Latest / ausbiz a.m / 28.08.26 with Scott Phillips, Motley Fool
Transcript
- Andrew: Good morning and welcome to your morning wrap from Ozbiz. It is Friday, August the twenty-eighth, and we're expecting a mildly positive start locally. ASEX Futures up around one-fifth of percent. In a moment, we'll preview the day ahead with Scott Phillips. First, though, quick wrap of where global markets finished overnight on Wall Street. Finished firmly with the S P adding three quarters of percent, the Nasdaq up one and a half percent, the Dow around one fifth. It was purely a tech-driven rally, NVIDIA. The key there, surging around 9% after that ⁓ earnings beat yesterday, and ⁓ the company forecasting AI-driven revenue growth of about 70% for the next year. Salesforce CrowdStrike, they also caught that wave up. They moved about 20% higher in that move overnight. Among the commodities, Brent crude close to $89 a barrel, gold up slightly to $4,655 an ounce, and Bitcoin back above $80,000 US. The Aussie ed's close to $72. US cents. Well, joining us now to get across those market moves and look ahead locally, Scott Phillips from the Motley Falls. Scott, good morning. Scott Phillips: Andrew, good morning. Andrew: So ⁓ first interested to get your view on ⁓ on Nvidia. ⁓ has that reaffirmed that bullish case for the AI trade, do you think? Scott Phillips: Goodness, what an astonishing numbers as the numbers, Andrew. $96 billion US in sales. That's a billion dollars a day. And that was more than double last year's number. They added the best part of 50 billion of additional sales in a 12-month period. Like this is just stupid numbers. ⁓ so really, really, really impressive. Look, yes, it it it talks to the build-out. ⁓ and the challenge you asked about AI, the real challenge here is actually. You know, what do we talk about? We say AI. I mean AI it's always a technology here to stay. It is astonishingly good, mate. I've every time I talk to you about I say, I'm using it more now than I was last time I talked to you. And it's again true just this week alone. I've used it a gazillion times. So it it is it is very much here to stay as a technology. ⁓ I suspect, ⁓ unless and until ⁓ we end up with some different type of chip, then more data centers, more compute required, all that sort of stuff. I I don't see how that goes anywhere other than ⁓ Does it mean that necessarily these companies are going to all be successful and all make that much money? That's the big question. In the short term, yes. In the longer term, here's the other thing, mate. Nvidia's gross margins were 75%. Now that if you're a software company, that's that's average to good. Not great, but average to good. If you're a if you're making stuff, if you're a manufacturer, they are selling these things for four times what it costs to make them. Now, that is both extraordinarily good. But also speaking of AI and I'm an Amazon shareholder, but Jeff Bezos from Amazon, who who said, your margin is my opportunity. I mean, NVIDIA's gotta dig that moat really deep and really wide because there is a lot of money there that other people have got to be looking at and saying, if we could just take some of that, we wouldn't need to make seventy-five percent margins. We can make sixty or fifty or forty or thirty and still make a lot of money. So NVIDIA's got a lot of work to do, it's doing everything right. So you can't fault the company at all on any of its metrics. But I do think the the AI trade you mentioned, the real risk is where is the overbuild if there is any? Where are the ⁓ competitors if there are any? What does this look like in two, three, five years time in terms of that competitive landscape? That's the thing you really have to have a view on, particularly with NVIDIA. If it can sustain those sort of margins, you're off for the races. If it can't, then not gonna say look out below, but we need to be a little bit careful. Andrew: ⁓ well, that's the call, isn't it? Sc Scott, let's turn to the local markets. And ⁓ pretty close to the end of ⁓ reporting season. ⁓ just looking ahead to today, we do have ⁓ the retailer Harvey Norman. Look, ⁓ clearly the retail is under pressure given what's going on with consumer at the moment, and that it could well get worse given that inflation read we got earlier this week and ⁓ obviously more and more economists upping their bet that they're the RBA is gonna have to hike rates again. Scott Phillips: Mm-hmm. Mm-hmm. Mm. Mate, it's tough, right? So, yeah, I mean underlying inflation is still too high and not coming down. That's the key. I mean, look, I I would have I would have done more more quickly. The RBA got it wrong last year. ⁓ they hoped they could preserve employment gains and hoped inflation would stay low and they just got it wrong. And I think ⁓ we all know that in hindsight. They that in hindsight as not not bagging them, they just we just know in in you know the reality is they got it wrong. So we we know that. ⁓ and they've gonna look at this and say, Well, it's it is too high. It's been too high for months now. It's come down a little bit on a headline level, it's stuck at an underlying level. I don't really know. The RBA's either got to give up or do something. You know, they've either got to say we don't care or or we'll we'll happily live it longer. Or the target we have. I mean, if you're not gonna hit your target for two or three years, is it really a target? You know, it's almost and you're not gonna try to do it? It's it's a bit of a weird one. So I don't see I don't know what they will do, mate, but I don't see how they don't. I don't see how they can not do it. That that's the that's the real challenge. So ⁓ yeah, I mean Or or they give up and say, We're not gonna try. And that's okay too. They they can decide that. I wouldn't, but they might. We they're gonna have to do one or the other. Otherwise, realistically, ⁓ inflation just could continues to be way too high. And we're seeing that households spending up seven percent as well. So yes, half of that's gonna be price. The other half is just we're buying more stuff. And I say we, there's plenty of people who are listening right now saying, Who's we, mate? I'm I'm getting smashed on my mortgage, I haven't getting ⁓ you know, two cents are rubbed together. ⁓ but other people are spending up. We d the numbers don't lie. So the reserve's got work to do, the governments have work to do too, mate. We won't this political, but state and federal governments are still adding demand to an economy the RBA's trying to cool. It is a bit of a nonsense and we do need some action there as well. Andrew: So mm, what do you make of the retailers then, Scott? As I mentioned, Harvey Norman out today. Got some ⁓ other key results we got across, ⁓ the likes of JB Hi Fi, you know, obviously they're they're very good retailers, but I mean they are struggling. Scott Phillips: Mm. Yes, yes. Yeah, ⁓ and and that July number from the last year's results were were good to very good. The the at the sort of sales year to date they released the month of July when they released their numbers, they were negative. I mean JDB Hypho does not go negative, you know. These these are these are really tough comps. so we've seen we've seen some retailers doing it, doing tough. Meyer, of course, we know did ordinarily premier investments are struggling. So some really some real pressure in the discretionary retail space. ⁓ on the other hand, by the way, Sigma Healthcare. Chemist Warehouse out yesterday and they are flying. Chemist Warehouse sales up 15.5%. Now, this is, you know what, it it's a challenge, right? If you're a mature retailer in a tough economy, you've got nowhere to hide. If you're a growing retailer, you can kind of look through some of the challenges of the economic cycles and just do your own thing. You know, if you're if you're in a structural growth phase as a company, you've got some some legs, and that might be the difference between some of these businesses, you know. I suspect Harvey Norman out today. I shouldn't just claw disclose I own some shares. ⁓ I would I would expect they would probably get growth like JB did last year. Again, though, when they release their Outlook, or not an Outlook, just the sales year to date for this current financial year, we'll also get a look and see whether they're suffering the same as JB. I suspect they probably are. I mean, again, these are both pretty mature retailers. So, you know, if the if the discussion economy is in a funk, if you're Harvey or JB, you can there's nowhere to hide, as I said, you can't avoid it. So I suspect they will struggle. ⁓ the supermarket retailer's doing pretty well. ⁓ Woolley's beating Coles, but The results there were were pretty good. Again, think about what's happening. Probably people, ⁓ a bit like COVID, where we all kind of we bought bought stuff and cooked at home because we had had no choice. This time we've kind of got half a choice, but there's not much money around. So I wouldn't be surprised if the the supermarket retailers are benefiting from less eating out, less kind of cafes and restaurants and that kind of stuff. ⁓ so again, e economically kind of trying to work out what's cyclical and what's structural is hard to do. The the profit numbers were pretty good, particularly from woolies again. ⁓ but they they made every poster winner more or less in a in an environment that really is favoring them right now. Also I thought it was interesting big big W was back to profit. And that's kind of notable for a couple of reasons. Firstly, again that that discount, you know, ⁓ shopping on price remains a a really big thing. ⁓ and we saw ⁓ the you know the because the company's returned to profit, the question now is what did the bullies do with it? And we know they've separated their IT systems. They were doing that I think it was last financial year, maybe the one before now. ⁓ so they're in a position now where th they either will say, Hey, we're back in profit, let's try and flog this thing off, or we're back in profit, maybe we don't need to flog this off. And that conversation will be fascinating to to hear. Are they gonna get reasonable returns on that capital? Or are they better off trying to sell it someone if they can find a buyer at a reasonable price? That might be a key question. And they might it's not really discretionary retail, but Qantas. Their numbers ⁓ revenue up seven percent, twenty five and a half billion dollars in sales, if you don't mind. ⁓ extraordinary number, really big company. I don't think most people realise just how big Qantas is. Revenue wise, that was up 7%, but their profit was down. I think underlying down about 13%, bottom line down about 20%. And it kind of goes to the the very current inflation problem, right? Companies with cost increases, and obviously jet fuel's quantas as big as one outside the airplanes, ⁓ going up. What do you do? Well, you try and pass it on. And the numbers suggest they passed some on, but couldn't pass on enough without hurting sales. And so there is some real price elasticity there. There is some real supply and demand. The the company, I think. Testing the limits of what it can get away with without losing customers. But it does go to exactly that point of there's only so far we can stretch the consumer dollar. And so if you've got cost increases, particularly if you're a low growth business, quantitative growth was okay. But if you're a low growth retailer, really, really, really hard to absorb the costs you are incurring and pass those on to your customers if you can't get volume revenue growth to actually make up for it. Andrew: Yeah, wow, that ⁓ that fuel bill from Quantas ⁓ more than six hundred million dollars ⁓ above and beyond ⁓ obviously tied to the Middle East conflict. ⁓ Scott, I should also mention West Farmers, that was out ⁓ yesterday as well. ⁓ well as expected, we know that strength particularly with the Bunnings and the Kmart brands, but office work struggle. Scott Phillips: Mm-hmm. Yes. Mm-hmm. Mm-hmm. Yeah. And that's a surprise, I've got to say, mate, because I I I would love to I I mean, we're not gonna know for sure. ⁓ I don't suspect we're buying less stationary. I mean, may may maybe to some degree it's little bit discretionary, but you you've got to replace the texture, you replace the texture. ⁓ you buy the new printer, you you know. So there's a bit that's discretionary in that. Maybe ⁓ maybe hardware sales down a little bit, I suspect. Maybe you don't replace the phone or the computer if you don't need to. I I wonder really where their sales are going. I suspect something's going online. Maybe the online retailers, you know, add the Amazon to the world. I own shares in Amazon for the full disclosure. ⁓ yeah, it'd be fascinated to see where they're going 'cause it it doesn't strike you as a particularly discretionary ⁓ purchase most of the time. Again, you can cut back a little bit, but these guys are are a volume retailer. I I don't I don't know where that's going, but I would again there's no people buying big W, maybe, but probably not. So that one's fascinating. On the other side, the the Bunnings ⁓ Kmart stuff, the AI stuff, Andrew, was fascinating there. I know we talk about AI again all the time, but ⁓ we started by talking about it. We'll talk about it again here. Bunnings had three hundred and fifty thousand queries addressed by their AI chatbot. ⁓ the one called Joy at Kmart apparently has lifted basket size by thirty to forty percent. so those are I mean, those are really significant stats. ⁓ and Westheim is doubling down saying we are going to absolutely double down on using AI for productivity. ⁓ so hopefully for shareholders they they find a way to do that. whether probably means job cuts to some degree. But I think the positivity here, particularly on Kmart, is and this is really important too. AI is not just a cost-cutting tool. It is where it makes sense to do that, obviously, but it's a it's been a revenue generation for Kmart. And so that's that's matters and that's really important too. And I think we'll watching that play out, particularly for bunnies. Bunnies were really late to online. You know, you couldn't buy stuff online, you couldn't shop online. It was just a weird thing. I suspect they probably thought we'd if we go to a store wanting one thing we'll come out with six, which is normally what happens when I go to Bunnings. But ⁓ i I think they probably realise they have to be online, but now they've done it, they're absolutely catching up and and and running really quickly on AI. Andrew: Just very quickly, Scott, has these these results from reporting season prompted you to make any changes to your portfolio? Scott Phillips: No, nothing in particular, mate. ⁓ I think what you have to t consider is valuation in the context of what's going on and the cyclicality of it. In in the retail space in particular, I I kind of I mean, if you were surprised by these numbers, you probably haven't been paying attention. So i if you get if you're gonna make a change, here's the thing. It's a bit like a bit like the markets in general, right? We don't respond to what happened. We respond to how different reality is to our expectations. So if we thought something was gonna be good and it was, then great. If we thought it was gonna be terrible but it was better, then that's better. ⁓ so Really the question in so much in terms the portfolio is what has changed what what has changed versus my expectations, not what's changed overall. I I think it's worth thinking about ⁓ how some of the tech companies have have fared. There's been a pretty decent recovery on some of those businesses, and that's ⁓ maybe a chance to have a look at valuations. I haven't changed anything personally in my portfolio, but the the change in prices, this is really a job for September, right? August is about the fire hose of earnings. ⁓ then it's okay, sit back and go, right. Now I've seen what's happened. I've seen how prices have responded. What does that now mean for the value of the things I own? And also what does it mean for the value of things I don't own? What is now attractive for me that's not in my portfolio? So nothing I've changed yet, mate, but I suspect next month, once we get through the next few days of earnings, there's still a couple of days left to go. ⁓ we'll have a look and really see what's what's left. ⁓ I it was it was a a a pretty I I I was gonna say reassuring. It was an earnings season that kind of delivered what most people thought. There weren't, I mean, there was a couple of you know, company specific surprises, but realistically across the board we all kinda went, ⁓ okay, we got through that one kind of as expected and and that doesn't tend to generate massive changes. And we've kind of seen that in the market over the past month. Andrew: Scott, great to get across what you're seeing in reporting season. Enjoy your day. Thanks for joining us. And that is your Osbiz morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening. Scott Phillips: You too. Thanks, Andrew.