Welcome back, everyone. Today on the Joseph Carlson
Show. We've recently been talking a
lot about Google and the decision from the judge to not
break up the company and the huge success overall this
investment has been, it's been incredible.
Google's now up 20% year to date.
It's up 40% from the recent lows.
And the Sky's the limits for this one.
But as Google has turned out great, there's another
investment that I believe is going to get its turn.
And this one hasn't been bad. But there's reason to believe
that Amazon is next on the list to have its day.
Amazon may have an AI resurgence with AWS and Anthropic.
This is a new write up from Semi analysis.
They do in depth research on this whole ecosystem, on this
entire industry. And in this extensive write up,
they argue their reasoning for Amazon now being in a better
position to win the cloud wars. We know that Microsoft Azure has
speed ahead, gaining more cloud dollars than Amazon last
quarter, and they believe that that's going to turn around,
that Amazon will now be the one speeding ahead.
This caused the stock to move up 3% yesterday, which was a big
move for Amazon, but there's reason to believe it could go
higher. We're going to be looking over
this semi analysis, taking a look at how it may impact Amazon
and how this fits into my thesis.
Now, of course, we also have a lot of other news.
For example, Salesforce just reported earnings.
The stock was down around 7% after earnings.
It's up a little bit today, but overall the earnings were
disappointing towards investors and I think Salesforce is worth
looking at. The stock has not had any
positive sentiment for months now.
It's one of the few losers in My Portfolio, a company that I'm
currently in the red on, and I want to take a look at the
holding as well as its most recent report and see what to
think about it because I don't think that Salesforce's report
was quite as bad as investors are making it out to be.
Now. Another company on the list that
had a very bad day is Lululemon. That one's down 18%.
The CEO went on to CNBC to try to turn things around, but
Lululemon is facing a lot of different challenges.
We'll be going over that one and then another one that's in My
Portfolio. My latest position, Duolingo has
been trading down every single day.
There has been a systematic sell off in Duolingo over the past
month or so and we're going to talk about it.
We'll be looking at my position in Duolingo, the damage that
this has caused to the portfolio, as well as why the
company's selling off and what I plan on doing about it now.
And then finally, we have some other news to get to.
Elon Musk wants to get a trillion dollar pay package over
the next decade. Now, of course, that's a really
big number, but this isn't quite as crazy as it sounds.
And then we have the phenomenon K pop demon hunters.
We have Novak doing the soda pop dance on the tennis stage.
We'll be looking at why he's doing that and how big this show
actually is for Netflix at the end of this episode.
So we have a ton to get to in this episode.
Now starting off, I just want to mention the last couple videos
that I've made have been mostly about Google and frankly, I'm
just excited about it. I'm.
Happy when the companies that I invest in do well, when the
thesis work out, when things go as planned.
And in most cases, that's exactly what happens if you're
an investor that has a good philosophy, if you stick to your
process. You should have the majority
case be a win. You should have most of your
holdings work out, although not every one of them is going in
most cases, this is how it should turn out.
And Google has been a resounding win for investors.
And part of the reason that I'm so excited about Google in
particular is, first of all, it's lifting both of my
portfolios to all time highs. So that's exciting.
But the other reason why is because I get to enjoy this
victory with a lot of other people.
I know that Google is a company that many investors own,
especially retail investors. I can determine that by the
analytics on Qualtrim. I can see in all the I can see
in all the analytics overall and the feedback that I get that
Google is a widely owned retail stock.
Lots of people are bought into this company.
So the victory is shared amongst a lot of people and that makes
it fun as. Well, when I'm winning with
Google, I'm winning with a lot of my followers.
A lot of people invested in the company.
And it's really fun and rewarding to share that victory
with a lot of other people. If I compare and contrast that
with Netflix, for example, Netflix is a company that was an
amazing winner in My Portfolio. It was just truly outstanding
how much this company turned around, how well it performed.
You know, the story of it was incredible, but it was also a
lonely journey. Netflix is not a widely owned
company by retail investors or my followers.
I know that again by the analytics.
And frankly, when I was talking about this company bullish on it
for for years making content on it, my Netflix videos never did
that well. They never got a lot of
viewership. They never got a lot of
engagement. I knew that the the amount of
people that were following me with Netflix was very few.
So even though Netflix has done incredibly well and I'm very
happy about how it turned out, it was a far lonelier journey,
one that I wasn't able to celebrate with as many people.
So that's part of the reason that I'm really.
Excited specifically about Google doing well is just the
amount of people that own this stock.
Another one that I believe on the list here that is well owned
by by investors. Lots of my followers are in this
stock and I think for good reason is Amazon.
Now this is 1 again that I'm fully invested in.
In fact I put an enormous amount of capital into Amazon.
It's a $141,000 position with only $48,000 of that being
gains. Now, that's a decent amount of
gains, but the majority of this position is still contributions
me building it up. I put so much capital into
Amazon because I feel so positive about this company.
Now with Amazon, there's multiple parts of this thesis
that I've highlighted. First of all, it's a widely
diversified business with a lot of optionality, meaning they
have all different assets from Zoox to Project Kiper, which is
satellite Internet. So they have robotaxis that
they're making, they have satellite Internet that they're
making. It's a little bit like SpaceX
combined with the rest of Amazon, but then you also have
the retail business, you have the third party seller business,
you have their subscriptions, You have Amazon Prime Video,
which is like Netflix built into Amazon.
It just goes on and on. You have Audible, you have a
podcast business with Amazon. You of course have the big ones,
which is AWS, the cloud business.
Now, I like a lot of the businesses that Amazon's in.
In fact, I like everything that they're doing right now.
But there is one business that is a stand out and it's far more
important to the story of Amazon than any other part of this
company and that's cloud, it's AWS.
When we filter out the rest of this, we can take a look at AWS
here. AWS alone grew at a compounded
annual growth rate of 17.7% last quarter.
Now, in isolation, in a vacuum, is 18% growth good?
Yeah, it's good, especially at the scale that AWS is at.
It's at enormous scale, $116 billion in revenue.
So this wasn't bad. In fact, they beat their
expectations. But investors were still
underwhelmed by this result. Don't you hate it when you have
something good going on in your life and someone has to steal
your Thunder? Well, that's exactly what
Microsoft did. Amazon has this great cloud.
Business. It's growing quickly, it's
highly profitable, it's super scaled.
You know, it's a fantastic business.
And then Microsoft came in and they said, no, we're the ones
growing faster. We're the ones with the more
special business. Satya Nadella reports with
Microsoft's earnings that the cloud surpassed 75 billion in
revenue, up 34% in the quarter. Now all of a sudden, Amazon's 17
or 18% doesn't feel so special. In fact, it seems like it's
falling behind. Even though it's growing fast,
it's falling behind. And that's what Microsoft did.
This grew so fast that it grew even faster than Google, which
is the smaller of the three clouds.
And Google's growing fast. In fact, Microsoft Azure grew so
fast in that quarter that in just total revenue, it gained
more revenue than Amazon's AWS. So Satya Nadella completely
stole the Thunder from Andy Jassi.
He made the quarter that Amazon had looked like it wasn't so
great by contrast. And that was the problem of
Amazon this most recent quarter. It's part of the reason why the
stock has done OK, but not great.
And Microsoft by contrast, is doing great.
Amazon stock is up 5.8% year to date, lagging the S&P 500 in the
QQQ. We plug in Microsoft, you can
see the dramatic outperformance this company has had.
It's up 18 / 18%. Year to date.
Beating out both the major indices.
And that's where we are now. Investors are most bullish on
the best part of each company, which is the cloud.
And right now it looks like Microsoft is the big winner.
But like we've seen in recent quarters, things can change
quickly. And there's reason to believe
that this may change quickly in the future.
Let's take a look at some of the reasons why with this write up
from Semi Analysis. They say that 2 1/2 years ago we
flagged A looming cloud crisis at AWS.
Today, the evidence has mounted. AWS is the crown jewel of
Amazon's empire, generating 60% of the group profits and
dominating the lucrative cloud computing market.
But it struggles to translate this strength into a new GPU and
XPU cloud era. Microsoft Azure now leads the
market on quarterly new cloud revenue, and the gap between
Google Cloud and AWS has materially narrowed,
specifically or especially with Google's big moves on TPU that
we've been posting about for over a month.
So if you're not aware, Google has their own chips, their Tpus,
and these things are really good.
They're leveraging them to build up their cloud at a very fast
pace. They've also, it also makes it
so that they're less reliant on NVIDIA.
But with Amazon, it says the markets have noticed year to
date, Amazon is a clear laggard among the four tech and AI
Titans as investors mark down the company's most the most for
losing momentum and AI. So if we look at the chart here,
AWS, Microsoft Azure and the cloud computing platform, so
Microsoft is gaining by far the most incremental market share.
They're actually gaining more market share than Amazon, which
is bigger, which by the numbers probably shouldn't be happening.
Amazon should have incrementally added more revenue than
Microsoft Azure because it's at a bigger scale.
That's typically how it works. We see the opposite happening
here today. Semi Analysis is back with
another out of consensus call. While the market overplays the
cloud crisis theme, we call for an AWSAI resurgence.
We laid out our thesis a month ago to our core research
subscribers forecasting an upcoming acceleration beyond 20%
year over year growth by the end of 2025.
So now they're making this call that AW is actually going to
start speeding back up from the 17 to 18% it's at now quarter
after quarter. Next quarter is going to be
18.5%, then 21 percent, 23% all the way up to 25%.
Now obviously that's massive. If Amazon can speed back their
revenue growth up to 25%, a lot of investors right now are
pricing in more revenue deceleration.
So this is a massive out of consensus call, and their thesis
is based primarily on what they call Amazon savior Anthropic.
The startup has been a clear outperformer in the Gen.
AI market in 2025, multiplying revenue fivefold year to date to
reach 5 billion annualized. So you can see Anthropics and
Open AI annualized revenue. Open AI is much bigger, but
Anthropics growing much faster. To keep that trajectory,
Anthropic is betting hard on scaling laws.
While Dario's startup draws fewer headlines than Open AIXAI
and Meta Super Intelligence, it isn't shy about investments.
AWS has well over a GW of data center capacity in the final
stages of construction for its anchor customers, AWS is
building data centers faster than it has ever done in its
entire history. And there's much more on the
horizon. So we see these, these, they
look like Google Map photos of the massive data center capacity
that AWS is building out. And this makes sense because you
look at Amazon's CapEx and no one else is close.
They spend. Far more on CapEx and R&D than
anyone else. And this is where it's going
towards brand new data center capacity.
Now they mention here that while Amazon's AI data centers are
impressive in scale and speed, the design of the individual
buildings is unremarkable. They're hyper optimized for air
cooling. This blueprint is identical to
five year old traditional AWS cloud data centers.
What makes these facilities unique is on the inside they'll
host the world's largest cluster of non NVIDIA AI chips with just
under 1,000,000 Tranium 2 and the largest campus.
Most of you aren't familiar with the differences in these.
Chips, but this is where we get a little bit technical here, and
this is what's important to Amazon's growth.
Tranium 2 lags NVIDIA systems in many ways, but it was pivotal to
the multi GW AWS Anthropic deal. It's memory bandwidth per TCO
advantage perfectly fits into Anthropics aggressive
reinforcement learning road map. Dario Modius startup was heavily
involved in the design process and its influence on the Tranium
road map only grows from hair. Put plainly, Training 2 is
converging towards an Anthropic custom silicon program.
This will enable Anthropic to be alongside Google Deepmine, the
only AI lab benefiting from tight hardware and software Co
designed in the near term. So we have a a chip here,
Tranium 2, which overall, if you're just to look at the
stats, it's not as good as Nvidia's.
But what they're doing to make up for it not being as good
generally is making it hyper customized to the specific AI
that they're using. They're using Anthropic, and the
people behind Anthropic are involved in the design of this
chip so they can make it be perfect for what they want.
And so now they're having tighter hardware and software
Co. Design Now the reason that this
is important is it's not just to save a few bucks for Amazon,
it's to win over more usage and more customers.
This has been a bottleneck for their sales process, they say.
To understand the causes of Amazon's underperformance in the
Gen. AI era, we can analyse the
drivers of success of the GPU and XPU cloud market in the most
simplistic way. We see two primary customer
groups for this market. There's the wholesale people
like Open AI, Anthropic, Byte Dance, and then there's the, the
managed smaller customers such as start-ups, research
institutions, enterprise pilot projects.
So they're trying to, to gain both of these type of customers.
They're both really important. It says in the second category,
this is where Amazon has been strong.
They're winning over these smaller customers.
In fact, they're, they have more pricing power.
They have the ability to win them over and keep them.
And they say that it has high performance with their advanced
software layers. It's when you're looking for the
big anchor tenants, the big firms to use the Amazon has
fallen behind. More important than AWS is XPU
business growth is the ability to secure anchor customers.
The market makers in this first wave of Gen.
AI demand scale, time to market, deep partnerships and pricing
are key to winning these accounts more so than advanced
software layers. No firm better illustrates this
than Microsoft Azure's AI outperformance over appears is
entirely driven by its open AI partnership.
Even though Amazon's winning over like thousands, you know,
millions of these smaller customers and, and people that
are relying on them, Microsoft's just winning the ones that
matter. They're winning the bigger ones.
As of Q22025, all of open AIS, over $10 billion cloud spending
is booked by Azure. Amazon understood early the need
for an anchor customer, and that's where they expanded their
partnership with Anthropic. The partnership expanded in
March of 2024 and then expanded even further and further.
Amazon's like, we need to have our own open AI.
We're going to go with Anthropic.
So even though Amazon is great at serving the smaller customers
with their cloud needs, they're not winning over the anchor
tenant. Business because they don't have
the chips, they don't have the Tpus and they need more capacity
and that's what they believe is going to change with these data
centers being completed, the training, 2 chip volumes picking
up with over a million of them. They believe that they're going
to handle a lot more of the demand from Anthropic in the
future. Their forecasts again here are
that every single quarter Aws's growth is going to pick up
quarter after quarter. So obviously if this did happen,
if Amazon did reaccelerate AWS back up to 25% over the next
three or four quarters. That would be huge for the
stock. We'd see the stock climb
dramatically. It'd go up to 2425260.
Amazon today would be dramatically undervalued if that
happens. Now, there's no guarantees of
any of this, but I'm bullish on Amazon for a number of reasons,
not just the reaccelerating cloud growth, but also because
like Google, they have a lot of diversification throughout their
business, a lot of optionality. Zoox is now testing robo taxis.
They're driving around in Vegas already with no paid employee.
Nobody's sitting in the passenger's seat.
They're just going on by themselves.
And of course, there's the whole theme of automation.
If I look at a company, there's none other than Amazon that can
benefit more greatly from automation with all their
warehouses, all their delivery drivers.
Making any more efficiency creates enormous operating
leverage, which translates into huge profits for this company.
So right now, Amazon's a company that I still feel good about.
It's a stock that I still think right now is a buy.
I see it going a lot higher in the future, especially if this
AWS growth continues on. Now moving on, we turn our
attention to Salesforce. This is another company in My
Portfolio. It's one of the two companies in
My Portfolio that I consider losers so far.
Let's go ahead and take a look at them.
In my combined portfolios, I have 15 holders buildings.
Two of them are currently in the red.
One of them is Duolingo, one of them is Salesforce.
Let's go ahead and just take a look at Salesforce here.
We have it here. It doesn't have the right logo
there, but we have Salesforce here.
It's a $62,000 position, currently $5000 in the red.
Now this translates to being down 8% on this position.
So when I look at assessing my my wins and losses in My
Portfolio, I like to look at it from how bad are my losers and
how good are the winners in most cases.
What I'm hoping for is that if I, if I lose money on any
company, which I don't want to do, I want to make money on
every single company that I invest in.
That's the goal and that's what I aim for with every single
investment. But in the case that you do have
a loser, and that will happen if you pick stocks, if you have a
portfolio of hand picked stocks, you will have losers.
Warren Buffett has had them, Charlie Munger has had them,
Peter Lynch has had them. You name it.
Pick your favorite investor. Dev Cantosari has had them.
Bill Ackman has had plenty of them.
Every investor experiences losers.
It's just a a matter of time until you do.
And in Salesforce right now, we have a company that's currently
in the red and it's been in the red for a while, like it's, it's
been a shaky company to begin with.
This one traded up at one point to above $300 per share, quickly
went back down and the sentiment is incredibly low for it.
So when I look at Salesforce today, I am down $5000 on this
position, less than 10%. And that's OK.
When I look at my gains in many of these companies with Google,
which I just invested in recently in this portfolio, it's
already up 18,000. And that's the magic of
investing. Naturally, when you buy
companies, especially compounding machines, they have
dramatically more upside than downside.
You can only lose what you invest, but you can have
companies go up 100, two, 100%. There's many companies that I've
invested in that are up well over 100% since my initial
investment. I can look at Texas Roadhouse as
an example. The most money that I've ever
put in the Texas Roadhouse is $35,000 and it has $40,000 in
gains. These are companies like Netflix
where I've made out far more than I put in.
But in any case, we have Salesforce sitting here.
It's a company that this stock is not performing well, not
going the way that I want it to go.
But when I look at the most recent earnings report of this
company, which they just reported, it just didn't look
that bad when I do analysis on it.
And I'm trying to be critical and trying to be fair with this
company. I didn't see anything that was a
major red flag. And I think you can do a thought
experiment here. Just erase the name Salesforce,
get rid of all the bad sentiment.
Get rid of Marc Benioff and your personal opinion of him.
And just try to imagine that this is a generic company that
you're reading an earnings report out.
We have the company posting Q2 results with revenue of 10.25
billion, up 10 percent, 9% on constant currency.
That's not the fastest growth in the world, but that's also not
the slowest. Companies like S&P Global, Ms.
CI. You have companies like Moodys,
you have companies like Equifax, lots of high quality companies
that grow in the range of 10%. Gap margins also expanded.
This marks the 10th consecutive quarter of margin expansion.
So the margins keep going up and it's not a one time thing.
The 10th consecutive quarter of margin expansion, operating cash
flow guidance was raised significantly with expectations
of nearly $15 billion for the year.
So operating cash flow is going up a lot and this company also
doesn't pay a lot in CapEx. So this translates into a lot of
free cash flow. Then you have the remaining
performance obligations. These are the CRP OS, which are
up 29.4 billion eleven percent. So you have more revenue down
the line being added to this company.
These are contracts that they have to fulfill on in the
future. So we have revenue visibility in
the future. The company's increasing its low
end financial year 2026 annual revenue guidance from 41.4 to
41.3 billion. That's up around 8 1/2 and 9%.
Now this is a part that investors had a problem with and
the reason that the stock was down.
It's growing just a bit slower than investors would like, but
they also raised their margin and cash flow outlook as well.
Again, if you just try to disconnect that this is
Salesforce, which you're told is a bad company and you shouldn't
like it, these results don't look that bad.
And even when we look at Salesforce in the different
projects they're working on, a huge push has been with
Agentforce. Agentforce is their new agentic
approach and it's tied to everything.
So this isn't just a customer service spot.
That's not what Agentforce is. It's literally part of every
aspect of Salesforce. Salesforce is focused on
transforming into an enabling agentic enterprises where AI
agents work alongside humans to automate, orchestrate and
augment workflows across all products.
This transformation extends across sales, service,
marketing, commerce, Tableau that's like their charting tool,
Slack and the new IT service service segment, ITSM, which
they're competing. It looks like they're competing
directly with teams and maybe a little bit of work day, but
they're moving into that category as well.
Agentforce, Salesforce's AI, Agent platform and Data Cloud
are key pillars in this transformation.
Adoption is accelerating. There has been 60% quarter over
quarter increase in customers moving from pilot to production
into Agent force. And over 40% of bookings are
from our new bookings are from Agent Force, come from upsells
of existing customers. Agentic use cases are
highlighted including DIRECTV, Under Armour, Reddit, Telepass,
Pandora, williams-sonoma demonstrating rapid development,
cost saving and improved KPIs. So Agent Force is their new
direction and you can see that this is actually getting
customers. In fact, when we look at one of
the KPIs we have here in Qualtrim, this is a new one.
It tracks the total customers of Agent Force as well as the paid
customers over time. So you have right here total
customers and this isn't year over year, this is quarter by
quarter. So just Q4 of 2024, they had
200. Now they have 12,500 customers
using Agent Force. Now the reason that some of the
customers aren't paid is because this is simply part of their
sales process. They give free trials, they they
give you opportunities to integrate it into your services,
try it out and then they funnel you down to the paid version.
It's kind of like a, a freemium way of selling it.
They want to get you used to it and using it and integrate it
into your business. And then they have little
upgrades and different things to sell you.
So you can see that they have the total customers growing
rapidly now to 12,500, but they also have paid customers growing
rapidly from Q2 of 2025, it went from 4000 to 6000 customers.
A lot of customers now switching to agent force.
Now as Salesforce trades down, the valuation becomes a bit more
attractive. Right now it's at five year low
valuations. Doesn't mean it can't go lower,
but it's also just a bit more safe now than it has been.
And if Salesforce continues to grow even at the moderate pace
that it is, 10% revenue growth, maybe a little bit faster.
Earnings per share growth 1213%. The stock should become
attractive over time. So even though it's not a
company that I'm I'm hyper excited about, I haven't loved
the developments of Salesforce. I wish it was growing faster.
Right now, it's just not in a situation where I want to sell
it. I feel like there is upside for
this company. I feel like the shares are
attractive here. So I'm fine putting this one on
hold, just having it in the portfolio and waiting a bit
longer. I don't see any urgent need to
sell out of this one. Now moving on, we get to another
loser in My Portfolio. And this is something that I
just want to emphasize a lot of investors online, they'll show
you all the stocks that are doing well and I have many that
are doing well. Again, we have Google, Amazon,
Netflix, S&P Global, MasterCard, you name it.
Most of them are doing well and those are fun to show off, but I
do show the ones that don't go well.
Salesforce and Duolingo are two of the stocks that are in the
red of My Portfolio. Duolingo is 1 in particular.
It's a $20,000 position and it's now down $5000.
Now I added 1000 more to the position, so I put in $21,000
total and this one has been selling down every single day
like clockwork. Every day it's down another 2 or
3%. Now if you followed me for
years, you'll see that I've had some situations where I buy
stocks and they rock it up afterwards, almost immediately
afterwards. Texas Roadhouse is one of those.
I I bought the stock at a decent time and it was just off to the
races. That one was in the green so
fast. Another one was Booking
Holdings. I bought that one.
I think it dipped a little bit because of an earnings report.
And then after that it was immediately in the green into.
It's another company that almost immediately after I bought it,
it was in the green by a lot. In fact, I made a lot of money
quickly on Intuit. Chipotle's another one bought
it, it was in the green incredibly fast.
Then there's been a number of stocks I've bought and they
immediately went into the. Red ASML was one of them,
Equifax was another one of them. Both of those companies have
recovered back into the green, but right when I bought them
they were headed downwards. And Duolingo has been a unique
stock and that I bought it and it went dramatically in the
green and now it's dramatically in the red, all in a very short
amount of time, in about a month.
I have not owned this stock for long and it is one volatile
stock. Now.
I just want to highlight a couple things here.
First of all, with Duolingo in particular, I want everyone to
just just take a step back and and just relax a little bit.
It's OK. It's OK to have a stock trade up
and down a lot. A lot of people freak out every
single day, Like every single day that the stock goes up or
down 3%. It's going to change my mind if
I see the stock going down 1.8%. That doesn't make me rethink my
whole thesis that that really doesn't inform you of anything.
The the trading patterns of a highly volatile small cap stock.
Doesn't really inform me. It's not information that I find
useful. What I look at as an investor is
real fundamental information on the company.
I look at the revenue growth, the subscriptions, the
profitability, what I think is happening in the future.
I also look at different things like their social media
presence, how many subscribers or social media followers are
gaining, how many likes they have, right.
I look at real data. The trading pattern of the
company is not important data. It doesn't inform me on my
opinion of the company and that's the difference between a
technical analyst or a trader and a long term fundamental
investor. I've always been on the side of
being a long term fundamental investor, so I make decisions
based off the fundamentals, not based off of what direction the
stock is trading. Now when I try to look at the
reasons why Duolingo went up so much and then down, we can only
guess at this. But there's a couple reasons why
I believe this is happening. First of all, Duolingo is facing
a lot of uncertainties. This is not a consensus pick.
A consensus pick is a stock like Amazon or Google.
Most people agree those are great investments, right?
A lot of people agree like 90%. So those are basically a
consensus that everybody loves these companies.
They agree they're goodbyes. That's not the case with
Duolingo. It's 5050.
It's it's 6040. It might even be 70% think it's
not a great investment, 30% think it think it is.
So it's a highly. Divisive non consensus pick and
that's because there's a lot of questions about this company and
its future. When you have headlines like
this, it brings in more questions.
New AI powered live translation and language learning tools in
Google Translate. So Google released a new update
to their translate tool. The Translate tool has been
around for like a decade, but they released a new update where
you can kind of practice language learning like you can
and Duolingo, and a lot of people look at this and they go,
wow, that that's not good. Google Translate's going to
crush Duolingo. I look at it a bit differently.
I'm bullish on Google. I think they own a lot of great
properties, but they don't crush every company that they compete
with. In fact, that's never been their
history. Google also has YouTube Premium,
which includes YouTube Music. It has virtually all the same
music that Spotify has, and Spotify is up around 500% since
Google released YouTube Premium. Despite the growth in YouTube
Premium, Spotify just keeps growing.
And that's the difference between a company that's hyper
focused on a product, the user experience, and one that's a big
company like Google creating 1 little part of their company
that competes somewhat with that product.
Even myself, I have. Experience in this realm.
Google has a tool called Google Finance.
Has Google Finance crushed Qualtrim?
To the contrary, Qualtrim is growing substantially.
We had 70% growth year over year, and despite the new
implementations and new features they come out with, we continue
to see growth because we're hyper focused on this one thing.
I can tailor the experience exactly to what my audience
wants in a way that Google simply can't do.
So even though I hear news of these big companies that are
getting into this type of AI learning, and we're certainly
going to see a lot more of them, this is something that's already
baked into the thesis that I have for Duolingo.
It's not new information. If you see another tool coming
out with an AI powered learning tool, that's going to be one of
the many that Duolingo competes with.
What Duolingo has accomplished is making their app very fun to
use. Try it out.
It is incredibly, incredibly smooth and fun to use.
It keeps you coming back every single day in a way that Google
Translate is not going to be able to do.
People use this for a few days and unless they're incredibly
dedicated, they're going to turn off of it.
So personally, I don't consider this a game changer in my
thesis. But it is affecting the stock
price and it's causing shares to trade down.
Another thing that I think is actually a more important piece
of news, I think that this is more meaningful than Google's
translation tool. We have the analyst DA Davidson
down grading Duolingo to neutral from the buy side and slashed
its price target to $300.00 from 500.
So this huge price target slash, the brokerage said that
Duolingo's active users slipping about .4% from mid-july to late
August, a period when growth has historically accelerated ahead
of back to school season. Over the past five years,
Duolingo has averaged sequential gains of 8% in monthly active
users and 7.2% in daily active users in the third quarter.
So basically what this analyst is seeing here is a deceleration
in user growth. And that's why they they slash
their price target because part of the, the thesis for Duolingo
is fast growth, fast user growth.
That's what leads to the revenue growth and the paid users.
And they're saying that that's slowing down.
In February of 2025 S early this year, they gained one and a half
million followers on TikTok. So massive growth, which led
into their user growth, their followers on TikTok.
Get exposed to the app that translates to a lot of
conversions. Then after the social media
backlash, the TikTok following went down.
Not only did they stop gaining followers, which they were for a
long period of time, they started losing followers.
And that's what we had before the most recent quarter.
And now we see that that's starting to recover, but it
doesn't look like it's recovering fully.
In fact, right now it's basically neutral.
So they're losing some followers, gaining others, and
they're netting out 0. And Duolingo has forecasted
this. They said that it's going to be
a little bit slower until they regain the momentum on this
social media presence. Now, in terms of sentiment, this
is specifically on TikTok. On Instagram, you can already
see the sentiment improve. There's not many negative
comments and they're even starting to fade away on TikTok.
In the most recent videos they've posted.
There's very few people still having backlash.
Or or making rude comments. Most of it seems overall
positive. So I see this moving in the
right direction, but I also think it could be correct that
this next quarter for. Duolingo maybe a slow one.
I think it could be 1/4 where they gain fewer users than they
typically do, and that's what's being priced into the stock.
If we get another one of those, it'll be bad for the stock
because a lot of investors will price in the end of Duolingo
that it's not growing anymore, the total addressable market has
been met, or the new AI competitors are eating away at
its mode. And there is some risk here.
There's some uncertainty. I can't see the future.
But in my opinion, I don't think this is quite as bad as it
seems. I think that Duolingo is doing
just fine. They're recovering their social
media presence. They still have an incredibly
positive app that has widespread adoption through word of mouth.
It's very addicting and the amount of users they have on a
daily active basis is incredible.
It's surpassing many social media companies.
So my opinion overall really hasn't changed on the company.
What has changed? Is the stock price, so that's
an. Overview of where I stand on the
company. Now, there's another thing I
want to point out which I think is very important here.
You can see that Duolingo's at the very bottom here, and that
is because we're ranking this by their total.
Size. Duolingo is the smallest
position in My Portfolio in both portfolios by far.
In fact, while Netflix and S&P Global are around 12 to 13%
positions overall, Duolingo is around 1.7.
Percent. It's far less than 2%, and that
was intentional. I intentionally sized this
position much smaller because it's a far more volatile
company. Volatile, meaning that the stock
price can rise dramatically in a short amount of time, and it can
fall dramatically in a short amount of time.
The trading is incredibly erratic.
It goes in One Direction. It it's just hard to predict in
the short term. And that was taken into account
when I sized my position. Even if Duolingo completely
fails as a holding, even if the company went completely
bankrupt, which I do not think is going to happen, but if that
did happen. It wouldn't kill My Portfolio,
in fact it would be a minor dent in the portfolio which the
entire portfolio is now in excess of $1.3 million.
Even with these losses in Duolingo, the passive income
portfolio is up around 8% year to date.
It's coming along nicely. This portfolio that includes the
total losses of Duolingo that's factored into this performance
year to date is up 20% year to date, outperforming the S&P 500
and the QQQ by a huge margin. Duolingo, despite the massive
sell off in the stock, is a very small position relative to my
other holdings. In fact, just the gains that I
had yesterday in Amazon alone made-up more than the losses in
Duolingo. In total.
That's one day of trading in Amazon.
So overall, even despite the fact that this one isn't going
the way that I want it to in the short term, the performance of
this portfolio has been incredible.
And if this one does turn around in the future, which I believe
there's a good chance of, this one will be a contributor to the
portfolio, not a detriment overall.
The biggest point of emphasis I would give here is that I've
owned Duolingo for about a month, one month, and I have
people daily, every single day when this stock trades asking me
what my opinion is now that it's moved.
Up or down 2%? That's just not how value
investing works. It's not how long term investing
works. Warren Buffett didn't say buy a
highly volatile small cap stock and then when it trades around
10 or 20% freak out and post online asking what to do.
I don't believe that was ever his advice.
We should be judging companies by their long term fundamental
performance and Duolingo can be viewed as a pass fail in the
long term. In the next two or three years,
Duolingo will either continue growing.
They'll gain market share, they'll gain users, they'll gain
in subscription revenue like they have in the past.
They're already growing this very quickly, but it will
continue to go up and the company will become incredibly
profitable. They're a high margin, low cost
company with great cost structure.
That'll either happen in the future.
Or it won't. The other option is that their
social media declines, the company grows a lot slower, they
get out boxed by AI competitors, and they don't make much money.
In that case, I'll lose money on the stock.
So that's how I'm going to judge it over the next two to three
years. I'm not going to be judging this
one based on the daily trading of the stock price.
So if you're you're looking for my opinion, if it goes down
another 3% or if it goes up another 3%.
You can rest assured that my opinion hasn't changed.
Now moving on, we get to some stocks that are not My
Portfolio. One of them here that's having a
tough day is Lululemon. And this is not just a tough
day. This is a tough year.
The stock's down now 54% year to date.
We have the CEO trying to give context to what's going on with
Lululemon, explaining that the tariffs and the de minimis tax
law changes affected the company dramatically.
But he also tries to paint the positive picture that they're
innovating and winning. We have a brand that is uniquely
positioned, a guess that's incredibly loyal.
We just know what we need to do and do it better, in particular
in a couple of key categories. He says that we have a guest
that's incredibly loyal, but that's something that I would
challenge the CEO on. What I've seen is dramatic
growth from their competitors, Aloe Yoga and Viori that are
direct competitors growing rapidly, taking market share
from Lululemon. And then there's the bigger
companies like Nike and Adidas already established that are
making products very similar and competitive to Lululemon.
'S. So they're now in a much more
competitive landscape, and I believe that's eating into their
margins and growth. And even though the stock is
down big, this is a company that I still couldn't hold in the
portfolio. There's just so much competition
in this realm. When you have a fashion brand.
Out of all the different moats, I believe that brand, especially
in fashion, is one of the most difficult to maintain.
In my opinion, it's of the weakest of all the moats that
exist. So this is not one I'm going to
be jumping into now. We also have a couple other
headlines. One of them is that Tesla board
is proposing Musk Pay package worth as much as one trillion
over a decade. The maximum payout would
represent a 12% stake in the company, contingent on
milestones including Tesla reaching a market capitalization
of 8.5 trillion. At that market value, such a
stake would be worth slightly more than one trillion.
Now, you may not expect my response here, but I think
that's fine if Elon Musk is. Able to grow Tesla to almost $9
trillion. Then he should be compensated.
I think I'm owning. 12% is fine and the shareholders in Tesla
would not be complaining if their stock goes up 8.5 X.
They're not going to complain that Elon Musk owns a portion of
the company. They would want them to have
more capital to build more stuff that they can invest in.
Now moving on, we get to continued success from Netflix.
They have this new movie. If you haven't seen it, you
probably don't have kids because if you have kids, you've likely
seen a bit of this movie whether or not you like it or not.
It's called K Pop Demon Hunters that has exploded.
K Pop Demon Hunters has now overtaken Squid Game to become
Netflix's most. Watched title ever.
Previously, the first season of Squid Game held onto the top
spot for four years. This means that the two most
popular titles in Netflix's history are both works that are
grounded in Korean culture. Squid Game is a South Korean
production. K Pop Demon Hunters, although
produced by American studio Sony Pictures, which that's a whole
other story. Sony created this and then they
sold everything to Netflix, but it was It's created with Korean
culture. It features elements of Korean
art, architecture, mythology, shamanism, food, and pop culture
embedded throughout the film. Now, if you weren't convinced by
the numbers how viral this is, we also have evidence here as
some of the best tennis players in the.
World are also. Getting in on the K pop dance.
This is Novak. He he did this dance, he says,
specifically because his daughter's obsessed with the
movie and it was her her birthday, so he wanted to do the
dance to make her happy. Netflix is now a company that
has intellectual property that Disney would be envious of.
Now I want to say that again, Netflix is winning in the
intellectual property game with products like Squid Game,
Stranger Things, and now K Pop Demons.
This is a company that's building out a library of
massive hits. When you look at K Pop Demon
Hunters, this is another product that Netflix is already in talks
to make a sequel with the same people that made the first one.
So Sony's on board. They know that they're not going
to get any of the upside, but Netflix is going to pay them to
make the sequel. And of course, Netflix is going
to merchandise this. They're going to advertise it.
It's another thing that they can promote for years to gain more
and more subscribers. So this is a situation.
Where for a long. Period of time, Disney was
talked about as a company having all the IP.
Disney has struggled with these properties since then.
They've rehashed a lot of the same ideas over and over again,
making live adaptations of the same movies that we've seen a
dozen times. And Netflix is a company that
has the newer. Fresher IP.
Which has shown that this entire time it hasn't been the
intellectual property that's the Moat.
It's been the channel of distribution.
And Netflix again proves that that's been their Moat the
entire time. It's the reason that they
continue to win. It's the reason they'll win in
the future. That's going to be for this
episode. Hope you enjoyed it.
See you in the next one.