Welcome back everyone today on the Joseph Carlson Show.
Now, it's true that last week we had a lot of companies report
earnings that are massive companies.
We've already heard from companies like Netflix and
Google and Amazon and Microsoft, many of the biggest companies in
the world. But this week we still have a
lot of important companies reporting earnings, including
Palantir today. Is it true that Palantir is the
most overvalued company of all time that's ever existed all
throughout humanity? Or is there more to Palantir?
We'll be looking at that one. It's reporting earnings.
Aftermarket closed today and then throughout the rest of the
week, we have more and more companies reporting earnings,
including Uber and AMD and Spotify and Shopify and DoorDash
and FICO and Texas Roadhouse and even Duolingo, one of the most
viral investments I've ever made.
Duolingo's all anybody wants to talk about, but I'll be telling
you what's really going to be happening with Duolingo's
earnings this week. Now, outside of the earnings
reports coming up this week, we also have big news that Tom Lee
went on to CNBC. He reiterated that he believes
the market's going to continue upwards this week aggressively.
He believes the bull market will continue.
We also have news that Amazon, one of my largest positions,
they announced the big deal, the Open AI deal.
And then finally we have the fail of the week, which in this
case is the leader of Open AI, Sam Altman.
In an interview, one of his biggest investors, one of his
biggest advocates and cheerleaders, Brad Gerstner,
asked a very simple, benign question, simply just asked how
open AI can fulfill on some of its obligations.
And Sam Altman reacted sharply and defensively, rebuking him
and challenging him to short the stock.
We'll be going over this reaction, looking at the video
and why it's the fail of the week.
So we have a ton to get to, a lot to go through in this
episode. And we kick things off today by
looking at the earnings calendar.
Now, if you haven't already, you can try out Qualtrm.
You can sign up directly on qualtrm.com.
And part of this, you get an earnings calendar that shows you
Monday through Friday before market open, after market close.
You can actually filter it by your watch list.
For example, I can say companies that are my top considerations,
these are the ones that I'm looking at.
Or I can say companies that I currently own, these are the
ones that I'm looking at, right? There's lots of controls on this
and it tells you a lot of information about the stock.
In this case, we're going to be looking at Palantir.
Palantir is the first major company of interest to report
this week and it's reporting today.
When I look at Palantir, there are two different stories going
on with Palantir. One of the stories is that this
company is just amazing. It it really is.
You don't see a lot of companies with the revenue line looking
like this on 1/4 to quarter basis.
It seems strong acceleration over the past year and it was
already growing quickly. So when you have a company
already growing really fast and then it starts to accelerate
faster where it's the fastest growing company in the S&P 500
by this revenue size, that's notable and that's why investors
are in on this company. The revenue growth is absolutely
insane and it's driven by strong volume of customers.
You have the US customer count going from 161 to 485.
That's not a lot of customers, but these are very big
meaningful customers. When they sign up a customer,
they get a lot of revenue out of them, every single customer.
It's actually incredible. When we look at any of the other
metrics and I will smooth some of these out because the cash
flows are a little bit more volatile.
But if we look at the free cash flow, this is also the free cash
flow line of a very strong fast growing company.
The free cash flow is less than $200 million in 2022.
The free cash flow is 1.7 billion as of the trailing 12
months of last quarter and it's likely going to continue to
grow. The earnings per share are
growing rather quick from six cents to $0.30 over just the
past year or so. So earnings per share is up, the
cash is up, the margins continue to go up.
So Palantir is a world class AI company, huge customer count
growth and with each customer they're making a fortune in
revenue and they offer a product that is the most hot product in
one of the most hot bull markets.
The other part of the story is the valuation.
The valuation of Palantir is the valuation that I've never seen
before in the stock market ever. And not only have I not seen it
in the past 10 years of me looking at this type of stuff
every single day, but I've also just never heard of it.
I, I've never read about it in a history book.
I've never seen an instance like this ever.
This is genuinely, frankly, new territory.
Palantir investors are stepping in brand new territory with this
valuation. And by that I mean a company
that has over a $400 billion market cap.
So this isn't some $5 billion company trading with wild
expectations. This isn't some little Unicorn.
This is a company almost as big as Netflix, bigger than
Salesforce. It's big it it's a top 20
company, 400 plus billion dollar market cap with a price to sales
of 134 trailing on a forward basis.
The price to sales is about 90. That's something I've just never
seen before ever. And this is being driven by a
strong combination of the fundamentals of the company,
which are again they're phenomenal and the momentum.
Now if we look at a visual hair, this is what Palantir looks like
when you map out the PE ratio from left to right, it's one of
the highest PES in the market. Again, only Tesla and Boeing
really coming close. But then when you map it out on
a price to forward-looking sales and Palantir is nowhere close to
anyone else. It's trading at the most premium
valuation of any company in the market.
So we have these two sides of Palantir stock, an amazing
company with incredible fundamentals, but we also have a
valuation that prices in a ton of momentum and that puts this
stock in a very difficult spot for me.
This stock, even though the the fundamentals are incredible,
it's far too reliant on far too fast of growth.
I think it's too reliant on it. If you look at Palantir, I
believe if there's any deceleration, any weakness
whatsoever, the stock is is going to be in a lot of trouble.
That's what you you have baked into it.
Now Palantir investors may be right.
Maybe it continues to just accelerate then outperform,
maybe becomes a trillion dollar plus company.
That could be the case, but I just think there's more safe
bets, ones that are a little bit more conservative that don't
rely on a company already pricing in so much future
expectations. Even though I think it's going
to be on its revenue and its earnings, it's not one that I'm
interested in jumping in now at this valuation.
Now if we go back to the weekly calendar, Palantir is really the
only meaningful 1 today. Then we get into Tuesday before
market open, we have Shopify, Uber and Spotify.
Let's go ahead and start off with Shopify here.
This is one that I've had on the watch list for some time.
I really like Shopify. I I really do love this stock.
There's a lot more to it than people think.
People just view Shopify as an online retail hosting website.
Like if you want to start a little business and you want to
sell some merchandise you can sell on Shopify.
That's a very outdated view of this company.
Shopify is hosting massive amounts of sales with large
companies selling big meaningful products.
It has become the go to place for self hosted do it yourself
businesses. Unless you want to sell on
Amazon or walmart.com, you're likely going to be selling on
Shopify. What we'll see with Shopify is
this company continue to talk about how they're growing
generally all throughout the world, including international
and European expansion. They have a lot of momentum in
that category. Growth and adoption of AI
powered commerce tools, recent launches like Universal Cart,
checkout kit, the expansion of Sidekick store builder tools
represent Shopify's push into AI driven commerce.
So they're doing the same thing as every other company,
intertwining their entire company with AI driven products
and services. There's also a big push for
Shopify to get into bigger companies, success in upmarket
and new industry verticals. Shopify's strategy to attract a
larger enterprise merchants and diversify into industries such
as B to B industrial and non traditional retail was
emphasized as a growth lever. So as investors, we should be
looking at whether or not they're they're gaining in that
goal of getting these larger enterprise companies as well as
not even business to customer. They're doing business to
business websites now, performance of merchant
solutions, payments and shop pay.
This is the part that I'm probably the most excited about
with Shopify. This is under Shopify capital.
So they're also growing again as like a company that's like a
PayPal or for or another payment company right within Shopify,
which I think is a really good place to go.
I'd give Shopify about a 70% chance of beating on their
revenue and earnings. Now.
Next up, we have Uber, one of the most popular retail stocks.
This is one that a lot of investors are write about
reporting earnings. At the same time, this is one
that I've always had a positive view on Uber.
I gave it a 90% chance of being a really good investment. 10% is
that Tesla, Waymo, all those companies start to crowd out
Uber and that kind of overshadows the story.
What I like, like I thought that's a minority chance.
That's not likely to happen. I think far more than likely
Uber will find a way to just evolve and fill in the cracks
from what Waymo and and Tesla and Zooks and the other robo
taxis do. For example, Waymo today just
announced that they're opening up in 3 new cities.
Now. We haven't really heard how
that's going to affect Uber, but we're at the point where Uber
investors just aren't concerned about it.
They're not too concerned about the ever growing presence of
Waymo and the expansion of Waymo.
That part of the story is largely baked into the stock
price. For me personally, I do like
Uber stock. I like it a lot.
And again, part of the reason I haven't bought it is it's just
one of those stocks that's not dipping.
It's not giving me that nice juicy opportunity where people
are scared about it, where it's going down like crazy that I can
enter a position since I already own a lot of good companies,
I've just been waiting on Uber. I really like the direction
Uber's going and the enthusiasm from the CEO.
He's always launching new products.
He's excited about the future of the company.
He seems really focused with Uber.
Then we have the big overhang or the hurdle for this company,
which now is not as much of A hurdle as investors thought it
was. Over the past year, Uber has
made significant progress in autonomous vehicles, expanding
operations with Waymo and Austin and Atlanta, and announcing new
partnerships with Neuro, Lucid, Baidu and others.
The focus in the upcoming quarter will be on scaling these
deployments and evaluating the impact on rides utilization
rates and operational efficiency.
Investors should be attentive to any benchmarks in trip numbers,
consumer adoption rates, and further OEM partnerships
announced. Now this is 1 where I look at
what the CE OS doing and he's, he's doing the right thing.
Any time he talks about autonomous driving, he talks
super bullishly about it. He says it's going to be a big
part of the future. He says he'll, he'll rattle off
a big list of partners that they have.
Oh, we got 20 partners, We got Waymo, we got Lucid, Neuro,
Baidu, so on and so forth. Everybody wants to partner with
Uber to try to paint Uber as the center of attention, that this
is the glue that glues all the AV companies together.
And even though I think that's a good story from the CEO, what I
see is a little different. I think the reality is a little
different. I think a lot of these
partnerships are on paper partnerships like with Neuro and
Lucid and Baidu. We're not seeing them have real
autonomous rides all across the nation in any meaningful amount
so far. Those are just partnerships that
they agreed to work together. The only real robo taxi company
today that offers meaningful rides, weekly rides, ones that
are real, that customers are paying for, that there's no
employee in the vehicles is Waymo.
That's the only one. And Waymo has only partnered
halfway with Uber. Many of the places they're
opening, they're doing it without Uber.
So even though, again, even though the CEO is saying we're
at the center of attention, everybody's, everybody's
partnered with us. He's leaving out that Waymo is
partnering with them halfway. Tesla's not partnering with them
at all. Tesla could get to a point where
in many of the cities they could offer rides without employees
and have a genuine robo taxi service be operational.
And if they do that without Uber, that could cast an
additional hurdle for the company.
Another thing that I think is important is there's again, a
lot of focus on the Uber app, which is great.
The Waymo app is also phenomenal.
It has a five star rating with tons of reviews.
Everybody loves Waymo. They don't just love Uber, they
love Waymo and they love Waymo even without Uber.
So I feel like there's, even though there's progress here, I
still feel like this is a potential concern for the
company. Right now, autonomous vehicles
make up a very tiny insignificant percentage of
total rides. But it will start to eat away
the market share of Uber. It will start to offer delivery
for for food. They'll do that autonomously
like they're doing with DoorDash a VS will control this market.
So personally, right now, even though I love Uber, I, I like
the progress that it's making. I love Google even more.
I'm sorry to say it. I know it's not a shock.
I just love the positioning of Waymo and Google.
I think it's just a little bit more advantageous positioning we
have from the company. And this is something that I
really like is that they're buying back shares like crazy.
I think they'll be on their expectations.
I think the CEO has a lot of great narratives and stories to
sell to investors. And I don't think that they're
false stories. I think they're just good
stories to tell. So I think that Uber has a
bright path. More than likely, I think it's
still going to be a profitable investment for a very long
period of time. Now continuing on, again, this
is a super busy week. Looking at the calendar, we
still have Spotify at the same time as Uber and Shopify.
Then we have AMD. We have Robin Hood and two
companies that are pretty small, but if I filter them out, we
have a Duolingo on Wednesday. That's a company that a lot of
people are interested in. And we have Texas Roadhouse, a
company that I still have as a a fairly large holding, one of my
biggest winners ever. I'll be going over that one as
well. But we continue on with Spotify.
Let's go ahead and just take a look at this one.
What I expect to see with Spotify in this earnings is I
expect to see continued monthly active user growth.
Spotify is the quintessential example of a company that faces
lots of competition. It's it's a company that has so
many places you can listen to music, but because their product
is free, it's more refined, it has a better user interface
experience, and they already have the network effects of many
people already using the product, which allows it to be a
little bit better than the competition.
That equates to exponential scale advantages.
So even though Spotify faces YouTube Music and Apple Music
and all these large competitors, you'd think that that was slow
down Spotify's growth. But again, users will use
whatever product is slightly best as long as they're all
around the same price or free. And that's exactly the case.
Spotify cost the same amount that any other streaming service
cost, roughly speaking. And because of that, users
gravitate to which one they like the most, which is almost always
going to be Spotify. So you have a product now
growing to nearly 700 million active users.
This product will go above a billion active users in less
than a year or so. I think it's going to be there
like less than two years for sure.
It's just such a huge market. We're going to see Spotify lean
into more digital AI ads, leveraging the same playbook
that Meta did. We're going to see Spotify
continue to grow and daily active, monthly active users.
We'll see the company embrace video.
They're now embracing video along with Netflix and along
with YouTube. I see Spotify as more of a
direct competitor to YouTube than Netflix.
But the market's so big for streaming video that all of
these companies can win. We're going to see the
monetization increase, the AI tools like the AIDJ, all that
type of stuff, increase, more podcasts, all of that good
stuff. I'm very excited about this
company. If I was an owner of Spotify and
I'd bought the company earlier, I would just continue to hold
it. But that's such a premium
valuation that I haven't entered a position.
Now moving on down the week, we get to Tuesday after market
close. And the big one we have here is
a MDAMD is done exceptionally well.
It's up 112% year to date. You have them announcing deals
with open AI. They're kind of in the loop in
the game now. The narrative of them being left
behind is kind of faded a bit. So AMD is now a serious
competitor in this AI race. They're betting everything on
these deals with open AI and I think that the leadership has
done a fantastic job there. It trades at a very high
valuation, 46 forward price to earnings, free cash flow yield
below 1%. When you factor in stock based
comp, it's below .7%. So a lot of this is future
bullishness. That's fine.
The company deserves to have some future bullishness.
But just know this is again a company that has a lot of future
priced into it. I expect AMD to be on their
earnings and revenue. It's a company that usually
does. We have the earnings per share.
They beat on every single quarter except for one over the
past four years. We look at the revenue.
This is again the odds are in your favour of this company
coming in above and there's no reason over the past quarter
that they should come in under and even if they do, their
guidance should more than make up for it.
This is again a company that has numerous bullish catalysts going
into this earnings. So I can't see anything going
too wrong this earnings. I'd be shocked if there's a big
sell off, maybe it could happen, but I don't see it.
Now moving forward throughout the week, we get into Wednesday
before market open, there's none too interesting there.
Aftermarket closes, really where we get into it.
We have FICO right down here reporting earnings as well as
way down here, one of the smaller companies, it's in My
Portfolio, which is Duolingo. I'll go ahead and just mention a
few things on FICO before jumping into Duolingo.
My summary of how I feel about FICO right now is I believe the
company fundamentally will do well.
It's going to continue growing. They have a lot of pricing
power. They're competing well against
Equifax and the other credit bureaus, but I believe the
company is not going to be too rewarded by investors because I
I think that this area, the high quality companies, the credit
bureaus, this whole category is a category that the market
hasn't given a lot of love. And markets go through trends
like this. There's momentum factors,
there's different segments of the market that get more
attention at different time periods despite fundamental
performance. So if you're a FICO investor, I
think whatever happens this week, I think it's a company
that you probably hold on to put in the back burner because
eventually as the cash flows and earnings move up, so does the
stock price. Now, Next up, we get to
everyone's favorite to have an opinion on, which is Duolingo.
Duolingo's a stock that everybody knows which direction
it's going. You know for sure the stock is
going up, or you know for sure that this is just an app and the
stock is terrible and it's going to go down.
Everyone has a solid opinion on this company because frankly,
it's just a very popular user app.
It's a company that everybody knows about.
We've all heard about it. Many of us have used it.
So Duolingo is one that everybody has their opinion on.
But I want to kind of share my thought process when looking at
this company. First of all, I own Duolingo.
I have, I have a a little size position.
It's a very small size position that I intentionally position
small because of the inherent volatility.
And I'd see increased risk of this company over most of the
companies that I invest in. For example, in the story fund,
which is now above a $400,000 portfolio, $182,000 in gains.
This portfolio is crushing it. It's just concentrated in
Google, Netflix and Amazon. These companies are are all
doing well. Even Netflix or Amazon rather is
now pulling its weight, going up like crazy in a short amount of
time. We'll get to more Amazon news
here soon, but we have Duolingo right here at the bottom.
This is the only one that I'm in the red on.
It's also my most recent position.
Duolingo's an $18,500 holding as of now, 5400 in the red.
Now, before I jump into this one, I just want to address and
go over the reasons that I own this company, as well as address
many of the bare cases. I've heard a lot of feedback, a
lot of concerns about this company, and I just want to go
through them. First of all, we have the
comments. The Duolingo's just an app.
Like you're going to invest in just an app.
Like just an app, $12 billion for that.
Well, I don't really agree. I mean, I kind of agree with
that assessment. Duolingo's just an app, but just
an app kind of downplays or denigrates something that can be
incredibly profitable. Open AI and Chachi BT is, is
sort of just an app, like most people use Open A IS products on
their app. When you look at Instagram,
where are most people accessing Instagram?
Are they doing it on their big desktop screens or their TV's?
They're accessing Instagram on the phone.
So in that case, you could say Instagram's just an app.
It's a very valuable app. We could say the same for many,
many big companies where their products are primarily accessed
on an app. The next thing is that Duolingo
is a company that's overpriced because it has high churn.
People don't stick with it. I have not seen the churn rates
for this company. There's third party estimates,
but every single company that's a subscription company has
churn. Every single one of them.
Some companies have less churn because they have like more lock
in or there's higher barriers to entry, but they also don't have
nearly as much growth. Ave.
Duolingo has a nice business model where the reason why it
has this 40% revenue growth, which will probably grow around
35% this quarter, some slight deceleration, which is fully
expected. But the reason why it has such
fast revenue growth is they bring people in on the freemium
tear and then they convert them to the paid tear.
Over time, that creates a nice ease of access.
Duolingo's accessible to everyone.
They bring you in, then they convert you.
So Duolingo does have churn like every subscription company, but
they also have a great organic growth path similar to Spotify,
where they bring in users for free and they convert them to
the more premium tears over time.
That's been proven and you can see it in all the data.
The revenue overall is $885 million.
The subscription revenue is 734. Almost all the revenue they make
is subscription, and you see the subscription revenue growing at
even 47% year over year. As they're increasing the amount
that they're converting over time, they're getting better at
converting free users to paid. So I don't see a lot of evidence
at Duolingo's churning through users.
How would their subscription growth continue to grow at the
skyrocketing pace? Also, there's more data to show
that they're not churning through users all that fast.
Their daily active users grew 40%.
These are people using it every single day.
They have a lot of daily active users, 47.7 million.
That puts them in the top tier of social media companies on the
amount of people that are using this service every single day.
We have monthly active users continuing to grow.
We had one tick downwards because of impact of a viral
social media campaign. But again, the daily active
users are the committed users and the paid users are
continuing to grow as well. Over 10.9 million paid users, if
we take a step back of what we're actually investing in with
Duolingo, I look at it as a company that's not just a
language learning app. Language learning is is a big
segment and it's one that they started in to get fast growth.
But management has made it abundantly clear that they want
to be the digital learning app that has the largest network
effects, the one that everybody goes to as this starting place
for digital learning. There's going to be all sorts of
places to learn. There'll be AI tools, there's
schools and colleges and classes and tutors and everything from
A-Z Learning is is. So is such a big category.
There's also going to be one large digital concentrated
position, one company that dominates for the app based
digital learning environment and that company is Duolingo.
If there's going to be a big winner in this category, it's
Duolingo. Just like there's one big winner
in ride sharing, which is Uber, there's a a big winner in social
media, which is Facebook, There's a big winner in
streaming TV, which is Netflix, There's a big winner in audio,
which is Spotify. There's one big company
dominating Ed tech learning going into new categories, which
is Duolingo. So you can argue that Duolingo
isn't a good investment, but then you're arguing that no
company in Ed tech is a good investment.
No company that really makes their major focus on app based
learning is a good investment because they'll be clouded out
by other companies, other AI companies, other other products.
Maybe that's the case that that could be right.
Maybe maybe the critics are right there.
But at least for now, it's a bet that I'm willing to make that
this company could really have huge network effects and grow
into this massive category. But still believe there's room.
There's a room for a big winner amongst many other smaller
winners in this category. There's going to be lots of
companies that teach language learning, lots of companies that
do live translation, lots of companies that teach chess, lots
of companies that teach math, lots of companies that teach
music. But Duolingo will be a company
that brings all of this together and offers a very streamlined,
easy to use product that teaches all of those things.
Their growth in chess alone, I think is really good.
Their growth in the math segment is good.
They're also growing in music. They're going to offer more
categories over time. I think it's a matter of time
before Duolingo starts teaching science.
I think it's just a natural growth path.
So if you have kids or you want to learn about a scientific
endeavour, you can go through Duolingo and go through the
standardized courses in a very fun and streamlined way that has
ladders, rankings, has encouraging things that keep you
learning. When I look at Duolingo, what I
believe will happen this quarter is I believe that the monthly
active users will be the weak spot.
So the monthly active users like the last quarter, I think is
going to be below expectations, a little bit slower than
expected because I believe the move from hearts to energy is
going to cause some churn. Some of the users that only want
Duolingo for free forever, they want to use it all the time
without paying a dime. They're going to turn off of the
app. But I think that it's going to
cause higher conversions for the existing users.
So my prediction is we'll see a dynamic here where the monthly
active users will struggle, but the daily active users will
continue to go up as well as especially the paid subscribers.
I think paid subscribers will stay very strong, maybe even
come in better than expected because of the conversion rate
going up. But this one is impossible to
tell what direction it's going to trade.
It is so volatile. It'll either go up 15% or down
15% or even more. It's one of the most crazy
stocks that I've ever been a part of.
The stock price is interesting with this company, but again, if
you're invested as a fundamental investor, you're looking at the
long term future of it, the revenue growth, the paid
subscribers, and of course the profitability.
This one should continue to grow earnings per share at a very
fast clip and as long as that continues, I'll stay invested in
the company. Now moving on, we get to Texas
Roadhouse reporting earnings on Thursday.
This is one that's in my passive income portfolio.
So if we look at this, this is a a $900,000 plus portfolio,
360,000 of that being gains. We look at Texas Roadhouse and
it's in the restaurant category. Let's go ahead and check it out
here. It is a $42,000 position,
$38,000 in gains. Now this position grew to around
$75,000 and I sold about half of it.
So I've taken a lot off the table on this one.
And part of the reason why is because as good as Texas
Roadhouse is, which I, I believe it's a top tier restaurant, it
really is. I don't like having a small
restaurant as a top three position.
I just don't feel comfortable with it again, and that's saying
a lot because I really like Texas Roadhouse.
I think the company is phenomenal.
It's a genuine compounding machine.
It's outperformed many of the best tech companies over the
past 20 years, but I feel like there's some prudency in taking
a restaurant down in size as a position.
For example, the top position in Bill Ackman's portfolio or one
of the biggest has been Chipotle for a long period of time.
This is also a company that I was very bullish on, but I sold
it at around $55. Around that price point.
I can look at my trading history with this company and I started
exiting Chipotle from July 11th to July 18th.
My sell price was around $52, so that's when I was selling the
company. We look at Chipotle today and
it's it's now at $31.00. The stock price has been
obliterated. So this is the problem with
restaurants in general. Of course, this can happen to
any company, but restaurants are just a bit more risky.
They they're a little bit more volatile because they have such
low margins compared to other companies.
Any changes in revenue trajectory, any changes in input
costs like avocado prices, beef prices, will dramatically affect
their profitability. When I look at Texas Roadhouse
today, I don't expect anything massive from this earnings
report. I think this is going to be a
business as usual week and I think Texas Roadhouse will be
fine. The valuation isn't crazy, It's
not super cheap, it's not super expensive.
It's right in line. The restaurant is doing better
than its peers. It still has a really good value
proposition. So I'm going to continue holding
this one throughout earnings. So there we have this huge week.
Overall, I feel very positive about most of these companies.
I don't think there's any that I'm too overly concerned about
and neither is Tom Lee. Tom Lee was once again on CNBC
making his appearance and you'll be shocked to know what he
thinks. Tom Lee thinks the markets going
up. Now you can criticize him for
just being a permeable, but he has been correct for a long
period of time. And even where other investors
were panicking, Tom Lee said that this stuff is going to be
short lived, that the market's going to go higher, and we'll go
through his main arguments of why the market will continue to
go higher throughout this year. The first reason that this
market will continue to go up is historical presidents.
He outlines how what has happened over the past six
months is a huge indication that we're going to have a strong
close to the end of this year. That's right.
I think the market has a lot of walls of worry because we've got
the shutdown, we've got China, we got the Fed speak, but the
markets been up six months in a row now only 6 times since 1928
that's happened. So it if you look at November,
we're up five or six times and in 1942, it was flat.
So basically November should be really strong, I think at least
200 points on the SMB. So this isn't a fundamentally
related argument, but it's just based off of how market trading
history has worked. Based off of history, we should
continue to go up. The next point he brings up is
how the market is actually negative in its sentiment.
It's not bullish right now, which is a bullish point to
bring up, not positive, is it? You mentioned the wall of worry.
Yeah, I mean, if you look at it like AAII, the average sentiment
this year is still -11.5 like net, sadly bearish.
That's only happened three other times in 35 years, all in the
middle of bear market. So investors feel like it's a
bear market, but we're up 17%, which kind of tells me, I think
there's a big performance chase into your rent.
You know over 80% of fund managers are missing their
benchmark this year. Over 80% of fund managers are
missing their benchmarks this year because all the gains have
been concentrated in a handful of few companies and there's
been widespread bear sentiment. He believes that that's actually
bullish throughout the end of this year because you'll have
the people that have been left out going, oh man, I, I gotta, I
gotta get in this market like the it's racing away from me.
And they will chase the gains. They'll push up prices even
further chasing the gains because they've been left out.
The next point he brings up after that is that inflation
continues to fall. He said it's rapidly falling
inflation. That's right, because, you know,
we have a good Fed futures to look at what's implied for
inflation. You know, the Fed looks at the
bond market, bond market figures things out before the data comes
out. I do think the inflation is
probably falling a lot faster than everyone expects.
I mean, you can look at true flation and we're down to sub 2%
inflation. So we get a lot of conflicting
reports on this. Some people are saying inflation
is ticking back upwards. Tom Lee's saying there's
actually a lot of evidence that it's plummeting, it's going
down, and the bond market has already figured out this
dynamic. Tom Lee continues on in this
appearance, making his case for why the market's going higher
this time. He points to record
profitability that margins are actually moving up for
companies. Yeah.
I mean, I think there is something the market's trying to
figure out, which is AI is consuming jobs, but that's
turning it into profits for corporate.
So like profits are expanding and then we have profit margins
have actually been going up in the middle of tariffs.
So how are companies able to take 70% of the tariff hit, but
margins are going up. So there must be a productivity
boom somewhere. And then we have, like you said,
7 trying to cash on the sidelines, but we have high
rates. And so the Fed, I kind of think
is trying to not overheat the economy.
But we know that you just point out like housing's in big
trouble. So I would say it makes sense if
inflation's in a good place and jobs aren't really strengthening
for cuts to happen, and that would be really dovish.
So I think that sort of comes together before the end of the
year. So there we have it.
Tom Lee is once again bullish. We've seen it before, but he
typically gets this right and I think he might be right once
again. Now moving on, we have some big
news for Amazon. They were officially invited to
the party. They're part of the the big Boy
club. Now they have an Open AI deal
officially announced. Now, this one is actually a
small deal, which is funny because Open AI announced a huge
deal with Oracle, but they announced a small, a small deal
with Amazon. But in any case, this is a
positive, a positive sentiment announcement for Amazon.
The stock is up 4.7%. And we look at the deal.
It's a $38 billion multi year partnership to run and scale its
AI workloads and Amazon Web Services, a move that investors
read as a major win for AWS in the AI compute race.
And AWS even previewed that this is going to happen.
They gave you a little bit of a heads up.
In fact, we have here, if you were paying attention, the
earnings transcript summary from Qualtrim, where we highlighted
that the backlog grew to 200 billion, not including several
significant deals signed in October.
What could those significant deals be?
Well, it might have been this deal that they just announced.
Here we have another massive deal that wasn't represented in
this previous backlog number. I'm so bullish on Amazon and
Google and Microsoft. I think these companies are such
solid bets. I'm not selling a single share
of the hyperscalers that I own and I don't think investors
should. Now moving on, we get into the
fail of the week. Here we have Brad Gerstner.
And Brad Gerstner, somebody that I've liked for a long period of
time. He's a tech investor.
He is an investor in open AI, is a private company.
So he's very bullish on open AI and he continually, and I would
say I've been a little bit critical of this, but Brad
Gerstner has continually shared the, the thought or the story
that Open AI and Chachi BT is the new way that every kid is
consuming information and Google's basically dead.
Google's just an old stodgy 10 blue link economy company.
And that narrative didn't turn out to be correct.
Now, a lot of people shared in that thought process as well,
but Brad Gerstner was invested in the company competing with
Google. Now it's, it's known that
Google's all right. They're not just a 10 blue link
company. There's a lot more going on to
it. So I've been a little critical
of Brad Gerstner because of that.
But overall, I really like them. That's a minor disagreement.
And here we have Brad Gerstner, who again is a huge promoter,
advocate, investor in Open AI, and he's talking to Sam Altman.
And listen to the way that Sam Altman responds to a simple
light question. So Brad Gerstner is about to
give a a little question, a slight criticism to Open AI just
to ask if they can really fulfill on the deals they're
making a very reasonable, simple question.
Listen to how Sam Altman responds.
Hanging over the market is how you know, how can the company
with 13 billion in revenues make 1.4 trillion of spend
commitments. You know, and, and, and you've
heard the criticism saying we're doing well more revenue than
that. Second of all, Brad, if you want
to sell your shares, I'll find you a buyer.
I just enough like, you know, people are, I, I think there's a
lot of people who would love to buy open air shares.
I don't, I don't think you want including myself, including
myself who talk with a lot of like breathless concern about
it. So here we have Brad Gerstner
saying, you know, you're, there's reportedly like $12
billion in revenue. How do you fulfill on $600
billion of spend commitments, right?
He's just talking about the gap between the revenue Open AI
earns today and the gaps in the the big headline commitments.
They're making a totally reasonable question.
The way that Sam Altman responds to it is he's indignant
immediately saying, Brad, we make way more than that.
And if you want to sell your shares, I can find buyers for
him. You want you want to sell your
shares, Brad, go ahead. You can sell your shares.
This guy is a cheerleader for your company, a huge advocate
all day long on social media. He's talking about open AI and
negatively talking about your competitor, Google.
And here he is with one simple, totally reasonable question,
telling Brad, if you have any, any criticisms whatsoever, any
questions whatsoever for me, just get out of the stock.
I'll, I'll find you a new buyer. Brad, why question me?
I'm Sam Altman, why question me? I'd rather you just get out of
the stock if you have any questions.
OK, well, and this is just part of it.
We'll continue on with this. Our compute stuff or whatever
that would be thrilled to buy shares so I think we we could
sell you know your shares or anybody else's to some of the
people who are making the most noise on Twitter whatever about
this very. Brad never said he wanted to
sell shares. What?
Why is Sam Altman, why is he yapping on about how we can find
you a new buyer for your shares, Brad, when he never said he
wanted to sell his shares? He had a small question that was
a reasonable question. Well, I can tell you why I'll
answer. I'll answer why Sam Altman does
this in just a minute. Twitter, whatever about this
very quickly, we do plan for revenue to grow steeply.
Revenue is growing steeply. We are taking a forward bet that
it's going to continue to grow and that not only will chat to
BT keep growing, but we will be able to become one of the
important AI clouds. That our consumer device
business will be a significant and important thing.
That AI that can automate science will create huge value.
So, you know, there are not many times that I want to be a public
company, but one of the rare what times it's appealing is
when those people are writing these ridiculous open the eyes
about to go out of business and you know, whatever.
I would love to tell them they could just short the stock and I
would love to see them get burned on that.
There we have it. So in summary, an investor
that's been a huge advocate complimenting Sam Altman in his
leadership, putting open the eyes one of his prized
investments that he hasn't privately over and over again on
Twitter ask Sam Altman, the executive running the company
that he's the owner of. Now, keep in mind, Sam Altman
doesn't own a lot of shares of Open AI.
That's the way it's structured. Brad Gerstner does.
So Brad Gerstner is like an an owner of this asking an
executive a question that's a very realistic, reasonable
question. And Sam Altman responds by
attacking that investor, telling them we don't need you and if
you'd like to sell your shares, I'll find another buyer.
This is the the weakest response.
And by the way, this is more general than just this here, but
if your immediate response, anytime someone lightly
criticizes a stock that you own, if your immediate gut reaction
is to say, well, short it, just short the stock.
Like if, if you're so confident, if, if you don't like it, if
you're questioning this thing, then just short it that is.
That is the weakest response you can give.
And there's a bunch of reasons why you may not believe a stock
is the best investment. You may have some criticisms for
it, but it's still not a good idea to short it.
One of them being that companies can run up far past what their
fundamentals would warrant. Bubbles can last for a long
period of time. The market can remain irrational
much longer than you can remain solvent.
When you short a stock, you can't just be correct.
You have to be correct right away.
You have to time the market. You have to time human behavior.
That's nearly an impossible task.
So Sam Altman wanting to to say he he wants his company to be
public just to have the right to say.
If anybody has a criticism for open AI, just short the stock.
Just short it. And it's ironic that he's not
even public, so he can't say that, but he's complaining that
that's what he would say if he was public.
But in any case, that would be a ridiculously weak response if
you were a public company. By asking people to short the
stock, you are discrediting their valid criticisms and their
valid questions. You're saying that those
questions aren't valid. I'm not going to answer them.
If you have any criticisms whatsoever, just short the
stock. So I think we need a, we need to
stop this act. And I think it's more than just
Sam Altman, but especially him in this case.
We need to stop this act. If if anybody has a question
about a stock, immediately defensively becoming indignant
and challenging them to short the stock, it is the weakest
response you can give. Anytime somebody does that,
they're not operating in good faith and it's more of a defense
mechanism. It's more of a reflection on
yourself than the person asking the questions.
Sam Altman could have responded kindly to one of his favorite
one of the the best investors in open AI, one of the most notable
ones in the company. He could have explained how it's
a minor misunderstanding about the company's financials.
It happens all the time with private companies and they're on
a healthy path to profitability. But instead he chose to answer
it rudely, defensively, with indignation against one of his
own advocates, one of his own investors, someone that's on his
side, he treated this way, and at the same time revealing that
these articles showing that open AI has a lot of obligations get
to him. It also is a weak point.
It's something that he feels a real criticism that he doesn't
like hearing, so he attacks anyone that even mentions this
news. This is not the way an executive
of a company should be answering questions of their own
shareholders. For that reason, this is the
fail of the week. That's all for this episode.
Hope you enjoyed. See you in the next one.