000 position with 51,000 of that
being gains. So it's around an 89% gain
overtime. Even though I've been dollar
cost averaging up, I have been buying more of this company.
The most recent buy I did was around 22230I continued to buy a
little bit trailing up, and then I tapered off.
So I've bought recently, just in 2022, but then I've held the
company and I haven't trimmed at all.
Even though Microsoft is trading at a share price of 513.
I refuse to trim this company. I won't do it for a couple of
reasons. First of all, I've continually,
throughout the history of my channel, referred to Microsoft
as the poster child for the perfect fundamentals, meaning
that this company represents some of the perfect fundamentals
you'll ever see in a company. Long term revenue growth
overtime, it's just gorgeous. The diversification of revenue
both through segment and geography, highly diversified in
every way possible, but it's all good.
So it's not diversification, it's high quality
diversification. All of these are great revenue
segments. You have a highly profitable
business model that's been software.
Software has been such a good place to be, highly recurring
lock in, high lifetime value and high margins.
Then you have cash flow generation.
Now the free cash flow just went parabolic over the past couple
of years from 2018 to current day.
And even though they're doing massive CapEx investments, which
is directly subtracted out of their free cash flow metric,
their free cash flow is growing. So Microsoft is great.
And even though most people understood that Microsoft is a
great company, they didn't understand it enough.
They didn't know how good it was that it would really persevere
this much and grow this much. When we look at Microsoft, the
big problem or at least the question right now is evaluation
of the company. If we look at the valuation over
the past five years and we look at the free cash flow yield,
this means that the lower this goes, the more expensive
Microsoft is. So this is the cash you're
getting per $100 you're invested, represented in a yield
form. So out of $100 I'm investing, I
get $1.83 back over the trailing 12 months.
Just a couple years ago in 2022, I was getting $4.00 back.
So Microsoft trades at roughly 100%, almost double the
valuation it did just a couple years ago on a price to earnings
ratio. This is inverted, where the
higher this chart is, the more expensive Microsoft is.
Again, in 2022, the stock was at around $220 per share.
It was trading at a 26 PE ratio. That was the cheapest Microsoft
has traded for a long time. We look at it and it typically
trades in the high 30s based on the quality of the company.
And then more recently, we look again and it's the most
expensive. It's been right at the peaks
over the past five years. So Microsoft is trading at a
higher valuation today than almost anytime throughout its
history. Microsoft does have more
fundamental differences today to justify the valuation than it
even did a couple years ago. This company is transforming for
the better, and this transformation is being
highlighted by the CEO of the company, which is Satya Nadella.
He recently released a memo just a couple days ago called
recommitting to our Why, What, and How.
Now, this memo is a couple pages long, so I'm not going to read
through it here, but I'll summarize some of the things
that he talked about in the overall theme of this memo.
The big thing that Satya Nadella argues for in this memo is that
Microsoft has always been known as a software company.
They build software, they build user interfaces, they build
applications, and they sell them on this residual license that
you pay every single month, a typical software company.
But he's saying that their identity is transforming, that
they're no longer going to be viewed as a software company.
They're no longer going to be even work as a software company.
Instead, they're an intelligence engine powering the rest of the
world with AI solutions and tools.
They're now going to be primarily an AI company, AI
first, not a software company. Everything that they're doing
with Azure and all of their, the things that they're building are
built specifically with AI to power other companies with AI.
It also changes their list of priorities.
Now they're a lot more focused on security and quality of their
tools and transforming from the software company to the AI
company. In the process, they're doing
layoffs, so they're restructuring and Microsoft
regularly does this. Overtime they'll do layoffs and
then they'll hire a lot of people in the future.
This is what they do, but you can see the transformation
happening. They're no longer trying to view
themselves as an old fashioned software company.
They're now an AI engine company.
I believe that's the right vision for the company and that
Satya Nadella is still transforming this company in a
positive way. He first did this by going head
first into Microsoft Azure. This was the main direction of
the company that he took it, and that was the right direction.
Now transforming from software into artificial intelligence is
another good move for Microsoft. With Azure growth and dynamics
and AI integration being top of mind for investors, investors
should closely watch the growth trajectory of Azure.
The evolving blend of AI and non AI workloads on Azure means
demand trends and revenue benefits may be increasingly
difficult to disentangle and the continued success of both
components will be important. This is something that Andy
Jesse also highlights. He says, yeah, AI is great and
all it's, it's great to be going that direction, but there's
still just a lot of basic IT stuff that hasn't been into the
cloud. So he's saying we're, we're
pushing full steam ahead in AI, but there's so much workloads
that are still being done locally that should be done in
the cloud. So you see that growing with
Azure. We want to see strong AI growth
and we want to see growth overall.
The next thing is cloud infrastructure investments and
capacity constraints. We just saw that Google upped
the amount that they're investing in cloud.
This puts a lot of pressure on Microsoft.
To give you a reminder, we can look up Google Cloud here and
take a look at one of the KPIs, which is their cloud backlog.
This grew by 37 1/2%, almost 38% to $108 billion.
So they have a massive backlog that they're growing really
fast. Microsoft will have the pressure
on investors want to see this continued capacity constraint.
They want to see the continued investment in Microsoft Azure.
We want to see Copilot and AI product monetization tracking
adoption rates of customer engagements on Copilot and other
AI driven products across Microsoft 365, Dynamics 365 and
Security Solutions. A lot of people will be critical
of Copilot as kind of an addon AI, but the truth is that many
people already using a lot of Microsoft services are just
going to sign U with whatever integrates easiest, whatever's
already kind of included in the package.
And that's copilot. So Microsoft is again using
their bundling and their huge offering to enhance one of the
other products, which is copilot.
Microsoft will continue to balance keeping their margins
high while making the meaningful investments.
They're really good at this. They're only going to invest
where they see a high return. So if Microsoft bumps up their
CapEx, I will look at that as a good thing.
I'm not going to sell my stock or be concerned because CapEx is
going up and I believe margins will take a temporary hit.
I'd be OK if Microsoft has to do more CapEx.
We've already seen how good the cloud business is overall,
despite the share price of $513, despite the fact this company
trades at a five year high valuation, I'm still not selling
because it's in such a good situation.
The price may ebb and flow a little bit.
I could see it going up or down a couple percentage after
earnings. But overall this company is so
fundamentally strong that even though I don't think it's the
best time to be buying into Microsoft, I'm certainly not
selling my shares and I think that it will continue to have
incredibly strong fundamentals. Now Next up, reporting at the
same time we have Meta, which is the company that no matter how
big it gets, it always has room to get bigger.
This is one of the companies that always, it always impresses
me how many people there are out there to continually use their
services. The family daily active people
metric for example, was at 2 billion in 2019 and it just
continues to grow quarter after quarter now to 3.43 billion.
I believe it's going to continue to go up and it shows you the
total addressable market for these types of companies.
They have free applications that are ad supported.
Virtually everyone on planet earth can use them, anybody that
has a mobile device. So Meta's continually growing
the amount of people using their service, and then they're
growing the revenue with the users they already have year
over year, causing the company to grow the top line around 20%
year over year. It's one of the fastest growth
rates of any big tech company. Like all of these big tech
companies, they have to involve AI into every part of their
business. With Meta, they've obviously
done this to optimize their advertisements, but now they're
going a step further, doing some similar things to Amazon, where
you have generative ads recommended with their model
GEM. So basically what Zuckerberg
trying to do here is make it so an advertiser can click a button
or type in what they want the advertisement to be about.
The gem. GEM will make an ad for that
advertiser and then they can sell it on Meta.
And I like the thought here. If an advertiser can save money
and time on building the ad, then they can spend more money
and time on actually paying for ads to be ran.
Meta is trying to automate part of the advertiser's job so that
they can spend more money on Meta.
And I think overall that's a great plan.
The other big thing, like any of these big tech companies, is
going to be looking at their infrastructure.
This company used to be looked at as just a social media
company, but now it's more looked at as the rails of
communication across the globe. They own so many assets.
They're building such huge infrastructure.
They're wrapping all of this with AI.
There's become a lot more high MO of a company.
It has a durable logistics mode now, even a technological mode.
Now in terms of how the stock will trade, it's always a coin
flip. But with Meta, you have reason
to believe that it might cool off a little bit more than
expected. The company trades at a
valuation of a 27 PE ratio, where you have other companies
like Google trading at around an 18 right now.
I believe that Google's the undervalued 1.
I think Meta's at more of a full valuation and if anything, I
believe that Google should get up to around the same valuation
as Meta, around a 25 to 26 Ford PE ratio.
That leaves more upside for an advertising giant like Google
than there is for Meta. But you're buying with Meta at
this point is that you never know.
This company has wildly outperformed investors and
analyst expectations before, so there is a chance they do it
again and they come in way above expectations.
After Microsoft and Meta report earnings on Wednesday, it's not
done yet. We move on to Thursday and
before market open on Thursday, we have one important company,
company. This is my largest holding in My
Portfolio, which is S&P Global. If we look at this here, we can
take a look at S&P Global. It's barely my largest holding,
just above Amazon and just above Netflix.
When we look at S&P Global, there's a reason that this is my
largest position and frankly it's just because I believe it's
an indestructible company. Out of all the companies that
could run into problems and disruptions and regulations and
different things that could hurt them, I believe that S&P Global
is one of the most insulated. It's one of the the widest Moat
companies in the entire market. With this one, what we're
looking at this week is we want to see progress on the mobility
division spin off. They announced that they're
spinning off that business. We want to see what's going on
with it, how much money they're going to earn, when that will be
completed. We also want to see bond
issuance and rating revenue trends.
The rating business, even though it's super wide mode, it's a bit
more cyclical than other businesses.
But after a robust Q1, management foresees A
moderation. And then this company is a tech
company. They're constantly launching new
products, new database products all the time.
We want to see the new types of things they're coming out with
and the overall pace of product innovation.
SNP Global's another one that causes me no anxiety.
There's no stress in holding this company.
I think the report's going to be great.
I continue to hold all my shares.
Now finally, we get to Thursday after market close.
This is where we get to another huge after close day.
We have Apple and Amazon both reporting earnings.
Let's go ahead and start things off with Apple.
I owned a lot of Apple stock. In fact, it was one of my
biggest positions for a long period of time on my channel.
I've made dozens of videos around the company.
So this is a stock that I've studied for a long period of
time. And I really like ALE.
I love the products. I'm a fanboy of the company.
I like their designs. But I sold ALE early this year
for a couple concerns. If we look at the revenue over
the past three years, quarter by quarter on a trailing basis,
this is what it looks like. This is 3 full years we have
from Q32022 to Q1 of 2025 and the revenue is almost the exact
same. So we have stagnant revenue.
I just don't own businesses that have flat or no growth revenue,
especially on a multi year basis.
It's very difficult to get solid returns from a company that has
flat revenue. You can sometimes do it if they
squeeze out a tremendous amount of margin, but in most cases the
returns aren't going to be good. Now when we look at Apple, it
has flat revenue while trading at a premium valuation.
So you have a near 30 PE ratio on a forward basis.
You have a 3% free cash flow yield 2 1/2% while having flat
revenue. When I look at what to watch for
with this company, you have some macro concerns like the tariff
and supply chain impact. I don't find that quite as
interesting as other investors. None of that stuff feels
intrinsic to the company. Even though it may be a short
term concern. I wouldn't sell Apple solely
because of tariffs or supply chain impacts.
They're really good at figuring that stuff out.
The part that I have more of a problem with with Apple, the
bigger concern is their lack of AI integration into the iPhone.
Apple Intelligence and AI integration into the iPhone has
been a massive let down. The roll out and consumer
adoption of Apple Intelligence features, including on device
cloud based AI remain pivotal. The March quarter data showed
stronger year over year iPhone 16 performance in markets where
Apple Intelligence was available.
So even with their current Apple Intelligence, it's boosting
sales and they can see that in the numbers.
But I'd say that the current version of Apple intelligence is
still not that intelligent. They advertised it like it's
like having ChatGPT built into your phone.
Your phone is now this incredible personal assistant
that can intuitively understand you.
But what we got was text summaries that after using it
for some time, I disabled because I didn't really like
them. That's not the Apple
intelligence that we had advertised to us.
So I believe they're falling behind in Apple intelligence in
this new growth path for them. Now they have a lot of time
because Apple still has a huge Moat, so they have a lot of time
to figure this out, but right now they're not figuring it out.
The other thing that we're always watching for with Apple
is that this is now a service based company.
They've outgrown just the hardware sales portion.
They're now growing in Apple TV, they're growing in Apple
Insurance and Apple Care, they're growing in Apple Music
and all these different services.
And we want to see continued growth because again, outside of
that, they're not growing that much in just pure device sales.
Now the service business is still growing and it's growing
at a decent pace. But I will note that the pace of
services is also slowing down 12% year over year growth.
It used to be growing at 1718%. So we even see this important
revenue line of Apple slowing down a little bit.
Apple is still a high quality, high margin company with a wide
Moat. It's not in any type of huge
trouble. There's no big concern for
Apple. The biggest concern for me is
that I'm a growth investor. I like investing in companies
that strong fundamentals growing at a brisk pace, faster than the
market. Apple's now growing slower than
the market. It's moved into more of a
mature, slow growing, high quality company, company that
will produce earnings per share growth and free cash flow per
share growth purely through share buybacks and financial
engineering more than top line revenue growth.
For that reason, even though I don't believe that this earnings
will be bad for Apple, I think they'll do just fine.
It's not a particularly interesting stock for me today.
Now finally, we get to Amazon reporting earnings at the same
time as Apple Thursday after market close.
This is going to be a highly anticipated one, especially for
me because Amazon as a company, I've continually built up my
position. I've been bullish on Amazon for
years and this stock has gone through a lot.
But I feel like Amazon is really showing its strength over the
past couple of years. We look at it today in My
Portfolio and both the story fund and the passive income
portfolio combined, this is $1.2 million combined.
Amazon is the second largest position.
So I've built it up even past even past Netflix, even though
Netflix has a lot more gains. Amazon is starting to move up
with $49,000 in the green. Overall, I have around $140,000
invested in this company. If we zoom out a little bit with
Amazon here just past this quarter and we look into the
future, there's a reason that I'm excited about Amazon and
I'll include Google on this as well.
I know Google reported earnings already, but this will make
sense in a minute. When we look at Amazon and
Google and we compare these two companies to other tech leaders,
companies like Tesla and many of the thoughts that investors
have, I believe that these companies are better positioned
in a couple different ways. For example, when I look at
Amazon, I view Amazon as the best position company in the
world today for humanoid robots. Robots in the human form,
powered by AI, they could feasibly accomplish all sorts of
different tasks. The reason that the humanoid
form is so important is because our world is built around
humans. We're the ones that build it.
So if a robot has the same form factor as us, it can do all
sorts of stuff that humans could do, but it could do it for
longer hours, It could do a lower pay, right?
It does it without having to take healthcare, without taking
vacation, without complaining, without going on strike, and so
on and so forth. The company that could tackle
humanoid robots could feasibly be worth a lot.
Elon Musk continually talks about how the company that
figures out humanoid robots could be worth trillions or have
trillions of dollars in revenue, not just be worth trillions but
have trillions in revenue. And while that's true, I again
believe that Amazon is better positioned than Tesla for
humanoid robots. Now, Tesla likes to share a lot
of things they do in development.
So with their humanoid robot, they have it like making popcorn
and serving people popcorn. It's later revealed that that's
people controlling it. They're controlling it through
like AVR system. So it's not really AI
controlling it yet. It's basically just the robot
and it's being teleoperated. Amazon so far doesn't advertise
their technology in the same way.
They don't have like these type of PR stunts or whatever you
want to call them, different things that Tesla does to excite
investors. Instead, Amazon's reportedly
testing this type of technology silently.
They're testing it behind closed doors.
The publication called The Information actually blew the
lid on this when someone reported to them in Amazon.
The Amazon is preparing to test humanoid robots for delivering
packages. Reportedly what's going on here
is Amazon has a whole warehouse where they've set up different
tests for a a robot that walks. It's bipedal, it walks on 2 feet
and it's trying to pick up a package that's under like 20 lbs
and bring it from a truck to someones doorstep.
And they create all sorts of obstacles and different things
that can happen, different interactions.
And they're trying to test how well it can accomplish that
task. Because if of course they can
figure that out and they can do it at scale, they could replace
feasibly around 400,000 delivery drivers.
That's something that could happen long into the future.
So this gives you the idea that Amazon is testing this out.
They're working on it. Tesla's not the only company
that's trying to test out humanoid robots.
We have big juggernauts in tech like Amazon working on this
problem. But Amazon's also really unique
in the fact that they have an immense amount of employees.
Let's go ahead and just take a look at some of the figures
here. This moves around a little bit,
but Amazon has around 1.56 million employees.
If we look at Tesla and we compare the amount of employees
that Tesla has that they could feasibly automate with humanoid
robots, it's around 125,000. Amazon not only could develop
humanoid robots, but it's a company that will dramatically
benefit in their margins if they're able to pull it off.
They have hundreds of thousands, if not millions of employees.
They could replace or at least reduce the need for all this
physical labor with humanoid robots.
So Amazon has far more to gain than most companies in the world
by cutting down on all this routine repetitive tasks that
these employees do by building out humanoid robots.
And we also know that Amazon is not new to robotics.
They've done this for a long period of time.
They have over reportedly 1,000,000 active robots working
in their facilities. And although they're not
humanoid, they do use artificial intelligence.
They're just in form factors best used to serve their
specific purpose. But they're using all sorts of
different AI. They're not just using pre
programmed rule sets. They're using actual artificial
intelligence to learn and to solve problems.
So Amazon has already been doing AI enabled robots for some time.
They're just going to try to bring this to the humanoid form
factor. So I believe that Amazon is a
better humanoid robot play than Tesla.
And when we look at Google, I view Google as a better robot
taxi play than Tesla. That's why I'm invested in both
of these companies. The different long shot
disruptive tech bets. These companies both have
optionality. They both have the ability to
invest in these given categories, and I believe
they're leading in them. For example, with Google, I
believe that they're best set up with Waymo to capture a huge
portion of the robotaxi network. They're going to be, I think, a
huge player, if not the biggest. Right now, they're by far the
biggest. Sure, Tesla's trying to roll
this out, but so far they have safety drivers in the passenger
seat of every vehicle. Google's doing this without any
safety drivers. So right now we have this
interesting situation where the narrative for Tesla is that it's
going to be the humanoid robot play and it's going to be the
robotaxi play. But you look at Amazon and I
believe they're a better humanoid robot play.
And you look at Google and I believe they're better robotaxi
play. But in the case that I'm wrong
on either of these companies, I'm still in a better situation
with Google. Even if Waymo feasibly went to a
zero, it wouldn't really matter too much for Google's future.
The Other Bets is such an insignificant amount of revenue
right now that Google will be just fine without Waymo.
The company will thrive. The core businesses that you
fall back on if this other bet doesn't work out are
tremendously profitable businesses at a low valuation.
Google set up well whether or not Waymo does well or not.
So even if they lose in robotaxi, my investment in
Google's just fine. We look at Amazon and what
happens if I'm wrong with Amazon and they're really not the
winner in humanoid robots? In that case, I'm still fine
with Amazon. This company, like Google, has
many incredible core businesses to fall back on.
You have first party online sales, which is low margin, but
they're the dominant share of it.
They have this gigantic logistics network that can be
incredibly profitable with just a few margin percent increases.
You have third party seller services.
You have advertising, which they layer upon their first party
sales. You have subscription businesses
through things like Amazon Prime Video.
They're the second biggest in streaming video.
Then of course, you have Amazon Web Services, the biggest cloud
hosting platform. Amazon will be just fine even if
they don't win in Humanoid Robots.
Humanoid robots is just a call option on the company.
It's a different optionality that investors can look forward
to. And even though they're well
positioned for it, they have ample experience in robotics.
They have their own manufacturing plant for robots
that they've made over a million of them in.
They're testing out new humanoid robots.
Even if all of that doesn't work out, the company's still fine.
So in either case, if Amazon doesn't win in humanoid robots,
it's fine. If Google doesn't win in
robotaxi, it's fine. Both of them have incredible
core businesses to fall back upon.
But what happens with the Tesla investor?
If they're not right in robotaxi or humanoid robots, what happens
to that business? You have a car business to fall
back upon, one that has increasing levels of competition
from China and it's losing a tax credit.
The car business is a very tough business.
That's not a great core business to fall back upon.
So Tesla investors are in a situation that they need these
things to work out. Tesla has to have these newer
business models work out because the core business to fall back
upon isn't as strong and the valuation already implies huge
growth in these new revenue segments.
So when I look at either of these companies, when I look at
going into Amazon, there's a lot of optionality going into this
week. Now when we look at this company
and what to watch for going into this earnings, we have AWS and
generative AI growth and capacity.
Obviously for all three of these companies, whether it's Amazon,
Microsoft or Google, the big question is always cloud, how
much is it going to grow, what you know, what is the operating
margins of it? We're going to be looking at
that top of mind going into Amazon.
The previous quarter highlighted AWS robust performance with a
17% year over year revenue increase and multi billion
dollar AI businesses growing at triple digit rates.
So they're separating just normal on premise to cloud and
then the AI products they have as well.
Now when we look at Amazon and we breakdown the growth rate of
Amazon Web Services, this is what it looks like over time
from 2015. It started off at around 60%.
Obviously that hyper growth rate just is not sustainable.
No cloud company can sustain it for long.
So ebbed and flowed for a while, but they they kept it around
2030% for a while. Back in 2021.
It bounced back up to 40% and then it slowed down dramatically
and a lot of people were really concerned around this when it
slowed down to 12%. This is in early 2023.
Now with artificial intelligence, lots more cloud
momentum, it picked back up from around 12% back up to around
18%. Last quarter it was 17%.
And if I have to predict going into this quarter, I think we're
going to get around 17%. I think it'll be around the same
as it was last quarter. So my guess is, and again, I
don't know for sure, but my guess is it's going to be around
17%. Amazon's redesign and its
inbound network and regionalization of fulfillment
centers are driving record delivery speeds while reducing
costs. I don't know if you've noticed
this, but I have more and more items that I order and they are
at my doorstep the very next morning.
I don't know how Amazon's doing it.
Some of them seem like very obscure items.
These aren't like really, you know, it's not like batteries
that I'm ordering. These are a lot of obscure, odd
items. And they still get there a day
in less than a day, sometimes in like 12 hours.
They say that they're placing an emphasis on better inventory
placement and optimizing packaging.
So I think part of how they get things to you so soon is they
basically predict what you're going to order before you order
it. So they just know what you're
going to buy and they put it in a fulfilment center close to
you. Obviously, artificial
intelligence is playing a big role in this.
They say any progress on these fronts can directly affect
operating margins in unpredictable, unpredictable
macroeconomic conditions. So we want to see efficiencies
with the cost structure and the speed of delivery of their
fulfilment. The other one is the tariff
impact and inventory strategy. Now what I've seen over the past
couple of months is the concern that we had about tariffs.
They basically fizzled out to nothing.
We know that President Trump looks at the market.
He's going to respond if the market drops.
We know that he's made a lot of deals already.
There is just a new one with the EU.
And it seems like a lot of this is more in line with reasonable
expectations. I don't think there's going to
be as much panic around tariffs as there was a couple months
ago. I don't worry about tariffs
because they're not an intrinsic part of this company, just like
I don't worry about them with Apple.
It's not the biggest concern. Everyday essentials now
represent a significant and fast growing portion of Amazon's
sales. Now, again, all of this works
together because if the fulfillment network is getting
stuff to you within 12 hours, you may end up ordering stuff
like toilet paper and toothpaste and batteries, stuff that you
would previously pick up at the grocery store.
Now if you can just get it at the click of a button, you get
it within 12 hours, you're going to start ordering more and more
frequently from Amazon. The next thing that we can look
at is advertising. Amazons advertising business
grew 19% year over year last quarter to $13.9 billion in
revenue. The advertising is often viewed
by investors as like this separate business.
We have advertising right here in the green and it's a super
fast growing segment. Let's cross it out here.
It grew 19% right year over year.
We'd like to segment this and silo it off as though
advertising just exists in a vacuum.
But in reality it's part of the first party online sales.
It's part of the third party seller services.
If you can improve the third party seller services similar to
how Met is doing having generative AI ads, that's going
to increase the advertising segment revenue.
If you sell more items on 1st party online sales, that's going
to increase the advertising. So this can't be looked at in a
silo. You have to look at advertising
as part of third party seller services, as part of first party
online sales, and as part of the subscription services with
Amazon Prime Video. All of that plays a role in
advertising. They note here that the
expansion of a full funnel advertising solution across
channel measurement and integration with the company's
Prime Video, Twitch and other properties are important trends.
Investors should pay attention to the continued adoption of
these offerings, competitive positioning against other
digital ad platforms, and the impact of North American
international operating margins, a signal of further monetization
scale in the business overall. There's a lot of things to get
excited about with Amazon. There's a reason why I love
talking about this company, why I love investing so much into
it, why it's my second largest position today.
They are in a very unique position to become a monstrously
huge company. Amazon is one of the few that
has so much optionality baked into the business model.
I can easily see the stock doubling from here.
I've talked about it before when the company was at 16170, that
it's going to 2:20, that it's going to go to 2:40.
We're already on the way there. I think we could see it at 260
to 280 at the end of this year. In this earnings report, I
wouldn't pay attention too much to the after hours trading.
Amazon is too big of a company to try to figure out what really
happened just by a couple metrics being reported.
You have to read over the entire earnings report, look at the
earnings call to figure out how this business is actually
evolving. So I'll be a little bit patient
with Amazon, but I'm very bullish going into this quarter.
Now that's going to wrap up the busiest earnings week of this
season. If you want to see my reaction
and post analysis after these companies report earnings, if
you want to see some of the KPIs and the different visuals of
their new financials, just make sure you subscribe to the
channel. That's all for now.
See you in the next one.