Welcome back everyone. Today on the Joseph Carlson
Show. We're going to be going over one
of the worst days that we've had in the market in years.
Yesterday software companies crashed, they got pummelled and
even non software companies, ones like S&P Global and
Moody's, the big wide Moat financial companies, they got
crushed as well. And it all comes down to one
thing, anthropic. Anthropic and the threat of AI
is now invading the global market.
We're going to be going over the whole subject.
We'll be looking at My Portfolio and the $60,000 that I lost
yesterday. We'll be going over my plans in
the future. What are the best decisions to
make in this type of environment?
Now, of course, we have a lot of other news to get to.
For example, we have Uber that just reported their earnings.
The stock is down after reporting.
We have Google reporting their earnings.
The decision of whether or not to keep your shares or sell out
of Google and take some gains, that's one that we'll be
discussing. And we also have the fail of the
week, which in this case is Netflix's Ted Sarandos, the Co
CEO, appearing before Congress. Congress has a way of asking
business leaders interesting questions.
For example, Ted Cruz asks Ted Sarandos, the Netflix CEO, are
we on stolen land? That is, that's true.
He really asked him that. We'll be going over the whole
exchange in the fail of the week.
Now, we start things off today by looking at what happened
yesterday. It was one of the most
significant sell offs, especially in a high growth
industry that we've seen for some time throughout history.
Software companies, especially ones that have that nice
business model of recurring revenue that subscription
software companies, they've held a higher multiple because of the
predictability and reliability and pricing power inherent in
their business model. They have what's called sticky
businesses, meaning that when people sign up for their
software and they incorporate it in their business, it gets
intertwined in their workflows, embedded in their processes,
therefore making it difficult to move away from those
applications. Those applications also update
frequently, they offer more features and they grow
organically. Now these companies, these
software companies typically again have traded at higher
multiples because of the high margins, predictability and
reliability. Now what happened yesterday is
an escalation and a trend Anthropic has been on for some
time and that is building out business to business tools.
The Anthropic is a bit different than most other AI models or AI
companies. Most of them are focused on the
end user, the consumer. You have Open AI, you have
Gemini, you have XAI, where people are downloading them on
their mobile phones. But then you have Anthropic,
which said that we're not going to focus so much on that.
We're going to go straight for corporations, We're going to go
for business utility. Just a week or so ago, Anthropic
announced an AI plugin for Microsoft Excel, one that was
highly advanced. It could do complex tasks just
with text prompts. It could build out spreadsheets
and DCF formulas and do lots of things that financial analysts
can do right in Excel. It can also do things that data
analysts can do. It can draw insights and retain
context from what's going on in the Excel spreadsheet with no
knowledge of Excel coding. Anthropic built that plugin, and
it was better than Microsoft's Copilot, so we had a hint of it
a week ago. Anthropic was building out tools
on different verticals that are highly specialized for different
types of jobs. Yesterday, Anthropic announced
an AI automation tool specifically targeting
professional analysis and financial and compliance work.
This is legal work. So now they're moving from Excel
spreadsheets to targeting entire verticals of financial,
compliance, and legal teams. This plugin can supposedly do
the grunt work that financial analysts and legal teams and
compliance teams do, making that cost go down to essentially 0.
The companies that make a lot of money with legal compliance,
consulting, financial analyst information, all of that type of
stuff went down hard and that included S&P Global and Moodys
from the Wall Street Journal. AI threatens Wall Street's cash
cow financial and legal data. The market's pricing in the
Anthropic is essentially going to be able to scrape and
synthesize financial, legal data and market data for free.
And that a huge bulk of the work that companies like S&P Global
with their market intelligence, and Moody's with their entire
risk analysis part of the company, all of that's going to
be automated or at least dramatically cheaper, making it
so that companies like S&P Global don't have the pricing
power and the growth path that they once had.
Anthropic exposed a perceived vulnerability in some of the
widest Moat companies that we've ever heard of, S&P Global and
Moody's. These are looked at as the
duopolies, the monopolistic companies, the ones that really
can't be touched because they deal with such complex data and
regulatory, financial, legal. That's the type of stuff that AI
is not going to be able to do well.
Anthropic saying no, we can do that too.
That messaging put a lot of pressure on these companies, but
it also had a strong waterfall effect.
Once the market realized that these type of companies can be
impacted by AI, it was all bets off.
Every single company is now being scrutinized intensely of
whether or not Anthropic will be able to impact their business
model, whether it will be able to do essentially the same thing
for a lot cheaper or faster. The market acted swiftly to sell
off potentially any company that had any potential exposure to AI
disruption and we saw a lot of that yesterday.
I'll highlight some of the companies that we talk about the
most here just to highlight how much they're down over the past
five days. The biggest one that's down the
most over the past five days is Equifax.
Equifax had a massive sell off yesterday, which I was very
fortunate to have sold it before that sell off.
So that was some lucky timing. I did not anticipate this
happening. So this wasn't me thinking in
advance that it's going to sell down and then timing it
perfectly. In some cases, it's better to be
lucky than good. This is one of those cases.
Equifax, like many of the financial companies reliant on
data, was crushed over the past five days, falling 14%.
Then we have S&P Global. Now this is a large holding and
I still maintain my position in this one.
It is down 13%. We have Duolingo over the past
five days. This one's down 13% as well.
The market's pricing in big disruption with Duolingo.
This is one that I disagree with.
I don't think it's going to be quite as bad for this company as
what's being priced in. We also have into it.
This is one that I've been concerned for some time that it
would get this SAS treatment that would be bucketed in with
the rest of software companies and get evaluated like it's a
Salesforce or Adobe into. It's down and astounding 12%.
It's the lowest valuation it's been in years.
Then we have FDS, which is fax set.
That's another data supplier company.
That one's down 12%. FICO, like many of these stocks
has been a disaster recently. It's down 12% as well.
We even have Spotify, which Spotify is down 11 percent.
Is Spotify getting disrupted by AI?
What we'll discuss, We have Moody's, this one was hit to a
lesser extent, it's down 10%. We have Uber, this one's also
down 7%. And then we have MSCI, this
one's down 7% as well. And there's a lot more where
that came from. So many companies were hit hard
yesterday and they're still getting hit hard today.
If we look at My Portfolio, this is one of the the worst losses
I'd say in the past few years in a single day.
It was a quick sell off. I lost around between both
portfolios, around $60,000 in one day, so around 5% of the
portfolio. When we look at the categories
here, the ones that were hit really hard is the financial
category. These are the Devcantasario
holdings. S&P Global, Moody's and Intuit
were hit very hard, each one of them down around 10%.
We look at MasterCard and luckily, fortunately, this is
one of the ones that was actually green on the day.
So investors are not worried about MasterCard, which I don't
think they should be. Intuit stock has declined so
fast. I believe it's getting into the
territory of being a good opportunity.
This is one that is growing very quickly.
It's difficult to believe that AI will replicate TurboTax and
people will just do it with AI. Most people want to make sure
that their taxes are done correctly and not have
hallucinations. So Intuit's one that I think has
built up a history and trust with a lot of customers.
In my opinion, it will be one that will likely do well in the
future. This one I continue to hold in
the tech categories where I put most of my focus.
This is where we get into some of the big tech companies plus
ASML. I still own my full share in
Google. I haven't sold any and I still
continue to hold all of it going into this earnings.
I believe that Google's earnings today are much more risky than
they were previously just because of valuation.
Investors are getting a little antsy, a little anxious going
into these earnings. The stock is down 3% when
there's so far. Really nothing wrong with
Google, but when we look at this company, it's trading at a 30
Ford PE. This is one of the highest PE
ratios on a Ford basis that Google's traded at.
It's typically not priced like this, so there is reason to be a
bit more cautious and there's a higher likelihood of a post
earning sell off than before. What keeps seeing Google is I I
just believe this company is a big winner long term.
I don't think they're going to get disrupted by AI.
They have too many users, they have too many tools, they have
too many unique great assets. Google Cloud is great, Waymo's
great, YouTube is great. You have all the business assets
where they're infusing Gemini. They have their own leading
model, and I think that this one will just continue to do well
over time. It may sell off in the short
term because of valuation concerns, but Google remains a
winner long term. Now, the newest position, one
that I'm building up extremely fast, is Meta.
I've been putting a lot of money into this company.
It's already a $118,000 position.
This is one that I've been building up so quickly because I
feel more and more confident about the future of it,
especially given the position of the market right now.
Meta is a company that I feel is entirely insulated from AI
risks. It is a company where they
control their own model. They have their own
infrastructure. They have their own
supercomputing. The products that Meta owns and
the platforms they own are not going to be disrupted by
artificial intelligence. They don't have the same type of
risks. And while I believe that it's
highly insulated from the risks right now, it's also a company
that's growing incredibly fast and has a low valuation.
To me, it is a place to put money.
This is a buy, so I'm buying it substantially.
Does that mean the stock will go up tomorrow?
I don't know. I can't guarantee anything, but
this is one that I feel very strongly about right now.
You can see that with how big the position is and the fact
that I have another $10,000 going into this one this
evening. Now, part of where I raised
money for this is with the sale of Salesforce.
I sold the company this morning. Salesforce is a company that I
have been questioning whether I should own for the past year.
A couple weeks ago I said I was going to sell the company, so
this is no surprise. I've already signaled it.
I've talked about it frequently, and I said that the sale
proceeds would go towards Meta. That's exactly where they went.
Salesforce is a company where you can debate all day long
whether or not AI will kill the company or not.
But even putting aside the AI fares, even if we just leave
that completely out of the equation, I still believe that
Meta is just a better company regardless of AI fares,
regardless of what's going on with the market.
When I look at Meta both from a valuation perspective, from a
Moat perspective, from a growth potential perspective, Meta
seems like a superior asset to me overall.
That's ultimately the reason that I decided to sell it.
So I believe Meta is a quality upgrade over both Equifax and
Salesforce in doing this type of transformation and putting both
of those companies assets into this one.
I believe that overall My Portfolio is stronger today.
We also have ASML, which is selling down with the rest of
the market doesn't make much sense, but ASML is down and then
we have Microsoft. This is another one that I'm
getting very close to starting to buy.
I believe that Microsoft is traded down to the range of
being good value. Let's go ahead and take a look
at the Story Fund for a minute. This one's 390 thousand,
$123,000 in gains. If we go through the holdings in
the Story Fund, Amazon has been fine.
Netflix has actually held up well.
That one's been fine. We have Google, which investors
are a little bit antsy about with the the upcoming earnings,
but that one overall has been fine.
Then we have Microsoft. This is one that actually got
hit in the sell off because Microsoft is a software company
to some degree. We have S&P Global.
Again, investors are scared about that one.
And then Duolingo, this is 1 where investors continue to
liquidate this company. If we look at the market cap,
it's at a $5.5 billion market cap, but that also doesn't
factor in that they have $1 billion in cash.
If you were to net that out, this is a company trading at a
four and a half billion dollar market cap that's doing hundreds
of millions of dollars per year in free cash flow.
The free cash flow yield today is 6.45%.
You don't often see a company growing as fast as Duolingo
that's trading at this high of a free cash flow yield.
Investors want nothing to do with this company.
It's being thrown out with all the other AI concerns.
We also have a lot of shorts cashing in on this company.
The short interest is now way above 20% so shorts are piling
in, which of course creates more aggressive selling.
Maybe I'm just stubborn, but I'm holding Duolingo and I may buy
more of it. I just like the stock.
I like the company. I think it's very profitable and
overtime we'll see if the business model survives.
But right now I believe that Duolingo is a lot more than just
a learning app. It's a very refined one.
It's very user friendly. It's something that it creates
an addictiveness in users. They want to use it every single
day and that's difficult to accomplish.
So there's the damage to the portfolio.
Overall, it was around a 5% hit, which is a big hit. 5% is a lot
to lose in a single day, but that money will be compounded
back. These companies are growing.
I have incredible assets in the portfolio.
It's going to go far above 5% in the future that I'm confident
of. Now, switching gears a little
bit, one of the things that I wanted to comment on and warn
about was this tendency that I see from many investors to
simply look at all the companies that are selling off and start
to just buy the ones that are selling off the most.
They're buying the ones that are trading down the most or have
the lowest valuation. While that seems like good
investing on the surface to buy companies that are oversold or
ones that the market's panicking on, I believe things are a bit
more complex than that. One of the things that investors
often look at as an attractive trait is the ability to be
patient, The ability to have duration.
Duration means that you don't need to sell companies that are
going down in stock price. The market gives you a lower
bid. You don't have to take it.
You can simply just hang on. You can wait overtime for
earnings to grow or from things to change and the market to give
you a higher bid. That is duration, and it's one
of the best things that we have as investors.
But duration, even though it's a great benefit, also only
protects you if the company that you own has a business model
that will survive and thrive. Duration only benefits you if
the business model survives. Waiting and being patient only
benefits you, the investor, if the business model is thriving.
Patients, if you're not careful, can turn to denial.
If you have companies in your portfolio that are selling down
day after day because the business model is in decay, the
business model is being eroded. AI is attacking it from all
fronts and making real damage to the value proposition of your
company. That is not good investing to
simply hold on. That is denial.
Investors that may feel like they're trapped in a company
because they've been in it before, they're in the red on
it. They have sunken cost fallacy,
meaning they're waiting longer and longer hoping that someone
will give them a higher bid so they can just exit out of it.
That is denial, and I see many investors get stuck in this
denial. If you're not careful, duration
and patience can quickly turn into denial.
And the way they determine that is by the business model.
If you look at different industries like cable TV, cable
TV used to be an incredible industry with high margins,
residual business customers that paid every single year.
It's one of the most profitable big companies in the world.
These were the giants of our time.
But cable TV was disrupted by a superior technology called
streaming. Now cable television trades at
record low valuations companies that you can buy for very cheap.
Anybody can buy them anytime, but they trade for cheap because
the business models have been decayed, they've been eroded.
Being a patient investor in cable television has not paid
off. The patients has accumulated
losses and has given up opportunity to put the capital
into business models that are thriving and growing.
So I'd give a word of caution before buying SAS companies that
are at a discount that are seat based when AI is making it
easier to do seat based things robotically to at least look at
the threats to the business model itself.
For you to have the extraordinary gains over time,
you need the business model to survive and thrive.
The business model does not survive.
It doesn't matter what valuation you're buying the company at
PayPal, investors have learned that the hard way.
You can get stuck in a company indefinitely.
Sunken cost can keep you there for much longer than you deserve
to be there. So look for the business model.
When I look at this, I look at companies that I believe right
now, at least for my judgement, AI can't touch.
One of them is Amazon. Amazon ultimately is a physical
infrastructure play. It's a company that is very
insulated from AI. Amazon's business model is not
going to just survive, it will thrive.
We have ASML. AI can do many things to help
ASML. Maybe it can help calculate and
calibrate some settings on many of the toolings that they have.
But AI can't build a $400 million machine.
It can't build perfectly smooth class.
It can't make thousands of suppliers do unique business
with ASML. ISML is highly insulated from
AI. The business model is going to
survive. Costco's another company that's
up like 19% this year. It's just off to the races.
Costco's always been a very insulated company from almost
any disruption. That's why investors have paid a
perceived high price for it. But Costco's always looked a
little cheap in hindsight. Looking at Costco today, this is
another company that I haven't sold, I have my full position in
and Costco is certainly not going to be disrupted by AI.
We have GE. This is another one.
I don't have it in My Portfolio, but GE is one that I can't
imagine AI being any meaningful risk.
We have Google, another one that has a business model that's
insulated. It's not going to be disrupted
by AI. It already went through the
biggest threat, which was Chachi BT, and they passed that threat
just fine. We have MasterCard.
MasterCard is 1 where they do have a whole data analytic side,
so I could see some pressures from AI on that side.
But MasterCard is mostly a network, which AI can't disrupt,
and MasterCard is a data provider, which AI can't
disrupt. What AI disrupts is the stuff in
the middle. We have Meta.
This is another one obviously I'm buying into.
I think it's highly insulated from AII.
Think it's a supercomputing power.
Mark Zuckerberg has taken the company in the right direction
to widen the MO of it. We have Netflix now.
There is some chatter of whether or not AI will disrupt this by
making it easier to create high quality content.
Part of what makes good content is good dialogue, good writing,
good pacing. That's all stuff that AI suffers
with, especially over long terms.
Episodic content, seasons of content.
I don't think you're going to get that with AI.
Now another one that's trading down a lot, but I'm putting it
in the bucket where I, I don't believe AI is going to disrupt
it is Spotify. Finally, we also have Visa.
If we throw a MasterCard, we have to throw a Visa.
This one is primarily a network. AI is not disrupting networks.
These are the companies that I believe are the most insulated
from the threats of AI while still maintaining strong growth
prospects in a very prosperous business model in the future.
And these are primarily the ones that I'm focusing on when I'm
investing in them. Now, it's true that I could buy
cheaper companies, and there's always cheaper ones that exist
in the market at any given in time.
But remember, when you're holding an asset for a long
period of time, everything comes down to the business model.
The business model is headed in a good direction.
Or if it's being decayed, you can look at duration or the time
you hold a company as a multiplier on the business
model. If the business model is good
and it survives and it thrives, duration will multiply your
wealth. The business models being
decayed, duration will only accumulate losses.
When I look at these companies, I believe they are amongst the
best business models. Now moving on, we get to some
companies reporting earnings, one of them that just reported
as Uber. This one's down around 4% on the
day. The earnings report was a little
underwhelming to some investors, but this is a very difficult day
to report earnings on. But the rest of the market
trading down, never a day that you want to show up and give
your earnings report. You want to do it when investors
are feeling good. And now it's just not the time.
One of the main concerns for investors with Uber is the
threat of more mobility companies like Waymo and Zoox
entering into this arena. Here's how Dara addresses this
question. I I think that the mobility
space, this is a trillion dollar space.
And remember we have been born out of competition right there
was when we first came out, everyone was trying to capture
the market share. And what's unique about Uber is
that we truly have a global footprint.
We're not just AUS business, we're a global business and we
have both mobility and delivery under one roof now over
46,000,000 members. And so we're able to actually
consistently over a long period of time show in a huge market,
in a very competitive market. We can gain category position,
we can grow faster than the market and at the same time we
can increase margins as well. So competition is nothing new
for us. We're used to, we compete
heavily in every single market that we that we operate in and I
think it's going to stay the same just because the market and
the prize is so big for us. What Dahr says here is
ultimately true. It is a massive total
addressable market. Uber's still growing quickly,
growing profits quickly as well, trading at $74.
Uber is a company that in a better market if we're in a big
bull market right now, not one that has so much negative
sentiment in it. This is one that I could see
going up well past 100. Now moving on, we finally get to
the fail of the week, which in this case is the Netflix Co CEO
Ted Sarandos and a representative from Warner Bros
appearing before Congress to testify underoath and get
question about their proposed acquisition.
The goal here of course is to look at the committee and answer
any questions about monopolistic concerns and market powers,
pricing dynamics, that type of thing.
But of course, anytime you see big business leaders go in front
of Congress, they don't really get asked the important
questions. In most cases, they get asked
questions about whatever's on Congress, mind, anything that
they thought of. Seemingly in the last five
minutes, many of the the congressional members were just
there to yell at Netflix for being woke.
That was a lot of the questioning.
And by implying that somehow by buying HBO, they'd make HBO more
woke, which I'm not sure if they've ever watched HBO before,
but it's not exactly known for traditional family values.
In any case, the questions got so off the rails at one point
that I just want to highlight a couple of them here.
One of them was directed at Ted Sarandos, and this one comes
from Ted Cruz. One simple question are we right
now on stolen land? That's a real question.
This isn't AI. That was real.
Now, if you're confused of why that question is asked of a
Netflix executive, well, you're as confused as me.
But Ted Cruz explains further Hair.
I have no idea the history of this land, of this, where we're
sitting today, nor do I, Senator.
So that speaks volumes that neither of you are willing to
say, hell no, we're not on stolen land.
And I will say it's a Grammys when you see an entertainer say
nobody is illegal while we're on stolen land.
And then you see entertainers leap to their feet, clapping so
excitedly at the notion that America's fundamentally
illegitimate. It starts to convey that the
entertainment world is deeply corrupt.
And I will point out that same singer who says no one is
illegal on stolen land promptly went back to her $14 million
mansion. And and somehow that stolen land
she wasn't concerned about just the United States of America.
Just to summarize this exchange, Ted Cruz asks a Netflix
executive about a very political statement that he didn't make,
that Netflix didn't make, and that an employee of Netflix
didn't make or even someone affiliated with Netflix.
In fact, that statement happened by a 23 year old at the Grammys.
Billie Eilish doesn't even work for Netflix.
She doesn't even produce films. She has nothing to do with the
company. Now keep in mind that Netflix
and HBO both didn't host the Grammys either.
They have no connection to it whatsoever.
Ironically, the company that did host it was CBS, which is owned
by Paramount, the only company not a part of this deal.
So this is the type of questioning that they get being
asked about politically charged, of which they have nothing to do
with the people they have no affiliation with, with events
that they had nothing to do with.
Another thing that Congress routinely likes to do is to
challenge the business models of companies that they have nothing
to do with as well. Josh Halley, for example, wants
to tinker with the business models of virtually every
business that he interacts with, of ones that he's never worked
at, ones that he hasn't built, companies that he has no
agreements with. But Josh Halley insists that he
knows how their business should best be run.
And will you commit to fairly compensating your workers in the
industry with residual payments? Senator Halley, I would, I
would, I would like to tell you this is a very complicated
answer because we prepaid. That's usually on the way to no
that that's usually a way of saying no.
So I'm looking for yes. I understand this is not a yes
or no answer. Because it kind of is.
Though it kind of isn't because I and we were going to sit down
with the unions of. You're disappointing me.
Starting in the next few days. So we're sitting down with the
unions for new contract talks that start actually in three
days. This is a this that's a
complicated long no. I would really hope it would be,
yes. Ted's Randall's, of course, is
correct that this is a complicated answer.
It's not as simple to say that every single contract should
include residuals. In some cases, actors and
producers like having a lot of upfront money.
It de risks the situation. They can pay for their entire
production upfront without any risk of performance.
In those cases, many actors, many producers may say, I rather
have $10 million upfront than $1 million plus residuals.
And they can make those choices on a case by case basis.
But when you're in front of Congress, someone that doesn't
work in the industry or know the industry inside and out, someone
that hasn't studied it or built it or contributed to it, will be
insistent that they know the exact way those agreements
should be made between two different parties.
And if they're wrong, that's the wrong answer.
And this committee went on like this overall for about an hour.
It was extremely unproductive, unrevealing.
Nothing really new happened or anything changed.
It was just Congress launching complaints about Netflix.
And that is why it's the fail of the week.
That's gonna be it for this episode.
Hope you enjoyed. See you in the next one.