1 00:00:00,080 --> 00:00:02,480 Welcome back everyone today on the Joseph Carlson Show. 2 00:00:02,720 --> 00:00:05,080 We just got through a busy couple of weeks. 3 00:00:05,400 --> 00:00:09,080 First of all, just yesterday we had Google and Tesla report 4 00:00:09,080 --> 00:00:11,080 their earnings. Google reported incredibly 5 00:00:11,080 --> 00:00:13,280 strong earnings, and I have a lot to say about this. 6 00:00:13,280 --> 00:00:16,880 We've had so many opinions on Google, both the big bearish 7 00:00:16,880 --> 00:00:20,680 thesis that Chachi PT was going to destroy this company. 8 00:00:20,680 --> 00:00:22,840 But Google's not only persevering, they're going 9 00:00:22,840 --> 00:00:25,200 higher. The stock is trading up today 10 00:00:25,400 --> 00:00:29,840 after trading up into earnings. It's now at a price of $193.00 11 00:00:29,840 --> 00:00:32,560 per share. Google stock is up 13% over the 12 00:00:32,560 --> 00:00:35,440 past month, doubling the performance of the S&P 500. 13 00:00:35,760 --> 00:00:38,160 And I believe that this one is going a lot further. 14 00:00:38,200 --> 00:00:41,040 In fact, after this report, it's become clear that Google's 15 00:00:41,040 --> 00:00:43,840 headed higher. The green days don't end today. 16 00:00:43,840 --> 00:00:46,160 It is going to continue. I believe Google's headed 17 00:00:46,160 --> 00:00:49,760 towards a stock price of $240 per share. 18 00:00:50,000 --> 00:00:52,560 We'll see how it goes from the current price to that number. 19 00:00:52,800 --> 00:00:54,960 In this episode. With Tesla stock, things have 20 00:00:54,960 --> 00:00:57,480 been a different story. Now this is a stock that I've 21 00:00:57,480 --> 00:01:00,520 been critical on and outspokenly critical for a couple years now. 22 00:01:00,800 --> 00:01:02,960 Tesla is a stock that trades with an incredibly high 23 00:01:02,960 --> 00:01:07,040 valuation, and it trades in many cases off of the back of Elon 24 00:01:07,040 --> 00:01:10,560 Musks commentary. He paints a bright picture, but 25 00:01:10,560 --> 00:01:13,600 despite the picture he tried to paint yesterday, even despite 26 00:01:13,600 --> 00:01:17,160 his best efforts, the stock is still down 9% on the day. 27 00:01:17,720 --> 00:01:20,440 We'll be looking at what went wrong in this earnings report, 28 00:01:20,800 --> 00:01:23,920 why Tesla is down so much on the day, and some of the realities 29 00:01:23,920 --> 00:01:27,080 that Tesla investors are facing. So we have a ton to get to. 30 00:01:27,080 --> 00:01:28,800 Now. To kick things off, we start off 31 00:01:28,800 --> 00:01:31,040 with Google. The big earnings of yesterday 32 00:01:31,040 --> 00:01:34,320 was between Google and Tesla. And when we look at Google, this 33 00:01:34,320 --> 00:01:37,080 is a company that I've been very bullish on for quite some time. 34 00:01:37,400 --> 00:01:40,240 If we look at it, it's been in both of my portfolios, in the 35 00:01:40,240 --> 00:01:43,200 passive income account, it's in the tech category and I have 36 00:01:43,200 --> 00:01:48,560 $54,000 worth of Google in this portfolio, 5000, 700 of that 37 00:01:48,560 --> 00:01:53,360 being gains, so moderate 13% increase in this portfolio. 38 00:01:53,720 --> 00:01:56,800 But in the passive income portfolio, Google is a new 39 00:01:56,800 --> 00:01:58,800 holding. So if I bring up the story fund 40 00:01:58,800 --> 00:02:01,360 here, this is my smaller secondary portfolio. 41 00:02:01,680 --> 00:02:04,880 We have Google as one of the five positions now it's a 42 00:02:04,880 --> 00:02:09,440 $41,900 position, but it has bigger gains in this portfolio 43 00:02:09,440 --> 00:02:13,080 because again, it's been here a little bit longer, $18,400 in 44 00:02:13,080 --> 00:02:14,640 gains. So if we look at both of these 45 00:02:14,640 --> 00:02:18,000 combined, Google's around a $90,000 position with a around 46 00:02:18,000 --> 00:02:20,760 $23,000 in the green. So far, it's been a great 47 00:02:20,760 --> 00:02:23,280 investment based on when I've bought the company, but I 48 00:02:23,280 --> 00:02:25,720 believe there's a lot more to go with Google. 49 00:02:25,800 --> 00:02:28,520 Let's go ahead and just bring up the stock here and we can take a 50 00:02:28,520 --> 00:02:31,160 look at a couple things. First of all, if we look at the 51 00:02:31,160 --> 00:02:34,360 most recent earnings report and the summary of what actually 52 00:02:34,360 --> 00:02:37,160 happened, it outlines what's going on with this company. 53 00:02:37,160 --> 00:02:39,840 Qualtrum gives us a summary of the most recent earnings called 54 00:02:39,840 --> 00:02:42,800 Transcript, and this really outlines everything that just 55 00:02:42,800 --> 00:02:45,160 happened this quarter. If we look at the overall 56 00:02:45,160 --> 00:02:48,080 company performance, we can see them highlighting stuff like 57 00:02:48,400 --> 00:02:52,040 Google grew record robust double digit revenue growth across 58 00:02:52,040 --> 00:02:56,160 search, YouTube, cloud, subscription and devices in Q2 59 00:02:56,160 --> 00:02:58,760 of 2025. Now that's a lot of different 60 00:02:58,760 --> 00:03:01,440 business lines to grow double digit growth, but that can't be 61 00:03:01,440 --> 00:03:04,240 accurate, right? We've heard that search is in 62 00:03:04,240 --> 00:03:07,480 trouble, that search is a dying business, it's under threat. 63 00:03:08,040 --> 00:03:11,400 How could it have grown double digit revenue if it's in 64 00:03:11,400 --> 00:03:13,720 decline, if it's being disrupted? 65 00:03:13,760 --> 00:03:16,240 If we go back to the insights page here, we have a section 66 00:03:16,240 --> 00:03:18,280 where we can look at the revenue by segment. 67 00:03:18,320 --> 00:03:21,880 This breaks it all up into the different factions of Google we 68 00:03:21,880 --> 00:03:24,080 have here Search. Let's go ahead and just outline 69 00:03:24,080 --> 00:03:27,760 this one alone. And search grew year over year 70 00:03:27,960 --> 00:03:32,200 by 11.71%. Now that's an acceleration from 71 00:03:32,200 --> 00:03:35,040 the previous quarter. So not only did search grow 72 00:03:35,040 --> 00:03:38,200 double digits, but it grew double digits, accelerating its 73 00:03:38,200 --> 00:03:40,640 growth sequentially. Google search is actually 74 00:03:40,640 --> 00:03:45,040 growing at an accelerated pace. If we smooth this out to a 75 00:03:45,040 --> 00:03:48,600 quarterly trailing 12 months, Google search is continually 76 00:03:48,600 --> 00:03:52,120 growing quarter after quarter, after quarter after quarter 77 00:03:52,360 --> 00:03:54,960 after quarter, so on and so forth. 78 00:03:55,520 --> 00:03:58,920 For around 10 quarters in a row, Google search has grown 79 00:03:58,920 --> 00:04:01,960 continually at a pace of above 10%. 80 00:04:02,400 --> 00:04:04,480 In most cases it's growing around 12%. 81 00:04:04,560 --> 00:04:07,240 Now you've heard this again from different analysts that Google 82 00:04:07,240 --> 00:04:09,520 search is in trouble, that's being disrupted. 83 00:04:09,760 --> 00:04:12,480 But when you look at the data, you do not see any of that right 84 00:04:12,480 --> 00:04:13,880 now. Now, if we go and look at this 85 00:04:13,880 --> 00:04:16,920 on a quarterly basis just to see this most recent quarter, we can 86 00:04:16,920 --> 00:04:18,240 go ahead and take a look at YouTube. 87 00:04:18,519 --> 00:04:21,160 This is another thing they outline that had robust double 88 00:04:21,160 --> 00:04:23,880 digit growth. YouTube grew by 13%. 89 00:04:24,480 --> 00:04:28,040 So we have Google Search growing 12%, we have YouTube growing 90 00:04:28,040 --> 00:04:32,680 13%, we have subscriptions growing 20%. 91 00:04:33,160 --> 00:04:35,840 So subscriptions counts things like YouTube Premium. 92 00:04:36,160 --> 00:04:39,000 So it's a little bit of an overlap between YouTube and the 93 00:04:39,000 --> 00:04:42,440 subscription category. But the subscription section of 94 00:04:42,440 --> 00:04:45,200 Google, which encompasses lots of businesses, all the 95 00:04:45,200 --> 00:04:48,720 subscriptions they sell, is growing 20% year over year. 96 00:04:48,920 --> 00:04:51,640 That's high margin revenue and again, it accelerated from the 97 00:04:51,640 --> 00:04:55,400 previous quarter. We have Google Cloud, one of the 98 00:04:55,400 --> 00:04:59,680 most preeminent businesses in the world, growing 31 year over 99 00:04:59,680 --> 00:05:02,720 year, accelerating sequentially from last quarter. 100 00:05:03,280 --> 00:05:07,120 So again, we have massive growth in key businesses in Google. 101 00:05:07,280 --> 00:05:11,160 These businesses, cloud subscription, YouTube and search 102 00:05:11,480 --> 00:05:14,400 make up the vast majority of Google and combined they're 103 00:05:14,400 --> 00:05:17,480 growing at 15.6%. Now, of course, we're leaving 104 00:05:17,480 --> 00:05:20,440 out the relatively tiny business, which is Waymo 105 00:05:20,480 --> 00:05:23,560 encompassed in other Bets. You can see it as a tiny sliver 106 00:05:23,560 --> 00:05:25,720 here, but we'll talk more about that one in a minute. 107 00:05:25,720 --> 00:05:27,880 So we have a differentiation of narrative here. 108 00:05:27,880 --> 00:05:30,280 We've heard from many top analysts, many people that 109 00:05:30,280 --> 00:05:34,320 Google is this aging business. It's like an IBM it no longer 110 00:05:34,320 --> 00:05:37,360 has meaningful growth drivers, but then the first thing that 111 00:05:37,360 --> 00:05:40,040 Google outlines in their earnings report is that they're 112 00:05:40,040 --> 00:05:43,280 having double digit robust growth in every core category of 113 00:05:43,280 --> 00:05:45,760 their business, including search, which is supposed to be 114 00:05:45,760 --> 00:05:48,360 being disrupted. Not only that, but Google is 115 00:05:48,360 --> 00:05:50,880 leading in artificial intelligence in many meaningful 116 00:05:50,880 --> 00:05:53,760 verticals. AI is driving major momentum 117 00:05:53,760 --> 00:05:56,640 across all business lines with a rapid product releases 118 00:05:56,840 --> 00:06:00,480 leveraging alphabets, full stack AI infrastructure, research 119 00:06:00,480 --> 00:06:05,560 models and consumer platforms. Alphabet processed over 980 120 00:06:05,560 --> 00:06:10,120 trillion monthly tokens with its AI models doubling the figures 121 00:06:10,120 --> 00:06:14,080 announced a few months prior, so doubling the amount of AI tokens 122 00:06:14,280 --> 00:06:17,440 in only a few months. Investments in AI optimize 123 00:06:17,440 --> 00:06:21,360 infrastructure, TP US GP, U.S., data centers, world class 124 00:06:21,360 --> 00:06:24,200 research. Notably the Gemini 2.5 models 125 00:06:24,520 --> 00:06:27,920 and the product integrations are credited as pillars of 126 00:06:27,920 --> 00:06:30,000 Alphabet's competitive position in AI. 127 00:06:30,680 --> 00:06:33,160 So they have some of the most technologically advanced 128 00:06:33,280 --> 00:06:36,560 artificial intelligence infrastructure and models. 129 00:06:36,600 --> 00:06:40,120 At the same time, Google controls the entire full stack 130 00:06:40,120 --> 00:06:42,640 from hardware to software and distribution. 131 00:06:42,640 --> 00:06:44,720 Along the way. Google is a structurally 132 00:06:44,720 --> 00:06:47,840 advantage company, not one that's under distress now. 133 00:06:47,840 --> 00:06:50,600 One thing that investors may have argued is that Google's 134 00:06:50,600 --> 00:06:53,840 only growing the top line revenue in search because 135 00:06:53,840 --> 00:06:56,720 they're just pumping you full of ads and that's all they're 136 00:06:56,720 --> 00:06:57,880 doing. They're just increasing the 137 00:06:57,880 --> 00:07:01,080 number of ads even though search volume is declining. 138 00:07:01,520 --> 00:07:04,680 And that's not the case either. Google management was clear to 139 00:07:04,680 --> 00:07:07,960 outline that search delivered double digit revenue growth with 140 00:07:07,960 --> 00:07:12,280 strong expansion in both query and commercial activity. 141 00:07:12,440 --> 00:07:16,680 They had strong expansion in query volume, meaning more 142 00:07:16,680 --> 00:07:20,720 searches, not just more ads or more monetization per search, 143 00:07:20,800 --> 00:07:22,440 but a greater number of searches. 144 00:07:22,520 --> 00:07:24,720 This is something of course we've known about for a while 145 00:07:24,720 --> 00:07:27,720 because Google has been saying this quarter after quarter after 146 00:07:27,720 --> 00:07:29,720 quarter. A few months ago, they released 147 00:07:29,720 --> 00:07:33,360 a blog post saying that they've reached all new highs and search 148 00:07:33,360 --> 00:07:35,920 query volume. So anyone that's been bearish on 149 00:07:35,920 --> 00:07:39,840 search because of volume declines or advertising declines 150 00:07:40,040 --> 00:07:42,000 has not been paying attention to the numbers. 151 00:07:42,400 --> 00:07:45,040 Google is growing this business quarter after quarter. 152 00:07:45,040 --> 00:07:47,880 Now they highlighted that this new mode, which I'm sure you've 153 00:07:47,880 --> 00:07:51,280 tried on Google, you type in a search and if it's a product 154 00:07:51,280 --> 00:07:53,280 search, they'll just show you the products. 155 00:07:53,720 --> 00:07:57,520 But if you type in a deep question in Google search, one 156 00:07:57,520 --> 00:08:01,160 with nuance and context, all of a sudden you'll get an AI 157 00:08:01,160 --> 00:08:03,840 overview. It'll be a text answer that will 158 00:08:03,840 --> 00:08:05,480 specifically answer your question. 159 00:08:05,680 --> 00:08:08,640 That's AI overviews. Then if you want to dig deeper 160 00:08:08,640 --> 00:08:11,960 and have a conversation with Google, you can go into AI mode 161 00:08:12,000 --> 00:08:14,480 and ask follow up context questions. 162 00:08:14,480 --> 00:08:17,520 That's a new thing that Google just released to everyone and 163 00:08:17,520 --> 00:08:19,880 they say that that's driving higher engagement. 164 00:08:20,080 --> 00:08:23,920 With over 100 million active users in AI mode in the US and 165 00:08:23,920 --> 00:08:27,480 India, that number is going to grow tremendously over time. 166 00:08:27,840 --> 00:08:30,360 So AI mode is really just getting started. 167 00:08:30,880 --> 00:08:34,600 The multimodal search experience Lens Circle to Search are 168 00:08:34,600 --> 00:08:37,600 rapidly adopted, especially by younger users. 169 00:08:37,919 --> 00:08:40,520 Lens search grew by 70% year over year. 170 00:08:40,760 --> 00:08:44,120 Circle to Search is now on 300 million Android devices. 171 00:08:44,600 --> 00:08:47,800 Virtual try ONS and AI power translation in search is seeing 172 00:08:47,800 --> 00:08:50,800 positive user engagement, particularly amongst Gen. 173 00:08:50,800 --> 00:08:53,160 Z. They have AI overviews, and this 174 00:08:53,160 --> 00:08:54,920 is important to understand what they're saying here. 175 00:08:55,400 --> 00:08:58,520 Anywhere where there's AI overviews enabled, they're 176 00:08:58,520 --> 00:09:00,800 getting 10% more queries globally. 177 00:09:01,240 --> 00:09:04,880 So anytime that they put this feature in, people increase 178 00:09:04,880 --> 00:09:08,160 their usage of Google Search, not decrease it. 179 00:09:08,400 --> 00:09:11,160 And that's another narrative that bears thought that AI 180 00:09:11,160 --> 00:09:13,080 overviews would cannibalize search. 181 00:09:13,440 --> 00:09:16,280 It would reduce the total numbers of searches because you 182 00:09:16,280 --> 00:09:18,240 no longer have those 10 blue links. 183 00:09:18,640 --> 00:09:20,120 And it's doing just the opposite. 184 00:09:20,320 --> 00:09:23,520 People are actually engaging at an increased number with Google 185 00:09:23,520 --> 00:09:27,040 Search, with AI being enabled. So overall, what we're seeing 186 00:09:27,040 --> 00:09:30,720 with Google Search, especially with the AI enhancements, is the 187 00:09:30,720 --> 00:09:34,200 complete total opposite of what the bears have been telling us. 188 00:09:34,640 --> 00:09:37,280 They've been telling us that this is going to cannibalize the 189 00:09:37,280 --> 00:09:41,080 business or that the business would shift over to ChatGPT and 190 00:09:41,080 --> 00:09:44,040 other LLMS. But what we see in the data 191 00:09:44,040 --> 00:09:47,680 quarter after quarter, after quarter, so on and so forth, for 192 00:09:47,680 --> 00:09:51,560 10 quarters in a row for years after ChatGPT has been released 193 00:09:51,920 --> 00:09:55,360 is continual search volume growth, continual engagement, 194 00:09:55,560 --> 00:09:58,640 more customers, more revenue, higher ad rates. 195 00:09:59,000 --> 00:10:01,800 Everything has grown since these threats have appeared. 196 00:10:02,160 --> 00:10:04,760 And this is consistent with Google's long term history. 197 00:10:05,240 --> 00:10:08,800 Google has not faced LLMS as the first competitor to search. 198 00:10:09,080 --> 00:10:12,480 They faced many competitors to this business for decades of 199 00:10:12,480 --> 00:10:15,480 time and have still grown. Now moving on, we get to 200 00:10:15,480 --> 00:10:17,880 YouTube. I've said repeatedly based on 201 00:10:17,880 --> 00:10:21,480 Google stock price today, YouTube and cloud, these two 202 00:10:21,480 --> 00:10:24,520 businesses combined give you an immense amount of downside 203 00:10:24,520 --> 00:10:26,920 protection. To put this in perspective, if 204 00:10:26,920 --> 00:10:30,720 we go down to Google's revenue, we could completely erase search 205 00:10:31,080 --> 00:10:34,080 and just looking at the other business lines of Google, this 206 00:10:34,080 --> 00:10:37,280 company would likely still be worth its current market cap in 207 00:10:37,280 --> 00:10:41,200 around five years. Now obviously in practicality, 208 00:10:41,200 --> 00:10:44,480 if Google search really went to zero, the stock probably 209 00:10:44,480 --> 00:10:46,880 wouldn't perform well. But if you actually look at the 210 00:10:46,880 --> 00:10:50,520 numbers and what these companies are actually worth, Google Cloud 211 00:10:50,520 --> 00:10:53,160 and YouTube are massive businesses. 212 00:10:53,600 --> 00:10:56,040 Each one of them are incredibly huge businesses. 213 00:10:56,280 --> 00:10:58,680 If you look at what they're producing in and of themselves, 214 00:10:58,960 --> 00:11:01,440 they're producing 10s of billions of dollars of free cash 215 00:11:01,440 --> 00:11:04,160 flow every year. In five years, YouTube is likely 216 00:11:04,160 --> 00:11:06,040 to be twice as big as it is today. 217 00:11:06,320 --> 00:11:09,520 Google Clouds likely to be 3 or 4 times as big as it is today. 218 00:11:09,800 --> 00:11:12,280 So both of these are going to be even much bigger businesses in 219 00:11:12,280 --> 00:11:14,800 the future. So this gives you a lot of 220 00:11:14,800 --> 00:11:17,680 downside protection looking at these two companies. 221 00:11:17,680 --> 00:11:20,240 Now, if we look at YouTube's performance specifically, we 222 00:11:20,240 --> 00:11:22,160 also saw very strong performance. 223 00:11:22,240 --> 00:11:25,880 YouTube saw strong growth, ad revenue up 13% and continued 224 00:11:25,880 --> 00:11:29,880 momentum in subscriptions with Shorts becoming a major success. 225 00:11:30,240 --> 00:11:34,000 200 million daily views. I remember when there used to be 226 00:11:34,000 --> 00:11:38,440 a bear case that Tiktok was going to steal all the creators 227 00:11:38,440 --> 00:11:42,760 and content from YouTube to Tiktok when in reality all it 228 00:11:42,760 --> 00:11:46,280 did was encourage YouTube to move into shorts and now 229 00:11:46,280 --> 00:11:48,960 Schwartz is a major growth driver for the company. 230 00:11:49,400 --> 00:11:53,280 We have monetization of Schwartz now on par with traditional in 231 00:11:53,280 --> 00:11:57,240 stream ads in certain regions. YouTube has been leading the US 232 00:11:57,240 --> 00:12:00,120 in streaming platforms by watch time for two plus years, 233 00:12:00,400 --> 00:12:04,520 accounting for a record 12.8%. If you listen to Netflix's 234 00:12:04,520 --> 00:12:07,600 earnings call, they highlight YouTube as their biggest 235 00:12:07,600 --> 00:12:11,160 streaming competitor because by total engagement, YouTube is 236 00:12:11,160 --> 00:12:13,680 their biggest competitor. Netflix is trying to figure out 237 00:12:13,680 --> 00:12:17,640 ways to take craters from YouTube, but it's very difficult 238 00:12:17,640 --> 00:12:19,840 to do. YouTube has a commanding 239 00:12:19,840 --> 00:12:24,280 position in streaming on the television, not counting mobile 240 00:12:24,280 --> 00:12:27,200 devices, which YouTube is obviously the biggest streamer 241 00:12:27,200 --> 00:12:29,600 on mobile devices. Then we have new AI tools, 242 00:12:29,600 --> 00:12:32,480 enhancing recommendations, translation, creative assets, 243 00:12:32,600 --> 00:12:35,400 generating for shorts. And you might think these little 244 00:12:35,400 --> 00:12:38,400 enhancements are just small things, but many of them are 245 00:12:38,400 --> 00:12:42,480 very big meaningful things. For example, in translations now 246 00:12:42,480 --> 00:12:46,360 my podcast and my YouTube videos are translated into like 15 247 00:12:46,360 --> 00:12:49,880 different languages, and we have many viewers now listening to 248 00:12:49,920 --> 00:12:53,960 this podcast in those different languages automatically dubbed 249 00:12:53,960 --> 00:12:56,040 through AI. That is an incredible 250 00:12:56,040 --> 00:12:58,120 enhancement with artificial intelligence. 251 00:12:58,600 --> 00:13:02,080 It can grow the audiences of Youtubers internationally 252 00:13:02,240 --> 00:13:05,600 without any additional work, without any frictional cost. 253 00:13:05,960 --> 00:13:09,400 I don't have to hire translators because AI is doing that for me. 254 00:13:09,440 --> 00:13:12,840 YouTube is now also a massive subscription business. 255 00:13:12,840 --> 00:13:16,080 We know that they have well over 100 million subscribers to 256 00:13:16,080 --> 00:13:19,840 YouTube Premium, and that number is growing every single quarter. 257 00:13:19,840 --> 00:13:22,440 Now we move on to Google Cloud, which is another incredible 258 00:13:22,440 --> 00:13:25,480 asset that Google owns. In many cases, Google has done 259 00:13:25,480 --> 00:13:27,640 some things that I didn't expect them to do. 260 00:13:28,240 --> 00:13:33,320 I knew that AWS and Microsoft's Azure would likely be in #1 or 261 00:13:33,320 --> 00:13:36,720 #2 and I thought that Google Cloud would grow rapidly. 262 00:13:36,720 --> 00:13:40,000 But I will admit, I've underestimated how fast Google 263 00:13:40,000 --> 00:13:43,240 Cloud would grow, how well positioned they were to take 264 00:13:43,240 --> 00:13:46,760 advantage of AI Cloud. Google Cloud posted revenue 265 00:13:46,760 --> 00:13:52,280 growth up 32% to 13.6 billion with significant margin 266 00:13:52,280 --> 00:13:56,040 improvement, operating margins of 20.7%. 267 00:13:56,040 --> 00:13:58,720 These numbers are massive. Let's go ahead and take a look 268 00:13:58,720 --> 00:14:01,120 at them visualized. We can again cross out the other 269 00:14:01,120 --> 00:14:03,160 segments and take a look at Google Cloud here. 270 00:14:03,480 --> 00:14:08,920 The growth of 31.67% quarter over quarter last quarter and 271 00:14:08,920 --> 00:14:11,600 notice the big jump up. This is meaningful growth 272 00:14:11,600 --> 00:14:14,120 quarter over quarter. The sequential growth is 273 00:14:14,120 --> 00:14:16,760 tremendous. Cloud is truly accelerating 274 00:14:16,760 --> 00:14:20,640 because of Google's AI offering and some of the commentary leads 275 00:14:20,640 --> 00:14:23,280 me to believe that Google Cloud may actually continue to 276 00:14:23,280 --> 00:14:26,000 accelerate growth in the future. Again, this is a business that 277 00:14:26,000 --> 00:14:28,920 Google invested heavily in for a long period of time. 278 00:14:28,920 --> 00:14:32,120 It's a very expensive business to start cloud even with the 279 00:14:32,120 --> 00:14:34,440 pre-existing infrastructure that Google had. 280 00:14:34,480 --> 00:14:37,120 If we look at the amount of employees that Google has hired 281 00:14:37,120 --> 00:14:41,400 over the years from 2015 they had 60,000, then they had a peak 282 00:14:41,400 --> 00:14:45,960 of 190,000 employees. So massive growth in the number 283 00:14:45,960 --> 00:14:49,600 of employees, the huge majority of incremental additional 284 00:14:49,600 --> 00:14:53,760 employees were because of cloud. These employees were here to 285 00:14:53,760 --> 00:14:56,400 grow Google Cloud, to build out the infrastructure. 286 00:14:56,400 --> 00:14:59,160 And when we look at the profitability, specifically the 287 00:14:59,160 --> 00:15:02,760 operating margins of Google Cloud, back in 2019, many 288 00:15:02,760 --> 00:15:05,520 investors looking at this company would have seen it as a 289 00:15:05,520 --> 00:15:10,360 huge problem for Google. It had -60% operating margins 290 00:15:10,400 --> 00:15:13,960 losing billions and billions of dollars, a massive loser for 291 00:15:13,960 --> 00:15:15,560 Google. But what does this company do? 292 00:15:15,560 --> 00:15:18,160 They invest heavily in cloud because they can likely predict 293 00:15:18,160 --> 00:15:21,160 the outcome over time. They move margins up continually 294 00:15:21,400 --> 00:15:29,800 from -60 to -47 to -35 -, 30 -, 20 - 10, and it floats around 295 00:15:29,800 --> 00:15:32,560 here for a couple years. And then we enter into positive 296 00:15:32,560 --> 00:15:36,080 margin category in Q1 of 2023 from there. 297 00:15:36,080 --> 00:15:40,000 Google Cloud finally flips to making profits and now the 298 00:15:40,000 --> 00:15:44,760 margins are continually racing up from 17.8% last quarter to 299 00:15:44,760 --> 00:15:47,680 this most recent quarter being at 20.7%. 300 00:15:47,720 --> 00:15:50,800 Now it's a high margin, profitable business and most 301 00:15:50,800 --> 00:15:54,720 companies would love to just be at 20% margins, but Google Cloud 302 00:15:54,720 --> 00:15:57,320 isn't done. This is going to go up to 30% 303 00:15:57,320 --> 00:16:00,360 margins and higher. Management noted continually how 304 00:16:00,360 --> 00:16:02,960 much demand they have for their cloud products. 305 00:16:03,320 --> 00:16:06,120 They said there's high demand for AI products. 306 00:16:06,560 --> 00:16:11,360 The number of $250 million or greater deals doubled year over 307 00:16:11,360 --> 00:16:15,400 year, multiple one plus billion dollar contracts signed in the 308 00:16:15,400 --> 00:16:18,120 first half of 2025. So we're halfway through the 309 00:16:18,120 --> 00:16:21,320 year and they've already reached the record of deals signed that 310 00:16:21,320 --> 00:16:24,320 they had in all of 2024. Not only is Google Cloud 311 00:16:24,320 --> 00:16:26,840 growing, but the demand is accelerating beyond their 312 00:16:26,840 --> 00:16:30,280 growth. They have 85,000 plus new GCP 313 00:16:30,280 --> 00:16:34,080 enterprise customers on board in Q2, led by demand for Gemini 314 00:16:34,080 --> 00:16:37,600 powered products. The figure cited Cloud now has 315 00:16:37,600 --> 00:16:43,120 surpassed $50 billion in annual run rate revenue backlog of 106 316 00:16:43,120 --> 00:16:47,280 billion, up 38% year over year. They are gaining customers 317 00:16:47,280 --> 00:16:48,960 faster than they can even fulfill them. 318 00:16:49,400 --> 00:16:51,960 Investments in AI infrastructure, optimized 319 00:16:51,960 --> 00:16:56,200 software, agentic tools and deep integration across industries is 320 00:16:56,200 --> 00:16:58,440 also highlighted. Now, one thing I noted right 321 00:16:58,440 --> 00:17:01,720 after the earnings report was that GUI initially posted the 322 00:17:01,720 --> 00:17:05,040 beat on the top and bottom line and then immediately the stock 323 00:17:05,040 --> 00:17:08,560 fell 2% because they weren't generating as much free cash 324 00:17:08,560 --> 00:17:11,520 flow because Google is spending so much on CapEx. 325 00:17:12,079 --> 00:17:16,079 So Google is now spending a fortune on capital expenditures. 326 00:17:16,079 --> 00:17:17,560 And I want to just mention this for a minute. 327 00:17:17,599 --> 00:17:20,760 If you sell a company like Google, because they're 328 00:17:20,760 --> 00:17:23,640 investing in more server capacity, they're building out 329 00:17:23,640 --> 00:17:26,560 more infrastructure for cloud, I believe that is one of the 330 00:17:26,560 --> 00:17:29,360 dumbest reasons possible to sell a company. 331 00:17:29,360 --> 00:17:32,200 That would be as though you go to something like Texas 332 00:17:32,200 --> 00:17:33,720 Roadhouse. Let's bring up this company 333 00:17:33,720 --> 00:17:35,360 here. Let's say that Texas Roadhouse 334 00:17:35,360 --> 00:17:37,800 had an earnings report where they said that we have so much 335 00:17:37,800 --> 00:17:40,960 demand for our restaurants. We want to build 10 more of 336 00:17:40,960 --> 00:17:42,640 them. We want to build them this next 337 00:17:42,640 --> 00:17:44,800 quarter because we just have too many customers. 338 00:17:45,120 --> 00:17:46,920 They're lining up out, out the doors. 339 00:17:46,920 --> 00:17:48,840 We can't, we can't serve all these customers. 340 00:17:48,840 --> 00:17:51,800 So we need more restaurants to build those restaurants. 341 00:17:51,800 --> 00:17:56,200 We need $100 million of CapEx, so we're going to invest $100 342 00:17:56,200 --> 00:17:58,840 million of CapEx and build 10 more restaurants. 343 00:17:58,920 --> 00:18:02,560 It would be as though investors heard that news and decided to 344 00:18:02,560 --> 00:18:04,480 sell the stock. They said, Oh no, I don't want 345 00:18:04,480 --> 00:18:06,360 to own a company that has so much demand. 346 00:18:06,360 --> 00:18:09,200 They need to invest more so they can serve more customers and 347 00:18:09,200 --> 00:18:11,840 become more profitable. That's essentially what Google 348 00:18:11,840 --> 00:18:15,520 investors initially did. They sold the company because of 349 00:18:15,520 --> 00:18:19,040 the CapEx headline, not really looking into the reason that 350 00:18:19,040 --> 00:18:22,680 Google's investing more CapEx. Google's CapEx was increased not 351 00:18:22,680 --> 00:18:25,680 as maintenance CapEx, but as investment CapEx. 352 00:18:26,000 --> 00:18:28,920 They're investing far more specifically into Google Cloud, 353 00:18:29,320 --> 00:18:32,240 and these highlights here show how much demand this company 354 00:18:32,240 --> 00:18:35,000 has. The capacity growth is ongoing, 355 00:18:35,000 --> 00:18:37,880 but the environment remains tight and CapEx is being 356 00:18:37,880 --> 00:18:42,000 increased to accommodate demand. So selling Google because the 357 00:18:42,000 --> 00:18:44,960 free cash flow has taken a temporary hit due to increased 358 00:18:44,960 --> 00:18:48,200 CapEx investment, is just like selling Texas Roadhouse because 359 00:18:48,200 --> 00:18:50,800 they have so many customers. They want to open up more 360 00:18:50,800 --> 00:18:53,800 restaurants or selling Costco because their warehouses are too 361 00:18:53,800 --> 00:18:56,000 full and they want to build more of them. 362 00:18:56,120 --> 00:18:59,720 You don't sell companies because they have too much demand and 363 00:18:59,720 --> 00:19:02,160 too many customers. Now Google is a vast business 364 00:19:02,160 --> 00:19:03,840 with many different meaningful segments. 365 00:19:04,120 --> 00:19:07,160 The next one we get to here is Waymo and other Bets. 366 00:19:07,480 --> 00:19:09,800 Waymo expanded operations to new markets. 367 00:19:09,800 --> 00:19:13,120 We have Atlanta, increasing coverage in Austin, Los Angeles 368 00:19:13,120 --> 00:19:16,880 and the Bay Area and introduced teens accounts in Phoenix. 369 00:19:17,240 --> 00:19:19,960 Waymo's autonomous vehicle surpassed 100 million miles 370 00:19:19,960 --> 00:19:23,120 driven in public routes. The plans are in place to test 371 00:19:23,320 --> 00:19:26,560 and eventually serve 10 U.S. cities in 2025. 372 00:19:26,560 --> 00:19:29,320 So they are testing currently 10 more cities. 373 00:19:29,880 --> 00:19:32,960 Investment remains focused on scaling high potential projects 374 00:19:32,960 --> 00:19:35,200 with other bets. Every week it seems like Waymo's 375 00:19:35,200 --> 00:19:38,480 testing a new city or opening up or expanding new territories, 376 00:19:38,720 --> 00:19:41,640 hitting new metrics of the amount of customers served every 377 00:19:41,640 --> 00:19:44,080 week and we see this continued expansion. 378 00:19:44,400 --> 00:19:48,040 Waymo is the real deal. They are getting people from 379 00:19:48,040 --> 00:19:51,840 point A to point B without any type of driver assistant in the 380 00:19:51,840 --> 00:19:53,800 vehicle. Their records are public. 381 00:19:53,880 --> 00:19:57,120 Their safety record is public. It is an incredibly safe and 382 00:19:57,120 --> 00:20:00,200 expanding operation of a real robo taxi network network. 383 00:20:00,200 --> 00:20:01,760 This is the leader in this category. 384 00:20:01,840 --> 00:20:04,360 They're expanding quickly with 10 new cities being tested. 385 00:20:04,360 --> 00:20:07,000 This company should be worth dozens of times their revenue 386 00:20:07,000 --> 00:20:09,600 multiple based on the potential of this business. 387 00:20:09,960 --> 00:20:12,960 But if you look at the numbers, Waymo's essentially not getting 388 00:20:13,000 --> 00:20:15,720 any bid at all. It's not really factored into 389 00:20:15,720 --> 00:20:19,240 the valuation of Google, even though it's real, it's working 390 00:20:19,280 --> 00:20:21,560 and it's growing rapidly. Now when we look at the outlook 391 00:20:21,560 --> 00:20:24,240 with Google and what to expect ahead, we just got through 392 00:20:24,240 --> 00:20:27,840 another quarter, another one of 14% year over year revenue 393 00:20:27,840 --> 00:20:30,040 growth. So a fast growing business. 394 00:20:30,320 --> 00:20:35,160 Operating income was up 14%. We have net income up 19% and 395 00:20:35,160 --> 00:20:39,680 earnings per share up 22%. These are great numbers after 396 00:20:39,680 --> 00:20:41,960 great numbers after great numbers when we move 397 00:20:41,960 --> 00:20:45,160 specifically in the CapEx, this is the number that caused a few 398 00:20:45,160 --> 00:20:47,320 investors a little bit of concern. 399 00:20:47,640 --> 00:20:51,800 They bumped up their CapEx to $85 billion for 2025. 400 00:20:52,160 --> 00:20:54,080 Their prior guidance was 75 billion. 401 00:20:54,360 --> 00:20:57,360 So they're bumping up their CapEx guidance by $10 billion. 402 00:20:57,360 --> 00:21:01,880 And they noted this is likely to increase in 2026, primarily to 403 00:21:01,880 --> 00:21:05,880 expand technical infrastructure supporting cloud and AI. 404 00:21:06,560 --> 00:21:10,280 When you have a cloud business like Google growing 32% year 405 00:21:10,280 --> 00:21:14,880 over year, gaining multiple $1 billion deal contracts, growing 406 00:21:14,880 --> 00:21:19,320 the amount of contract volume by 38%, that is something that you 407 00:21:19,320 --> 00:21:21,120 have to build infrastructure for. 408 00:21:21,680 --> 00:21:24,400 This is an incredibly important business, and Google's doing 409 00:21:24,400 --> 00:21:26,880 right to invest in this business for the future. 410 00:21:27,120 --> 00:21:30,040 It's the same thing I want to see with Microsoft and the same 411 00:21:30,040 --> 00:21:32,440 thing I want to see with Amazon. We have free cash flow for the 412 00:21:32,440 --> 00:21:36,680 quarter being impacted by this higher CapEx and a tax payment 413 00:21:37,240 --> 00:21:40,240 ending with $95 billion in cash and marketable securities. 414 00:21:40,520 --> 00:21:43,200 So they have a ton of cash on hand and they had someone time 415 00:21:43,200 --> 00:21:45,680 expenses, specifically legal expenses. 416 00:21:45,680 --> 00:21:47,800 So we have all of that going on with Google. 417 00:21:47,880 --> 00:21:51,480 Overall, this was a master class of an earnings report, yet 418 00:21:51,480 --> 00:21:54,200 another earnings report where Google shows that it's not a 419 00:21:54,200 --> 00:21:56,680 distressed company. It's not one that's going 420 00:21:56,680 --> 00:21:58,360 through immense amounts of trouble. 421 00:21:58,880 --> 00:22:00,680 It's one that's off to the races. 422 00:22:00,960 --> 00:22:03,560 They are moving ahead. They're growing revenue in key 423 00:22:03,560 --> 00:22:05,280 territories. They're investing for the 424 00:22:05,280 --> 00:22:06,960 future. They're leading an AI. 425 00:22:06,960 --> 00:22:08,480 They're maintaining their market share. 426 00:22:08,720 --> 00:22:10,960 They're producing more and more net profits. 427 00:22:11,040 --> 00:22:13,800 They're the most profitable net income company on the planet. 428 00:22:14,400 --> 00:22:18,360 Yet there's many people, many investors and analysts, they 429 00:22:18,360 --> 00:22:21,040 still have tried to portray this company's struggling for the 430 00:22:21,040 --> 00:22:23,960 past six months. In fact, they've tried to stoke 431 00:22:23,960 --> 00:22:27,800 fear in this company, repeatedly telling you that Google's 432 00:22:27,800 --> 00:22:30,520 distressed, that it's in trouble when it's not. 433 00:22:30,880 --> 00:22:33,120 And many of these investors have different motives. 434 00:22:33,120 --> 00:22:35,560 Here I want to highlight a couple investors and analysts 435 00:22:35,560 --> 00:22:38,080 that have continually trashed Google over the past six months, 436 00:22:38,280 --> 00:22:41,880 stocking fear in the company, talking about how ChatGPT is 437 00:22:41,880 --> 00:22:44,760 going to kill the business. The first one is Gene Munster. 438 00:22:45,320 --> 00:22:48,760 He was interviewed closely after Google's earnings report and he 439 00:22:48,760 --> 00:22:52,560 completely swapped his thesis on Google after spending months on 440 00:22:52,560 --> 00:22:55,720 end appearing on TV stocking fear in Google, investors 441 00:22:55,960 --> 00:22:58,440 talking about how you should avoid this company at all costs. 442 00:22:58,720 --> 00:23:00,400 Here's what Gene Munster has to say. 443 00:23:00,840 --> 00:23:03,840 So that was a surprise. They also mentioned on the call 444 00:23:03,840 --> 00:23:07,760 that paid clicks were up 4% year over year and just a really 445 00:23:07,760 --> 00:23:10,080 shocking number. If we rewind back to the first 446 00:23:10,080 --> 00:23:14,320 part of May when you know Apple, what EQ is talking about, this 447 00:23:14,320 --> 00:23:17,800 decline in search within Safari, it would be hard for me to have 448 00:23:17,800 --> 00:23:20,640 imagined that paid clicks are going to be up 4%. 449 00:23:20,640 --> 00:23:23,960 So when I put all this together, Melissa, somebody like myself 450 00:23:23,960 --> 00:23:27,440 who's been bearish over the last six months, I'm in the camp that 451 00:23:27,440 --> 00:23:31,120 this stock is probably going to move meaningfully higher over 452 00:23:31,120 --> 00:23:36,680 the next few days, 510% higher, in part because we should have 453 00:23:36,680 --> 00:23:39,440 seen something this quarter given everything that's going 454 00:23:39,440 --> 00:23:41,000 on. And what we should have seen 455 00:23:41,000 --> 00:23:44,000 something happen this quarter given everything that's going 456 00:23:44,000 --> 00:23:45,720 on. But we didn't. 457 00:23:46,120 --> 00:23:49,760 And when he says we, he's referring to the Google Bears, 458 00:23:50,200 --> 00:23:52,040 the ones that have been espousing how the search 459 00:23:52,040 --> 00:23:54,920 business is in trouble, the ones that have been warning you about 460 00:23:54,920 --> 00:23:57,160 Google despite all the positive qualities of it. 461 00:23:57,560 --> 00:24:00,960 Gene Munster has now flipped his thesis on Google, and he's 462 00:24:00,960 --> 00:24:03,800 bullish on the company now, saying that it's going to go up 463 00:24:03,800 --> 00:24:07,560 another 10%. Based on this report, the bears 464 00:24:07,640 --> 00:24:10,680 are giving up. The thesis that they have that 465 00:24:10,680 --> 00:24:15,120 ChatGPT is the destroyer of Google is simply just dying. 466 00:24:15,280 --> 00:24:19,800 It's dying in front of our eyes. That thesis has lived for years 467 00:24:19,800 --> 00:24:22,720 now, and we're finally seeing the tail end of it. 468 00:24:23,000 --> 00:24:25,720 We're seeing the biggest bears, the biggest promoters of that 469 00:24:25,720 --> 00:24:28,480 thesis start to give up and capitulate. 470 00:24:28,520 --> 00:24:31,760 They're starting to turn on a dime now, going from bearish on 471 00:24:31,760 --> 00:24:34,520 Google to bullish. And Gene Munster is not the only 472 00:24:34,520 --> 00:24:36,120 one. One of the biggest bears on 473 00:24:36,120 --> 00:24:39,040 Google, someone that has repeatedly stoked fare in this 474 00:24:39,040 --> 00:24:42,520 company is also an investor in Open AI, which is the owner of 475 00:24:42,520 --> 00:24:45,920 Chachi PT, is Brad Gerstner. Here's some of the things that 476 00:24:45,920 --> 00:24:49,360 he told us over the years. Google has been a monopoly, a 477 00:24:49,360 --> 00:24:54,480 tax collector on everything on the Internet for 20 years, OK. 478 00:24:55,000 --> 00:24:59,960 And they have monopoly pricing on search and so that they are 479 00:24:59,960 --> 00:25:04,560 the verb that collects the tax. And what I said was that the 480 00:25:04,560 --> 00:25:08,400 culture at Google had evolved in such a way that it had become 481 00:25:08,400 --> 00:25:12,280 more of a research institution than a product LED growth 482 00:25:12,440 --> 00:25:15,280 institution. They weren't delivering products 483 00:25:15,280 --> 00:25:19,200 and as a result of that, people were leaving the organization. 484 00:25:19,360 --> 00:25:22,440 So what is the verb in the age of AI? 485 00:25:23,360 --> 00:25:29,720 Do you Bard or do you ChatGPT? GPT has become the default verb 486 00:25:29,720 --> 00:25:34,320 for all things AI. And to relinquish that spot by 487 00:25:34,320 --> 00:25:37,600 letting open AI go first. When you had the technology, you 488 00:25:37,600 --> 00:25:41,520 had the supercompute and you had the capabilities to release that 489 00:25:41,520 --> 00:25:45,040 product, I think was a mistake. This wasn't only one appearance, 490 00:25:45,040 --> 00:25:48,480 or even a couple appearances. Brad Gerstner went on to mini 491 00:25:48,480 --> 00:25:52,520 shows over and over again, repeatedly pumping open AIA 492 00:25:52,880 --> 00:25:56,680 company he's personally invested in at the expense of Google, in 493 00:25:56,680 --> 00:25:59,680 the process sowing concern and fair with Google investors. 494 00:25:59,880 --> 00:26:01,200 Google was the only game in town. 495 00:26:01,520 --> 00:26:04,680 Now we know search is being replaced with a new form of 496 00:26:04,680 --> 00:26:07,840 information discovery and all. I'm saying because even if they 497 00:26:07,840 --> 00:26:10,240 emerge as the leader in this thing, they will not have as 498 00:26:10,240 --> 00:26:14,280 much share of the pool of profits as they have in search. 499 00:26:14,280 --> 00:26:17,360 It's almost impossible for me to see how they replicate that. 500 00:26:17,520 --> 00:26:20,000 Now I also have concerns about how they're operating the 501 00:26:20,000 --> 00:26:22,960 business, how they're slow and releasing products, the cultural 502 00:26:22,960 --> 00:26:25,280 challenges they have. I think they have challenges 503 00:26:25,280 --> 00:26:28,920 around the TPU versus the GPUs of NVIDIA, but I, I will 504 00:26:28,920 --> 00:26:30,840 stipulate that they get all of that fixed. 505 00:26:30,880 --> 00:26:33,120 I still don't think they can replicate the monopoly. 506 00:26:33,560 --> 00:26:36,920 This is at a price point of $130.00 per share and Google's 507 00:26:36,920 --> 00:26:39,640 currently right on the verge of passing $200 per share. 508 00:26:39,840 --> 00:26:43,040 Even more recently, Brad Gerstner has continually done 509 00:26:43,040 --> 00:26:46,320 things on social media like said how many people in a classroom 510 00:26:46,360 --> 00:26:50,320 use ChatGPT or Google Search? Every kid raises their hand 511 00:26:50,320 --> 00:26:53,800 saying that they use ChatGPT. He used these anecdotes as 512 00:26:53,800 --> 00:26:55,760 evidence that Google Search was dead. 513 00:26:56,040 --> 00:26:58,520 He also continually and incorrectly referred to Google 514 00:26:58,520 --> 00:27:00,760 Search as a 10 blue link website. 515 00:27:01,120 --> 00:27:03,920 Always speak the truth, right? I don't think 10 blue links is 516 00:27:03,920 --> 00:27:05,880 the future. Do I think it's going away 517 00:27:05,880 --> 00:27:06,880 tomorrow? No. 518 00:27:07,000 --> 00:27:09,600 But I just look at the behavior of people. 519 00:27:09,640 --> 00:27:12,480 We do lots of survey work on this, Scott, people are turning 520 00:27:12,480 --> 00:27:15,760 to ChatGPT, they're turning to Claude, they're turning to why 521 00:27:15,760 --> 00:27:17,680 are we so excited about Apple Intelligence? 522 00:27:17,680 --> 00:27:20,840 Because people are going to turn to Apple Intelligence instead of 523 00:27:20,840 --> 00:27:23,240 10 blue links to find answers to the questions they have. 524 00:27:23,640 --> 00:27:27,120 Multiple times he references Google as a 10 blue links 525 00:27:27,120 --> 00:27:31,160 website when Google hasn't been a 10 blue links website for 526 00:27:31,160 --> 00:27:33,800 years. You can search almost anything 527 00:27:33,800 --> 00:27:37,200 into Google, whether it be travel information, looking at 528 00:27:37,200 --> 00:27:40,880 movies, finding destinations, looking at stores, and Google 529 00:27:40,880 --> 00:27:43,920 provides you vastly more information than 10 blue links. 530 00:27:44,000 --> 00:27:47,320 This false portrayal of Google search compared to ChatGPT was 531 00:27:47,320 --> 00:27:50,120 what was continually shared online by many of the most 532 00:27:50,120 --> 00:27:53,040 preeminent tech investors. But even during the time that 533 00:27:53,040 --> 00:27:56,240 this was shared, Google search continued to grow in query 534 00:27:56,240 --> 00:27:59,440 volume and in revenue. We also have Qatal Management 535 00:27:59,440 --> 00:28:02,120 with Philippe Lafont, one of the preeminent tech investors. 536 00:28:02,320 --> 00:28:06,520 He's ran this massive fund for decades now and they released a 537 00:28:06,520 --> 00:28:11,640 list called the Fantastic Forty. The Fantastic Forty Growth and 538 00:28:11,640 --> 00:28:15,720 Innovation Index is the Qatar curated list of 40 companies 539 00:28:15,720 --> 00:28:18,600 best position to lead an artificial intelligence 540 00:28:18,600 --> 00:28:21,680 technology driven in the world by 2030. 541 00:28:21,760 --> 00:28:26,480 So this is a list of 40 of the top AI companies in the world 542 00:28:26,840 --> 00:28:29,160 according to this leading tech investor group. 543 00:28:29,880 --> 00:28:33,000 When you look through the list, you'll see many great companies, 544 00:28:33,200 --> 00:28:36,680 Microsoft and NVIDIA. You have Alibaba, you have 545 00:28:36,680 --> 00:28:39,560 Salesforce, you have Spotify, Shopify into it. 546 00:28:40,000 --> 00:28:44,080 I own a lot of these stocks. We have ASML, we have Netflix. 547 00:28:44,360 --> 00:28:48,040 These are great AI companies. But there's one notable 548 00:28:48,040 --> 00:28:51,800 omission, 1 notable company that's just simply missing from 549 00:28:51,800 --> 00:28:55,880 this list, Google. Google is the most meaningful 550 00:28:55,880 --> 00:29:00,360 absence from this list a company that has the leading AI models 551 00:29:00,360 --> 00:29:04,400 is not in the list of leading AI companies to 2030. 552 00:29:04,400 --> 00:29:06,680 Now we can speculate on the reason that Google was omitted, 553 00:29:06,680 --> 00:29:10,160 but I can't imagine that their investment in open AI didn't 554 00:29:10,160 --> 00:29:13,400 play a specific role. Google's being left out of many 555 00:29:13,400 --> 00:29:15,320 of these lists. They're not being mentioned on 556 00:29:15,320 --> 00:29:17,680 many podcasts. Many retail investors are 557 00:29:17,680 --> 00:29:20,000 getting the wrong impression that Google has been in trouble 558 00:29:20,000 --> 00:29:23,320 for a long period of time when none of the data has shown that. 559 00:29:23,480 --> 00:29:26,960 Now, after Google posts another incredible earnings report 560 00:29:27,240 --> 00:29:30,120 showing that none of the concerns about their disruption 561 00:29:30,120 --> 00:29:33,800 or problems have existed in the numbers whatsoever, we have to 562 00:29:33,800 --> 00:29:38,200 tell social media trying to play revisionist history another AI 563 00:29:38,200 --> 00:29:41,240 inflection point. Googles monthly token usage just 564 00:29:41,240 --> 00:29:45,400 jumped 480 trillion to 980 trillion in two months. 565 00:29:45,840 --> 00:29:48,480 That's the same growth it took 12 months to achieve prior. 566 00:29:48,760 --> 00:29:52,640 We're not linear times anymore. Now suddenly Cattell is all for 567 00:29:52,640 --> 00:29:54,440 Google. And in the comments section, 568 00:29:54,440 --> 00:29:57,280 after being called out for this many times, they're now asking 569 00:29:57,320 --> 00:29:59,600 other people if Google should be on the list. 570 00:29:59,920 --> 00:30:02,640 No longer are they the experts. The people in the Twitter 571 00:30:02,640 --> 00:30:05,360 comments are now the experts. And now that the company is 572 00:30:05,360 --> 00:30:08,760 irrefutably performing well and the fundamentals prove that, 573 00:30:08,760 --> 00:30:11,680 without a doubt, you're going to see a lot of them pretend like 574 00:30:11,680 --> 00:30:15,080 the past six months never happened, like they never held 575 00:30:15,080 --> 00:30:17,520 any bearish stance on the company, that they've always 576 00:30:17,520 --> 00:30:19,800 been invested in it. But don't let them paint the 577 00:30:19,800 --> 00:30:21,440 revisionist history on this company. 578 00:30:21,800 --> 00:30:25,560 Retail investors overwhelmingly have been bullish on Google, and 579 00:30:25,560 --> 00:30:28,960 they've been correct. Retail investors do have an edge 580 00:30:29,040 --> 00:30:32,920 in many cases over institutional investors, and top analysts 581 00:30:33,400 --> 00:30:35,360 don't get the impression that because they have more 582 00:30:35,480 --> 00:30:38,400 resources, they can make better judge decisions than you. 583 00:30:38,880 --> 00:30:42,560 Anybody that's been able to look at a revenue breakdown of Google 584 00:30:42,920 --> 00:30:46,680 has clearly seen that the ads business has been just fine for 585 00:30:46,680 --> 00:30:49,240 a long period of time. All we're doing is pulling 586 00:30:49,240 --> 00:30:52,520 together and extrapolating growth from a business that says 587 00:30:52,520 --> 00:30:55,480 it's continuing to have increased usage and engagement. 588 00:30:56,120 --> 00:30:59,280 The people that rely on anecdotes saying that because 589 00:30:59,280 --> 00:31:03,480 their nephew only uses ChatGPT, therefore everyone in the world 590 00:31:03,480 --> 00:31:06,920 is switching from Google to ChatGPT haven't been correct. 591 00:31:07,320 --> 00:31:10,320 Anecdotes are just that. They're anecdotes. 592 00:31:10,320 --> 00:31:13,440 Data, Simply put, is just a lot of anecdotes. 593 00:31:13,920 --> 00:31:17,680 When we look at Google search continued usage and growth, that 594 00:31:17,680 --> 00:31:21,080 is hundreds of millions of anecdotes being put together in 595 00:31:21,080 --> 00:31:22,840 a line chart. And that's what we're seeing 596 00:31:22,840 --> 00:31:24,400 here. Now, while I've highlighted a 597 00:31:24,400 --> 00:31:26,880 lot of investors that have got Google wrong over the past six 598 00:31:26,880 --> 00:31:29,960 months, I do want to give credit to 1 investor that's been spot 599 00:31:29,960 --> 00:31:33,120 on with a company, 1 rare analyst that's been continually 600 00:31:33,120 --> 00:31:36,240 bullish on the company despite his peers being bearish. 601 00:31:36,360 --> 00:31:39,360 Mark Mahaney has gone out on a limb and been very bullish on 602 00:31:39,360 --> 00:31:40,760 Google. Even when the company's stock 603 00:31:40,760 --> 00:31:43,880 price is going down and it appeared as though Chachi BT was 604 00:31:43,880 --> 00:31:46,800 gaining a lot of market share, he still withheld through the 605 00:31:46,800 --> 00:31:50,360 pressure of that and continue to be bullish on this name when few 606 00:31:50,360 --> 00:31:52,680 others were. This is this is this has been 607 00:31:52,680 --> 00:31:54,920 and remains our top pick in large cap Internet. 608 00:31:55,360 --> 00:31:57,200 It's still trading at 18 times earnings. 609 00:31:57,200 --> 00:32:00,240 So it's trading at like 7 multiple points cheaper than 610 00:32:00,240 --> 00:32:03,640 Meta and it's still at a slight discount to the market for the 611 00:32:03,640 --> 00:32:06,560 search leader, the YouTube, you know, the, the company that owns 612 00:32:06,560 --> 00:32:08,640 YouTube Cloud has got this Waymo asset. 613 00:32:08,640 --> 00:32:11,760 I, I, I still think it's the, the evaluation is highly 614 00:32:11,760 --> 00:32:13,560 attractive. Fundamentals came in better than 615 00:32:13,560 --> 00:32:15,600 expected and expectations were rising. 616 00:32:15,800 --> 00:32:18,280 I think there's, I think it's, there's two kind of broader 617 00:32:18,280 --> 00:32:20,000 things that are the three things that are happening here. 618 00:32:20,000 --> 00:32:23,240 First is the ad market is kind of held in better than we all 619 00:32:23,240 --> 00:32:26,080 feared 3 months ago. Second, cloud market just 620 00:32:26,080 --> 00:32:30,520 continues to get stronger with all of this AI, generative AI 621 00:32:30,520 --> 00:32:32,320 demand. And then third, did Google is 622 00:32:32,320 --> 00:32:34,160 just executing well, give them credit for it. 623 00:32:34,360 --> 00:32:37,080 They're at record operating margins even though depreciation 624 00:32:37,080 --> 00:32:39,120 is rising because of this big Capec cycle. 625 00:32:39,320 --> 00:32:42,840 They've been very consistently managing down or flattish their 626 00:32:42,840 --> 00:32:45,840 headcount and so they're showing a lot of cost discipline. 627 00:32:45,840 --> 00:32:48,360 I think the story is just getting stronger and I continue 628 00:32:48,360 --> 00:32:50,880 to like the stock. The thesis is Google's cheap and 629 00:32:50,880 --> 00:32:53,760 it has a lot of great businesses, something that many 630 00:32:53,760 --> 00:32:56,600 retail investors have inherently understood for a long period of 631 00:32:56,600 --> 00:32:59,040 time. Mark Mahaney's simple thesis was 632 00:32:59,040 --> 00:33:01,240 right, and I believe he deserves some credit for that. 633 00:33:01,640 --> 00:33:05,360 Now looking at Google, this is a company where again, we can look 634 00:33:05,360 --> 00:33:07,560 at it moving up. Over the past month, it's moved 635 00:33:07,560 --> 00:33:11,120 up around 13%, doubling the returns of the S&P 500 for the 636 00:33:11,120 --> 00:33:13,560 past 30 days. So Google's going through a nice 637 00:33:13,560 --> 00:33:17,080 recovery from the lows of 146 earlier this year. 638 00:33:17,320 --> 00:33:19,920 Now we're getting back up to around $200 per share. 639 00:33:20,240 --> 00:33:23,160 Investors that bought the dip are doing well, but I believe 640 00:33:23,160 --> 00:33:24,840 there's more to go with this one. 641 00:33:24,840 --> 00:33:28,480 First of all, the PE ratio based on next year's earnings is a 20 642 00:33:28,480 --> 00:33:30,680 multiple. Now what I believe is going to 643 00:33:30,680 --> 00:33:35,920 happen is analysts will move their expectations up for next 644 00:33:35,920 --> 00:33:38,040 year's earnings over the next four quarters. 645 00:33:38,560 --> 00:33:41,040 So when they move their expectations up for earnings per 646 00:33:41,040 --> 00:33:43,800 share, the Ford PE is actually going to go down. 647 00:33:43,800 --> 00:33:45,840 It's going to be closer to an 18. 648 00:33:46,080 --> 00:33:48,720 You should see that reflected in Qualtrum in the next day. 649 00:33:49,200 --> 00:33:53,480 So you'll see around an 18 Ford PE ratio for a company that's 650 00:33:53,480 --> 00:33:56,960 having this much growth, this growing 14% per year, growing 651 00:33:56,960 --> 00:34:01,520 earnings 20% per year, that is far too cheap for a company. 652 00:34:01,640 --> 00:34:04,160 The stature of Google. When I do analysis on different 653 00:34:04,160 --> 00:34:08,120 companies, I believe ones like Google should be at a 25 PE 654 00:34:08,120 --> 00:34:11,000 ratio minimum. So if we bring up Google here on 655 00:34:11,000 --> 00:34:14,000 the DCF tool, we can take a look at some assumptions. 656 00:34:14,000 --> 00:34:16,920 If we assume Google will grow its earnings per share growth at 657 00:34:16,920 --> 00:34:21,040 a 15% earnings per share for the next 5 years, which is far 658 00:34:21,040 --> 00:34:23,920 slower than how they have been growing, and we assume the 659 00:34:23,920 --> 00:34:27,800 appropriate PE ratio is a 25, which is not unreasonable, 660 00:34:27,800 --> 00:34:32,679 Google should trade at a 20, 25. That leaves us with an 18.3% 661 00:34:32,760 --> 00:34:34,880 compounded return over the next five years. 662 00:34:34,960 --> 00:34:40,000 The share price would be $451 in Q1 of 2030. 663 00:34:40,280 --> 00:34:43,120 With these very conservative assumptions, that is an 664 00:34:43,120 --> 00:34:45,880 incredibly good return for a five year period with very 665 00:34:45,880 --> 00:34:48,520 conservative estimates. Now we don't know exactly how 666 00:34:48,520 --> 00:34:50,880 fast Google will grow. Maybe it's a little bit below 667 00:34:50,880 --> 00:34:54,600 15%, maybe it's a little bit above 15%, but either way, we 668 00:34:54,600 --> 00:34:57,840 have market beating returns with this stock, which is why I 669 00:34:57,840 --> 00:35:01,480 believe Google stock deserves to trade much higher today based on 670 00:35:01,480 --> 00:35:03,720 its outlook and the fundamentals of the company. 671 00:35:04,080 --> 00:35:09,280 I believe today's share price should be around $240 and I 672 00:35:09,280 --> 00:35:11,920 think there's a chance we get there by the end of this year. 673 00:35:12,320 --> 00:35:14,640 There's no guarantees in investing, but there's every 674 00:35:14,640 --> 00:35:17,400 reason to conservatively believe that the stock is worth this 675 00:35:17,400 --> 00:35:19,240 price. So I'm going to hang on to my 676 00:35:19,240 --> 00:35:21,160 shares. I'm very bullish on Google. 677 00:35:21,400 --> 00:35:24,280 I'm getting more bullish every single earnings report, and I 678 00:35:24,280 --> 00:35:27,040 look forward to the next one. Now moving on, we get to Tesla, 679 00:35:27,040 --> 00:35:29,440 which is a stock I don't own. And in fact, I've been 680 00:35:29,440 --> 00:35:32,080 criticized as hating on the stock for years. 681 00:35:32,480 --> 00:35:34,760 And that's true. I have been highly critical of 682 00:35:34,760 --> 00:35:37,720 Tesla stock for a number of years because I don't believe 683 00:35:37,720 --> 00:35:41,440 that Tesla investors have fully come to terms with the situation 684 00:35:41,440 --> 00:35:44,920 of fundamentals of this company. Now, Tesla did give us more 685 00:35:44,920 --> 00:35:47,880 insight into the fundamentals of their company yesterday when 686 00:35:47,880 --> 00:35:51,200 they reported earnings. The stock is now down 9% after 687 00:35:51,200 --> 00:35:53,200 earnings. And if we split Tesla in the two 688 00:35:53,200 --> 00:35:56,200 different categories, we can look at the fundamentals, what 689 00:35:56,200 --> 00:35:59,960 actually happened, the numbers of the company, and then we have 690 00:35:59,960 --> 00:36:02,320 the narrative. The narrative is what's going to 691 00:36:02,320 --> 00:36:04,800 happen in the future. All the promises and bright 692 00:36:04,800 --> 00:36:07,000 future that Elon Musk has painted. 693 00:36:07,320 --> 00:36:09,400 We have those two different parts of the company. 694 00:36:09,840 --> 00:36:13,640 Well, first take a look at Tesla's numbers and just focus 695 00:36:13,640 --> 00:36:16,400 on the numbers for a minute. Total revenues of the company 696 00:36:16,640 --> 00:36:23,040 was $22.49 billion, which is a 12% decline year over year. 697 00:36:23,200 --> 00:36:28,000 Let me just repeat that. It was a 12% double digit 698 00:36:28,000 --> 00:36:30,760 decline in revenue year over year. 699 00:36:31,400 --> 00:36:36,920 So we have a company like Google growing revenue 14% that trades 700 00:36:36,920 --> 00:36:41,480 at a 18 PE ratio. Then we have Tesla that has 701 00:36:41,480 --> 00:36:47,880 revenue declining 12%, trading at APE ratio currently of 136. 702 00:36:48,440 --> 00:36:51,440 That's the tale of two different stories here and that is my 703 00:36:51,440 --> 00:36:54,480 problem with Tesla stock. It is a comparison of the 704 00:36:54,480 --> 00:36:57,920 valuations, the future expected returns and the current numbers 705 00:36:57,920 --> 00:36:59,680 they're posting. When we look even closer at 706 00:36:59,680 --> 00:37:02,080 this, we see more problems that Tesla's facing with their 707 00:37:02,080 --> 00:37:04,120 business. We not only have total revenues 708 00:37:04,120 --> 00:37:08,200 declining by 12%, but we have operating expenses remaining 709 00:37:08,200 --> 00:37:11,320 about the same business that has flexible cost structure. 710 00:37:11,320 --> 00:37:13,560 We should see the total expenses decline as well. 711 00:37:13,840 --> 00:37:17,600 This means that the operating margins went down by 219 basis 712 00:37:17,600 --> 00:37:23,400 points, a 42% decrease in income from operations this quarter was 713 00:37:23,400 --> 00:37:28,520 $923 million. We have four quarters ago 1.6 714 00:37:28,520 --> 00:37:31,080 billion. So we have declining revenue, 715 00:37:31,200 --> 00:37:35,040 declining margins, declining income from operations and these 716 00:37:35,040 --> 00:37:37,720 aren't small declines, these are massive declines. 717 00:37:38,320 --> 00:37:41,400 We have the Adjusted EBITDA of the company, this declined by 718 00:37:41,400 --> 00:37:44,200 7%. We have the earnings per share 719 00:37:44,280 --> 00:37:48,560 gap of the company declining by 18%, the non GAAP earnings per 720 00:37:48,560 --> 00:37:52,560 share declining by 23%. Every single number so far is 721 00:37:52,560 --> 00:37:54,880 moving in the wrong direction. We have the income from 722 00:37:54,880 --> 00:37:59,920 operations down by 30% and the free cash flow down to $146 723 00:37:59,920 --> 00:38:01,920 million. You may chalk this up as 724 00:38:01,920 --> 00:38:04,360 temporary. The problem with Tesla is these 725 00:38:04,360 --> 00:38:07,200 numbers have been relatively the same for a number of years. 726 00:38:07,640 --> 00:38:11,600 We have Q4 of 2022, the trailing 12 months of revenue of around 727 00:38:11,600 --> 00:38:14,280 $80 billion. It went up to a high of around 728 00:38:14,280 --> 00:38:18,280 90 billion, and now it's traded back down to just above 90 729 00:38:18,280 --> 00:38:21,040 billion. We have the same revenue today 730 00:38:21,040 --> 00:38:25,360 that we had in early 2023. This is flat revenue for over 2 731 00:38:25,360 --> 00:38:28,600 years now. Tesla investors are waiting for 732 00:38:28,600 --> 00:38:31,600 that parabolic spike in revenue like they had in 2020. 733 00:38:31,600 --> 00:38:34,640 Maybe that's just around the quarter, but so far we haven't 734 00:38:34,640 --> 00:38:35,960 seen it. And there's also reason to 735 00:38:35,960 --> 00:38:37,920 believe it's not happening anytime soon. 736 00:38:37,920 --> 00:38:41,160 We can see the same thing with Tesla's free cash flow, with 737 00:38:41,160 --> 00:38:44,160 their EBITDA numbers, with lots of different metrics that look 738 00:38:44,160 --> 00:38:46,600 around the same as they have for the past couple of years. 739 00:38:46,640 --> 00:38:49,040 With Tesla investors knowing that the fundamentals are moving 740 00:38:49,040 --> 00:38:51,520 in the wrong direction, that leaves them with the narrative. 741 00:38:51,840 --> 00:38:54,240 The narrative is what you're investing in if you're buying 742 00:38:54,240 --> 00:38:56,600 Tesla. The narrative is what justifies 743 00:38:56,600 --> 00:39:00,120 the 100 plus PE ratio. The narrative that Tesla will be 744 00:39:00,120 --> 00:39:03,960 the biggest robotaxi company in the world, having massive market 745 00:39:03,960 --> 00:39:07,400 share and profitability, and it will be the company that designs 746 00:39:07,400 --> 00:39:10,320 the humanoid robot that the rest of the world uses. 747 00:39:10,320 --> 00:39:13,320 On the call, Elon Musk tried to push this narrative as much as 748 00:39:13,320 --> 00:39:15,560 possible. The autonomy and robotaxi 749 00:39:15,560 --> 00:39:17,520 launch, Tesla said, was successful. 750 00:39:17,800 --> 00:39:20,880 It launched its first robotaxi service in Austin with paying 751 00:39:20,880 --> 00:39:23,280 customers experiencing fully autonomous rides. 752 00:39:23,800 --> 00:39:26,200 While that's true, many of their paying customers, in fact almost 753 00:39:26,200 --> 00:39:29,880 all of them, are Tesla influencers, people specifically 754 00:39:29,880 --> 00:39:33,200 sent there to take videos of it and kind of show off the 755 00:39:33,200 --> 00:39:35,680 service. These weren't everyday people 756 00:39:35,680 --> 00:39:38,520 using it as a normal service like you see in California with 757 00:39:38,520 --> 00:39:41,000 Waymo. These were investors in Tesla. 758 00:39:41,520 --> 00:39:44,320 The service area in Austin is expanding rapidly with plans to 759 00:39:44,320 --> 00:39:47,720 cover more than 10 times the current region soon, and the 760 00:39:47,720 --> 00:39:51,360 company aims for hyper potential growth in both service areas and 761 00:39:51,360 --> 00:39:53,480 vehicle count. They're aiming for hyper 762 00:39:53,480 --> 00:39:56,960 exponential growth in both services and vehicle count. 763 00:39:57,440 --> 00:39:59,080 That's what we've been told is that they're going to grow 764 00:39:59,080 --> 00:40:01,880 exponentially. All of a sudden, Tesla robo taxi 765 00:40:01,880 --> 00:40:04,040 will be everywhere fully operational. 766 00:40:04,080 --> 00:40:07,640 The regulatory approval process are underway in states including 767 00:40:07,640 --> 00:40:10,560 California, Nevada, Arizona and Florida with the goal of 768 00:40:10,560 --> 00:40:14,320 covering half the US population by year end subject to 769 00:40:14,320 --> 00:40:16,560 approvals. Now again, this is a very 770 00:40:16,560 --> 00:40:19,720 bullish part of the narrative. They want to cover half the US 771 00:40:19,720 --> 00:40:22,600 population by year end. That's a very short amount of 772 00:40:22,600 --> 00:40:25,600 time, six months. To cover over half the 773 00:40:25,600 --> 00:40:30,400 population is is very ambitious. There's one little caveat which 774 00:40:30,400 --> 00:40:33,440 is subject to approvals. So if this doesn't happen, they 775 00:40:33,440 --> 00:40:36,120 can always blame the regulators that they're just not giving 776 00:40:36,120 --> 00:40:38,560 them permission. There's a lot of red tape and 777 00:40:38,560 --> 00:40:40,760 it's the bad approval process from the government. 778 00:40:41,400 --> 00:40:44,760 Now when we go on with this, we see safety being a priority over 779 00:40:44,760 --> 00:40:48,080 speed of roll out with initial deployments closely supervised 780 00:40:48,080 --> 00:40:51,280 and gradual relaxation of driver attention requirements as 781 00:40:51,280 --> 00:40:55,760 confidence in safety grows. O right now Tesla has employees 782 00:40:55,760 --> 00:40:57,600 in each of their robotaxi vehicles. 783 00:40:57,880 --> 00:41:00,280 The employee sits in the passenger seat, but the employee 784 00:41:00,280 --> 00:41:03,280 has the ability to stop the car at any point, and they have 785 00:41:03,280 --> 00:41:06,760 exercised that ability multile times, which could have revented 786 00:41:06,760 --> 00:41:09,360 many accidents. Tesla wants to get to a point 787 00:41:09,360 --> 00:41:12,040 where they can get rid of that employee, where the car can 788 00:41:12,040 --> 00:41:14,680 drive itself without the need of such oversight. 789 00:41:15,000 --> 00:41:17,840 They haven't done that yet, but again, that is the narrative in 790 00:41:17,840 --> 00:41:19,960 the future. And they also had the first 791 00:41:19,960 --> 00:41:23,000 delivery of a vehicle that autonomously drove itself from 792 00:41:23,000 --> 00:41:25,400 the factory to the customer's house. 793 00:41:25,960 --> 00:41:28,800 I think that's a a cool thing, but I don't believe that's a big 794 00:41:28,800 --> 00:41:32,640 growth driver for the stock. Overall, we have the narrative 795 00:41:32,640 --> 00:41:35,400 of the autonomy. We have very ambitious goals, 796 00:41:35,800 --> 00:41:37,880 but lots of caveats and exceptions. 797 00:41:38,160 --> 00:41:42,040 Things are subject to approval. Things are subject to confidence 798 00:41:42,080 --> 00:41:44,600 in safety growing. They're aiming for hyper 799 00:41:44,600 --> 00:41:47,480 exponential growth, but there's just a few things that may get 800 00:41:47,480 --> 00:41:48,960 in the way. Next we get to the other big 801 00:41:48,960 --> 00:41:51,880 bullish point of Tesla, which is the optimist humanoid robot. 802 00:41:52,440 --> 00:41:55,560 Optimus Version 3 is nearly finalized with no major design 803 00:41:55,560 --> 00:41:58,400 changes anticipated. Prototypes are expected by year 804 00:41:58,400 --> 00:42:01,560 end in 2025, Production to start next year. 805 00:42:01,920 --> 00:42:05,680 Ram U will be slow due to new supply chain process 806 00:42:05,680 --> 00:42:08,760 uncertainties, but Tesla's targeting production of 807 00:42:08,760 --> 00:42:11,880 1,000,000 units annually within five years. 808 00:42:11,880 --> 00:42:14,880 We have another five year timeline by a brand new product 809 00:42:14,880 --> 00:42:18,240 of Tesla, which have been repeatedly wrong over the past 810 00:42:18,240 --> 00:42:20,680 decade. Tesla has continually pushed out 811 00:42:20,680 --> 00:42:22,720 things much longer than they're given timelines. 812 00:42:23,000 --> 00:42:25,520 You can look at Full Self Driving and Robotaxi as an 813 00:42:25,520 --> 00:42:28,360 example, but Tesla's saying they'll have the humanoid robot 814 00:42:28,400 --> 00:42:31,200 in production 1,000,000 a year. In five years. 815 00:42:31,760 --> 00:42:34,160 Optimus will eventually contribute to maintenance and 816 00:42:34,160 --> 00:42:36,840 cleaning of autonomous vehicles and broader factory 817 00:42:36,840 --> 00:42:39,320 applications. Tesla believes that Optimus will 818 00:42:39,320 --> 00:42:43,160 become its largest product line and is an exquisite design, 819 00:42:43,160 --> 00:42:47,480 applying lessons from real world AI and vehicles to humanoids. 820 00:42:48,280 --> 00:42:51,520 So they're talking about the Optimus humanoid robot, which 821 00:42:51,520 --> 00:42:55,200 we've seen examples of this, but so far the Optimus robots have 822 00:42:55,200 --> 00:42:58,480 been teleoperated, meaning there's someone in AVR headset 823 00:42:58,480 --> 00:43:02,240 or something similar moving the robot around like you would 824 00:43:02,240 --> 00:43:04,320 control a tractor with hydraulics. 825 00:43:04,320 --> 00:43:08,200 So Tesla has a lot to accomplish with this ambitious goal. 826 00:43:08,280 --> 00:43:10,800 And they're not the only ones working on humanoid robots. 827 00:43:11,080 --> 00:43:13,760 There's other companies that I believe are far better position 828 00:43:13,760 --> 00:43:16,840 than Tesla, like Amazon, currently working on humanoid 829 00:43:16,840 --> 00:43:18,720 robots. So there's more than one company 830 00:43:18,720 --> 00:43:21,880 that can benefit from this, but Tesla is trying to portray the 831 00:43:21,880 --> 00:43:24,240 vision that they're going to be the preeminent leader in 832 00:43:24,240 --> 00:43:26,760 humanoid robots. When I look at Tesla, I think 833 00:43:26,760 --> 00:43:29,400 this is just a very, very difficult stock. 834 00:43:29,880 --> 00:43:33,280 Investors in Tesla will say that I hate on the stock, that I hate 835 00:43:33,280 --> 00:43:37,440 Tesla, and that's not the truth. I don't hate Tesla. 836 00:43:37,560 --> 00:43:40,080 It is a stock. It doesn't know that you own it. 837 00:43:40,360 --> 00:43:43,480 If you're a Tesla investor, that's not your identity. 838 00:43:43,560 --> 00:43:46,040 Investments are to make money and we should invest in things 839 00:43:46,040 --> 00:43:48,120 that have good risk adjusted returns. 840 00:43:48,440 --> 00:43:51,080 When I look at Tesla, my honest opinion is that it's an 841 00:43:51,080 --> 00:43:53,840 incredibly difficult, unpredictable stock that has a 842 00:43:53,840 --> 00:43:56,480 lot of downside risk. That's the way that I view it, 843 00:43:56,760 --> 00:43:59,240 and I look at that through a lot of different metrics. 844 00:43:59,720 --> 00:44:02,640 When we look at a company like Tesla, the bowl case for the 845 00:44:02,640 --> 00:44:05,840 stock, the bowl case that people like Dan Ives and many other 846 00:44:05,840 --> 00:44:09,680 people on TV have outlined for this company, the bowl case is 847 00:44:09,680 --> 00:44:12,240 to ignore the PE ratio. Just forget about it. 848 00:44:12,720 --> 00:44:14,920 Don't look at the 100 plus PE ratios. 849 00:44:15,400 --> 00:44:18,360 Ignore the price to sales, just forget about that. 850 00:44:18,680 --> 00:44:21,160 Ignore the amount of free cash flow the company generates 851 00:44:21,160 --> 00:44:24,160 relative to its share price and the market cap price. 852 00:44:24,720 --> 00:44:29,080 Completely ignore the fact that Tesla generated $146 million of 853 00:44:29,080 --> 00:44:32,320 free cash flow last quarter, which is about as much as Texas 854 00:44:32,320 --> 00:44:35,320 Roadhouse, a $10 billion company, generated. 855 00:44:35,320 --> 00:44:38,960 So you have Tesla, a $1 trillion company, generating as much 856 00:44:38,960 --> 00:44:41,840 money as a $12 billion restaurant every single day of 857 00:44:41,840 --> 00:44:45,080 the year last year. All 365 of them. 858 00:44:45,520 --> 00:44:48,440 Google generated more in free cash flow than Tesla did last 859 00:44:48,440 --> 00:44:50,920 quarter, and the bull case is to ignore that. 860 00:44:50,960 --> 00:44:53,480 The bull case is to ignore the fact that deliveries are 861 00:44:53,480 --> 00:44:56,360 declining year over year. They've been in a downward trend 862 00:44:56,360 --> 00:44:59,920 from Q4 of 2023. The bull case is to ignore the 863 00:44:59,920 --> 00:45:03,080 EV tax credits and other incentives that have buoyed the 864 00:45:03,080 --> 00:45:06,000 stock for the past couple of years that are now going away. 865 00:45:06,000 --> 00:45:08,880 The bull case is to ignore the operating margins of the company 866 00:45:09,040 --> 00:45:11,760 that are lower than most restaurant operating margins. 867 00:45:12,200 --> 00:45:15,280 The bull case is to ignore the fact that Waymo has a bigger 868 00:45:15,280 --> 00:45:18,520 commanding lead in robotaxi, the very business that Tesla's 869 00:45:18,520 --> 00:45:21,520 supposed to be the leader in, and that Amazon is better 870 00:45:21,520 --> 00:45:23,800 positioned in humanoid robots than Tesla. 871 00:45:23,960 --> 00:45:28,200 The bull case is to ignore all of that data and just hope that 872 00:45:28,200 --> 00:45:31,000 Tesla does well in the future. Just hope that the company can 873 00:45:31,000 --> 00:45:33,880 have astronomical growth. I don't invest in things based 874 00:45:33,880 --> 00:45:35,880 off hope. I invest in them based off of 875 00:45:35,880 --> 00:45:38,280 well grounded fundamental research and reasonable 876 00:45:38,280 --> 00:45:40,520 valuations. I invest in compounding machines 877 00:45:40,520 --> 00:45:43,400 that can grow year after year, very predictably. 878 00:45:43,400 --> 00:45:46,160 There's no hope involved, and there's no ignoring all 879 00:45:46,160 --> 00:45:47,920 fundamentals related to the company. 880 00:45:47,920 --> 00:45:49,920 So if you want to invest in Tesla, that's fine. 881 00:45:49,920 --> 00:45:53,000 No one's going to stop you. And I certainly don't hate you 882 00:45:53,000 --> 00:45:54,800 for choosing a different investment than me. 883 00:45:55,080 --> 00:45:58,440 But my perspective is investing in highly predictable companies 884 00:45:58,800 --> 00:46:01,960 with reasonable valuations, strong fundamentals, and a 885 00:46:01,960 --> 00:46:04,960 proven track record of growth. I also like investing in 886 00:46:04,960 --> 00:46:07,440 companies that outperform expectations, not ones that 887 00:46:07,440 --> 00:46:10,160 continually come under expectations with Tesla. 888 00:46:10,160 --> 00:46:12,440 Maybe this company will make it all worth it. 889 00:46:12,680 --> 00:46:16,080 Maybe the bulls will eventually be correct and Tesla will become 890 00:46:16,080 --> 00:46:18,920 the biggest winner of the robotaxi and humanoid robots, 891 00:46:19,160 --> 00:46:21,280 and it will generate trillions of dollars of wealth. 892 00:46:21,800 --> 00:46:25,040 That could possibly happen. But I think the chances are very 893 00:46:25,040 --> 00:46:26,840 small. And I think there's a lot of 894 00:46:26,840 --> 00:46:28,640 risk inherent to this investment. 895 00:46:28,720 --> 00:46:32,680 Risk of continued trudging water for year after year, quarter 896 00:46:32,680 --> 00:46:35,880 after quarter, waiting for the narrative to play out, which 897 00:46:35,880 --> 00:46:38,400 eventually doesn't come to fruition in the same way that 898 00:46:38,400 --> 00:46:41,080 investors imagine now. If the circumstances and data 899 00:46:41,080 --> 00:46:44,400 changes, if I see new evidence that makes me change my opinion 900 00:46:44,400 --> 00:46:46,760 on Tesla, I'll let you know. That's going to be it for this 901 00:46:46,760 --> 00:46:48,280 episode. See you in the next one.