Welcome back everyone. Today on the Joseph Carlson
Show. I just bought another $5000 of
this company. I'll give you a hint, it's
between Amazon and Google, one of these two.
Obviously I'm very bullish on both of these companies.
I'll be going over both of them for a bit and explaining why I'm
adding more to this position. We also have news NVIDIA hit a
$4 trillion market cap, The first company to do it.
Terry Smith from Fundsmith released his six month update
and it doesn't look good. His fund is still struggling.
He, of course, is a high quality growth investor.
What is going wrong to have the Fundsmith portfolio continually
underperform? And then we have some big news
in the credit market. FICO now has a new competitor,
which is Vantage Score. FICO is now down 15% year to
date. The stock is a mess right now.
We'll be going over it. Waymo is now giving rides to
teenagers and testing out trying to expand in New York City.
And we have Sam Altman answering questions on the side of the
road with some killer sunglasses.
We'll be looking at that as well.
Now to start things off, we jump into the latest buy here, the
company that I've added another $5000 to in My Portfolio.
And I said it was between Google and Amazon.
These are two companies that I've spoken about over and over
again over the past year or so because I believe they're two of
the most well risk adjusted returns in the market.
Now, what do I mean by risk adjusted?
Well, there are companies that offer more potential upside than
Amazon and Google. In fact, there's many of them in
the market. There's companies like Hims and
Hers, the healthcare company trying to redefine this
industry. There's companies like Shark
Ninja, always innovating, creating new products, growing
much faster than their competition.
There's even ones like Crocs. Crocs is a company that's grown
its revenue tremendously over the years and it's had great
success. While it's true that companies
like this have the potential to outperform a Google or Amazon
over the next 5, the issue is the predictability of these
companies, The relative downside.
They are far less predictable than a company like Amazon and
Google. And if you're investing just a
couple $1000, that may not seem like a big deal when you're
putting 10s of thousands of dollars into an investment.
It's important for me to have a high degree of predictability.
I want to know that I'll make money on every single company
that I'll buy, or at the very least that I have an incredibly
high chance of making money. What Amazon and Google offer is
not the highest rewards possible in the market, but incredibly
good risk adjusted rewards. They are both growing quickly
and they're highly predictable companies.
And between the two companies, today I've decided to buy
Google. Amazon, I believe, has
incredible durability and long term potential, so having a
large position in this company is fine.
But when I look at Google over the next three to six months, I
could see a lot change. The reason I believe that Google
could move up quickly in the short term is because right now
I believe the company's mispriced.
I think it's undervalued. It's an exceptional company
trading at an 18 to 19 Ford PE ratio.
Based on the fundamentals, Google's being priced with a lot
of risk. Now, some people will argue, and
I believe that this is one of the worst arguments of any
analyst, is they'll argue that Google can't be mispriced
because it's such a big company. There's already so many people
looking at it, there's already so many analysts covering it.
How could it be mispriced? Wouldn't the efficient market
kick in? Would it, after all, everybody
knowing about Google's business cause it to be efficiently and
accurately priced? Let's go ahead and just observe
that theory in action. Just a few years ago, one of the
biggest winners in My Portfolio is Netflix.
It's a $147,000 position, the majority of that being gains
$91,000 in the green on this stock.
Looking at the case of Netflix, this company dropped 74% in just
a few months because it missed 1,000,000 subscribers.
It lost 1,000,000 subscribers along its growth, going from
around $700.00 per share, down below $200 per share.
Now the company has recovered all the way up to around $1300
per share, going up five to six X from the Lowe's.
Now this is a company that looks like investors don't know how to
price it. They didn't know what it was
worth in 2022. In fact, when we look at some of
the content of some of the biggest channels, some of the
the biggest media personalities in 2022, this is what it looked
like. We have from Cold Fusion a video
that got 1.8 million views. This video was a 13 minute essay
on why Netflix screwed up, how the companies devastated, how
everything has gone wrong. It was the fall of Netflix that
got 1.8 million views and that was during a time period where
Netflix was $180 per share. We have another one here from a
very popular channel, the company man, Netflix, the rise
and fall. We have another one, The rise
and fall of Netflix. These are three videos going
over the destruction of this company, how it's now being out
competed, how there's more streaming services than ever,
how competition came in and disrupted their business model,
how they raise prices too much, how they offended customers with
their password sharing crackdown.
You can watch all of them and they go over a very grim picture
of the company. While ironically, this was the
best time to be buying a Netflix stock, where the general
consensus of the media and consumers that know the company
in depth was the most negative was the best time to be buying
the company. So we know that just a couple
years ago they got Netflix wrong.
The general media, the consensus, the consumers, all
the big personalities misunderstood Netflix to a
dramatic degree. And that was Netflix, which is a
very well known, easy to understand company by the
consumer, or so they thought. Really, Netflix was a lot more
difficult to understand than people realized.
And I would argue the same from Google.
Google has a more complex set of assets than Netflix.
Netflix is a very straightforward subscription
company. Google owns YouTube, Waymo, they
have Google Cloud, they have all these office type of they have a
bunch of cloud hosting and applications.
They have a bunch of Longshot bets in different companies.
And of course they have their search engine and their AI
models. Google's a far more complex,
difficult company to understand than one like Netflix.
So if there's a chance that investors can misunderstand a
company, I believe there's a strong possibility that they're
still getting Google wrong, even though it's right before our
eyes. If we look at some examples of
this, some of the things I see currently about Google are very
reminiscent of what we saw a year or two ago about Netflix.
Now, this is a smaller you tuber, 37,000 views.
Not bad, but it's not a major one.
Here we have a major one Mr. who's the boss gets millions of
views. Why Google search is falling
apart. 4.4 million views only eight months ago and then in the
biggest text possible, it sucks with devil bullhorns on top of
the Google logo and then it looks like blood on it.
This is about as bad of a look as you can get as a company.
It looks like something's going deeply, deeply wrong with
Google. Then we have once the biggest
channel on YouTube, the most subscribed at one point which is
PewDiePie and him saying I'm done with Google.
Crossing out YouTube in this video is a 23 minute video going
over instructions on how to change your default search
engine from Google to DuckDuckGo and other various search
engines, going on about how Google invades your privacy, how
bad the Google service is, how the Google search is no longer
as good as it used to be, and so on and so forth.
There's major publications continually talking about how
Google search is on its end of life, its last breath.
Google as you know it is slowly dying.
The search engine is having a midlife crisis, and now that's
your problem. This one's by Vox.
So we have a company that has broad negative media coverage by
almost every mainstream publication as well as even
online creators than the general public.
Most people are under the impression that Google search is
dying, but most people don't read earnings reports.
One of the most difficult parts of being an investor is to be
able to look at the data to make good judgments on the actual
information and not just buy into whatever the prevailing
sentiment is. We know right now the prevailing
sentiment is that Google search is dying.
But when we look at the data and we look at how it's growing over
time, Google search is growing 12% year over year.
In fact, it continues to grow virtually every quarter.
It slowed down a little bit in Q4 of 2022 to Q1 of 2023.
So there is a a little bit of a slow down there, but it
continued to grow over time. Google leadership also noted
that it's not just ad volume increasing or ad rates
increasing, it's also the amount of users.
There's more users and there's more queries.
They're searching more, they're engaging more with it.
So the product is growing in the number of users, the amount that
users frequent the search engine, the types of ways they
search and in the ad rates, all combining to a nice 12% growth
on a business already doing over $150 billion, now it's doing
$200 billion in the last 12 months.
This is a fast growing business for a dying business.
Do we see the death in the numbers?
Well, maybe it's just right around the corner.
Well, that's what the narrative is, that the death of Google
hasn't happened yet, but it's right around the corner.
You know what happens with those narratives?
Well, one of two things. Either the narrative really
plays out and Google search does die.
It's right around the corner. And then Google search starts to
slow down. The revenue stops growing, and
then it starts to shrink. Management has to come out and
say that the volume of search is going down and the bears would
be proven right in that case. And on the other side, there's
another narrative that has to play out.
We can look again at the example of Netflix.
When the narrative was that Netflix's growth was done,
that's when the stock went down 75%.
And if you can believe it, it was because of these quarters
right here. We had right there a quarter
where Netflix had 221.6 million subscribers.
It went to 220.6. The narrative became that
Netflix was dying. But when Netflix started to grow
again, even past where they just lost their subscribers past this
quarter, Netflix stock did not react right away.
In fact, in Q4 of 2022, Netflix was still at around $200 per
share. Now, I do not believe that
Google's at the same value that Netflix was back in 2022.
I don't think it's that extreme, but I would say that I think
that Google will prove out this theory over time.
Over time, as it grows, the bear case will be minimized.
The stock could be RE rated to a much higher multiple, and the
combination of a RE rating multiple plus earnings per share
growth equates to enormous gains in a stock where stock can go up
203050 100% from its current share price.
This narrative that Google search is in dire trouble is an
ingrained narrative in media right now.
It takes time to uproot and disprove these narratives.
When we look at Google search, I believe it has to continue
growing for at least two to three more quarters for this
narrative to fully die out. We need another full year of
growth and then I think this narrative will be dead.
Google stock will be materially rated higher.
So the bull case of Google is the death of this narrative,
which is the death of Google search.
When that narrative dies, this company could re rate back to
A22PE25 PE ratio. It'd go from 180 to around
2/22/30. We could see that happen in a
short amount of time if we continually get good quarters.
But there's always the downside in every company.
What if we are wrong on Google? What if the search business does
get pressured by ChatGPT? What if the bears are right in
that regard? Well, this is where I believe
the risk side of the risk adjusted returns kicks in.
When I look at the downside of Google, there's a couple things
that gives me a little bit of confidence.
One of them is that it's already trading at a relatively low PE
ratio. Can the multiples go lower?
Sure, it could go down to a 13 or a 12 PE ratio, but there is a
valuation floor for Google. The other part of this risk
adjusted return is looking at the different businesses that
Google's in. For example, if we just look at
two different lines of business, and these are ones that I
continually highlight that seem like they're being entirely
ignored, and the valuation of Google is YouTube and Google
Cloud combined growth of 21% per year.
It could be worth slightly more than Netflix, which Netflix is
currently worth over $500 billion.
It's growing its share time of TV faster than any streaming
company. So Google right now trades at
around a $2.1 trillion market cap.
And just this aspect of the company could be worth 50% of it
in a couple years. Then we have Google Cloud, which
does more revenue than YouTube and it's growing faster than
YouTube. If YouTube's worth maybe 6, $100
billion, Google Cloud is likely worth 7 hundred, $800 billion At
this point in time. I believe just these two assets
alone could be worth the entire market cap of Google in less
than five years. Meaning that even if the death
of Google search is true to an alarming extent, far more than
anyone's predicting, where literally nobody uses Google
search ever again, these two businesses in and of themselves
could support Google stock price in five years.
So that's why I continue to buy this this company and I talk
about it frequently. Some people say that I mentioned
the same group of companies over and over again, and I do that
because I believe they're currently a good buy.
I believe Google, Amazon, Equifax, that these companies
are sound buys right now in an otherwise increasingly expensive
market. And I did the same thing during
Netflix. Lots of people over the years
complained that I talked too much about Netflix.
I made video after video about this company because I was
convinced it was value. I believe the same thing about
Google today, and I'll continue to make videos about it until I
believe otherwise. Now that we've gone over that,
let's go ahead and jump into some news.
We have NVIDIA hitting a $4 trillion market cap, and it's
the first company to ever do so. Nvidia's growth has made it more
valuable than all of these companies.
It's the world's most valuable company, surpassing Microsoft
and Apple. Now they're doing this while
having the Chinese market largely closed off to them.
We're handicapping NVIDIA, and they're still the biggest
company in the world. This is just incredible again to
see now the stock, this is at the $4 trillion market cap, the
company's up 18% year to date and the other companies that it
surpassed are also not doing too poorly.
Microsoft just passed $500 per share.
NVIDIA has potential to grow faster, but I still believe it's
less reliable or predictable than Microsoft just by virtue of
their subscription revenue. And moving on, we also get to
the news that Fund Smith with Terry Smith as its leader
released their semi annual performance review.
This is their six month update and this shows a fund that's
continually struggling and this time they had a lot of
challenges they're facing. The Fundsmith equity portfolio
is down 1.9% year to date. Their benchmark is up .1%.
Now, keep in mind that Fundsmith does benchmark themselves
against the MSI World Index. They use that as the index
because they're invested in international stocks as well as
U.S. stocks. But it's important to note that
the MSCI World Index has underperformed both the S&P 500
and the QQQ. So this performance is not great
by the looks of it. And this comes after years of
underperformance from Terry Smith's Fundsmith.
For the past few years, he's made a series of mistakes.
The stocks that have done the most poorly is Novo Nordisk and
Louis Vuitton. These stocks have both detracted
from their top winners. He says that Novo Nordisk alone
accounted for almost all the underperformance during this
period. Its ability to snatch defeat
from the jaws of victory in respect to its leadership in
weight loss drugs continues to be remarkable.
Its inability to deal with the US legal and regulatory systems
approach to its success would be interesting to observe from a
safe distance. He does not have kind remarks
for Novo Nordisk, another Danish medical company, Coloplast.
Coloplast was a company whose revenue growth rate was
metronomic. Probably not coincidentally,
following two major acquisitions, it had encountered
a series of operational failures.
So Terry Smith is blaming these two companies and operational
complexities, as well as this company, Novo Nordisk snatching
defeat from the jaws of victory. It seems like he's trying to
throw the blame on the companies, which is fine.
You can highlight how companies have underperformed and what
went wrong with the company, but he is the one that chose to
invest in these companies, ones that are in the Pharmaceutical
industry, which is notably difficult to make predictable
investments in. This is precisely the reason
that I avoid these very companies in My Portfolio.
Although the numbers can look good, the products can look
great and well needed with lots of demand.
They have incredible operational complexity.
They have lots of red tape with regulations.
They have lots of lawsuit risk. There's lots of acquisitions.
There's so many moving variables that it's very difficult to have
any degree of predictability. So the very things he's
complaining about with these companies in particular was also
his choice to invest in this industry and take on these
risks. Now, one thing where he has
probably a better excuse here is the US dollar.
The majority of companies we invest in are based in the
United States. They report the US dollar and
more importantly have the majority of their revenues in
this currency. Therefore, the move in the pound
versus the US dollar exchange rate from 1.25 at the beginning
of the year to 1.37 at the end of June, a 9% depreciation has
had a major effect. This can be seen in the fact
that our U.S. dollar denominated fund was up by 6.3% in the first
half of 2025. Now, it's good to let investors
know how the changes in currency are impacting your performance,
and it's certainly doing this in the negative this way.
But it's also important to realize that Fundsmith has been
on the other side of this for the better part of a decade.
For the past 10 years, the US dollar has been incredibly
strong, which is amplified Fundsmith's returns.
So he's highlighting that it's a problem now, but they didn't
highlight it quite as much over the past 10 years when the US
dollar was working for them. Another eyebrow raising thing is
the continual decisions that fund Smith's making.
And this is where I'll be a little bit more critical of
Terry Smith here. He says during the period we
began accumulating stakes in Zoetis, the animal health
company. Now, I know nothing about that
company, but the other one here I do know something about, which
is Intuit. Well, just a couple years ago,
Fun Smith had a lot to say about Intuit.
In December of 2022, Fun Smith noted that they're selling out
of Intuit. So Fun.
Smith sold into it when it was trading at a price of $387.
Now Terry Smith is buying back into the company at roughly
double the share price that they had sold it.
Now I don't think it's the worst thing ever to buy back into a
stock that you were previously bearish on, but I don't think
this is also the best moves from Fundsmith.
I continually see a trend of mismanagement of key positions
hurting their long term performance.
Intuit's fundamentals were incredibly strong at the time
they sold the company. Their panic over the accounting
of stock based compensation causing them to exit the
position was not a good metric to sell off.
So hopefully Fundsmith will turn this around over time, but so
far I see them continuing to struggle.
Now moving on, we get to some new developments in the world of
credit scoring and home mortgages.
Lenders can now use the Vantage Score 4 Point O model or the
FICO 10T model when issuing loans that get sold to Fannie
and Freddie, according to their regulator.
The two mortgage giants package loans into bonds that get sold
to investors with government backing, and their underwriting
models are widely used in the $13 trillion mortgage market.
Now the FHFA, which is the regulatory body of this, their
decision reverses a plan that would have required both FICO
and a Vantage score on every loan.
That proposal drew push back from lenders over the cost and
complexity. Previously, only FICO scores
were accepted. It says that unlike traditional
FICO models, the Vantage score 4 point O incorporates alternative
data such as rent, utility, telecom, payment history.
Now, FICO stock has been decimated after this change.
The stock was down around 15 to 17% yesterday.
So we saw a big move down yesterday from around $1870 down
to 1700, and now it's dropping further to 1593.
We have another 6 1/2 percent move down and the reason why is
because this is a very big mandate from the government.
Allowing access to other scoring models, particularly the Vantage
score makes it so FICO has a potential competitor when
looking at these important mortgages.
We know this is a big negative for FICO and a win for Vanish
score, but we don't know the extent most analysts.
Say it isn't clear that FICO will lose its dominant position
in the mortgage market, and I think it's very unlikely they'll
lose their dominant position. If anything, they'll lose a
couple percentage points of market share.
It's very difficult to see how this plays out, but my guess is
over the upcoming quarters when we see what FICO reports that
they'll still put up incredibly strong numbers, I believe we'll
see a notable rebound in the stock.
Now we move on to another news story.
Here we have more Google News. This time it's Waymo specific.
Waymo is offering accounts for teenagers to ride in their
driverless cars. Waymo announced on Tuesday that
it's offering accounts for teens 14 to 17, starting in Phoenix.
I didn't know this, but previously users were required
to be at least 18 years old to sign up for a Waymo account.
I guess that makes sense. They want just adults trying out
their new product. But it also shows that Waymo is
not even being fully utilized right now.
They're missing out an entire demographic, which is teenagers,
and they they say that they're going to customize the
experience specifically for teenagers, saying Waymo will
offer specifically trained rider support agents during rides
hailed by teens and Lupin parents if needed.
Teens can also share their trip status with their parents for
real time updates on their progress, and parents receive a
ride receipt. This may seem odd at first, but
I think it makes a lot of sense given the different choices.
If a parent is choosing between having their teenager take a
ride in an Uber with a random other human adult that you don't
know anything about, you don't know their history, you don't
know which one's going to pick them up other than their Uber
star rating, sending your your kid off your teenager in that
situation seems far less favorable than sending them off
in a way MO where you know no one else is going to be in the
vehicle. The teenager will be completely
alone and the safety record of the vehicle is much better than
the average of a human driver. Then you add on that all the
different controls they have here with status updates,
specific software that tells the parents where they are in the
vehicle. It seems far more favorable than
other forms of transportation. I bet a lot of parents would
prefer this over having their teenagers drive themselves.
Now, another thing to look at here in terms of the business
side is Waymo is expanding its total addressable market.
If they now allow teenagers below 18 to enter into vehicles
and they have have these special software for it, this opens up a
whole new category of rider. And this may be a really good
category for Waymo. A lot of teenagers in particular
may not have driving licenses. They may not have cars
themselves. A lot of them can't afford
insurance. They haven't gotten around to
getting a driver's license, especially if they're younger
than 16. They can't even get a driver's
license in most states. So having autonomous ride
hailing may be their only form of transportation.
The fact that it's safer than them driving themselves is just
an added bonus. So this may actually be a
significant use case for Waymo. Not only are they expanding
geographically in different cities, but they're expanding
within their cities the total addressable market.
When we look at what else Waymo's doing, they're now one
step closer to New York City. They're doing testing in New
York to try to convince regulators that they can make it
work. Waymo's first self driving taxis
arrived in New York City this week to begin collecting data
with a human behind the wheel as a company seeks a permit for
autonomous testing. They plan to gather data as its
cars are driven manually through the city, an initial step into
one of the largest ride hailing markets in the US.
Waymo applied for a testing permit from New York City
Department of Transportation in June.
I believe Waymo will be operating in New York City in
the future. That is a massive market that
they can capitalize on. Now in terms of the testing,
this is another thing that Tesla investors have continually
brought up that Waymo has to map cities.
They have to map them, and that's apparently a big
limitation of Waymo compared to Tesla.
Then we look at some of the biggest bulls on Tesla online
and they say that Tesla's out in full force tonight validating
parts of downtown Austin. They're getting ready to expand.
Here's the video shown of Tesla's validating these new
areas. If we look at it right there in
freeze, the Tesla has something mounted on top of it.
In this case, it's a, a Lidar system.
So Tesla before they enter an area, they have to drive a
vehicle around and that's a human driver and they're driving
the vehicle around with a huge LIDAR system sticking up 6 feet
in the air validating the area. Now this is what Tesla investors
do in this case. They don't call it mapping, they
call it validating. No, they're, they're not mapping
the area out. You can't call it the same term
because then that would sound like they're doing exactly what
Waymo's doing, what Tesla's doing with their big Lidar
cameras, driving around predefined areas before they can
actually operate in them. They are doing validating, not
mapping. Of course, this is a distinction
without difference. Tesla has to go through
virtually the exact same steps before opening a new area as
Waymo, just like they're geofenced like Waymo.
They are expanding in the very same way that Waymo's expanding,
but they're five years behind doing a fraction of the rides.
Now finally, we get into this interview, which if you're
listening to the the podcast version of this show, this is
one thing. You might want to watch the
video because it's it's difficult to explain what this
interview feels like when you're watching it.
The sunglasses that Sam Altman's wearing and just overall the
aesthetic of the interview. It's it's interesting.
It feels like I'm watching a scene out of the office.
That's kind of the vibe I get from this.
And Sam Altman seems to be caught off guard.
He's asked a few questions here and I like the answers that he
gives. The first one's about Mark
Zuckerberg stealing a lot of Meta's best employees.
Here's the way that he reacts to this question.
How are you feeling about the battle for talent with Mark
Zuckerberg and Meta? After being asked about how he
feels that Mark Zuckerberg gutted a lot of his company,
taking some of the top talent, he shrugs his shoulders and says
fine, good. I have a feeling that he doesn't
feel so fine about that. He's really not so happy that he
lost a lot of his best employees to Meta.
The next thing he's asked about is the new political party made
by Elon Musk, the American Party.
Here's his reaction to it. But.
Could you donate to the American Party perhaps?
I I literally other than those words, you just said everything
I know about the party. I want to make of Elon's bust up
with Trump. He must be finding that quite
funny watching from the side. Elon bust up with everybody.
I mean, come, I like it. That's what he does.
And how's your relationship with?
Him How do you think? What are the?
Topics you're most interested in talking about here today.
AI he's asked what he thinks of Elon Musk and Trump breaking up
and he says that he breaks up with everyone.
He's asked what his relationship is with Elon Musk and he says,
what do you think? And Sam Alton's right here.
I think Elon Musk, I don't know if it's his intention, but he
seems like he's, he has a goal of making enemies with almost
everyone. He's in combat mode all the
time, but maybe sometimes a little too much to his own
detriment, burning bridges with every business leader, every
political leader. And you can see the same thing
with Sam Altman. Sam Altman has been at odds with
Elon Musk ever since Open AI took off.
The last thing I'd highlight from this is something that I
think is important. We had speculation when Joni
I've joined Open AI that they were working on eyewear,
specifically eyewear that has integrations with video,
integrations with AI. And he's asked here offhand if
those glasses he's wearing are smart glasses.
All right, I wish I had more smart glasses or no glasses.
Absolutely not. I don't like smart glasses.
Can you give any hints about what your hardware is going?
To be that, No, but it's going. To be great now, he said.
He's not giving any hints of what the hardware is going to be
about, but he just gave 1. He says that he doesn't like
smart glasses, so we just eliminated one piece of
speculation. Open AI is probably not working
on smart glasses. Now.
That's all for this episode. Hope you enjoyed seeing the next
one.