Welcome back everyone today on the Joseph Carlson Show.
We have big tech earnings this week and that comes a day after
Deepseek just rattled the markets.
So yesterday things are a bit crazy.
NVIDIA stock went down 17%. A lot of other companies were
disrupted by the news of this Deepseek LLM, but now investors
have to turn their attention. We have a very busy week this
week. This is a huge portion of the
S&P 500 reporting earnings. For example, if we look at the
Qualtrim earnings calendar here, I've gone ahead and highlighted
what I think are the most significant earnings this week
that we're going to be reviewing in this video.
For example, later today we have Tarbucks.
This one isn't the most important company, but it's one
that has an interesting story. Starbucks has been under a lot
of pressure. They've been struggling because
of their high-priced coffees and Starbucks was able to recruit
the CEO from Chipotle, Brian Nickel, to help turn the company
around. So Brian Nickel has been there
for only a few months, but we're going to see what he plans on
doing now. We also have, starting
Wednesday, the most significant day of the week.
Wednesday, we start the day with ASML reporting earnings.
ASML is one of the companies that was heavily disrupted by
the news of Deepseek, along with companies like TSM and NVIDIA
trading down 14 to 17%. ASML went down around 7%.
It's down around another 2% today.
So this company's been hit. Investors are a little bit
concerned and I'm going to be sharing some thoughts on what to
expect going into Asml's earnings.
Then Wednesday after market close, we have Microsoft, Meta
and Tesla. 3 massive names reporting earnings.
At the same time, Microsoft has the drama of their separation
from open AI. Open AI which is being
leapfrogged by Deepseek. Meta has their open source LLM
called Llama, and then Tesla has a whole different approach to
implementing AI. We're going to be going over
what to expect for all three of these companies earnings.
And then we have Thursday. Thursday's also a very big day.
Thursday we have both MasterCard and Visa reporting earnings,
both market open and market close.
These companies give us a view of how the consumer's doing.
Thursday after market close, Apple's giving their report and
we also have Intel reporting at the same time.
So this is a massive week that will determine the direction the
market goes for weeks to come. And we're going to be going
through all of it. I'll be going through each of
these companies one at a time, each day at a time, Tuesday
through Thursday. So we have lot to get into.
Let's go ahead and jump in now. We start the week off with
today, Tuesday after market close, we have Starbucks
reporting earnings. Now, if we click on Starbucks,
Qualtrim brings up this panel. It has a bunch of supplementary
information about what to expect and the financials and what we
can gain from this if we blow up.
The chart here is that Starbucks does miss earnings a lot and
This is why the former CEO was fired.
They had terrible financial performance, the stores felt
more robotic, and the company didn't attract as many
consumers. And I believe there's a lot of
other factors playing into it. But at the end of the day, when
ACEO doesn't do the job, when the shareholder is not making
money, we're good at firing those CE OS as shareholders and
getting new CE OS in. So now we have Brian Nickel
trying to turn this around. But as you see here, every blue
dot is when they beat their earnings expectation.
Every red dot is when they missed, and you can see that
they're missing around half the time, maybe 40% of the time
they're missing, which is terrible.
You want companies to consistently beat earnings.
When we look at these expectations, they're coming in
under expectations around 30% of the time to around 40% of the
time. When we flip over to the
revenue, this looks even worse. Over the past two years, they've
missed their revenue estimate around 70% of the time.
So when you have this type of awful financial performance of a
company, never meeting expectations, it's time for
change. And that's what Starbucks has
done. Now, like I said, this feature
gives you a lot of financial information about the stock.
And I wanted to introduce a feature that fills you in on the
context, not just the numbers, but what's going on in the
company. And that is this thing right
here, which is what to watch for.
It takes all the information, it feeds it into AI, and then we
get an update on what Starbucks is actually doing.
When we look at this, we see the strategic changes that Starbucks
is implementing, the persistent traffic challenges.
So part of the reason that Starbucks is struggling is
because traffic trends are going down.
They're actually getting fewer customers year over year.
The app had fewer people using it monthly than they did the
quarter prior, which was one of the worst indicators for the
company. Starbucks is trying to turn this
around by offering discounts and deals and incentives to get
people back into the stores. US and China market performance.
the US and China markets face significant challenges with
comparable sales declining 6% and 14%, respectively.
This was just a disaster for this company.
And a big thing that the CEO mentioned, Brian Nickel, that
he's planning on changing for Starbucks is making it feel
overall less transactional. For example, you go into a
Starbucks now and many of the newer ones feel like it's just a
box. You're supposed to go into it,
get your drink and leave. You're not supposed to hang out
or spend any time there. They've made it feel incredibly
transactional when that's not Starbucks history.
Qualtrum mentions that the company is focused on restoring
Starbucks to a welcoming community coffee house, which
includes a reduction in new store counts and an emphasis on
store redesigns. Investors should track the
progress of these turn around efforts, which aim to enhance in
store experience and better align Starbucks core identity.
These are all things that the CEO has been talking about.
So when we look at Starbucks earnings report today, we should
be paying attention to those initiatives.
Is Brian Nickel laser focused on enhancing the experience of the
Starbucks locations? And I also think we should be
tracking their usage, their growth over time.
For example, the 90 day active rewards member is a huge key
performance indicator for this company.
It's been growing overtime steadily for years and then
suddenly it hit a wall a year ago and it's been completely
flat. We need to see this go back up.
This is the the secret bank that Starbucks has.
It's their secret weapon, having 30 + 1,000,000 people use their
app and upload their money to that app.
When I look at Starbucks today, I think it's a decent company
and a decent turn around play. But I'm still concerned about
the fact that there's so many companies competing for their
market share, so many caffeinated beverage companies
that weigh on their pricing power.
So the only company that I have right now that's remotely close
to Starbucks is probably Texas Roadhouse.
This one's, well, it's somewhat close, but it has some key
differences. I think the Texas Roadhouse is
just a bit more unique. There's fewer competitors
offering steaks at a reasonable price.
Then there are companies selling you expensive caffeine.
If I had a bet right now, I think Starbucks earnings will be
OK. Investors expectations are
already rather low leading into them.
Brian Nichol has been pretty good at setting those
expectations. So I think there's room for
Starbucks to paint a better future and hopefully get back on
track, but we'll have to wait and see.
Moving on from Starbucks, we get into Wednesday and this is where
things really heat up before market open.
We have ASML, which of course is one of my new holdings, and this
one's been struggling. It's been struggling to keep
above 600 into the 700 range. I've been buying into the
company new. In fact, it's in my tech
category here. I have ASML that's now a $31,000
position, currently $1700 in the red.
Since buying this one, it's swung back and forth between the
red and the green, as companies typically do when you first buy
in. Now, as we look at this company,
before we dive into what to look for and all the key
developments, I first want to just mention specifically how I
think deep Seek news impacts ASML.
I don't think that the deep seek news is going to have a material
impact on ASML in the long term. If you look at the way the ASML
is situated and you look at this in terms of a hierarchy or a
funnel, ASML sits at like the very top.
They're the company that that no matter what's going on down
here, when you're in the weeds, when you're looking at the
companies that are using the AI, like open AI, they're right at
the bottom. They're they're right at the,
the very bottom of this hierarchy.
They're out in the battlefield. They're fighting these battles,
this competitive environment. They're all competing with each
other, whether it's open AI fighting against XS, Grok
against deep seek, you have all these different companies
battling it out. And then a layer above that you
have the ones that are designing the systems like NVIDIA.
You have AMD battling between each other.
And then above that you have the different manufacturers like
TSM, they're battling it out. But then even above that, which
is quite high on the hierarchy, you have the company that's
really not battling anything. They're just supplying whatever
demand there is for the entire chain, everything involved,
which is ASML. They have no competition.
There's no one doing what they're doing.
So far, China has not been able to make a lithography machine
that can perform the same way. They can make a lithography
machine, but it can't produce as many as quickly with as much
accuracy, so it's basically useless compared to an ASML
machine and ASML and their mote is incredibly wide.
It's much more difficult to manufacture an ASML lithography
machine than it is to spin up an LLM.
So ASML is at the very top of the food chain.
They're not battling with anyone, they're just watching
what's going on across the board.
And no matter who wins in these battles, being fought underneath
ASML is going to be a requirement to make high end
chips. So as long as high end chips are
a thing in the future and they're a thing that grows
overtime, generally speaking, ASML should in turn grow
overtime. And I don't believe that news
coming out of China that there's a deep seek model throws off the
story of ASML. So that's the way that I look at
it. Broadly speaking, to me, this is
a winner regardless of who are the winners below it.
And that's the way I continue to view the company.
Now, when we look at ASML, this is a company that usually beats
on their earnings expectations. They have missed a number of
time, however, on their revenue expectations.
And the first thing we're looking at is cash flow
pressures from this company. They had a huge increase in
demand and then they had a glut in demand.
And this is the cyclical nature of this business.
They sell machines that cost hundreds of millions of dollars.
So even small variants in their orders can cause a huge
difference in cash flows and inventory.
We're trying to see that improve throughout 2025 S The guidance
on their levels of inventory and cash flow is going to be huge.
On this earnings report. ASML is going to give us a
report on their advancements in their technology.
They're always staying on the bleeding edge, years and years
ahead of competitors, so that even if competitors catch up,
they'll catch up to a model that's years behind.
We have the EUV product line, in particular the NXE 3800 system.
ASML has a road map going out like 10 years of their product
development and what they want to be doing.
So they're looking far into the future, and that's what makes
this company very predictable. Now, of course, they're going to
have a lot of questions about the demand in AI.
If Deepseek lowers the demand in AI, how will that impact this
company and its recovery? They've noted in previous
earnings call that they see AI and applications data to energy
transition and electrification as a key driver for the
industry's recovery and growth. So is their forecast changing?
And then finally, with ASML, it's one of the companies that
has some geopolitical risks. This is something you have to
know going into the stock. There's going to be tariffs and
import controls. There's going to be restrictions
with doing business in China from what I can see with this
news of the potential risk of export controls, market dynamics
related to China. I believe a lot of that is
currently priced into the stock. So going into Asml's earnings, I
don't know if this is going to be the earnings that does it.
Maybe they'll fall flat, but I think the risk reward for FML
right now is weighted towards the upside.
Investors are already very gloomy going into these
earnings. The stock has really been hit
over the past year. It trades at multiples far lower
than its recent history, and I think that this company still
has a dominant Moat position. So for me, the dynamics of this
company, the risk reward are attractive enough to make it a
bet and we'll see how it turns out.
Now moving on through Wednesday after market close, we we have 3
huge companies reporting earnings, Microsoft Med and
Tesla. Let's go ahead and start off
left to right with the biggest Microsoft.
This is, it's a big one, Microsoft, it's close to the
biggest company in the world, if not the biggest at at most times
and for good reason. I think that Microsoft is the
poster child for the perfect fundamentals.
Meaning when I look through the fundamentals of a company, they
just don't look much better than this.
In terms of cash balance and ratios and margins, dividend
growth, share buybacks, return of capital policy, earnings per
share, free cash flow, everything looks rather perfect.
That's why this company has a higher credit rating than the US
government. It is one-of-a-kind and
Microsoft has been a core holding in My Portfolio for
quite some time. I really doubled down on the
position and built it into a rather large position when it
traded down in 2022 to around $220 per share.
So now it's it's doing really well.
It's been a a huge success. It's a $73,000 position or
$72,000 with $29,000 of gains in the passive income portfolio.
If I switch over to the Story Fund, I also own this company
across both portfolios, Microsoft is another $22,000
position with $9700.00 of games in the Story Fund as well.
So this one across the board, both portfolios, it's just been
fantastic. In my opinion, it's been one of
the best risk reward companies in the market.
When we look at Microsoft going into these earnings, a couple
things about the financials. If we bring up the history here,
Microsoft is one of the companies that rarely ever
misses on their earnings expectations.
Look at that, they got one miss. Q3 of 2022, they missed.
And if we look at how much they missed is a slight miss, right?
I mean, even if you're nearly perfect, this one just had a
slight miss, not a big deal, and they're right back on track.
We look at the revenue and it's the same, the same quarter.
For whatever reason, Microsoft was off that quarter.
That's not indicative in my opinion.
They almost always beat their earnings and revenue
expectations and I don't believe it's going to be any different
this quarter. They're going to be on the top
and bottom line. The big question will be
regarding their commentary on the deep seek drama and on their
guidance. That's really what's going to
determine Microsoft's performance.
When we look at Microsoft's business, it is a vast expansive
business that's highly profitable in all different
industries, but the most important one by far is their
Azure cloud growth, Microsoft cloud growth and AI driven
revenue expansion. The current quarter is crucial
for observing Microsoft strategic emphasis on the cloud
sector, notably the Microsoft cloud which generated $38.9
billion marking a 22% increase. The investments they're making
in the CapEx and the big investments they're making into
AI already have a return. So you're getting a return on
the investment of AI and that returns so far as $10 billion in
revenue. That's questionable of what
they're grouping into the AI and what they're marking is revenue
there. But either way, Sacha is trying
to say, look, we're already making money with AI.
And Sacha has tried to make clear that he's not in the game
of hyping AI. He really wants real world
applications. He wants to only grow AI and
grow the investments in it to the point that they can get a
reasonable return for their investors.
And I believe he's going to do that.
I think he's going to strike that balance.
That's why he's only expanding their CapEx budget to $80
billion, not 100 billion or 120 when they could easily afford to
do so. The success of the AI driven
products such as Copilot across Microsoft 365, Azure AI and
GitHub represents a significant portion of this growth.
That's the different ways that they're monetizing AI.
The only thing that concerns me about Microsoft's AI strategy is
so far I've heard negative reviews about Copilot.
Just people. A lot of people have complained
about it, saying it's not that great.
Marc Benioff has blasted it. He's the CEO of Salesforce,
comparing it to Clippy. But from what I've heard from
actual Microsoft users, he's not far off.
A lot of people are complaining about it and saying that they're
forcing it into their bundles. Overall, I have a high degree of
confidence that Microsoft's reports going to be predictable.
It's going to be good. I think that Satya is fully on
board. The AI demand will increase over
time. We had a glimpse of that
yesterday when he compared the deep seek drama with the Jevons
paradox. Meaning that even as
efficiencies go up and cost goes down, demand increases.
It doesn't decrease. So we know how Satya stands on
this. He thinks that AI demand is only
increasing and Microsoft is well positioned for that increase in
demand. Now at the same time, we have
Meta that's going to drop their report.
If we look at Meta's earnings history, it's not quite as clean
as Microsoft's, but Meta has a lot of beats and in some cases
they beat their estimates by a lot.
So they're they're a higher variance of beats.
For example, in their earnings estimate of Q 4/20/23, they
posted $4.39 compared to $3.63. That's a massive beat.
Last quarter they posted $6.03 versus $5.25.
So even though they miss sometimes, when they beat, they
beat by a lot and this company has done an excellent job
getting back on track. I thought that Meta's growth was
at least slowing down or stagnating, specifically with
the amount of users on the platform.
There's some time periods where the growth seemed to slow down.
At around 2.8 billion users, it really started to slow and I
thought at that point it was mostly saturated. 2.8 billion
people's a lot of people. How many more people are there
to even use Facebook and Instagram?
But I was wrong. They continue to grow 2.88 to
2.9 to 3 billion now to three-point 13.27 and 3.29.
It just keeps growing. They just keep finding new
people to grow into. This is an area that I just
underestimated the company. I thought they'd hit a
saturation level far sooner than this, and that can happen
sometimes. The world is a very large place.
A lot of people thought that Netflix would run out of
subscribers at 250 million and here they are at 300 million.
So these companies can grow much bigger than you can expect as
Internet based companies. Now, if we look at what to watch
for going into this earnings, we can see the biggest impacts on
the company. And again, right at the top, the
thing that the company's focused on the most, what investors are
looking forward to the most is not the daily active users or
even the earnings per share revenue.
It's commentary, investments and thoughts on the growth in AI and
the Meta AI impact. Investors should monitor the
continued expansion and integration of AI technologies
such as Meta AI and Llama across Meta's operations.
This quarter has shown significant growth in AI driven
interactions and AD creation, resulting in improved user
engagement and higher at performance.
Meta was one of the companies, ironically, that benefited the
most from artificial intelligence.
They improve the accuracy and performance of their advertising
a huge amount. So even though they they didn't
really invent AI, it was open AI that really came up with it
first. Meta used it and implemented it
in their product suite in a way that other companies couldn't.
And This is why I continue to repeat, it's not the company
creating the innovation, it's the companies that are able to
implement it and apply it in the most accretive applications
possible. In this case, Meta had an
incredible use case for artificial intelligence.
The company's commitment to AI infrastructure investment
suggests potential for sustained growth in user engagement, ROI
and AI driven features and tools.
So this is very similar I would say to my investment case for
Amazon, where Amazon has 1000 different ways to benefit from
AI. Meta has a lot of different ways
that are highly accretive to the company.
They're using it in all sorts of ways to get people more addicted
to their products, using their products for longer, lowering
costs, increasing efficiencies. But to do this, they need to
make huge investments outside of just the AI stuff.
Met is a company that still remains at a decent valuation.
the PE ratio based on 26 earnings is a 23 Ford PE.
Instead of 3% trailing free cash flow yield, this company has
around 30% of its free cash flow eaten up by dilution and stock
based comp. But even when we adjust that out
and we look at a free cash flow per share growth rate, they grew
their free cash flow per share at 24.7% over the past five
years. You can't complain about that.
That is way above market rate of free cash flow per share growth.
To put that in perspective, the average of the S&P 500 is around
8%. Meta is showing robust
monetization utility. We're going to see if the growth
in their user base continues. Again, I thought it would Max
out like a couple 100 million users ago, but they continue to
grow and now I'm expecting them to grow in the future.
And then finally, we also have broken out here, but this kind
of goes along with the AI impact in the growth of artificial
intelligence. We have the capital and
infrastructure investments to build out all this AI they need
to make significant investments. And Mark Zuckerberg has recently
said that these investments are going to be way bigger than
people expect. Now normally when we look at
capital and infrastructure investments, investors view that
negatively. They don't like seeing all this
money put into CapEx unless investors are convinced it's
going to result in a positive ROI.
In the case of AI, most investors are convinced of that.
So I believe now even if Mark Zuckerberg says, hey, look,
we're going to increase the amount we're spending on CapEx
by a lot, investors will share that on they like the CapEx
spend because they believe in the story of AI.
Based on the current valuation, the positioning and the
tremendous growth that Meta has seen, I think it's really well
positioned for these earnings. I'm not going to be shocked if
Meta has a really good day if it goes up after earnings and gives
very strong guidance and a strong report.
Now finally, we move on to another big one of the week,
which is Tesla. Tesla's reporting earnings after
market close on Wednesday. And we have here from Tesla
their earnings history. It's another company where it's
a mixed bag of whether or not they beat on their earnings per
share. It's difficult for Tesla to
control the demand for their vehicles when it's sensitive to
interest rates. So they can't control their
earnings per share as much as other companies like Microsoft.
They have a lot of subscription revenue.
Out of the past five quarters, they missed on four of them, but
the most recent one, they beat their earnings per share
estimate by a wide margin. So if I had to guess, I think
they're going to have momentum to the upside.
In the past two years, Tesla's had a very difficult time both
growing their revenue and beating on their revenue
estimates. Now, Tesla's a unique company
where I love the product. I actually really like the
designs of their vehicles. I think it's incredible what
they're accomplishing. I really like the different
business lines, especially their energy business and the network
they're building there. But then I look at some of the
financials and valuations of the stock, and it makes me a little
bit nervous. Now, a couple things that make
me nervous about Tesla's stock is the valuation of the company.
Just on a shorthand basis. When we look at Ford multiples,
Tesla trades at a 95 Ford PE based on 2026 earnings
estimates. Now, I'm not in the camp where I
believe that you should value a company purely based on next
year's multiple. So I don't rule out companies
just because next year's multiple looks expensive.
There's always unique circumstances and context that
needs to be added, but just as a point of data, that is a lot
baked into the price, especially for a company that's mostly
reliant on selling vehicles. Now, the other piece of data
here is that you have the earnings per share and the free
cash flow per share. On a free cash flow per share
basis, for every 395 dollars you're paying to purchase one
share of Tesla, you're getting back $1.00 in cash flow per
year. So you're paying almost $400 to
get back $1.00 in cash flow. When I Scroll down and I look at
the free cash flow on a trailing basis, you see the story painted
out here. Now, again, this is based on the
trailing free cash flows, which is during a low point.
So I think this looks a little bit worse than it actually is on
the trailing metrics. But even if you look at the free
cash flow yield based on 20/22, the $8 billion, Tesla's still
very expensive. So even if their free cash flow
returned to this record high that they had a couple years
ago, it's still expensive. And the free cash flow this year
is likely only going to be around half that, around 4 to $5
billion. So I, I view the company as
pricing in a lot based on the current multiples, the current
cash flows, the current situation of the business.
So that's the first point of concern is that the valuation is
rather high, pricing in a lot. The second point of concern is
that the revenue has been flat for five quarters.
It's the same story, I believe with Apple.
You have a company that has a combination of software and
hardware that is selling a lot of devices or a lot of vehicles
and it's finding it difficult to grow.
So flat revenue has been a challenge for this company and I
want to see that improve. So again, I'm not saying that
Tesla is overvalued because overvalued denotes that you know
the future and you know the company is a bad deal today.
And I can't see the future with any level of certainty.
But based on the metrics, it makes me a little bit nervous.
When we look at Teslas goals and their ambitions, it makes a
little bit more sense what investors are pricing in.
The big thing that investors are looking for is advancements in
autonomy and AI. They want Tesla to build a full
self driving system, become a robotaxi, displace companies
like Uber, displace companies like Lyft, and have Tesla own a
huge portion of that robotaxi market.
So with that long term vision, investors are willing to price
in a lot today and pay a lot for shares today, and Tesla needs to
show advancements towards that goal.
A lot is riding on autonomous vehicles and AI.
Although the broader EV market struggles with profitability,
Tesla's maintain a profitable stance reflecting operational
efficiency. This positive trajectory in
deliveries and profitability could be central to assessing
expectations for the upcoming quarter.
We're going to be looking at the energy storage and business
expansion. This is becoming one of the
bright spots of Tesla. Tesla's always making their
vehicles more cost efficient. They're good at designing them
so they're simple and easy to manufacture.
We're looking at the new models here.
Efforts to lower vehicle cost through initiatives like the
competitive 4680 battery cell production herald the future of
a more affordable model with plans to deliver new cost
effective models starting in the first half of 2025.
We want to hear commentary on this from Elon Musk.
We're going to be looking at AI specifically with robotics and
their plans on implementing AI into their business.
Overall, Tesla's a great company that I think will have a decent
quarter in terms of its fundamentals and progress.
And I'd be excited about the earnings call in the forward
outlook. But Tesla's also a stock that's
priced with a lot priced into it already, and that's the part
that makes me a little bit nervous.
So this one for me is a little bit of a mixed bag.
I'm always a little concerned of how much investors are pricing
in. That personally makes me a
little nervous, but there's some Tesla investors that have their
eye on the bigger price and they're willing to pay the
price. Now.
Next we get to Thursday. Before market open, we have
MasterCard reporting earnings. After market close, we have Visa
reporting earnings. I'm going to group both of these
together because they're so similar.
I currently hold MasterCard and I don't hold Visa.
A lot of people ask me why I own MasterCard and not Visa.
I think they're both winners. I don't really have a strong
opinion of one over the other. The reason that I chose
MasterCard is it has a little bit faster growth, a little bit
lower margin starting point that I think will grow over time and
a little bit more international growth.
I just had a slight preference for MasterCard, but I think both
of them are going to do fantastic.
And in terms of MasterCard and Visa, when we look at the
numbers here and bring up the scoreboard, we have these
companies as companies that rarely ever miss.
If we go down and look at Visa, it's the same story.
They have a clean record with their earnings per share.
They've missed three of the past 20 quarters on revenue and by a
tiny amount. Both of these companies have
their core business, which is their Moat, their main network
effect, and then they have value added services as an additional
business where they have all sorts of informational tools and
software for companies to use to help them out.
Both of these companies are also indicators of the US economy, of
the economy internationally. They have more data than
possibly anyone on the strength of the consumer, how much
they're swiping their cards, how much they're doing online
purchases. MasterCard has all the details
of every bit of spending across almost every vertical.
It's actually incredible the amount of information they have
now based on the results of the big four banks that we saw last
week, I think that MasterCard and Visa will have very strong
earnings. They're going to have strong
earnings with their earnings per share and their revenue growth.
And we know from the banks that the consumer is strong.
Part of the bank's revenue is their credit card portion.
So the banks have a lot of money to be made there as well as
their partners with MasterCard and Visa.
So we already have one big indicator that these earnings
are likely going to be good. My prediction on both of these
companies is it's going to be another quarter of business as
usual. Compounders like these continue
to compound and I don't see any areas of weakness here.
Now, next, we have Apple reporting earnings Thursday
after market close. When we look at Apple, there's a
lot going on with this company. But one thing that Apple is
usually good at is beating their earnings expectation and their
revenue expectations. In the past 20 or so quarters,
they've only missed 1 EPS expectation.
They missed it just by a slight amount, right, $0.10, and they
usually beat by around the same. So if I had a guess with their
earnings expectation, they're going to beat.
They miss a little bit more frequently with the revenue, but
I'd make the same guess that they're going to beat.
Now, Apple's a stock that it doesn't seem to matter what you
think of it, what's going on with the fundamentals.
This company just continues to go up and the stock usually
continues to go up. We look at it today, it's up 4%.
With all this drama with Deep Seek, Apple really wasn't
impacted. It's now back up to $238.
What an incredible company. And again, it doesn't really
matter what you think about this company.
Apple usually finds a way to do well. the PE ratio is rather
high, especially based on its history.
The free cash flow yield is lower than its average history.
So based on the history of the company, the multiples have
increased, the valuation of the company's gone up, and it's also
increased in valuation at a time where the growth has slown.
Now this is the exact opposite of what you typically see.
Usually multiples expand for company when it's seeing
increased levels of growth, but Apple's multiples are going up
as growth is slowing. And that's what makes me a
little bit nervous about the company.
The revenue has been flat for the better part of two years.
We can see the revenue at $386 billion in Q1 of 2022 and $391
billion last quarter, almost no growth over the past couple of
years. Apple's an incredibly profitable
company, so they pile their money into buybacks.
They try to reduce their share count outstanding, which
typically results in an earnings per share growth.
But Even so, even with all their buybacks, they're having
struggle growing their earnings per share.
Regardless, Apple continues to shove more and more money into
buybacks. It's just incredible to see.
If we look at the past five years, they're averaging above
$100 billion return to investors by the combination of dividends
and buybacks every single year. Just an incredible stat from
this company. No one else is doing this this
consistently on this level. Now, I've owned Apple stock for
over 7 years. It's one of the first
investments I made. In fact, it was one of the first
buys I did in this very portfolio.
I bought Apple just a small amount of it.
And I continue to add to that position on the story that
they're going to transition from a hardware company to a software
company, that they're going to build out this entire ecosystem
of software, insurances, applications, all these
different apps like their Apple Music and Apple TV Plus.
And that story has played out over the past five years.
The gains have come in. This has been a company that
I've earned $34,000 in gains, but I've now reduced my position
down to a $10,000 position. When we look at the story with
Apple and we look at what to expect this quarter, of course
investors are going to pay attention to the revenue, the
growth in sales, the amount of revenue in all their various
segments. We want to see revenue start to
grow again. It's been flat for a couple
years. Investors should expect service
revenues to continue growing. I have a couple concerns about
that, primarily with how they earn their revenue through the
App Store. I think it's likely that Apple's
going to see more pressure with their pricing and their fee on
their App Store. But in terms of the most
important part of this company, it's whether or not they can
really utilize AI in a meaningful way to drive revenue
growth, sales and earnings for for this company.
We know about Apple Intelligence and so far the reception has
been mixed. Some people like some features,
but overall I think it's been a little bit disappointing.
We have here that with the roll out of Apple Intelligence and AI
features, Apple is poised to redefine user interactions
across devices. The features available for
iPhone, iPad, the Mac integrated advanced capabilities such as
writing tools, conversational Siri, and ChatGPT integration.
Investors should be keen to know how these innovations could
drive customer upgrades and increased engagement across the
Apple ecosystem. This right here is the primary
thing to look for with this company.
Is Apple really capable of taking AI and integrating it
into every aspect of the ecosystem to make it this
incredible experience, one where you don't want to go outside of
the Apple ecosystem? Now this is a story being sold
and so far it has not been delivered.
Ale is not delivering on customers expectations.
Analysts really need to put pressure on Tim Cook to explain
what's going wrong with the implementation of Chat GT and AI
into the ALE ecosystem because in terms of my expectations,
they certainly have not been fulfilled yet.
The iPhone doesn't feel any better, and in some cases, it
actually feels worse than it did a year ago.
And in terms of what I expect this quarter, I look at Apple as
a fantastic company. It's one that investors
certainly love. They're bidding up the price of
it, and it does have a promising story with the AI ecosystem.
If Apple can really come out with some incredible updates
that 'cause people to go, wow, I don't want to leave the Apple
ecosystem. This is such a unique and
awesome experience, then that would move the needle for this
company. But as of right now, I'm just a
bit nervous. The valuation is high, the
revenue growth is slow, and the promises haven't been kept.
So right now I have a small position.
Now finally, the last one of the week is going to be Intel.
This is a company that's been an unmitigated disaster.
I've warned investors for long periods of time that this
company is it's going through a huge struggle.
The challenges that they face are not ones that CEO's can
easily solve. It is a complex, nuanced
business. It's vast, it's operationally
difficult to execute and they're facing a lot of headwinds.
Even though they're meeting some of their earnings per share
expectations. You can see the trends overtime,
the earnings per share are going down, the revenue is dropping,
the company's losing market share and contracts, and it's
become a huge turn around play. Intel's trying to be a Jack of
all trades and it's not really doing a good job with anyone of
those things. OI, look at this company as
still one that I would avoid. Now with companies that have
depressed stock prices like Intel, it's not uncommon for
them to have a big 10 U day, a big day where they exceed
investors expectations and all of a sudden it looks really
good. But I think that's how a lot of
good investors get suckered into buying poor quality companies.
You're buying into a company that's gone down 70% over the
past five years. So for me, Intel's still in a
void. That's going to be it for this
episode. Hope you enjoyed.
See you in the next one.