Today on the Joseph Carlson Show, I hope you're ready for
another busy week of earnings because that's what we have
starting off last week. In fact, we had a couple
companies report earnings, ones that are important to My
Portfolio booking holdings. They reported late last week.
I'll share a few thoughts about it.
We also had another holding of mine, a company called Texas
Roadhouse. They gave their Q4 report as
well late last week. We'll be going over these.
I'll be sharing a few thoughts on them.
But looking ahead, we have a very busy week.
Starting off with today, we already had Domino's report
their earnings. We'll be looking at that.
And then after market close, we have a very popular company
which is Hims. We'll be going over that one as
well. And then on Tuesday and
Wednesday before market open, we have Home Depot and Lowe's.
We'll be going over these ones. And then we have some companies
that are again in My Portfolio, we have Intuit and Salesforce.
These are both very large concentrated positions, both of
them tech companies. And then the most anticipated
earnings of the week is NVIDIA Wednesday after market close,
we'll be reviewing the case for NVIDIA, where this company
currently sits, the risks going in and what I believe is most
likely to happen with Nvidia's earnings.
So we have a very busy earnings week.
And then we also have some news on top of that.
Apple just announced today that they're investing $500 billion
in the US over just the next four years, so $125 billion a
year. That seems like a pretty big
deal out of left field, but what does it actually mean?
We'll be giving some context to what this number means, how it
actually fits into Apple, and what the strategy here is.
We also have news that Microsoft has been cancelling some of
their leases for their data centers, signalling that the
company may not be quite as bullish on AI as people once
thought. Now this news came out, it
caused the market to drop today, and Microsoft is now refuting
this news saying that the report is incorrect.
We're going to be looking into it and what's really going on
with Microsoft and their data center leases.
And then finally, we have a report that streaming is taking
over. It's at the pinnacle right now
of eclipsing total time viewed from cable TV.
We'll be looking at the data here and showing what this
transition means. O As always, we have a ton to
get into in this episode. If you enjoy this type of
content, you can let the YouTube algorithm know by hitting the
like button. It's completely free to do.
Let's go ahead and jump in now. To start off, we'll jump into My
Portfolio and Justice. Take a look at how it's doing
with the market today. At the high point, the portfolio
had an all time gain of around 330,000.
It's pulled back a little bit over the past week, down around
$17,000. That's only 1.7%, but it's still
a meaningful amount of money. I'm human.
I'd like to see My Portfolio go up every day, all day.
But that's not how the market works.
We have time periods where companies go a little bit over
where they should, and sometimes where they pull back more than
they should. That's what brings opportunity
to individual investors. If the market always traded
rationally and in line with earnings all the time, there'd
never be opportunities for investors to exploit.
But luckily for us individual investors, that's not the case.
So today we have a pullback in the market.
Companies are coming back down, many of them from frothy
valuations to more reasonable valuations.
I look at this and I've been nibbling at stocks here and
there. I've not been doing any massive
buys. I haven't been buying into
companies left and right, but I've been doing a few small
buys. I bought a little bit more
Recipe Global, a little more Moody's last week.
I think these companies are so strong, they're positioned so
well. I even bought a bit more into
it. That's a company reporting
earnings this week. But two companies that I've been
very bullish on for quite a while, you've heard me talk
about these ones before, are in the consumer and restaurant
category. One of them is Booking Holdings.
This company reported earnings last week.
Booking Holdings be on the top and bottom line, of course,
which is important, but more importantly, intrinsically, the
company is moving in the right direction.
It's growing its intrinsic value every year and it's growing
substantially. If we look at some of the
metrics here, we can go into Qualtrim and take a look at it
on Insights. This website is part of the
Patreon membership, 10 bucks a month.
But if we look at some of the important details here, we have
Q4 already in Qualtrim. And let me just smooth this out
by looking at the trailing 12 months, look at the revenue
growth of this company, very good revenue growth over time.
The only trouble they had was during COVID, which I think is a
very reasonable excuse. But outside of that, they've
been growing revenue 10 to 11% over the past decade.
And last year was no different. They grew 11%.
People love traveling. They love vacations.
The overarching theme of this type of investment is it as GDP
per capita grows, which it does every single decade, more, more
people can take care of their fixed needs like their home
expense and food. And that excess spending goes to
booking. It's a long term secular trend
on GDP per capita growth across the world.
People of favor travelling and experiences over time.
This company is well positioned to capture that excess earnings
into travel. So that's the overall revenue
growth of the company. But another thing I want to
point out in terms of this company, when we look at booking
holdings and their gross booking growth year over year, it grew
by 17%. This is one of the KPISI track
in Qualtrin because this shows how many people are booking
vacations with them and the total volume of that.
So the gross booking grew by 17% year over year and it grew up to
around $36 billion, massive growth at a massive scale.
If we compare this to Airbnb, this is one of the the companies
that people frequently bring up as an alternative investment to
Booking Holdings. It's one that I've done analysis
on and I think Airbnb is an exceptional company.
But I just want to point out that in terms of total bookings,
Booking Holdings grew the gross booking value more than Airbnb,
even though it's already at much larger scale.
So Booking Holdings is growing faster while being at much
larger scale. And I think this is surprising
to a lot of people. I believe the reason this is the
case is because Booking Holding has the advantage of being the
unique aggregator in Europe. They're a monopoly in Europe,
and they're very, very difficult to beat.
At this point, the stock is floating up around $5000 per
share. I'm currently $18,000 in the
green on this one with a $70,000 position.
That's not the biggest gains for this company, but it's a lot of
gains in a short period of time. So buying this one on a dip so
far has turned out well, but I still see a great future at this
company. I'm not selling a single share
yet. Next up in the restaurant
category, we have a long time holding in the portfolio, Texas
Roadhouse. This one I invested in around
$90.00 per share. I started buying it aggressively
around that SharePoint and I haven't really added to it or
subtracted from the holding since then.
I just bought it at that one point in time and I've held it
ever since. I've collected the dividends and
watch the company grow. It's now one of my biggest, in
fact, best performing stocks in My Portfolio, A $74,000 total
position with $39,600 in the green.
If we look at their most recent earnings call, we have it
summarized here. And some of the things they
pointed out are pretty impressive.
For example, Texas Roadhouse grew their earnings per share
60% Q 4 year over year. Now this number isn't exactly
accurate or at least it's not meaningful because they had an
extra week this quarter compared to last quarter.
But even factoring in that extra week and normalizing it, they
still grew earnings 38%. So we have a company here, a
restaurant growing their earnings 38%.
That's fast, That's comparable to tech companies, that's
comparable to some of the fastest growing companies in the
market. This is some of the interesting
dynamics in the market. Some of the most sleepy
companies with products that you think are boring or slow
growing, they seem like they'd be slow moving like Texas
Roadhouse, a sit down restaurant chain.
They're actually growing their earnings per share and their
free cash flow per share at speeds faster than many high end
AI tech companies. So what I see here is a dynamic
that this company gets ignored largely by Wall Street.
It doesn't get a lot of coverage because it's not in the right
industry, But the execution of this company and the growth
they've been able to have without much leverage has been
exceptional. They're growing quickly in a
very predictable, risk averse way.
This is another great report across the board and I don't
plan on selling any shares, so I still hold my full position.
Now moving on to this week, looking forward, we already have
some companies that reported this morning.
Domino's being one of them is another great company.
This time it's a franchise business where they work more as
a royalty company. It notes that the company
reported worse than expected Q4 financial results.
It also proposed a 15% dividend hike.
So they came in a bit under expectations and they're hiking
the dividend. Based on what I see right now
with the future multiples and the free cash flow of the
company, I don't think Domino's is a bad bet.
If you've been looking at this company, I wouldn't blame you
for buying this dip. I think Domino's is at a more
decent valuation now than it has been in its recent past.
Now also today after market close, we have a highly
anticipated earnings report. This is one that's become
popular seemingly overnight. It's spread across social media
because of its incredibly fast revenue growth attention
catching headlines that is Hymns, hymns and hers, the
telehealth company. Now if we look at Hymns, just to
give a little brief history on this company, what is attracting
so many hyper growth investors to the stock?
Why are so many people talking about it being A10 Xer company
that can go up 10 or 15 times in the future?
It's already up 93% year to date.
So anytime a stock does that, it catches a lot of attention,
especially from momentum investors, people that want the
double in a year, people that want the double in six months.
They go for these type of companies, the ones that have
all this bullish sentiment, social media sentiment.
So we're up 93% in just year to date, 375% over the past one
year. So it's having this moment, it's
having this incredible spike, drawing a lot of attention.
When you look at the revenue of this company, it's also growing
incredibly fast. Over the past year, it grew 56%.
The past two years, it's grown at a CAGR of 67%.
Now, it started at a relatively low base, only $100 million, but
it's already grown up to 1.24 billion.
So this move in the stock price could be justified by how
rapidly this company's growing. Investors are trying to catch on
to a company that's moving quickly.
Another thing that's especially impressive by this company in
particular Hims is not just growing in revenue, it's also
growing in true free cash flow, real undiluted free cash flow.
This last quarter we had $153,000,000 in free cash flow.
If we go over to that compared against the dilution or stock
based comp, it only had 85 million in stock based comp.
So it eats up around half of it. But note the trend here.
It's already surpassing the point of producing real cash
flows. So this company is moving in the
right direction quickly and it's growing it's free cash flow
margins quickly. This again is attracting a ton
of attention. How is Him's growing so fast?
Well, they did a unique strategy of cornering the market of
things that are a little bit more embarrassing to go and see
the doctor for Ed pills. This is something where nobody
really wants to go in and converse with another Doctor or
converse with someone about that issue.
They'd rather do it in a bit more anonymous of a way, or at
least a little bit more detached.
They'd rather just do it through technology and that's where
hymns came in. They started off with that type
of product and they promised that it would be very discreet.
Even sending it to you, it would be packaged discreetly.
It's something where you can get those medicines without having
to interact or have those awkward conversations.
They use the growth in those type of product lines to pivot
into the growth in different types of products like GLPS.
They know that this is another one that people just want to get
the product. They don't want to consult with
the doctor. They don't want to talk about
the weight issue. They just want to try out the
product. So when you go to HIMS, you do
have a consultation. It is prescribed by a doctor.
But again, it's more convenient and more affordable because they
are compounded versions of the drugs, not generics, but
compounded, which the government allowed them to do because there
was too much demand and the pharmaceutical companies
couldn't create enough of it. So they are able to sell
virtually the same drug but a compounded version of it for a
lot cheaper than the pharmaceutical companies.
This puts HIMS at odds with pharmaceutical giants.
They don't like hymns. They don't like that they're
being underpriced. But Hymns has carved out their
own path and grown quickly in it, capitalizing on the use of
technology, efficiency and really smart marketing.
What this company has done and the way that they've pivoted it
is very impressive. I like what they're doing.
When we're looking at the upcoming earnings, some notable
things that they'll be talking about.
Investors should focus on the company's impressive revenue
growth, which accelerated 77% year over year, surpassing 400
million in revenue in the third quarter.
What's driving all this revenue growth, I think is the
subscriber base expansion. They added 180,000 net
subscribers in the third quarter, which is just
remarkable. Consider the fact that this
would not be a meaningful amount if it was Netflix. 180,000 is
not a huge amount of people, but put in the context of the fact
that these subscribers are paying a couple 100 bucks a
month for the drugs, it's much more meaningful.
Netflix is 1020 bucks a month. This is a couple $100 a month.
So the average monthly revenue per subscriber is far more.
This is adding like a million subscribers.
If you're comparing it to something like Spotify or
Netflix, the numbers here can't be overstated.
This is a 44% increase year over year, growing rapidly.
We want to see more expansion in subscriber growth.
That's one of the KPIs here. Like I mentioned before, this
company's growing, but it also needs to grow profitably.
That's one of the best signs for a solid investment.
A lot of people hope for profitability later, but I like
it now. I love it when companies can
grow quickly and profitably, and many great companies have done
that. Google has been profitable since
day one. Even before it became public, it
was a profitable company and this company's already showing
solid profits. You can go through their product
line. They're continuing to expand it.
Personalized solutions, including titration schedules
for semi glutide is a critical development.
Innovations like this cater to a broader audience, addressing
various health conditions effectively while enhancing
customer satisfaction retention. They're also implementing share
buybacks already. So even though the stock price
is going up, they're already buying back the shares, which if
you think the stock is undervalued over the long term,
you want them to do. In a lot of cases when I see a
company shoot up this much, go up 90% in a couple months or
three, 100% in a year, your initial reaction is that it's
probably overvalued. But this is one of the cases
where I don't believe that's the case.
I don't believe that hims and hers is overvalued.
And I say that based on the fundamentals of the company.
It's at a $10 billion market cap, which is not extreme given
the free cash flow generation of the company and the trajectory
it's on. It only needs 300 to $400
million in free cash flow to justify this market cap based on
the growth rate it could get there this year.
So I don't believe that this is a case where the company is
automatically overvalued because it's had substantial growth.
And even though there's a lot of risk and uncertainty in the
business model, I don't think that investors are crazy for
buying this company. HIMS is a company that I'll
continue to keep an eye on. I'm very intrigued by the
subscriber growth, but I'd like to see more data on the
retention and how they're able to keep the subscribers over
time. Now Next up, going into this
week, we have Home Depot on Tuesday and on Wednesday we have
Lowe's. I'll go over both of these
together. Home Depot and Lowe's both have
the same issue. They're operating in an interest
rate environment that's higher than its 10 year average.
We are simply in a more difficult environment for these
type of companies. So growth is a little bit more
difficult, It's more challenging.
And you've seen the results of this in the stock price over the
past couple of years. These companies have struggled
from around 2021 to current day. They're around the same price.
So it's been a time period of investors hopefully getting a
little bit of dividends and having the stocks trade around.
And I don't see this issue fixing itself anytime soon.
When I look at either of these companies, the current
valuations they trade for, and their current growth prospects,
I can't help believe that they'll underperform.
The reason why is that even though they're at a decent
valuation, mid 20s PE ratio, 4% free cash flow yield, it doesn't
seem that bad. The stocks really aren't growing
their revenue or their fundamentals all that quickly.
They're having trouble keeping up with inflation adjusted
growth. So when you have a company
that's trading at a reasonable valuation, but it's not growing,
you're not going to get a lot of intrinsic value growth.
The expectations going into this quarter are not that high.
So I don't think they're going to have any particular trouble
this week. But I also don't believe these
are the best companies to buy for compounded growth over the
next 10 years. They're simply better options.
Now moving to Tuesday after market close.
We have a company that's in My Portfolio.
I've made a lot of content about this one.
It's a company that excites almost no one, and I realized
that it's into it. An Intuit is not a cool company.
I get it. It's just not a it's not going
to be one that puts you in the the cool kids club.
You're not sitting at the cool table during lunch.
If you invest in Intuit. It's a company that makes tax
and accounting software, small business software.
There's nothing exciting or sexy about that.
But this company, I think, gets a bad rap simply because of the
industry it's in. It's in an industry that's
boring, a little bit stodgy, maybe old fashioned, but the
company fundamentally is incredibly strong.
It's a powerful tech company. They're doing a lot of things
that are exceptional, and they're growing at a speed
that's relatively fast compared to other tech companies.
And Intuit has been a company that struggled over the past
year and a half. If we look at the stock
performance, it's already down 9% year to date.
So it's trading down like a number of companies are this
year, but over the past year it's down 14%.
So we're in a nice long term downward trend with Intuit.
Over the past five years, it's up 100%.
I bought it during a dip time period, so I'm still in the
green on it, but it has been trending the wrong way.
And investors, I think I've been a little bit dissuaded from this
company. Some of the reasons that I like
into it are simply because of its market structure.
It has a dominant Moat in a lot of the categories it operates
in, not just with TurboTax and filing taxes, but also with
QuickBooks. And that's a very meaningful
piece of software to small businesses.
The growth they're driving from these products is exceptional.
They've grown 12.4% year over year.
The free cash flow growth has also been exceptional.
If we look at the free cash flow per share, we can zoom in just
over the past 10 years, it's grown around 16% for the past
five years. That's around double the speed
of the S&P 500. So even though it trades at a
more lofty valuation, it's growing it's intrinsic value
rather quickly. Last year it grew up by 18%.
So this is a company that's traded flat for over a year that
grew its free cash flow per share by 18%.
When I see this type of equation happen where the stock price is
flat or going down while the free cash flow per share or the
intrinsic value of the company continues to increase, it's only
matter of time. It's only a matter of time until
things turn around and the stock price starts to go up.
Out of all the things we can look for this quarter, the
biggest one by far in my opinion is AI driven transformation.
They talk repeatedly about implementing AI on all facets of
their company, driving growth across the board.
And like I've expressed many times, it's not the companies
that invent AI or create it that are the ones that are going to
capture the most value. I focus on the companies that
already have the distribution in the customer relationships to
use and leverage AI to their advantage.
And I think into its one of those companies into its pivot
from a tax and accounting platform to an AI driven expert
platform is a critical area for investors to watch.
The company's innovative use of AI is delivering automated and
improved customer experiences with considerable emphasis
placed on AI powered human expertise.
Monitoring how AI capabilities enhance customer satisfaction
and Dr. competitive advantage is key to understanding into its
future trajectory. The AI should allow their
platforms to tackle more complex questions and more more complex
issues from customers. The reason that people leave
TurboTax is not because taxes are too simple, it's because
taxes are too complex. If people have too complex of
taxes, they hire an accountant to work specifically for them.
If Intuit can fix that problem and handle more complex taxes
with AI, they can save that customer money from hiring an
accountant. Another important part of this
company, and I think even more meaningful than TurboTax, is
QuickBooks. QuickBooks is evolving.
It started off as accounting software for small businesses
and now it's becoming more of ACRM for small businesses moving
upstream. The introduction of Intuit
Enterprise Suite for mid market businesses represents a major
growth opportunity targeting an $89 billion addressable market.
Investors should assess how effectively Intuit can
capitalize on this lucrative segment, especially if driving
adoption for their AI platforms, meeting complex business needs,
and building long term customer relationships.
This is a real total addressable market that they can grow into.
My bet is that Intuit's going to post strong earnings looking to
the future. They're getting cost down,
they're getting down their stock based comp, they're growing
organically, and they have lots of avenues to grow their total
addressable market. So I remain invested in this one
fully and I look forward to their earnings.
Now moving on to Wednesday. This is the biggest day of the
week by far, and it's aftermarket close.
Investors are going to be looking at primarily NVIDIA, but
I want to go over Salesforce 1st and then we'll go to the big
one, NVIDIA. Now Salesforce is another
holding of mine. I think it's another great
software company. It's a fairly large position, a
$67,000 position, $7600 in the green.
And this is a company where, if I had to summarize my thoughts
on Salesforce, it's that I believe investors don't have any
reason to complain. I don't think they have any
reason to complain. And I think people should stop
complaining about Salesforce. They're doing everything that
they say they're going to do. In fact, I've been overall
incredibly impressed with the turn around and the different
strategies that the leader, Marc Benioff, has done for Salesforce
over the past couple of years. I think he's been on top of
everything. I think he's been correct.
I owe him an apology because at one point in time I was very
critical of him. But I've seen a remarkable turn
around with his leadership. I've seen him do some really
great things. First of all, Marc Benioff was
way ahead on AI. Now, he wasn't ahead on creating
AI. Obviously, that was open AI and
Google. They're the ones that created
these models in the LLMS. But Marc Benioff intelligently
recognized where the opportunities exist and where
they don't. He pivoted into agents first and
foremost. That's what he went into
understanding that it's not the LLMS which are unique and offer
value. The LLMS are commodities.
Everybody's competing, surpassing each other's models.
The agents are where the real value is, and he transitioned
Salesforce into Agentforce, creating all these unique agents
to interact with their customers that can do all these incredible
tasks. They can take over different
roles. They can relieve the stress on
customer service, and he made this a marketable product before
other enterprises figured it out.
Now, everybody's on the agent bandwagon, but Salesforce had
already carved themselves out to be a leader in that space that
was under the leadership of Marc Benioff.
Another thing that Marc Benioff said he was going to do, and I
find this incredibly impressive, is Salesforce was a company a
couple years ago that really had low margins, high amounts of
stock based comp, and not much free cash flow.
It was a company that was plagued by high amounts of
dilution and low amounts of free cash flow.
If we look at this, we can look at the free cash flow and stock
based comp. Now if we zoom back a couple
years, pretend that all of this doesn't exist.
So erase this part out of your mind. 2023 onward.
We just have this part right here.
Look at the problem that Salesforce has.
Half their free cash flow is eaten up by stock based comp.
It looks really ugly. In fact, the stock based comp
was growing faster than the free cash flow.
Now investors sold down the stock.
They were concerned about this. A lot of people are upset.
We had activist investors step in and Salesforce made some
promises. Specifically Marc Benioff went
on the earnings calls and I remember one of the earnings
calls he said we are going to become such a profitable company
it'll make investors head spin. He promised it over and over
again. We're focused on free cash flow,
cash flow, cash flow. We're focused on profits.
We're focused on getting expenses down, getting stock
based comp under control, growing revenue without growing
expenses. We're going to have so much free
cash flow going into the next year.
It's going to shock investors now.
A lot of it was bold talk by Marc Benioff, but then they did
it. Look at the free cash flow
expansion over the next couple of years.
From 2022 onward, the free cash flow exploded, doubling while
the stock based comp went down. Not many companies are able to
pull this off. If you look at the free cash
flow per share, which factors in dilution, you see the massive
growth since 2021. It's doubled, doubled not in
five years, but doubled in two years, going from $5.75 in free
cash flow per share up to now $12.26 and a single quarter.
They're producing more free cash flow than Coca-Cola did in a
year. Another indicator that we can
look at is the margins of the company.
Marc Benioff said that margins were going to go up and then he
delivered. Operating margin in 2023 was
3.2%. Operating margin in 2024 was
14%. A lot of people had forecasted
this growth in operating margins over a decade, and Salesforce
did it in a single year. That's the gravity of how much
they improve their metrics now. Again, with Salesforce,
investors always have something to complain about after Marc
Benioff delivered record free cash flow, record margins,
record profits for the company in only two years, then
investors say, well, where's the AI story?
No longer do we want free cash flow, we want a good AI story.
And Marc Benioff delivered again with Agentforce, giving
investors a clear path into how AI is going to be used to
monetize the future of the company.
And again, this is a real product generating future
revenues. So when I look at Salesforce,
it's a company that I I see lots of people continue to complain
about for one reason or another. They're always critical of it.
But I see Marc Benioff executing really well over the past couple
of years. Overall, I've been very
satisfied with what he's been doing.
When we look at the valuation going into this earnings, I also
don't think it's overvalued. It trades in the high 20s
multiple. The price to sales is 8.
The free cash flow yield is 4% before stock based comp.
Even netting that out, it's 3%. In fact, Salesforce continues to
be one of the cheapest enterprise software companies
today. Salesforce should post a strong
quarter, having strong growth and profitability, high single
digit revenue growth, growth and free cash flow per share.
But on a qualitative note, the most important thing that
investors should pay attention to is the adoption of
Agentforce. This new product that Marc
Benioff has been talking about over and over again.
He needs to share the list, the list of customers that he signed
up over the past quarter. We need to know which
organizations are implementing Agentforce.
What is the retention, What is the the feedback?
Are they loving it? Are they mixed on it?
We need to know what's going on with Agentforce because that is
the future of the company. It's one of the biggest growth
drivers of this company now, so that's the primary thing I'll be
looking for. But overall, I expect a good
report. Now next we get to NVIDIA
reporting their earnings after market close on Wednesday.
This is largely described as the most important earnings of the
week or even the season. In fact, a lot of people mean
that NVIDIA is holding up the entire market, that it's such an
important company because it all revolves around NVIDIA.
All the CapEx spend, all the AI, all the narrative is reliant on
NVIDIA, and I believe investors should lower their expectations.
I think it's going to be more mundane that investors expect,
and I think the data proves this.
If we look at NVIDIA, we bring up some information here.
The first thing that I would point out is just the trends
over time. For example, if we pull up this
chart here, this is a dot plot that shows the earnings per
share. The actual is the colored one.
And then if we show the estimates, that's the grey.
The actual earnings per share always comes in above the
estimates, and in fact, the actual earnings per share came
in far above the estimates in early 2023.
This is when the stock price was surging upwards.
When you have a company that beats its estimates by this
much, huge beats, that means that investors need to go back
to the calculator. They need to go back to the
spreadsheet and rerun their DCFS because they're under pricing
the company. If we look at this more clearly,
we can see it right here on this right panel.
Let me zoom in a little bit and I can show you the difference in
expectations and the gravity of the beats.
Let's go back to Q1. In Q1 of 2023, they beat their
earnings per share by 12%. Q 2 of 2023, they beat their
earnings per share by 22%, significant beat.
In Q3 of 2023, this is the largest beat.
They beat it by 28%. This is when investors were so
excited about the company beating it up like crazy.
Then in Q4 of 2023, they beat it by a lesser extent, 17%.
In Q1, they beat it by only 13%. In Q2 of 2024, they only beat it
by 9%. In Q3 of 2024, they only beat it
by 6%. In the last quarter, they beat
it by a little bit more, but still not as much, only by 8%.
And this trend is also apparent in the revenue.
The beats overall from NVIDIA are getting more narrow and more
narrow every single quarter. Now this could be a suprising
one. Maybe this is the quarter where
they have another huge beat way over estimates, but that would
be against trend. What we're seeing right now is
that the analysts have caught up to NVIDIA.
The company is more appropriately priced.
Not only are the beats becoming more narrow, but investors are
now expecting beats. They've priced it for the beat.
The stock today is already priced expecting a 5 to 10%
earnings per share beat. For NVIDIA to have a surge after
market hours, it not only needs to beat more than 5 to 10%, it
needs to have a significant beat, but they also need a
forecast, remarkable growth far ahead of expectations.
And I think that's going to be difficult for NVIDIA to do at
this point because overall, again, I believe this story is
that investors and analysts have largely caught up to the
performance of NVIDIA. The stock price reflects a lot
of this growth. The earnings for it are already
30 years priced out. So we have 30 years of EPS in
NVIDIA and we need to see significant above expectations
to see any remarkable alpha in this company.
Now, even though the company reflects a lot of the
bullishness already, I do believe that this report's going
to be good. It's going to be another strong
report from NVIDIA, exceptional data center growth and Blackwell
ramp up. We're going to see inference
platform expansion and innovation.
We're going to see enterprise and industrial AI initiatives.
We're going to see global AI adoption and sovereign AI
revenue. We're also going to be seeing
gaming and pro visualization growth concerns.
Gamers can't get a hold of their GPU's, they're constantly sold
out and they don't have enough supply.
So that segment will likely not do well this quarter.
But that's going to be overshadowed by all the growth
in their AI segments. NVIDIA clearly has an incredibly
powerful and sustainable Moat. The company has carved out this
nice ecosystem of software and hardware for the AI data center
ecosystem, similar to what Apple did with iPhones, Nvidia's doing
with AI, and now we see even more evidence of that Moat with
AM DS most recent earnings. I thought that if AMD can
capture even a small portion of Nvidia's market, AMD will see
substantial growth. What AMD showed is that they're
unable to capture even a small part of Nvidia's market because
of the NVIDIA lock in. These large spenders want to go
with the company that has all the resources, the entire
ecosystem, which is NVIDIA. So I expect a very strong
report. I expect earnings per share
beats revenue, beats continued strong guidance, but I believe a
lot of that is already priced into the stock.
Now moving on, we get to some headline news.
And one of the biggest news lines already of the week is
that Apple apparently has announced that they're spending
$500 billion in the US. They say here that Apple said it
plans to spend more than $500 billion over the next four
years. So over $500 billion over only
four years, $125 billion a year within the US.
The numbers are just staggering. These, these numbers are
incredibly huge numbers. The iPhone maker pledged Monday
to hire around 20,000 people during that time span and build
a new factory in Houston that will create thousands of jobs.
The new 250,000 square foot factory is slated to open in
2026 and produce servers supporting Apple Intelligence,
the company's generative AI system.
This is already a bit different than what the others are doing.
ALE seems like they're only doing this to service
themselves. Whereas Google Cloud does it for
other companies, AWS does it for other companies, Azure does it
for other companies. Apple is vertically integrating
their support reliant on their own servers with Apple
Intelligence. But they also mentioned that
most of the incoming wave of workers will be focused on
research and development, silicon engineering, software
development and AI machine learning.
The company also is investing in education.
They mentioned that the company said it plans to create an
Academy in Michigan to train the next wave of US manufacturers
and a double its US Advanced Manufacturing Fund, which was
formed in 2017 to invest in U.S. companies and to do it advanced
manufacturing. Now, that's a report from the
Wall Street Journal, from Apple's own newsroom, from their
own announcement. They also mostly talk about this
in terms of investing in America.
Quote, we are bullish on the future of American innovation.
We're proud to build our long standing U.S. investment with a
$500 billion commitment to our country's future.
That's what Tim Cook said. From doubling our advanced
manufacturing fund to building advanced technology in Texas,
we're thrilled to expand our support for American
manufacturing, and we'll keep working with people and
companies across the country to help write an extraordinarily
new chapter in history for American innovation.
One thing I notice right away with this, America has mentioned
over and over, American manufacturing, American
innovation, over and over again. There's a lot of different ways
to interpret this type of news, but I just think that this is
mostly politics. Tim Cook is one of the best
players of politics. He knows how to to play the
political game. He's extremely good at it.
He's been good at it for a long period of time.
If you've seen how he handles members of Congress under
scrutiny while being questioned, if you see how he handles the
relationship of navigating this complex, nuanced political
relationship between the US and China, being very reliant at one
point in time in manufacturing in China.
Tim Cook has been an expert at this.
This is his territory. He knows what he's doing here.
President Trump has made it incredibly focused and important
to his agenda to have companies invest in America.
And what does Tim Cook do? He makes a big announcement that
they're investing in America. American jobs, American
universities, $500 billion. That's a number that President
Trump is going to love. This is ammunition that
President Trump can use to say, look at what I did.
I got $500 billion invested in America.
So Tim Cook is feeding President Trump the ability to take a win
here, the ability to pat himself on the back and say, look what I
did. In reality, how much of A change
is this really from Apple's previous plans?
How much were they going to invest anyways over the next
five years? Probably a significant amount.
And that's why Apple's so vague on this news.
We don't really know what the CapEx budget here is.
We don't know the expense budget.
We don't know how it differs from their current plans.
Apple's a company that already revenues $400 billion per year,
so they're revenuing $400 billion per year.
And they haven't free cash flow, $100 billion a year, meaning
that Apple's already spending $300 billion a year somewhere.
Some of that's in China, some of that's in the US already.
And we don't have a lot of insight into how this differs
from their already existing plans.
How does this actually change the business?
In most cases, if a company comes out and says they're
increasing their CapEx budget by $100 billion, that would cause a
lot of concerns. The stock would sell off.
But in this case, I think investors are reading through
the lines. This is not a dramatic change in
the Apple strategy. Apple is already investing
heavily into artificial intelligence, and this big
announcement is likely a nice packaging of it.
Apple is both minimizing the burden of tariffs, and they're
nicely encapsulating their plans in this package with this
announcement. So I think this is another
masterful display of Tim Cook and his ability to communicate
to politicians, to be able to play both sides of the aisle to
his advantage. He is a wonderful asset to ALE
and ALE shareholders. Now, next we get rumored news
that may have spurred the entire sell off this morning, which is
that Microsoft was canceling leases for their data centers,
reversing their bullishness on AITD.
Cohen analysts first reported in research note Friday that
Microsoft had cancelled leases with at least two data private
center operators. They said, quote, our checks
indicate that in some situations Microsoft is using facility
slash power delays as justification for the
termination. No, that was concerning news
that Microsoft is using excuses to get out of their data center
leases because apparently they don't have the demand or they
don't want to invest in the future of AI.
That creates a lot of nervousness around this entire
industry. But Microsoft was quick to
refute these claims. Jeffrey Analysts said in a note
Monday that Microsoft executives were strongly refuting any
change to their data center strategy.
They noted that the company's capital expenditure growth is
slowing, but it's still growing quickly.
This report overall is a big nothing.
It's one of these rumors that you see.
You see these headlines from time to time.
One analyst reports one thing, investors pick it up, they
spread it around. Suddenly everybody's concerned
in the market starts to sell off.
This, again, is what creates opportunities.
Microsoft cancelling 2 leases for data centers is not
emblematic of a greater concern. Microsoft has already noted,
like they mentioned here, their CapEx spend is growing
substantially. That says it in and of itself.
How they negotiate their capital expenditures and the specifics
of their leases is a strategy within a strategy.
This is not an overall trend or indicative of a problem with AI
or Microsoft's growth. This is just one of these rumors
that will quickly be forgotten about.
Investors that buy the dips on these likely do well.
Now. Finally, we get to an
interesting report. This is from a Nelson report.
They're the ones that look at TV trends and what people are
watching, how much they're watching, and which platforms
are watching the most. So we see a breakdown of
YouTube, Netflix, Disney, Amazon Max, Paramount Plus, and
Peacock. These are all the major
streaming platforms. And even though there's
differences between YouTube and the rest of them, they bucket
them all in here. Now, this report suggested that
streaming now accounts for 43% of all TV viewing in January, a
jump of almost 7% from just a year ago.
So streaming is taking market share from cable television
rapidly. A 7% market share change in a
single year is huge. YouTube and Netflix and Amazon
continue to increase their lead over the rest of the
competition. So the three big companies, the
ones that I've been outlining over and over again, is the
winners in this category are now gaining a greater lead,
distancing themselves from the pack.
I own Google stock, so I own YouTube.
I own a lot of Netflix as an individual company, and I own a
lot of Amazon. I don't own any Warnermedia with
Macs. I don't own any Paramount Plus.
I don't own any Peacock or NBC, so I'm invested in the companies
that I think are the leaders here and they'll continue to be
the leaders. And we see the data, YouTube
added about 2% to its share over just the last year, while Disney
is basically flat over three years.
So there's a couple things we can see from this report.
The 1st is that cable television still makes up the majority of
television. Watch the majority of time of
people spending in front of TV screens.
And that's going to change. It'll only be a couple years
until streaming is about 50%. And over the next decade, I
think streaming will be 8090%. Television is going to be owned
by streaming. Cable TV companies are dying,
and that's just the way things are going to be.
You're going to see that over the next decade.
But the story here is not even halfway done.
These companies still have over 50% of runway to go, not to
mention the natural growth of the total addressable market
over time. So we have still a long secular
trend of runway of growth for YouTube, Netflix and Amazon.
Disney will grow as well. All these streaming services
will grow. But we also see another trend
here where these companies that are in the lead, YouTube,
Netflix and Amazon are continuing their lead.
The other streaming services are not catching up.
This data showing the incredible runway left for streaming
companies. It is a massive market and it's
underrated by investors. The secular trends of a globally
dominant industry having media and entertainment, both with
video, all different types of entertainment, live sports,
streaming companies are going to own all of this overtime.
They have the engagement, they have the customer base, they
have the cash flows to support it.
And like Netflix has done over the past year, they'll continue
to venture into new categories, earning more and more viewers
time. So I'm still very bullish on
this industry. That's all for now.
Hope you enjoyed, see you in the next one.