1 00:00:00,040 --> 00:00:02,320 Welcome back everyone today on the Joseph Carlson Show. 2 00:00:02,480 --> 00:00:06,200 We have big tech earnings this week and that comes a day after 3 00:00:06,400 --> 00:00:08,400 Deepseek just rattled the markets. 4 00:00:08,680 --> 00:00:10,680 So yesterday things are a bit crazy. 5 00:00:10,680 --> 00:00:14,560 NVIDIA stock went down 17%. A lot of other companies were 6 00:00:14,560 --> 00:00:19,080 disrupted by the news of this Deepseek LLM, but now investors 7 00:00:19,080 --> 00:00:22,080 have to turn their attention. We have a very busy week this 8 00:00:22,080 --> 00:00:24,800 week. This is a huge portion of the 9 00:00:24,800 --> 00:00:28,120 S&P 500 reporting earnings. For example, if we look at the 10 00:00:28,120 --> 00:00:31,360 Qualtrim earnings calendar here, I've gone ahead and highlighted 11 00:00:31,360 --> 00:00:33,880 what I think are the most significant earnings this week 12 00:00:33,880 --> 00:00:36,240 that we're going to be reviewing in this video. 13 00:00:36,640 --> 00:00:39,120 For example, later today we have Tarbucks. 14 00:00:39,640 --> 00:00:42,600 This one isn't the most important company, but it's one 15 00:00:42,600 --> 00:00:46,480 that has an interesting story. Starbucks has been under a lot 16 00:00:46,480 --> 00:00:48,240 of pressure. They've been struggling because 17 00:00:48,240 --> 00:00:51,200 of their high-priced coffees and Starbucks was able to recruit 18 00:00:51,200 --> 00:00:54,600 the CEO from Chipotle, Brian Nickel, to help turn the company 19 00:00:54,600 --> 00:00:56,840 around. So Brian Nickel has been there 20 00:00:56,840 --> 00:00:59,800 for only a few months, but we're going to see what he plans on 21 00:00:59,800 --> 00:01:02,280 doing now. We also have, starting 22 00:01:02,280 --> 00:01:05,080 Wednesday, the most significant day of the week. 23 00:01:05,400 --> 00:01:08,680 Wednesday, we start the day with ASML reporting earnings. 24 00:01:09,040 --> 00:01:12,160 ASML is one of the companies that was heavily disrupted by 25 00:01:12,160 --> 00:01:16,720 the news of Deepseek, along with companies like TSM and NVIDIA 26 00:01:16,720 --> 00:01:21,280 trading down 14 to 17%. ASML went down around 7%. 27 00:01:21,520 --> 00:01:23,840 It's down around another 2% today. 28 00:01:24,320 --> 00:01:26,800 So this company's been hit. Investors are a little bit 29 00:01:26,800 --> 00:01:29,400 concerned and I'm going to be sharing some thoughts on what to 30 00:01:29,400 --> 00:01:31,400 expect going into Asml's earnings. 31 00:01:31,880 --> 00:01:35,600 Then Wednesday after market close, we have Microsoft, Meta 32 00:01:35,600 --> 00:01:38,240 and Tesla. 3 massive names reporting earnings. 33 00:01:38,240 --> 00:01:42,160 At the same time, Microsoft has the drama of their separation 34 00:01:42,160 --> 00:01:44,720 from open AI. Open AI which is being 35 00:01:44,720 --> 00:01:48,800 leapfrogged by Deepseek. Meta has their open source LLM 36 00:01:48,840 --> 00:01:51,720 called Llama, and then Tesla has a whole different approach to 37 00:01:51,720 --> 00:01:53,920 implementing AI. We're going to be going over 38 00:01:53,920 --> 00:01:56,720 what to expect for all three of these companies earnings. 39 00:01:57,240 --> 00:02:00,360 And then we have Thursday. Thursday's also a very big day. 40 00:02:00,720 --> 00:02:04,080 Thursday we have both MasterCard and Visa reporting earnings, 41 00:02:04,240 --> 00:02:06,360 both market open and market close. 42 00:02:06,400 --> 00:02:08,960 These companies give us a view of how the consumer's doing. 43 00:02:09,120 --> 00:02:12,360 Thursday after market close, Apple's giving their report and 44 00:02:12,360 --> 00:02:14,920 we also have Intel reporting at the same time. 45 00:02:14,920 --> 00:02:17,680 So this is a massive week that will determine the direction the 46 00:02:17,680 --> 00:02:20,640 market goes for weeks to come. And we're going to be going 47 00:02:20,640 --> 00:02:22,320 through all of it. I'll be going through each of 48 00:02:22,320 --> 00:02:25,760 these companies one at a time, each day at a time, Tuesday 49 00:02:25,760 --> 00:02:27,800 through Thursday. So we have lot to get into. 50 00:02:27,800 --> 00:02:30,280 Let's go ahead and jump in now. We start the week off with 51 00:02:30,280 --> 00:02:33,480 today, Tuesday after market close, we have Starbucks 52 00:02:33,480 --> 00:02:36,480 reporting earnings. Now, if we click on Starbucks, 53 00:02:36,480 --> 00:02:39,280 Qualtrim brings up this panel. It has a bunch of supplementary 54 00:02:39,280 --> 00:02:42,760 information about what to expect and the financials and what we 55 00:02:42,760 --> 00:02:44,040 can gain from this if we blow up. 56 00:02:44,040 --> 00:02:47,560 The chart here is that Starbucks does miss earnings a lot and 57 00:02:47,560 --> 00:02:50,400 This is why the former CEO was fired. 58 00:02:50,800 --> 00:02:54,760 They had terrible financial performance, the stores felt 59 00:02:55,040 --> 00:02:58,400 more robotic, and the company didn't attract as many 60 00:02:58,400 --> 00:03:00,400 consumers. And I believe there's a lot of 61 00:03:00,400 --> 00:03:03,960 other factors playing into it. But at the end of the day, when 62 00:03:03,960 --> 00:03:07,040 ACEO doesn't do the job, when the shareholder is not making 63 00:03:07,040 --> 00:03:10,480 money, we're good at firing those CE OS as shareholders and 64 00:03:10,680 --> 00:03:13,440 getting new CE OS in. So now we have Brian Nickel 65 00:03:13,440 --> 00:03:16,920 trying to turn this around. But as you see here, every blue 66 00:03:16,920 --> 00:03:19,240 dot is when they beat their earnings expectation. 67 00:03:19,480 --> 00:03:22,160 Every red dot is when they missed, and you can see that 68 00:03:22,160 --> 00:03:26,000 they're missing around half the time, maybe 40% of the time 69 00:03:26,000 --> 00:03:27,560 they're missing, which is terrible. 70 00:03:27,720 --> 00:03:30,000 You want companies to consistently beat earnings. 71 00:03:30,280 --> 00:03:32,800 When we look at these expectations, they're coming in 72 00:03:32,800 --> 00:03:36,680 under expectations around 30% of the time to around 40% of the 73 00:03:36,680 --> 00:03:38,200 time. When we flip over to the 74 00:03:38,200 --> 00:03:41,640 revenue, this looks even worse. Over the past two years, they've 75 00:03:41,640 --> 00:03:44,440 missed their revenue estimate around 70% of the time. 76 00:03:44,840 --> 00:03:47,560 So when you have this type of awful financial performance of a 77 00:03:47,560 --> 00:03:51,040 company, never meeting expectations, it's time for 78 00:03:51,040 --> 00:03:52,760 change. And that's what Starbucks has 79 00:03:52,760 --> 00:03:54,480 done. Now, like I said, this feature 80 00:03:54,480 --> 00:03:56,800 gives you a lot of financial information about the stock. 81 00:03:57,080 --> 00:03:59,240 And I wanted to introduce a feature that fills you in on the 82 00:03:59,240 --> 00:04:02,280 context, not just the numbers, but what's going on in the 83 00:04:02,280 --> 00:04:04,160 company. And that is this thing right 84 00:04:04,160 --> 00:04:05,800 here, which is what to watch for. 85 00:04:06,120 --> 00:04:09,240 It takes all the information, it feeds it into AI, and then we 86 00:04:09,240 --> 00:04:11,840 get an update on what Starbucks is actually doing. 87 00:04:11,840 --> 00:04:14,880 When we look at this, we see the strategic changes that Starbucks 88 00:04:14,880 --> 00:04:18,079 is implementing, the persistent traffic challenges. 89 00:04:18,360 --> 00:04:20,800 So part of the reason that Starbucks is struggling is 90 00:04:20,800 --> 00:04:22,680 because traffic trends are going down. 91 00:04:22,880 --> 00:04:25,560 They're actually getting fewer customers year over year. 92 00:04:25,600 --> 00:04:28,320 The app had fewer people using it monthly than they did the 93 00:04:28,320 --> 00:04:31,400 quarter prior, which was one of the worst indicators for the 94 00:04:31,400 --> 00:04:34,000 company. Starbucks is trying to turn this 95 00:04:34,000 --> 00:04:37,960 around by offering discounts and deals and incentives to get 96 00:04:37,960 --> 00:04:41,720 people back into the stores. US and China market performance. 97 00:04:42,000 --> 00:04:44,640 the US and China markets face significant challenges with 98 00:04:44,640 --> 00:04:48,920 comparable sales declining 6% and 14%, respectively. 99 00:04:49,520 --> 00:04:52,200 This was just a disaster for this company. 100 00:04:52,200 --> 00:04:55,000 And a big thing that the CEO mentioned, Brian Nickel, that 101 00:04:55,000 --> 00:04:58,320 he's planning on changing for Starbucks is making it feel 102 00:04:58,320 --> 00:05:01,240 overall less transactional. For example, you go into a 103 00:05:01,240 --> 00:05:04,440 Starbucks now and many of the newer ones feel like it's just a 104 00:05:04,440 --> 00:05:06,600 box. You're supposed to go into it, 105 00:05:06,600 --> 00:05:09,800 get your drink and leave. You're not supposed to hang out 106 00:05:09,800 --> 00:05:12,600 or spend any time there. They've made it feel incredibly 107 00:05:12,600 --> 00:05:15,520 transactional when that's not Starbucks history. 108 00:05:15,520 --> 00:05:18,240 Qualtrum mentions that the company is focused on restoring 109 00:05:18,240 --> 00:05:21,560 Starbucks to a welcoming community coffee house, which 110 00:05:21,560 --> 00:05:24,720 includes a reduction in new store counts and an emphasis on 111 00:05:24,720 --> 00:05:27,200 store redesigns. Investors should track the 112 00:05:27,200 --> 00:05:30,440 progress of these turn around efforts, which aim to enhance in 113 00:05:30,440 --> 00:05:33,400 store experience and better align Starbucks core identity. 114 00:05:33,680 --> 00:05:36,160 These are all things that the CEO has been talking about. 115 00:05:36,160 --> 00:05:38,840 So when we look at Starbucks earnings report today, we should 116 00:05:38,840 --> 00:05:40,600 be paying attention to those initiatives. 117 00:05:40,920 --> 00:05:44,200 Is Brian Nickel laser focused on enhancing the experience of the 118 00:05:44,200 --> 00:05:46,800 Starbucks locations? And I also think we should be 119 00:05:46,800 --> 00:05:49,880 tracking their usage, their growth over time. 120 00:05:50,080 --> 00:05:54,080 For example, the 90 day active rewards member is a huge key 121 00:05:54,080 --> 00:05:55,840 performance indicator for this company. 122 00:05:56,160 --> 00:05:59,280 It's been growing overtime steadily for years and then 123 00:05:59,280 --> 00:06:02,400 suddenly it hit a wall a year ago and it's been completely 124 00:06:02,400 --> 00:06:04,680 flat. We need to see this go back up. 125 00:06:04,960 --> 00:06:07,200 This is the the secret bank that Starbucks has. 126 00:06:07,520 --> 00:06:11,600 It's their secret weapon, having 30 + 1,000,000 people use their 127 00:06:11,600 --> 00:06:13,720 app and upload their money to that app. 128 00:06:13,720 --> 00:06:16,280 When I look at Starbucks today, I think it's a decent company 129 00:06:16,280 --> 00:06:18,880 and a decent turn around play. But I'm still concerned about 130 00:06:18,880 --> 00:06:21,720 the fact that there's so many companies competing for their 131 00:06:21,720 --> 00:06:24,760 market share, so many caffeinated beverage companies 132 00:06:25,040 --> 00:06:27,040 that weigh on their pricing power. 133 00:06:27,320 --> 00:06:30,800 So the only company that I have right now that's remotely close 134 00:06:30,800 --> 00:06:33,720 to Starbucks is probably Texas Roadhouse. 135 00:06:33,720 --> 00:06:37,400 This one's, well, it's somewhat close, but it has some key 136 00:06:37,400 --> 00:06:40,040 differences. I think the Texas Roadhouse is 137 00:06:40,040 --> 00:06:43,080 just a bit more unique. There's fewer competitors 138 00:06:43,080 --> 00:06:45,360 offering steaks at a reasonable price. 139 00:06:45,440 --> 00:06:48,160 Then there are companies selling you expensive caffeine. 140 00:06:48,200 --> 00:06:50,760 If I had a bet right now, I think Starbucks earnings will be 141 00:06:50,760 --> 00:06:52,840 OK. Investors expectations are 142 00:06:52,840 --> 00:06:54,840 already rather low leading into them. 143 00:06:55,160 --> 00:06:57,480 Brian Nichol has been pretty good at setting those 144 00:06:57,480 --> 00:06:59,640 expectations. So I think there's room for 145 00:06:59,640 --> 00:07:02,720 Starbucks to paint a better future and hopefully get back on 146 00:07:02,720 --> 00:07:04,440 track, but we'll have to wait and see. 147 00:07:04,440 --> 00:07:06,920 Moving on from Starbucks, we get into Wednesday and this is where 148 00:07:06,920 --> 00:07:09,240 things really heat up before market open. 149 00:07:09,240 --> 00:07:14,080 We have ASML, which of course is one of my new holdings, and this 150 00:07:14,080 --> 00:07:16,960 one's been struggling. It's been struggling to keep 151 00:07:16,960 --> 00:07:21,120 above 600 into the 700 range. I've been buying into the 152 00:07:21,120 --> 00:07:23,000 company new. In fact, it's in my tech 153 00:07:23,000 --> 00:07:26,560 category here. I have ASML that's now a $31,000 154 00:07:26,560 --> 00:07:29,440 position, currently $1700 in the red. 155 00:07:29,440 --> 00:07:32,120 Since buying this one, it's swung back and forth between the 156 00:07:32,120 --> 00:07:35,040 red and the green, as companies typically do when you first buy 157 00:07:35,040 --> 00:07:36,600 in. Now, as we look at this company, 158 00:07:36,600 --> 00:07:39,560 before we dive into what to look for and all the key 159 00:07:39,560 --> 00:07:42,520 developments, I first want to just mention specifically how I 160 00:07:42,520 --> 00:07:45,480 think deep Seek news impacts ASML. 161 00:07:45,480 --> 00:07:48,040 I don't think that the deep seek news is going to have a material 162 00:07:48,040 --> 00:07:52,280 impact on ASML in the long term. If you look at the way the ASML 163 00:07:52,280 --> 00:07:56,520 is situated and you look at this in terms of a hierarchy or a 164 00:07:56,520 --> 00:07:59,920 funnel, ASML sits at like the very top. 165 00:08:00,360 --> 00:08:03,880 They're the company that that no matter what's going on down 166 00:08:03,880 --> 00:08:06,360 here, when you're in the weeds, when you're looking at the 167 00:08:06,360 --> 00:08:09,920 companies that are using the AI, like open AI, they're right at 168 00:08:09,920 --> 00:08:11,440 the bottom. They're they're right at the, 169 00:08:11,440 --> 00:08:13,160 the very bottom of this hierarchy. 170 00:08:13,440 --> 00:08:15,720 They're out in the battlefield. They're fighting these battles, 171 00:08:15,720 --> 00:08:18,640 this competitive environment. They're all competing with each 172 00:08:18,640 --> 00:08:23,040 other, whether it's open AI fighting against XS, Grok 173 00:08:23,040 --> 00:08:25,880 against deep seek, you have all these different companies 174 00:08:25,880 --> 00:08:28,600 battling it out. And then a layer above that you 175 00:08:28,600 --> 00:08:31,520 have the ones that are designing the systems like NVIDIA. 176 00:08:31,720 --> 00:08:33,960 You have AMD battling between each other. 177 00:08:34,400 --> 00:08:37,440 And then above that you have the different manufacturers like 178 00:08:37,440 --> 00:08:41,600 TSM, they're battling it out. But then even above that, which 179 00:08:41,600 --> 00:08:45,000 is quite high on the hierarchy, you have the company that's 180 00:08:45,000 --> 00:08:48,920 really not battling anything. They're just supplying whatever 181 00:08:48,920 --> 00:08:52,960 demand there is for the entire chain, everything involved, 182 00:08:53,240 --> 00:08:55,960 which is ASML. They have no competition. 183 00:08:56,560 --> 00:08:58,480 There's no one doing what they're doing. 184 00:08:58,800 --> 00:09:02,600 So far, China has not been able to make a lithography machine 185 00:09:02,600 --> 00:09:05,480 that can perform the same way. They can make a lithography 186 00:09:05,480 --> 00:09:09,880 machine, but it can't produce as many as quickly with as much 187 00:09:09,880 --> 00:09:13,360 accuracy, so it's basically useless compared to an ASML 188 00:09:13,360 --> 00:09:17,640 machine and ASML and their mote is incredibly wide. 189 00:09:17,880 --> 00:09:21,440 It's much more difficult to manufacture an ASML lithography 190 00:09:21,440 --> 00:09:23,800 machine than it is to spin up an LLM. 191 00:09:23,840 --> 00:09:26,240 So ASML is at the very top of the food chain. 192 00:09:26,280 --> 00:09:28,880 They're not battling with anyone, they're just watching 193 00:09:28,880 --> 00:09:30,720 what's going on across the board. 194 00:09:30,720 --> 00:09:34,200 And no matter who wins in these battles, being fought underneath 195 00:09:34,480 --> 00:09:36,760 ASML is going to be a requirement to make high end 196 00:09:36,760 --> 00:09:39,480 chips. So as long as high end chips are 197 00:09:39,480 --> 00:09:42,520 a thing in the future and they're a thing that grows 198 00:09:42,520 --> 00:09:46,120 overtime, generally speaking, ASML should in turn grow 199 00:09:46,120 --> 00:09:48,680 overtime. And I don't believe that news 200 00:09:48,680 --> 00:09:52,200 coming out of China that there's a deep seek model throws off the 201 00:09:52,200 --> 00:09:55,200 story of ASML. So that's the way that I look at 202 00:09:55,200 --> 00:09:57,360 it. Broadly speaking, to me, this is 203 00:09:57,360 --> 00:10:00,400 a winner regardless of who are the winners below it. 204 00:10:00,840 --> 00:10:03,120 And that's the way I continue to view the company. 205 00:10:03,280 --> 00:10:05,880 Now, when we look at ASML, this is a company that usually beats 206 00:10:05,880 --> 00:10:08,760 on their earnings expectations. They have missed a number of 207 00:10:08,760 --> 00:10:10,880 time, however, on their revenue expectations. 208 00:10:11,080 --> 00:10:12,800 And the first thing we're looking at is cash flow 209 00:10:12,800 --> 00:10:15,760 pressures from this company. They had a huge increase in 210 00:10:15,760 --> 00:10:17,680 demand and then they had a glut in demand. 211 00:10:18,000 --> 00:10:20,360 And this is the cyclical nature of this business. 212 00:10:20,800 --> 00:10:23,480 They sell machines that cost hundreds of millions of dollars. 213 00:10:23,720 --> 00:10:27,040 So even small variants in their orders can cause a huge 214 00:10:27,040 --> 00:10:28,880 difference in cash flows and inventory. 215 00:10:29,280 --> 00:10:33,960 We're trying to see that improve throughout 2025 S The guidance 216 00:10:33,960 --> 00:10:37,960 on their levels of inventory and cash flow is going to be huge. 217 00:10:38,000 --> 00:10:40,240 On this earnings report. ASML is going to give us a 218 00:10:40,240 --> 00:10:42,600 report on their advancements in their technology. 219 00:10:42,600 --> 00:10:45,720 They're always staying on the bleeding edge, years and years 220 00:10:45,720 --> 00:10:49,360 ahead of competitors, so that even if competitors catch up, 221 00:10:49,600 --> 00:10:51,920 they'll catch up to a model that's years behind. 222 00:10:52,240 --> 00:10:57,240 We have the EUV product line, in particular the NXE 3800 system. 223 00:10:57,240 --> 00:11:00,760 ASML has a road map going out like 10 years of their product 224 00:11:00,760 --> 00:11:02,800 development and what they want to be doing. 225 00:11:02,800 --> 00:11:05,880 So they're looking far into the future, and that's what makes 226 00:11:05,880 --> 00:11:08,160 this company very predictable. Now, of course, they're going to 227 00:11:08,160 --> 00:11:10,320 have a lot of questions about the demand in AI. 228 00:11:10,640 --> 00:11:14,360 If Deepseek lowers the demand in AI, how will that impact this 229 00:11:14,360 --> 00:11:17,640 company and its recovery? They've noted in previous 230 00:11:17,640 --> 00:11:21,640 earnings call that they see AI and applications data to energy 231 00:11:21,640 --> 00:11:25,040 transition and electrification as a key driver for the 232 00:11:25,040 --> 00:11:28,520 industry's recovery and growth. So is their forecast changing? 233 00:11:28,560 --> 00:11:30,920 And then finally, with ASML, it's one of the companies that 234 00:11:30,920 --> 00:11:33,680 has some geopolitical risks. This is something you have to 235 00:11:33,680 --> 00:11:36,720 know going into the stock. There's going to be tariffs and 236 00:11:36,960 --> 00:11:39,160 import controls. There's going to be restrictions 237 00:11:39,160 --> 00:11:42,280 with doing business in China from what I can see with this 238 00:11:42,280 --> 00:11:45,960 news of the potential risk of export controls, market dynamics 239 00:11:45,960 --> 00:11:48,600 related to China. I believe a lot of that is 240 00:11:48,600 --> 00:11:52,400 currently priced into the stock. So going into Asml's earnings, I 241 00:11:52,400 --> 00:11:54,400 don't know if this is going to be the earnings that does it. 242 00:11:54,400 --> 00:11:58,000 Maybe they'll fall flat, but I think the risk reward for FML 243 00:11:58,000 --> 00:12:00,360 right now is weighted towards the upside. 244 00:12:00,640 --> 00:12:03,400 Investors are already very gloomy going into these 245 00:12:03,400 --> 00:12:05,200 earnings. The stock has really been hit 246 00:12:05,200 --> 00:12:08,280 over the past year. It trades at multiples far lower 247 00:12:08,280 --> 00:12:11,320 than its recent history, and I think that this company still 248 00:12:11,320 --> 00:12:14,680 has a dominant Moat position. So for me, the dynamics of this 249 00:12:14,680 --> 00:12:17,520 company, the risk reward are attractive enough to make it a 250 00:12:17,520 --> 00:12:19,240 bet and we'll see how it turns out. 251 00:12:19,480 --> 00:12:22,920 Now moving on through Wednesday after market close, we we have 3 252 00:12:22,920 --> 00:12:25,920 huge companies reporting earnings, Microsoft Med and 253 00:12:25,920 --> 00:12:27,680 Tesla. Let's go ahead and start off 254 00:12:27,680 --> 00:12:30,080 left to right with the biggest Microsoft. 255 00:12:30,720 --> 00:12:34,920 This is, it's a big one, Microsoft, it's close to the 256 00:12:34,920 --> 00:12:37,920 biggest company in the world, if not the biggest at at most times 257 00:12:38,440 --> 00:12:41,600 and for good reason. I think that Microsoft is the 258 00:12:41,600 --> 00:12:44,040 poster child for the perfect fundamentals. 259 00:12:44,320 --> 00:12:47,280 Meaning when I look through the fundamentals of a company, they 260 00:12:47,280 --> 00:12:48,880 just don't look much better than this. 261 00:12:49,440 --> 00:12:53,360 In terms of cash balance and ratios and margins, dividend 262 00:12:53,360 --> 00:12:57,840 growth, share buybacks, return of capital policy, earnings per 263 00:12:57,840 --> 00:13:02,040 share, free cash flow, everything looks rather perfect. 264 00:13:02,320 --> 00:13:05,640 That's why this company has a higher credit rating than the US 265 00:13:05,640 --> 00:13:08,080 government. It is one-of-a-kind and 266 00:13:08,080 --> 00:13:11,240 Microsoft has been a core holding in My Portfolio for 267 00:13:11,240 --> 00:13:13,880 quite some time. I really doubled down on the 268 00:13:13,880 --> 00:13:17,080 position and built it into a rather large position when it 269 00:13:17,080 --> 00:13:20,960 traded down in 2022 to around $220 per share. 270 00:13:21,400 --> 00:13:22,840 So now it's it's doing really well. 271 00:13:22,840 --> 00:13:26,880 It's been a a huge success. It's a $73,000 position or 272 00:13:26,880 --> 00:13:31,880 $72,000 with $29,000 of gains in the passive income portfolio. 273 00:13:31,880 --> 00:13:34,960 If I switch over to the Story Fund, I also own this company 274 00:13:34,960 --> 00:13:38,920 across both portfolios, Microsoft is another $22,000 275 00:13:38,920 --> 00:13:43,680 position with $9700.00 of games in the Story Fund as well. 276 00:13:44,000 --> 00:13:47,200 So this one across the board, both portfolios, it's just been 277 00:13:47,200 --> 00:13:49,400 fantastic. In my opinion, it's been one of 278 00:13:49,400 --> 00:13:51,600 the best risk reward companies in the market. 279 00:13:52,280 --> 00:13:55,400 When we look at Microsoft going into these earnings, a couple 280 00:13:55,400 --> 00:13:58,240 things about the financials. If we bring up the history here, 281 00:13:58,640 --> 00:14:02,360 Microsoft is one of the companies that rarely ever 282 00:14:02,360 --> 00:14:04,680 misses on their earnings expectations. 283 00:14:05,160 --> 00:14:10,160 Look at that, they got one miss. Q3 of 2022, they missed. 284 00:14:10,160 --> 00:14:13,280 And if we look at how much they missed is a slight miss, right? 285 00:14:13,360 --> 00:14:16,280 I mean, even if you're nearly perfect, this one just had a 286 00:14:16,280 --> 00:14:19,320 slight miss, not a big deal, and they're right back on track. 287 00:14:19,640 --> 00:14:23,080 We look at the revenue and it's the same, the same quarter. 288 00:14:23,400 --> 00:14:26,280 For whatever reason, Microsoft was off that quarter. 289 00:14:26,840 --> 00:14:28,960 That's not indicative in my opinion. 290 00:14:29,000 --> 00:14:31,520 They almost always beat their earnings and revenue 291 00:14:31,520 --> 00:14:34,160 expectations and I don't believe it's going to be any different 292 00:14:34,160 --> 00:14:36,120 this quarter. They're going to be on the top 293 00:14:36,120 --> 00:14:38,280 and bottom line. The big question will be 294 00:14:38,360 --> 00:14:42,440 regarding their commentary on the deep seek drama and on their 295 00:14:42,440 --> 00:14:44,000 guidance. That's really what's going to 296 00:14:44,000 --> 00:14:46,160 determine Microsoft's performance. 297 00:14:46,160 --> 00:14:50,040 When we look at Microsoft's business, it is a vast expansive 298 00:14:50,040 --> 00:14:52,400 business that's highly profitable in all different 299 00:14:52,400 --> 00:14:56,160 industries, but the most important one by far is their 300 00:14:56,160 --> 00:14:59,840 Azure cloud growth, Microsoft cloud growth and AI driven 301 00:14:59,840 --> 00:15:02,600 revenue expansion. The current quarter is crucial 302 00:15:02,600 --> 00:15:05,520 for observing Microsoft strategic emphasis on the cloud 303 00:15:05,520 --> 00:15:09,560 sector, notably the Microsoft cloud which generated $38.9 304 00:15:09,560 --> 00:15:13,880 billion marking a 22% increase. The investments they're making 305 00:15:13,880 --> 00:15:16,320 in the CapEx and the big investments they're making into 306 00:15:16,400 --> 00:15:20,840 AI already have a return. So you're getting a return on 307 00:15:21,120 --> 00:15:25,480 the investment of AI and that returns so far as $10 billion in 308 00:15:25,480 --> 00:15:27,280 revenue. That's questionable of what 309 00:15:27,280 --> 00:15:30,720 they're grouping into the AI and what they're marking is revenue 310 00:15:30,720 --> 00:15:32,920 there. But either way, Sacha is trying 311 00:15:32,920 --> 00:15:35,760 to say, look, we're already making money with AI. 312 00:15:36,280 --> 00:15:39,320 And Sacha has tried to make clear that he's not in the game 313 00:15:39,320 --> 00:15:41,880 of hyping AI. He really wants real world 314 00:15:41,880 --> 00:15:45,560 applications. He wants to only grow AI and 315 00:15:45,560 --> 00:15:48,200 grow the investments in it to the point that they can get a 316 00:15:48,200 --> 00:15:50,160 reasonable return for their investors. 317 00:15:50,640 --> 00:15:52,040 And I believe he's going to do that. 318 00:15:52,040 --> 00:15:53,600 I think he's going to strike that balance. 319 00:15:53,840 --> 00:15:56,600 That's why he's only expanding their CapEx budget to $80 320 00:15:56,600 --> 00:16:01,120 billion, not 100 billion or 120 when they could easily afford to 321 00:16:01,120 --> 00:16:03,440 do so. The success of the AI driven 322 00:16:03,440 --> 00:16:08,240 products such as Copilot across Microsoft 365, Azure AI and 323 00:16:08,240 --> 00:16:11,000 GitHub represents a significant portion of this growth. 324 00:16:11,000 --> 00:16:13,360 That's the different ways that they're monetizing AI. 325 00:16:13,760 --> 00:16:17,440 The only thing that concerns me about Microsoft's AI strategy is 326 00:16:17,440 --> 00:16:20,760 so far I've heard negative reviews about Copilot. 327 00:16:21,360 --> 00:16:23,240 Just people. A lot of people have complained 328 00:16:23,240 --> 00:16:25,240 about it, saying it's not that great. 329 00:16:25,640 --> 00:16:28,760 Marc Benioff has blasted it. He's the CEO of Salesforce, 330 00:16:28,960 --> 00:16:31,920 comparing it to Clippy. But from what I've heard from 331 00:16:31,920 --> 00:16:34,760 actual Microsoft users, he's not far off. 332 00:16:34,760 --> 00:16:36,840 A lot of people are complaining about it and saying that they're 333 00:16:36,840 --> 00:16:40,400 forcing it into their bundles. Overall, I have a high degree of 334 00:16:40,400 --> 00:16:43,160 confidence that Microsoft's reports going to be predictable. 335 00:16:43,320 --> 00:16:46,360 It's going to be good. I think that Satya is fully on 336 00:16:46,360 --> 00:16:48,480 board. The AI demand will increase over 337 00:16:48,480 --> 00:16:50,120 time. We had a glimpse of that 338 00:16:50,120 --> 00:16:53,920 yesterday when he compared the deep seek drama with the Jevons 339 00:16:53,920 --> 00:16:55,840 paradox. Meaning that even as 340 00:16:55,840 --> 00:17:00,000 efficiencies go up and cost goes down, demand increases. 341 00:17:00,000 --> 00:17:03,360 It doesn't decrease. So we know how Satya stands on 342 00:17:03,360 --> 00:17:05,720 this. He thinks that AI demand is only 343 00:17:05,720 --> 00:17:09,400 increasing and Microsoft is well positioned for that increase in 344 00:17:09,400 --> 00:17:11,359 demand. Now at the same time, we have 345 00:17:11,359 --> 00:17:13,319 Meta that's going to drop their report. 346 00:17:13,680 --> 00:17:17,040 If we look at Meta's earnings history, it's not quite as clean 347 00:17:17,040 --> 00:17:21,280 as Microsoft's, but Meta has a lot of beats and in some cases 348 00:17:21,280 --> 00:17:23,000 they beat their estimates by a lot. 349 00:17:23,319 --> 00:17:25,359 So they're they're a higher variance of beats. 350 00:17:25,359 --> 00:17:29,360 For example, in their earnings estimate of Q 4/20/23, they 351 00:17:29,360 --> 00:17:35,000 posted $4.39 compared to $3.63. That's a massive beat. 352 00:17:35,440 --> 00:17:40,400 Last quarter they posted $6.03 versus $5.25. 353 00:17:40,800 --> 00:17:44,360 So even though they miss sometimes, when they beat, they 354 00:17:44,360 --> 00:17:47,520 beat by a lot and this company has done an excellent job 355 00:17:47,520 --> 00:17:50,360 getting back on track. I thought that Meta's growth was 356 00:17:50,360 --> 00:17:54,200 at least slowing down or stagnating, specifically with 357 00:17:54,200 --> 00:17:56,480 the amount of users on the platform. 358 00:17:56,520 --> 00:17:59,040 There's some time periods where the growth seemed to slow down. 359 00:17:59,040 --> 00:18:03,040 At around 2.8 billion users, it really started to slow and I 360 00:18:03,040 --> 00:18:06,440 thought at that point it was mostly saturated. 2.8 billion 361 00:18:06,440 --> 00:18:09,160 people's a lot of people. How many more people are there 362 00:18:09,160 --> 00:18:11,240 to even use Facebook and Instagram? 363 00:18:11,840 --> 00:18:15,160 But I was wrong. They continue to grow 2.88 to 364 00:18:15,160 --> 00:18:21,320 2.9 to 3 billion now to three-point 13.27 and 3.29. 365 00:18:21,640 --> 00:18:23,960 It just keeps growing. They just keep finding new 366 00:18:23,960 --> 00:18:26,440 people to grow into. This is an area that I just 367 00:18:26,440 --> 00:18:28,560 underestimated the company. I thought they'd hit a 368 00:18:28,560 --> 00:18:31,920 saturation level far sooner than this, and that can happen 369 00:18:31,920 --> 00:18:34,120 sometimes. The world is a very large place. 370 00:18:34,400 --> 00:18:36,480 A lot of people thought that Netflix would run out of 371 00:18:36,480 --> 00:18:39,920 subscribers at 250 million and here they are at 300 million. 372 00:18:39,920 --> 00:18:43,720 So these companies can grow much bigger than you can expect as 373 00:18:43,720 --> 00:18:46,320 Internet based companies. Now, if we look at what to watch 374 00:18:46,320 --> 00:18:49,160 for going into this earnings, we can see the biggest impacts on 375 00:18:49,160 --> 00:18:51,640 the company. And again, right at the top, the 376 00:18:51,640 --> 00:18:54,400 thing that the company's focused on the most, what investors are 377 00:18:54,400 --> 00:18:57,960 looking forward to the most is not the daily active users or 378 00:18:57,960 --> 00:18:59,720 even the earnings per share revenue. 379 00:19:00,120 --> 00:19:04,560 It's commentary, investments and thoughts on the growth in AI and 380 00:19:04,560 --> 00:19:07,960 the Meta AI impact. Investors should monitor the 381 00:19:07,960 --> 00:19:10,800 continued expansion and integration of AI technologies 382 00:19:11,040 --> 00:19:14,280 such as Meta AI and Llama across Meta's operations. 383 00:19:14,520 --> 00:19:17,720 This quarter has shown significant growth in AI driven 384 00:19:17,720 --> 00:19:21,280 interactions and AD creation, resulting in improved user 385 00:19:21,280 --> 00:19:23,120 engagement and higher at performance. 386 00:19:23,520 --> 00:19:27,320 Meta was one of the companies, ironically, that benefited the 387 00:19:27,320 --> 00:19:29,280 most from artificial intelligence. 388 00:19:29,920 --> 00:19:33,600 They improve the accuracy and performance of their advertising 389 00:19:34,040 --> 00:19:36,720 a huge amount. So even though they they didn't 390 00:19:36,720 --> 00:19:40,320 really invent AI, it was open AI that really came up with it 391 00:19:40,320 --> 00:19:42,960 first. Meta used it and implemented it 392 00:19:43,040 --> 00:19:46,000 in their product suite in a way that other companies couldn't. 393 00:19:46,320 --> 00:19:49,720 And This is why I continue to repeat, it's not the company 394 00:19:49,720 --> 00:19:52,440 creating the innovation, it's the companies that are able to 395 00:19:52,440 --> 00:19:55,800 implement it and apply it in the most accretive applications 396 00:19:55,800 --> 00:19:58,400 possible. In this case, Meta had an 397 00:19:58,400 --> 00:20:01,040 incredible use case for artificial intelligence. 398 00:20:01,600 --> 00:20:04,480 The company's commitment to AI infrastructure investment 399 00:20:04,480 --> 00:20:08,600 suggests potential for sustained growth in user engagement, ROI 400 00:20:08,880 --> 00:20:11,040 and AI driven features and tools. 401 00:20:11,600 --> 00:20:15,360 So this is very similar I would say to my investment case for 402 00:20:15,360 --> 00:20:19,520 Amazon, where Amazon has 1000 different ways to benefit from 403 00:20:19,680 --> 00:20:22,440 AI. Meta has a lot of different ways 404 00:20:22,440 --> 00:20:24,240 that are highly accretive to the company. 405 00:20:24,680 --> 00:20:27,760 They're using it in all sorts of ways to get people more addicted 406 00:20:27,760 --> 00:20:30,640 to their products, using their products for longer, lowering 407 00:20:30,640 --> 00:20:33,840 costs, increasing efficiencies. But to do this, they need to 408 00:20:33,840 --> 00:20:36,800 make huge investments outside of just the AI stuff. 409 00:20:36,800 --> 00:20:39,920 Met is a company that still remains at a decent valuation. 410 00:20:40,480 --> 00:20:44,200 the PE ratio based on 26 earnings is a 23 Ford PE. 411 00:20:44,440 --> 00:20:47,520 Instead of 3% trailing free cash flow yield, this company has 412 00:20:47,520 --> 00:20:51,000 around 30% of its free cash flow eaten up by dilution and stock 413 00:20:51,000 --> 00:20:53,280 based comp. But even when we adjust that out 414 00:20:53,280 --> 00:20:56,360 and we look at a free cash flow per share growth rate, they grew 415 00:20:56,360 --> 00:21:01,400 their free cash flow per share at 24.7% over the past five 416 00:21:01,400 --> 00:21:03,240 years. You can't complain about that. 417 00:21:03,320 --> 00:21:06,640 That is way above market rate of free cash flow per share growth. 418 00:21:07,080 --> 00:21:10,840 To put that in perspective, the average of the S&P 500 is around 419 00:21:10,880 --> 00:21:12,920 8%. Meta is showing robust 420 00:21:12,920 --> 00:21:15,480 monetization utility. We're going to see if the growth 421 00:21:15,480 --> 00:21:18,640 in their user base continues. Again, I thought it would Max 422 00:21:18,640 --> 00:21:21,880 out like a couple 100 million users ago, but they continue to 423 00:21:21,880 --> 00:21:24,440 grow and now I'm expecting them to grow in the future. 424 00:21:24,560 --> 00:21:27,320 And then finally, we also have broken out here, but this kind 425 00:21:27,320 --> 00:21:30,680 of goes along with the AI impact in the growth of artificial 426 00:21:30,680 --> 00:21:33,000 intelligence. We have the capital and 427 00:21:33,000 --> 00:21:36,880 infrastructure investments to build out all this AI they need 428 00:21:36,880 --> 00:21:40,840 to make significant investments. And Mark Zuckerberg has recently 429 00:21:40,840 --> 00:21:43,880 said that these investments are going to be way bigger than 430 00:21:43,880 --> 00:21:46,440 people expect. Now normally when we look at 431 00:21:46,440 --> 00:21:49,680 capital and infrastructure investments, investors view that 432 00:21:49,680 --> 00:21:51,760 negatively. They don't like seeing all this 433 00:21:51,760 --> 00:21:55,000 money put into CapEx unless investors are convinced it's 434 00:21:55,000 --> 00:21:57,000 going to result in a positive ROI. 435 00:21:57,400 --> 00:22:00,800 In the case of AI, most investors are convinced of that. 436 00:22:01,120 --> 00:22:04,440 So I believe now even if Mark Zuckerberg says, hey, look, 437 00:22:04,600 --> 00:22:06,680 we're going to increase the amount we're spending on CapEx 438 00:22:06,680 --> 00:22:10,160 by a lot, investors will share that on they like the CapEx 439 00:22:10,160 --> 00:22:12,400 spend because they believe in the story of AI. 440 00:22:12,480 --> 00:22:14,840 Based on the current valuation, the positioning and the 441 00:22:14,840 --> 00:22:17,960 tremendous growth that Meta has seen, I think it's really well 442 00:22:17,960 --> 00:22:20,480 positioned for these earnings. I'm not going to be shocked if 443 00:22:20,480 --> 00:22:23,640 Meta has a really good day if it goes up after earnings and gives 444 00:22:23,640 --> 00:22:25,680 very strong guidance and a strong report. 445 00:22:25,760 --> 00:22:27,840 Now finally, we move on to another big one of the week, 446 00:22:27,840 --> 00:22:30,720 which is Tesla. Tesla's reporting earnings after 447 00:22:30,720 --> 00:22:34,520 market close on Wednesday. And we have here from Tesla 448 00:22:34,520 --> 00:22:37,640 their earnings history. It's another company where it's 449 00:22:37,640 --> 00:22:40,040 a mixed bag of whether or not they beat on their earnings per 450 00:22:40,040 --> 00:22:41,880 share. It's difficult for Tesla to 451 00:22:41,880 --> 00:22:44,480 control the demand for their vehicles when it's sensitive to 452 00:22:44,480 --> 00:22:46,520 interest rates. So they can't control their 453 00:22:46,520 --> 00:22:49,400 earnings per share as much as other companies like Microsoft. 454 00:22:49,400 --> 00:22:50,960 They have a lot of subscription revenue. 455 00:22:50,960 --> 00:22:53,480 Out of the past five quarters, they missed on four of them, but 456 00:22:53,480 --> 00:22:55,640 the most recent one, they beat their earnings per share 457 00:22:55,640 --> 00:22:58,560 estimate by a wide margin. So if I had to guess, I think 458 00:22:58,560 --> 00:23:00,240 they're going to have momentum to the upside. 459 00:23:00,320 --> 00:23:03,080 In the past two years, Tesla's had a very difficult time both 460 00:23:03,080 --> 00:23:05,680 growing their revenue and beating on their revenue 461 00:23:05,680 --> 00:23:07,800 estimates. Now, Tesla's a unique company 462 00:23:07,800 --> 00:23:09,960 where I love the product. I actually really like the 463 00:23:09,960 --> 00:23:12,240 designs of their vehicles. I think it's incredible what 464 00:23:12,240 --> 00:23:14,280 they're accomplishing. I really like the different 465 00:23:14,280 --> 00:23:17,000 business lines, especially their energy business and the network 466 00:23:17,000 --> 00:23:18,760 they're building there. But then I look at some of the 467 00:23:18,760 --> 00:23:21,560 financials and valuations of the stock, and it makes me a little 468 00:23:21,560 --> 00:23:23,160 bit nervous. Now, a couple things that make 469 00:23:23,160 --> 00:23:26,360 me nervous about Tesla's stock is the valuation of the company. 470 00:23:26,600 --> 00:23:29,160 Just on a shorthand basis. When we look at Ford multiples, 471 00:23:29,440 --> 00:23:33,920 Tesla trades at a 95 Ford PE based on 2026 earnings 472 00:23:33,920 --> 00:23:36,040 estimates. Now, I'm not in the camp where I 473 00:23:36,040 --> 00:23:38,800 believe that you should value a company purely based on next 474 00:23:38,800 --> 00:23:41,040 year's multiple. So I don't rule out companies 475 00:23:41,040 --> 00:23:43,360 just because next year's multiple looks expensive. 476 00:23:43,640 --> 00:23:45,960 There's always unique circumstances and context that 477 00:23:45,960 --> 00:23:49,920 needs to be added, but just as a point of data, that is a lot 478 00:23:49,920 --> 00:23:53,080 baked into the price, especially for a company that's mostly 479 00:23:53,080 --> 00:23:56,640 reliant on selling vehicles. Now, the other piece of data 480 00:23:56,640 --> 00:23:59,880 here is that you have the earnings per share and the free 481 00:23:59,880 --> 00:24:02,640 cash flow per share. On a free cash flow per share 482 00:24:02,640 --> 00:24:08,040 basis, for every 395 dollars you're paying to purchase one 483 00:24:08,040 --> 00:24:11,840 share of Tesla, you're getting back $1.00 in cash flow per 484 00:24:11,840 --> 00:24:15,120 year. So you're paying almost $400 to 485 00:24:15,120 --> 00:24:18,280 get back $1.00 in cash flow. When I Scroll down and I look at 486 00:24:18,280 --> 00:24:21,800 the free cash flow on a trailing basis, you see the story painted 487 00:24:21,800 --> 00:24:24,360 out here. Now, again, this is based on the 488 00:24:24,360 --> 00:24:27,040 trailing free cash flows, which is during a low point. 489 00:24:27,400 --> 00:24:30,400 So I think this looks a little bit worse than it actually is on 490 00:24:30,400 --> 00:24:32,880 the trailing metrics. But even if you look at the free 491 00:24:32,880 --> 00:24:38,240 cash flow yield based on 20/22, the $8 billion, Tesla's still 492 00:24:38,240 --> 00:24:40,800 very expensive. So even if their free cash flow 493 00:24:40,800 --> 00:24:43,840 returned to this record high that they had a couple years 494 00:24:43,840 --> 00:24:47,360 ago, it's still expensive. And the free cash flow this year 495 00:24:47,360 --> 00:24:51,040 is likely only going to be around half that, around 4 to $5 496 00:24:51,040 --> 00:24:54,000 billion. So I, I view the company as 497 00:24:54,000 --> 00:24:57,280 pricing in a lot based on the current multiples, the current 498 00:24:57,280 --> 00:24:59,840 cash flows, the current situation of the business. 499 00:25:00,080 --> 00:25:02,960 So that's the first point of concern is that the valuation is 500 00:25:02,960 --> 00:25:06,000 rather high, pricing in a lot. The second point of concern is 501 00:25:06,000 --> 00:25:08,200 that the revenue has been flat for five quarters. 502 00:25:08,480 --> 00:25:10,800 It's the same story, I believe with Apple. 503 00:25:11,080 --> 00:25:13,400 You have a company that has a combination of software and 504 00:25:13,400 --> 00:25:17,000 hardware that is selling a lot of devices or a lot of vehicles 505 00:25:17,000 --> 00:25:18,560 and it's finding it difficult to grow. 506 00:25:18,560 --> 00:25:21,360 So flat revenue has been a challenge for this company and I 507 00:25:21,360 --> 00:25:23,560 want to see that improve. So again, I'm not saying that 508 00:25:23,560 --> 00:25:26,800 Tesla is overvalued because overvalued denotes that you know 509 00:25:26,800 --> 00:25:29,640 the future and you know the company is a bad deal today. 510 00:25:29,920 --> 00:25:32,440 And I can't see the future with any level of certainty. 511 00:25:32,640 --> 00:25:35,360 But based on the metrics, it makes me a little bit nervous. 512 00:25:35,640 --> 00:25:39,360 When we look at Teslas goals and their ambitions, it makes a 513 00:25:39,360 --> 00:25:41,680 little bit more sense what investors are pricing in. 514 00:25:42,200 --> 00:25:45,120 The big thing that investors are looking for is advancements in 515 00:25:45,120 --> 00:25:48,960 autonomy and AI. They want Tesla to build a full 516 00:25:48,960 --> 00:25:53,160 self driving system, become a robotaxi, displace companies 517 00:25:53,160 --> 00:25:56,720 like Uber, displace companies like Lyft, and have Tesla own a 518 00:25:56,720 --> 00:25:59,040 huge portion of that robotaxi market. 519 00:25:59,520 --> 00:26:02,640 So with that long term vision, investors are willing to price 520 00:26:02,640 --> 00:26:06,240 in a lot today and pay a lot for shares today, and Tesla needs to 521 00:26:06,240 --> 00:26:08,320 show advancements towards that goal. 522 00:26:08,680 --> 00:26:11,600 A lot is riding on autonomous vehicles and AI. 523 00:26:11,680 --> 00:26:14,720 Although the broader EV market struggles with profitability, 524 00:26:14,960 --> 00:26:18,240 Tesla's maintain a profitable stance reflecting operational 525 00:26:18,240 --> 00:26:20,440 efficiency. This positive trajectory in 526 00:26:20,440 --> 00:26:23,240 deliveries and profitability could be central to assessing 527 00:26:23,240 --> 00:26:24,760 expectations for the upcoming quarter. 528 00:26:24,760 --> 00:26:26,920 We're going to be looking at the energy storage and business 529 00:26:26,920 --> 00:26:28,840 expansion. This is becoming one of the 530 00:26:28,840 --> 00:26:31,400 bright spots of Tesla. Tesla's always making their 531 00:26:31,400 --> 00:26:34,760 vehicles more cost efficient. They're good at designing them 532 00:26:34,760 --> 00:26:37,680 so they're simple and easy to manufacture. 533 00:26:37,880 --> 00:26:39,440 We're looking at the new models here. 534 00:26:39,840 --> 00:26:42,600 Efforts to lower vehicle cost through initiatives like the 535 00:26:42,600 --> 00:26:47,000 competitive 4680 battery cell production herald the future of 536 00:26:47,000 --> 00:26:50,360 a more affordable model with plans to deliver new cost 537 00:26:50,360 --> 00:26:53,000 effective models starting in the first half of 2025. 538 00:26:53,120 --> 00:26:55,240 We want to hear commentary on this from Elon Musk. 539 00:26:55,240 --> 00:26:58,280 We're going to be looking at AI specifically with robotics and 540 00:26:58,280 --> 00:27:01,200 their plans on implementing AI into their business. 541 00:27:01,480 --> 00:27:04,240 Overall, Tesla's a great company that I think will have a decent 542 00:27:04,240 --> 00:27:06,600 quarter in terms of its fundamentals and progress. 543 00:27:07,000 --> 00:27:09,400 And I'd be excited about the earnings call in the forward 544 00:27:09,400 --> 00:27:11,720 outlook. But Tesla's also a stock that's 545 00:27:11,720 --> 00:27:14,920 priced with a lot priced into it already, and that's the part 546 00:27:14,920 --> 00:27:16,280 that makes me a little bit nervous. 547 00:27:16,600 --> 00:27:18,600 So this one for me is a little bit of a mixed bag. 548 00:27:18,600 --> 00:27:21,640 I'm always a little concerned of how much investors are pricing 549 00:27:21,640 --> 00:27:23,280 in. That personally makes me a 550 00:27:23,280 --> 00:27:26,240 little nervous, but there's some Tesla investors that have their 551 00:27:26,240 --> 00:27:28,200 eye on the bigger price and they're willing to pay the 552 00:27:28,200 --> 00:27:29,160 price. Now. 553 00:27:29,160 --> 00:27:31,840 Next we get to Thursday. Before market open, we have 554 00:27:31,840 --> 00:27:35,520 MasterCard reporting earnings. After market close, we have Visa 555 00:27:35,520 --> 00:27:37,600 reporting earnings. I'm going to group both of these 556 00:27:37,600 --> 00:27:39,040 together because they're so similar. 557 00:27:39,280 --> 00:27:42,120 I currently hold MasterCard and I don't hold Visa. 558 00:27:42,120 --> 00:27:45,480 A lot of people ask me why I own MasterCard and not Visa. 559 00:27:45,960 --> 00:27:48,440 I think they're both winners. I don't really have a strong 560 00:27:48,440 --> 00:27:51,000 opinion of one over the other. The reason that I chose 561 00:27:51,000 --> 00:27:54,000 MasterCard is it has a little bit faster growth, a little bit 562 00:27:54,000 --> 00:27:56,960 lower margin starting point that I think will grow over time and 563 00:27:57,240 --> 00:27:58,800 a little bit more international growth. 564 00:27:59,080 --> 00:28:01,960 I just had a slight preference for MasterCard, but I think both 565 00:28:01,960 --> 00:28:03,320 of them are going to do fantastic. 566 00:28:03,320 --> 00:28:05,800 And in terms of MasterCard and Visa, when we look at the 567 00:28:05,800 --> 00:28:08,840 numbers here and bring up the scoreboard, we have these 568 00:28:08,840 --> 00:28:11,840 companies as companies that rarely ever miss. 569 00:28:12,000 --> 00:28:14,480 If we go down and look at Visa, it's the same story. 570 00:28:14,480 --> 00:28:16,560 They have a clean record with their earnings per share. 571 00:28:16,720 --> 00:28:19,960 They've missed three of the past 20 quarters on revenue and by a 572 00:28:19,960 --> 00:28:21,720 tiny amount. Both of these companies have 573 00:28:21,720 --> 00:28:24,320 their core business, which is their Moat, their main network 574 00:28:24,320 --> 00:28:27,640 effect, and then they have value added services as an additional 575 00:28:27,640 --> 00:28:31,040 business where they have all sorts of informational tools and 576 00:28:31,040 --> 00:28:33,640 software for companies to use to help them out. 577 00:28:33,800 --> 00:28:37,440 Both of these companies are also indicators of the US economy, of 578 00:28:37,440 --> 00:28:40,400 the economy internationally. They have more data than 579 00:28:40,400 --> 00:28:44,000 possibly anyone on the strength of the consumer, how much 580 00:28:44,000 --> 00:28:46,400 they're swiping their cards, how much they're doing online 581 00:28:46,400 --> 00:28:48,840 purchases. MasterCard has all the details 582 00:28:48,840 --> 00:28:52,320 of every bit of spending across almost every vertical. 583 00:28:52,320 --> 00:28:54,800 It's actually incredible the amount of information they have 584 00:28:54,840 --> 00:28:57,880 now based on the results of the big four banks that we saw last 585 00:28:57,880 --> 00:29:00,840 week, I think that MasterCard and Visa will have very strong 586 00:29:00,840 --> 00:29:02,320 earnings. They're going to have strong 587 00:29:02,320 --> 00:29:04,600 earnings with their earnings per share and their revenue growth. 588 00:29:04,880 --> 00:29:07,280 And we know from the banks that the consumer is strong. 589 00:29:07,600 --> 00:29:10,480 Part of the bank's revenue is their credit card portion. 590 00:29:10,880 --> 00:29:14,040 So the banks have a lot of money to be made there as well as 591 00:29:14,040 --> 00:29:15,880 their partners with MasterCard and Visa. 592 00:29:16,040 --> 00:29:18,440 So we already have one big indicator that these earnings 593 00:29:18,440 --> 00:29:20,600 are likely going to be good. My prediction on both of these 594 00:29:20,600 --> 00:29:23,400 companies is it's going to be another quarter of business as 595 00:29:23,400 --> 00:29:25,800 usual. Compounders like these continue 596 00:29:25,800 --> 00:29:28,800 to compound and I don't see any areas of weakness here. 597 00:29:28,840 --> 00:29:31,200 Now, next, we have Apple reporting earnings Thursday 598 00:29:31,200 --> 00:29:34,040 after market close. When we look at Apple, there's a 599 00:29:34,040 --> 00:29:37,040 lot going on with this company. But one thing that Apple is 600 00:29:37,040 --> 00:29:40,080 usually good at is beating their earnings expectation and their 601 00:29:40,080 --> 00:29:43,000 revenue expectations. In the past 20 or so quarters, 602 00:29:43,000 --> 00:29:45,120 they've only missed 1 EPS expectation. 603 00:29:45,600 --> 00:29:48,960 They missed it just by a slight amount, right, $0.10, and they 604 00:29:48,960 --> 00:29:51,840 usually beat by around the same. So if I had a guess with their 605 00:29:51,840 --> 00:29:53,880 earnings expectation, they're going to beat. 606 00:29:53,920 --> 00:29:56,200 They miss a little bit more frequently with the revenue, but 607 00:29:56,200 --> 00:29:57,800 I'd make the same guess that they're going to beat. 608 00:29:58,000 --> 00:30:01,280 Now, Apple's a stock that it doesn't seem to matter what you 609 00:30:01,280 --> 00:30:03,760 think of it, what's going on with the fundamentals. 610 00:30:03,960 --> 00:30:07,040 This company just continues to go up and the stock usually 611 00:30:07,040 --> 00:30:10,280 continues to go up. We look at it today, it's up 4%. 612 00:30:10,680 --> 00:30:13,520 With all this drama with Deep Seek, Apple really wasn't 613 00:30:13,520 --> 00:30:16,760 impacted. It's now back up to $238. 614 00:30:17,040 --> 00:30:19,680 What an incredible company. And again, it doesn't really 615 00:30:19,680 --> 00:30:21,760 matter what you think about this company. 616 00:30:21,760 --> 00:30:25,480 Apple usually finds a way to do well. the PE ratio is rather 617 00:30:25,480 --> 00:30:27,600 high, especially based on its history. 618 00:30:27,800 --> 00:30:30,520 The free cash flow yield is lower than its average history. 619 00:30:31,000 --> 00:30:34,840 So based on the history of the company, the multiples have 620 00:30:34,840 --> 00:30:38,040 increased, the valuation of the company's gone up, and it's also 621 00:30:38,040 --> 00:30:41,880 increased in valuation at a time where the growth has slown. 622 00:30:42,600 --> 00:30:45,920 Now this is the exact opposite of what you typically see. 623 00:30:46,240 --> 00:30:49,440 Usually multiples expand for company when it's seeing 624 00:30:49,440 --> 00:30:53,520 increased levels of growth, but Apple's multiples are going up 625 00:30:53,680 --> 00:30:56,280 as growth is slowing. And that's what makes me a 626 00:30:56,280 --> 00:30:57,680 little bit nervous about the company. 627 00:30:58,080 --> 00:31:01,560 The revenue has been flat for the better part of two years. 628 00:31:01,640 --> 00:31:08,120 We can see the revenue at $386 billion in Q1 of 2022 and $391 629 00:31:08,120 --> 00:31:12,520 billion last quarter, almost no growth over the past couple of 630 00:31:12,520 --> 00:31:14,800 years. Apple's an incredibly profitable 631 00:31:14,800 --> 00:31:17,600 company, so they pile their money into buybacks. 632 00:31:17,840 --> 00:31:20,720 They try to reduce their share count outstanding, which 633 00:31:20,720 --> 00:31:22,960 typically results in an earnings per share growth. 634 00:31:23,520 --> 00:31:26,160 But Even so, even with all their buybacks, they're having 635 00:31:26,160 --> 00:31:28,280 struggle growing their earnings per share. 636 00:31:28,400 --> 00:31:31,320 Regardless, Apple continues to shove more and more money into 637 00:31:31,320 --> 00:31:33,400 buybacks. It's just incredible to see. 638 00:31:33,680 --> 00:31:37,120 If we look at the past five years, they're averaging above 639 00:31:37,120 --> 00:31:41,360 $100 billion return to investors by the combination of dividends 640 00:31:41,360 --> 00:31:45,120 and buybacks every single year. Just an incredible stat from 641 00:31:45,120 --> 00:31:47,680 this company. No one else is doing this this 642 00:31:47,680 --> 00:31:51,400 consistently on this level. Now, I've owned Apple stock for 643 00:31:51,400 --> 00:31:53,520 over 7 years. It's one of the first 644 00:31:53,520 --> 00:31:56,240 investments I made. In fact, it was one of the first 645 00:31:56,240 --> 00:31:58,800 buys I did in this very portfolio. 646 00:31:59,200 --> 00:32:01,080 I bought Apple just a small amount of it. 647 00:32:01,360 --> 00:32:04,440 And I continue to add to that position on the story that 648 00:32:04,440 --> 00:32:07,880 they're going to transition from a hardware company to a software 649 00:32:07,880 --> 00:32:10,920 company, that they're going to build out this entire ecosystem 650 00:32:10,920 --> 00:32:14,280 of software, insurances, applications, all these 651 00:32:14,280 --> 00:32:17,600 different apps like their Apple Music and Apple TV Plus. 652 00:32:17,960 --> 00:32:20,400 And that story has played out over the past five years. 653 00:32:20,680 --> 00:32:23,120 The gains have come in. This has been a company that 654 00:32:23,120 --> 00:32:27,000 I've earned $34,000 in gains, but I've now reduced my position 655 00:32:27,000 --> 00:32:29,680 down to a $10,000 position. When we look at the story with 656 00:32:29,680 --> 00:32:33,160 Apple and we look at what to expect this quarter, of course 657 00:32:33,160 --> 00:32:35,400 investors are going to pay attention to the revenue, the 658 00:32:35,520 --> 00:32:38,200 growth in sales, the amount of revenue in all their various 659 00:32:38,200 --> 00:32:40,600 segments. We want to see revenue start to 660 00:32:40,600 --> 00:32:42,480 grow again. It's been flat for a couple 661 00:32:42,480 --> 00:32:44,680 years. Investors should expect service 662 00:32:44,680 --> 00:32:47,960 revenues to continue growing. I have a couple concerns about 663 00:32:47,960 --> 00:32:50,400 that, primarily with how they earn their revenue through the 664 00:32:50,480 --> 00:32:52,960 App Store. I think it's likely that Apple's 665 00:32:52,960 --> 00:32:55,880 going to see more pressure with their pricing and their fee on 666 00:32:55,880 --> 00:32:57,480 their App Store. But in terms of the most 667 00:32:57,480 --> 00:32:59,840 important part of this company, it's whether or not they can 668 00:32:59,840 --> 00:33:03,600 really utilize AI in a meaningful way to drive revenue 669 00:33:03,600 --> 00:33:06,200 growth, sales and earnings for for this company. 670 00:33:06,440 --> 00:33:09,800 We know about Apple Intelligence and so far the reception has 671 00:33:09,800 --> 00:33:12,800 been mixed. Some people like some features, 672 00:33:12,800 --> 00:33:15,120 but overall I think it's been a little bit disappointing. 673 00:33:15,480 --> 00:33:18,800 We have here that with the roll out of Apple Intelligence and AI 674 00:33:18,800 --> 00:33:22,400 features, Apple is poised to redefine user interactions 675 00:33:22,400 --> 00:33:24,840 across devices. The features available for 676 00:33:24,840 --> 00:33:29,200 iPhone, iPad, the Mac integrated advanced capabilities such as 677 00:33:29,200 --> 00:33:33,480 writing tools, conversational Siri, and ChatGPT integration. 678 00:33:33,880 --> 00:33:36,560 Investors should be keen to know how these innovations could 679 00:33:36,560 --> 00:33:39,960 drive customer upgrades and increased engagement across the 680 00:33:39,960 --> 00:33:43,120 Apple ecosystem. This right here is the primary 681 00:33:43,120 --> 00:33:45,240 thing to look for with this company. 682 00:33:45,360 --> 00:33:48,240 Is Apple really capable of taking AI and integrating it 683 00:33:48,240 --> 00:33:51,320 into every aspect of the ecosystem to make it this 684 00:33:51,320 --> 00:33:54,480 incredible experience, one where you don't want to go outside of 685 00:33:54,480 --> 00:33:58,280 the Apple ecosystem? Now this is a story being sold 686 00:33:58,600 --> 00:34:01,160 and so far it has not been delivered. 687 00:34:01,840 --> 00:34:04,960 Ale is not delivering on customers expectations. 688 00:34:05,040 --> 00:34:07,840 Analysts really need to put pressure on Tim Cook to explain 689 00:34:07,840 --> 00:34:11,920 what's going wrong with the implementation of Chat GT and AI 690 00:34:11,920 --> 00:34:15,600 into the ALE ecosystem because in terms of my expectations, 691 00:34:15,840 --> 00:34:17,800 they certainly have not been fulfilled yet. 692 00:34:17,920 --> 00:34:20,880 The iPhone doesn't feel any better, and in some cases, it 693 00:34:20,880 --> 00:34:22,600 actually feels worse than it did a year ago. 694 00:34:22,600 --> 00:34:26,080 And in terms of what I expect this quarter, I look at Apple as 695 00:34:26,080 --> 00:34:28,639 a fantastic company. It's one that investors 696 00:34:28,639 --> 00:34:30,880 certainly love. They're bidding up the price of 697 00:34:30,880 --> 00:34:34,800 it, and it does have a promising story with the AI ecosystem. 698 00:34:35,080 --> 00:34:38,080 If Apple can really come out with some incredible updates 699 00:34:38,520 --> 00:34:41,639 that 'cause people to go, wow, I don't want to leave the Apple 700 00:34:41,639 --> 00:34:43,639 ecosystem. This is such a unique and 701 00:34:43,639 --> 00:34:46,360 awesome experience, then that would move the needle for this 702 00:34:46,360 --> 00:34:48,760 company. But as of right now, I'm just a 703 00:34:48,760 --> 00:34:50,800 bit nervous. The valuation is high, the 704 00:34:50,800 --> 00:34:53,840 revenue growth is slow, and the promises haven't been kept. 705 00:34:53,960 --> 00:34:55,960 So right now I have a small position. 706 00:34:56,080 --> 00:34:58,600 Now finally, the last one of the week is going to be Intel. 707 00:34:58,960 --> 00:35:02,200 This is a company that's been an unmitigated disaster. 708 00:35:02,320 --> 00:35:04,760 I've warned investors for long periods of time that this 709 00:35:04,760 --> 00:35:07,440 company is it's going through a huge struggle. 710 00:35:07,760 --> 00:35:10,640 The challenges that they face are not ones that CEO's can 711 00:35:10,640 --> 00:35:13,040 easily solve. It is a complex, nuanced 712 00:35:13,040 --> 00:35:15,920 business. It's vast, it's operationally 713 00:35:15,920 --> 00:35:18,920 difficult to execute and they're facing a lot of headwinds. 714 00:35:19,280 --> 00:35:21,360 Even though they're meeting some of their earnings per share 715 00:35:21,360 --> 00:35:24,200 expectations. You can see the trends overtime, 716 00:35:24,440 --> 00:35:28,120 the earnings per share are going down, the revenue is dropping, 717 00:35:28,320 --> 00:35:31,080 the company's losing market share and contracts, and it's 718 00:35:31,080 --> 00:35:34,360 become a huge turn around play. Intel's trying to be a Jack of 719 00:35:34,360 --> 00:35:37,440 all trades and it's not really doing a good job with anyone of 720 00:35:37,440 --> 00:35:39,480 those things. OI, look at this company as 721 00:35:39,480 --> 00:35:42,360 still one that I would avoid. Now with companies that have 722 00:35:42,360 --> 00:35:45,520 depressed stock prices like Intel, it's not uncommon for 723 00:35:45,520 --> 00:35:50,440 them to have a big 10 U day, a big day where they exceed 724 00:35:50,440 --> 00:35:53,240 investors expectations and all of a sudden it looks really 725 00:35:53,240 --> 00:35:54,920 good. But I think that's how a lot of 726 00:35:54,920 --> 00:35:58,280 good investors get suckered into buying poor quality companies. 727 00:35:58,400 --> 00:36:01,240 You're buying into a company that's gone down 70% over the 728 00:36:01,240 --> 00:36:03,760 past five years. So for me, Intel's still in a 729 00:36:03,760 --> 00:36:05,040 void. That's going to be it for this 730 00:36:05,040 --> 00:36:06,360 episode. Hope you enjoyed. 731 00:36:06,400 --> 00:36:07,240 See you in the next one.