Latest / The Financial Exchange Show / AI-led investments are driving economic growth. How long can it last?

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AI-led investments are driving economic growth. How long can it last? · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike, and Tucker with you here, and we continue
1:14
Speaker 2: through a busy, busy, busy, busy, busy, busy week of earnings.
1:21
Speaker 2: Yesterday we got a couple more big earnings in the
1:25
Speaker 2: form of HF, Sinclair and Cube Smart, And so we're
1:29
Speaker 2: gonna spend about an hour or so talking about each
1:31
Speaker 2: of those companies, with nothing else along the way, we
1:35
Speaker 2: might dabble in Apple and Amazon. Sure, let's actually kick
1:38
Speaker 2: things off with Amazon, just because it's again getting kind
1:42
Speaker 2: of all the love today with how it is moving.
1:45
Speaker 2: Amazon stock currently up about eleven percent. What did we
1:49
Speaker 2: see from their earnings report that has investors so.
1:52
Speaker 3: Excited a massive surge in their Amazon Web Services business,
1:57
Speaker 3: which is the leader in the clubhouse and in demand
2:00
Speaker 3: for all things AI related. So, while Amazon may not
2:04
Speaker 3: be the company that produces the tool that every single
2:08
Speaker 3: one of us use in our daily lives when it
2:10
Speaker 3: comes to artificial intelligence, they are certainly seemingly going to
2:13
Speaker 3: be the ones I shouldn't say certainly, they are seemingly
2:15
Speaker 3: going to be the ones providing a lot of the computing, power, storage,
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Speaker 3: and other needs when it comes to running these giant
2:22
Speaker 3: systematic AI models.
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Speaker 2: So the big thing is that the year of year
2:26
Speaker 2: growth for Amazon Web Services moved from the high teens
2:31
Speaker 2: up into the low twenty percent range. And so that
2:36
Speaker 2: is literally what is you know, kind of driving things
2:39
Speaker 2: when you look at this move, it's the fact that
2:42
Speaker 2: you have a quicker pace of growth happening there, and
2:47
Speaker 2: ultimately that is something that investors are focusing on as
2:52
Speaker 2: they look at the s earnings report. The big thing
2:54
Speaker 2: that Amazon Web Services does for Amazon when you look
2:57
Speaker 2: at it just in terms of again the company and
3:02
Speaker 2: the quality of the earnings. It's a high margin business
3:05
Speaker 2: compared to their typical retail business, which is very low margin,
3:09
Speaker 2: and so as you sell more stuff from Amazon Web Services,
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Speaker 2: it results in a better earnings profile overall.
3:19
Speaker 3: Do we want to move on to Apple or do
3:20
Speaker 3: we want to talk about kind of the culmination of
3:23
Speaker 3: all the AI related tech earnings this week?
3:25
Speaker 2: Well, I think when we talk about Amazon here, and
3:30
Speaker 2: I want to dig in on just a couple other
3:32
Speaker 2: things with regards to Amazon, just because again, even though
3:38
Speaker 2: the Amazon Web Services piece is, you know, the core
3:41
Speaker 2: driver here, there are some other things that are going
3:45
Speaker 2: on as well that I think are worth noting. Specifically,
3:48
Speaker 2: they are brick and mortar retail business, which no one
3:51
Speaker 2: really thinks about anymore, but they still own whole foods.
3:53
Speaker 1: Ye.
3:54
Speaker 2: At this point, brick and mortar retail business is showing
3:58
Speaker 2: some pretty strong growth as well well and solid margins.
4:02
Speaker 2: And so it's not just Amazon Web Services that is
4:07
Speaker 2: hitting right now. You've got some really positive momentum that's
4:11
Speaker 2: going on in Whole Foods for whatever reason.
4:15
Speaker 3: Plays right into all the other stuff we've been talking
4:16
Speaker 3: about it when it comes to consumers this year.
4:19
Speaker 4: It does. It does.
4:20
Speaker 2: It is the upper end consumer that is buying this stuff.
4:25
Speaker 2: And so ultimately, when you look at you know, whole foods,
4:29
Speaker 2: they're right in that demo where you say, yeah, you're
4:33
Speaker 2: picking up on that. You're not the down market grocer
4:36
Speaker 2: who might be you know, struggling to you know, figure
4:38
Speaker 2: out how to maintain margins and have competitive pricing. You've
4:42
Speaker 2: got whole food stores that are now seeing six to
4:44
Speaker 2: eight percent growth for the last four straight quarters, and
4:48
Speaker 2: that's pretty solid when you look at the landscape out
4:52
Speaker 2: there for groceries. So I think there's something that's going
4:55
Speaker 2: on there as well, and I think ultimately it's continue
5:00
Speaker 2: to help the profile of the company when you look
5:03
Speaker 2: at you know, just the earnings quality that is out there.
5:08
Speaker 2: I mean, just to give you a sense, in the
5:10
Speaker 2: last five years, if you look at the change from
5:13
Speaker 2: Q three of twenty one to Q three of twenty five,
5:15
Speaker 2: and this is not data that ipull this is from
5:18
Speaker 2: an analyst by name of Raoul Sharma. If you look
5:22
Speaker 2: at Amazon's margins during that four year period, They've gone
5:27
Speaker 2: from two and a half percent to twelve percent.
5:31
Speaker 4: That's the story.
5:32
Speaker 2: They are executing at an incredibly high level. Now what's
5:35
Speaker 2: driving that. The interesting thing is that when you look
5:40
Speaker 2: at the incremental revenue that's being added, it is predominantly
5:44
Speaker 2: Amazon Web services, third party sales, and advertising.
5:49
Speaker 4: That's where the growth is.
5:51
Speaker 2: The core, Hey, we you know, act as a buyer
5:55
Speaker 2: of product and then a distributor and seller of that product.
6:00
Speaker 2: That's not really moving like they're basically doing the same
6:03
Speaker 2: on that side. It's all the other stuff is where
6:06
Speaker 2: the growth is. And that's because the business of operating
6:09
Speaker 2: a warehouse, buying you know, something from China for three
6:13
Speaker 2: dollars selling it to you for six it's a low
6:16
Speaker 2: margin business. And so Amazon, I know that we like
6:20
Speaker 2: to think of them as a retailer. Their core first
6:25
Speaker 2: party retail business is maybe thirty five forty percent of
6:31
Speaker 2: their overall mix right now, compared to north of fifty
6:34
Speaker 2: percent four years ago. Most of their revenue now comes
6:38
Speaker 2: from aws, third party sellers on their platform and advertising.
6:43
Speaker 3: Just speaking about that margin expansion, we have to I
6:46
Speaker 3: had to look it up. Do you know when Bezos
6:49
Speaker 3: stepped down?
6:51
Speaker 2: I'm going to say twenty two July fifth, twenty twenty one,
6:58
Speaker 2: twenty one interesting, huh.
7:04
Speaker 3: Now, I think you would have seen the margin expansion regardless, right,
7:06
Speaker 3: because he's like Jassie, kind of gets thrown under the
7:08
Speaker 3: bus sometimes on stuff, and he's overseen probably one of
7:14
Speaker 3: the largest dollar margin expansions that we've seen a company undertake.
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Speaker 2: Counterpoint, most of the decisions that were made that impacted
7:22
Speaker 2: twenty two and twenty three were by We're made was
7:24
Speaker 2: Besis while he was still there.
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Speaker 3: Agreed, But you know, we tend to when things go wrong,
7:29
Speaker 3: we tend to blame the current CEO, and you know,
7:32
Speaker 3: when things are going.
7:33
Speaker 4: Pretty well, I think you have to acknowledge it for
7:35
Speaker 4: a minute.
7:35
Speaker 2: Yeah, I think that, And part of it is also, look,
7:38
Speaker 2: Jasse came on board and the stock promptly fell like
7:42
Speaker 2: fifty sixty percent, by no fault of his own. It
7:45
Speaker 2: was just, hey, it's not twenty one anymore, and everyone
7:47
Speaker 2: isn't just buying stuff on Amazon. The recovery since then,
7:50
Speaker 2: I think has been really impressive. I mean, the stock
7:52
Speaker 2: is almost tripled from the twenty twenty three lows. So yeah,
7:57
Speaker 2: I think you take a look at how Amazon is
7:59
Speaker 2: excuting right now, and it's it's nothing short of excellent,
8:04
Speaker 2: quite honestly. So I think it's pretty impressive what you're
8:08
Speaker 2: seeing from them. You wanted to kind of touch on,
8:12
Speaker 2: you know, trying to wrap up the whole AI related
8:15
Speaker 2: earnings because Apple is a separate beast.
8:17
Speaker 4: Apple is not AI focused.
8:20
Speaker 3: So here's where I'm We've talked about this, but now
8:23
Speaker 3: that we have Amazon in, we are seeing the twenty
8:27
Speaker 3: twenty five capex between Alphabet, Microsoft, Amazon, and Meta. And
8:31
Speaker 3: granted we're kind of cobbling some of these numbers together
8:33
Speaker 3: because Microsoft hasn't been perfectly clear with us, but I
8:37
Speaker 3: think we are seeing somewhere in the range of three
8:39
Speaker 3: hundred and ninety billion dollars in CAPEX for twenty twenty five.
8:45
Speaker 3: That's my best guess, and I was trying to think
8:48
Speaker 3: of how to quantify that. First of all, that that
8:52
Speaker 3: spending alone is larger than the market cap of Procter Gamble,
8:56
Speaker 3: So thought that's worth mentioning.
8:58
Speaker 1: Yep.
8:58
Speaker 3: It's also two an half times the capex of those
9:03
Speaker 3: same four companies back in twenty twenty three. Now, again,
9:06
Speaker 3: revenues have increased, cash flows increased, profit has increased across
9:10
Speaker 3: all of those as well. But the capital expenditures that
9:14
Speaker 3: these companies are pouring into their AI infrastructure primarily is
9:20
Speaker 3: almost unfathomable. We're approaching four hundred billion dollars in annual
9:27
Speaker 3: spending on this AI build out, and all of them
9:29
Speaker 3: have promised that that's going to increase in twenty twenty
9:31
Speaker 3: six as well. And frankly, this is the whole ballgame.
9:35
Speaker 3: That four hundred billion dollars it's approaching is the thing
9:38
Speaker 3: that is driving employment and spending in this economy. It
9:43
Speaker 3: is driving the electricity expansion, the data warehouse expansion, it
9:47
Speaker 3: is making up for the lost investment in housing. It's
9:50
Speaker 3: contributing towards a large degree of employment in different areas.
9:55
Speaker 3: It is also the piece that every stock market investor
10:00
Speaker 3: out there is going to be asking will it be
10:03
Speaker 3: worth it?
10:05
Speaker 2: It's kind of the whole ballgame, right, And I think
10:08
Speaker 2: the next two years are gonna be when that's gonna
10:10
Speaker 2: be proven out. Because here's the thing, Like the next
10:14
Speaker 2: two years, you're either gonna have the sales and revenue
10:17
Speaker 2: to prove it or you're not. I know, I like
10:21
Speaker 2: all these companies are trying to project out their twenty twenty,
10:24
Speaker 2: their twenty thirty sales, and quite honestly, that's kind of
10:27
Speaker 2: a red.
10:27
Speaker 4: Flag for me.
10:27
Speaker 2: It's like, okay, like you're you're telling us that your
10:30
Speaker 2: revenue is gonna be what in twenty thirty? Like when's
10:33
Speaker 2: the last time you heard about companies trying to project
10:35
Speaker 2: revenue five years out? Yeah, they analysts try to because
10:40
Speaker 2: they say, okay, if we extrapolate, here's you know, our
10:42
Speaker 2: price target. But when I hear you know, Oracle being like, well,
10:47
Speaker 2: our twenty thirty cloud revenue is gonna be blank, Like okay,
10:53
Speaker 2: Like I know that gets everyone all excited. But by
10:55
Speaker 2: the way, sneaky quiet, have you guys noticed what's happened
10:58
Speaker 2: to Oracle since that big the big earnings announcement that
11:02
Speaker 2: they've given back all the gains they they've given back
11:05
Speaker 2: all the gains, and so like, you look at this
11:11
Speaker 2: and the next two years are where it's going to be,
11:13
Speaker 2: because ultimately you're now at a pace where in this
11:17
Speaker 2: quarter you're big four. You know, tech spenders in the
11:20
Speaker 2: US spent almost one hundred and twenty five billion dollars
11:22
Speaker 2: on CAPEX. They're going to spend north of five hundred
11:26
Speaker 2: billion dollars next year. Yea, at some point you need
11:29
Speaker 2: to start seeing a return on that investment. Actually, Like, no,
11:34
Speaker 2: Andy Jase doesn't just sit out there and say, Gay,
11:36
Speaker 2: you know what I'm gonna do.
11:36
Speaker 4: I'm gonna spend a.
11:37
Speaker 2: Hundred billion dollars in CAPEX next year just because I
11:40
Speaker 2: want to.
11:41
Speaker 4: Even Mark Zuckerberg, who's.
11:42
Speaker 2: You know, as as you know, hey, like, well just
11:46
Speaker 2: capexit man, Like he's as far down that road as
11:50
Speaker 2: you can be. And and even you know, at a
11:52
Speaker 2: certain point it's like, okay, Mark, where's the revenue gonna
11:56
Speaker 2: come from?
11:57
Speaker 4: Yep.
11:57
Speaker 2: So I'm not saying that we will or won't get there.
12:00
Speaker 2: I'm saying the next two years is when it's going
12:04
Speaker 2: to be. Okay, you've spent the money, prove that it's
12:07
Speaker 2: going to actually benefit your Business quick Break. When we
12:11
Speaker 2: come back, let's talk Apple after this.
12:14
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13:06
Speaker 2: In addition to Amazon earnings, we also received earnings from
13:10
Speaker 2: app Lay or Apple as they're more commonly known. And again,
13:14
Speaker 2: like the scale is just like insane at this point,
13:17
Speaker 2: quite honestly, they did. And again this is this is
13:20
Speaker 2: the third quarter. This is not even the holiday quarter.
13:22
Speaker 2: They did one hundred and two point five billion dollars
13:25
Speaker 2: in revenue for the quarter, which is more than a
13:27
Speaker 2: billion dollars a day in revenue, which is insane. The
13:34
Speaker 2: margins continue to be absolutely robust, you know, trending near
13:37
Speaker 2: forty percent, so you know, they're making tens of billions
13:41
Speaker 2: of dollars each quarter here. And the stock, by the way,
13:46
Speaker 2: is valued as such. I mean, there are four trillion
13:49
Speaker 2: dollar company big things, despite you know Tim Cook saying yeah,
13:54
Speaker 2: we expect to have, you know, a really good fourth
13:55
Speaker 2: quarter because of people moving into you know, new iPhones
13:58
Speaker 2: and this and that. The stock's about half percent today,
14:02
Speaker 2: and I think when I look at the culprits, the
14:04
Speaker 2: fact is, okay, so your iPhone sales still missed analyst
14:09
Speaker 2: estimates by a couple billion dollars, so you're not as
14:12
Speaker 2: robust as they thought they were going to be. You
14:14
Speaker 2: are seeing you know, continued growth in that services business revenue,
14:18
Speaker 2: which surpassed one hundred billion dollars in revenue for the
14:21
Speaker 2: first fiscal year ever. And that's high margin business. I
14:24
Speaker 2: mean that that's truly that's the stuff where I think
14:27
Speaker 2: the margins on the services business are like closer to
14:29
Speaker 2: sixty percent than forty. So overall, there's nothing in this
14:33
Speaker 2: report that gives me concern about Apple. It's just also
14:37
Speaker 2: one where you sit there and you say, Okay, the
14:39
Speaker 2: stock has rallied thirty percent, you know since September. What's
14:46
Speaker 2: this going to give me is fuel for the idea
14:48
Speaker 2: that it's going to do better. You know that it
14:50
Speaker 2: can rally more. It's a perfectly good quarter, but this
14:55
Speaker 2: market is not rewarding good quarters enough right now. We
14:58
Speaker 2: saw this with Microsoft the day before, where they had
15:00
Speaker 2: a perfectly good quarter and we're still down three percent.
15:03
Speaker 3: Yeah, it was a perfectly good quarter. And it's also
15:06
Speaker 3: a company that does not have anything of note to
15:08
Speaker 3: say on artificial intelligence.
15:10
Speaker 4: Or any new products. Right.
15:11
Speaker 2: When's the last time you heard anyone mention whatever? The
15:14
Speaker 2: Goofy headset was? The vision pro is that what it
15:18
Speaker 2: was called? Yeah, you remember when that came out and
15:20
Speaker 2: there were like five videos of people like driving wearing it.
15:22
Speaker 2: When's the last time you saw anyone? When's the last
15:25
Speaker 2: time you saw one of those on social media? I've
15:27
Speaker 2: never seen I've seen a wild Yeah, I've never seen
15:30
Speaker 2: them in person. I'm not convinced they actually exist, like
15:34
Speaker 2: it might just be maybe we all just made it up.
15:37
Speaker 4: Like they don't talk about it anymore.
15:39
Speaker 1: Yeah.
15:39
Speaker 3: Look, Apple continues to have a very impressive business that
15:43
Speaker 3: is not exciting enough to drive their stock price substantially
15:47
Speaker 3: higher at.
15:47
Speaker 4: The moment, even though it already has this year. I
15:50
Speaker 4: mean it's like ten percent for the year. Uh no, I.
15:52
Speaker 2: Think it's more than after this is yeah, eight, It's
15:55
Speaker 2: just it it fell so much, I guess at the beginning.
15:57
Speaker 2: So yeah, it's had a monster rally in the life
16:00
Speaker 2: couple months, but it's you know, yeah, I didn't realize
16:04
Speaker 2: that it had fallen so much to the first half
16:06
Speaker 2: of the year.
16:06
Speaker 4: I kind of splack that out. I mean, I think
16:09
Speaker 4: you still I don't know.
16:11
Speaker 3: I still give Tim Cook benefit of the doubt here
16:13
Speaker 3: because their lack of investment on artificial intelligence is right
16:20
Speaker 3: in the wheelhouse of all the major successes they have had,
16:23
Speaker 3: which is they are never the first to the game. No,
16:27
Speaker 3: they're never going to be the first the first company
16:29
Speaker 3: to roll out a folding smartphone. They're not going to
16:32
Speaker 3: be the first ones to have wireless earbuds or noise
16:35
Speaker 3: canceling headphones or smartphones in general, they have a reputation
16:43
Speaker 3: of taking that emerging technology and making it better, more popular,
16:49
Speaker 3: and easier to use. I don't know how you do
16:52
Speaker 3: that with a software as opposed to a hardware, and
16:55
Speaker 3: whether or not they can be successful on that front,
16:57
Speaker 3: but arguably they have done a pretty job of that
17:00
Speaker 3: same thing on streaming television and other things like that,
17:03
Speaker 3: and so I hesitate to bash them on their lack
17:07
Speaker 3: of lack of swings at the ball when it comes
17:10
Speaker 3: to artificial intelligence.
17:11
Speaker 2: We have no idea how well they're doing on stream,
17:14
Speaker 2: Like we don't know anything about Apple TV. Plus we
17:16
Speaker 2: have they don't really.
17:17
Speaker 3: Break it out, But I mean, I don't think you
17:21
Speaker 3: can look at it and say it's been a I
17:24
Speaker 3: guess my point would be the content they have produced
17:26
Speaker 3: has all been pretty high level and pretty darn good.
17:30
Speaker 4: Yeah, they've had a number of hits on Apple TV, right.
17:33
Speaker 2: I wouldn't say, like there's plenty of stuff that's probably forgettable,
17:36
Speaker 2: just doesn't make it, but they have had a number
17:38
Speaker 2: of hits. I mean, when you're talking Ted Lasso Severance, Yeah, I'm.
17:43
Speaker 4: Trying to go through and think that one. They have
17:45
Speaker 4: a couple.
17:46
Speaker 2: Other ones that have been pretty good as well. But
17:48
Speaker 2: the thing for Apple is, look, because the rest of
17:52
Speaker 2: their business is so big and they're so profitable, they
17:55
Speaker 2: can afford to outspend anyone else for whatever they actually
17:58
Speaker 2: want to put on streaming.
18:00
Speaker 4: Right.
18:00
Speaker 2: I think they actually did this because they have the
18:02
Speaker 2: F one rights starting next year? Is it next year
18:04
Speaker 2: of the year after.
18:05
Speaker 4: Believe it's next year.
18:07
Speaker 2: I mean, like they can just outbid anyone for this
18:09
Speaker 2: stuff because it's like, oh, like you want, you know,
18:13
Speaker 2: two billion a year, Okay, we just made that in
18:15
Speaker 2: revenue in two days.
18:16
Speaker 4: We'll bid three billions.
18:17
Speaker 2: Sure, And so they can just pay more for that
18:21
Speaker 2: higher quality, higher caliber content that also, by the way,
18:26
Speaker 2: targets the more affluent person that's typically buying Apple stuff.
18:30
Speaker 2: You know, like F one fits into this perfectly.
18:32
Speaker 4: I mean, think about.
18:33
Speaker 2: Where the races are in F one, Just as an example,
18:36
Speaker 2: You're in freaking Monaco, You're in Vegas, you're in Miami,
18:39
Speaker 2: You're in all these Like.
18:39
Speaker 5: My buddy just went to Mexico City to catch one.
18:42
Speaker 2: Like it's all these places, and like the whole vibe
18:45
Speaker 2: of it is, look how much money is there. It's
18:48
Speaker 2: and it fits right into Apple's Wheelhouse.
18:51
Speaker 3: So and a nice little ability to do a product
18:53
Speaker 3: to drop into any of these hit shows too. The
18:56
Speaker 3: morning showed Lasso shrinking. Yeah, they're all on iPhone, all
19:01
Speaker 3: on iPhones, they're all on MacBooks, they're all on Apple products, earbuds.
19:06
Speaker 4: And everything else.
19:07
Speaker 3: Not in severance, true different, different, different setting. I would
19:11
Speaker 3: imagine Silo and Foundation two. Those are a couple sci
19:15
Speaker 3: fi type ones that they're probably not using. Apple products.
19:18
Speaker 2: Foundation is an interesting one. The first season was it
19:21
Speaker 2: wasn't hot garbage, but it was moderately cool garbage. The
19:24
Speaker 2: second season I thought was outstanding in for some reason,
19:26
Speaker 2: I just haven't watched the third quick break here when
19:29
Speaker 2: we come back, we got Wall Street Watch.
19:41
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19:53
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19:56
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20:00
Speaker 5: Markets in positive territory on the hills of more impressive
20:04
Speaker 5: big tech earnings from the likes of Amazon and Apple.
20:08
Speaker 5: Right now, the Dow is up modestly, only thirty points higher,
20:12
Speaker 5: SMP five hundred, up over half a percent or thirty
20:15
Speaker 5: five points higher. NASDAC up just over one percent or
20:18
Speaker 5: two hundred and forty two points higher, Russell two thousand
20:21
Speaker 5: is up about a half a percent ten, Your treasure
20:24
Speaker 5: wield is down one basis point at four point zero
20:28
Speaker 5: eight one percent, and crude oil is edging higher, trading
20:32
Speaker 5: at sixty dollars and sixty four cents a barrel. Amazon
20:35
Speaker 5: is among the big winners on the day after the
20:37
Speaker 5: e commerce in web services giant b third quarter earnings
20:41
Speaker 5: in revenue expectations, where revenue from AWS jumped twenty percent
20:45
Speaker 5: during the period, marking the fastest rate of growth since
20:49
Speaker 5: twenty twenty two. Amazon also reported aggressive plans to grow
20:53
Speaker 5: data center capacity, shares our rallying ten percent. Meanwhile, Apple
20:58
Speaker 5: also beat quarterly expectation, with the iPhone maker logged record sales.
21:02
Speaker 5: The tech giant forecasts at a strong holiday quarter due
21:06
Speaker 5: to strong demand from customers seeking to upgrade to the
21:09
Speaker 5: iPhone seventeen. However, applestock is now down about a third
21:12
Speaker 5: of a percent. Outside of tech energy giants, Exon Mobile
21:16
Speaker 5: and Chevron reported earnings this morning, where both companies posted
21:20
Speaker 5: lower quarterly results or excuse me, earnings, but said they
21:23
Speaker 5: would continue to ratchet up production. Exon down over one percent,
21:27
Speaker 5: while Chevron shares are up two percent. Meanwhile, social media
21:31
Speaker 5: company Reddit saw is solid quarterly profit is revenue increase
21:35
Speaker 5: due to higher advertising demand across industries. Reddit is jumping
21:40
Speaker 5: sixteen percent elsewhere. Crypto exchange Coinbase said its quarterly profit
21:44
Speaker 5: in revenue climb driven by growth in trading in a
21:47
Speaker 5: surge in assets on the platform. That stock is up
21:50
Speaker 5: by eight percent. Netflix anouns to ten for one stock
21:54
Speaker 5: split to make its stock more affordable for its employees.
21:57
Speaker 5: Netflix shares up three percent. Ring to the Financial Times,
22:01
Speaker 5: Aquarius Holdings is in advanced talks to take US life
22:05
Speaker 5: insurer BrightHouse Financial private, and a four billion dollar transaction
22:09
Speaker 5: that could be announced as soon as this weekend. BrightHouse
22:12
Speaker 5: shares are surging twenty two percent on that news. I'm
22:16
Speaker 5: Tucker Silva and that is Wall Street Watch And as
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22:38
Speaker 4: I have no idea what Tucker's talking about.
22:40
Speaker 2: Neither do we have anything else on AI that we
22:45
Speaker 2: want to touch On.
22:46
Speaker 3: One other item, I was speaking about it with NACANON
22:51
Speaker 3: up in Portland, Maine on our local GA and affiliate
22:54
Speaker 3: up there. He made the comparison to He asked the
23:00
Speaker 3: question about electricity infrastructure, which we've been talking a lot about,
23:05
Speaker 3: and how China is able to build it out a
23:07
Speaker 3: lot faster than us. But it made me start thinking
23:10
Speaker 3: about a few years ago when we were all talking
23:13
Speaker 3: about evs, and every car executive auto executive out there
23:17
Speaker 3: was talking about electric vehicles and they're pushed that they
23:20
Speaker 3: were making and we were sitting back and asking a
23:22
Speaker 3: number of questions such as, how are you going to
23:24
Speaker 3: charge these things? And if everyone plugs in their car
23:27
Speaker 3: at the same time, how is the grid going to
23:29
Speaker 3: handle it. I don't hear as many of those questions
23:33
Speaker 3: repeated about AI. I mean, clearly we're talking about build
23:36
Speaker 3: out of nukes and all sorts of stuff, but I
23:39
Speaker 3: don't see the skepticism. And I'm wondering if we should
23:42
Speaker 3: be more skeptical that the electricity infrastructure build out is
23:45
Speaker 3: going to happen or if it's different this time because
23:49
Speaker 3: it is literally going to be done by the same
23:52
Speaker 3: companies that are spending on the actual product.
23:55
Speaker 4: Right.
23:56
Speaker 3: The reason or part of the reason it didn't happen
23:57
Speaker 3: in the auto sector is because it was the end
24:01
Speaker 3: consumer that was driving a lot of this, and it's
24:03
Speaker 3: not the end consumer that's driving at this time around.
24:05
Speaker 2: It's also I think the the key different.
24:10
Speaker 4: There are a couple differences.
24:11
Speaker 2: I still think that we may have challenges building the
24:13
Speaker 2: amount of power capacity needed to run this stuff. I
24:19
Speaker 2: think that's a real problem just because the US does
24:21
Speaker 2: not build power plant capacity quickly, easily or cheaply.
24:25
Speaker 4: We just don't.
24:28
Speaker 2: It is different in that there are specific needs that
24:32
Speaker 2: you're trying to provide power for here and so, like
24:37
Speaker 2: with electric vehicles, just as an example, you don't know
24:40
Speaker 2: how many of them you're going to sell at what
24:42
Speaker 2: time frame. So either a utility or even you know,
24:46
Speaker 2: a manufacturer wouldn't want to get involved in trying to
24:49
Speaker 2: manage that because they're like, I don't know what this
24:51
Speaker 2: looks like. In this case, it's no, we are setting
24:55
Speaker 2: up a data center that uses x gigawatts of power.
25:00
Speaker 2: We are going to build a power plant right next
25:03
Speaker 2: to it that you know covers half of that or
25:06
Speaker 2: all of it, or whatever it might be.
25:07
Speaker 3: It's kind of funny to think about for a moment
25:09
Speaker 3: that you know, clearly the automakers didn't have the capital
25:12
Speaker 3: to be able to go invest in electricity generation, but
25:17
Speaker 3: had somebody found that money to go invest they'd.
25:21
Speaker 4: Be raking it in right now for the wrong reason totally.
25:24
Speaker 2: So the other piece though is, look, I think that
25:30
Speaker 2: when it comes to some of the stuff that's being
25:34
Speaker 2: talked about, in particular, particularly on nuclear, which look, I
25:37
Speaker 2: am a huge proponent of additional nuclear construction, I think
25:42
Speaker 2: some of this is feeling awfully twenty twenty one EV
25:46
Speaker 2: spacky in that you have these companies that have literally
25:50
Speaker 2: never built a nuclear power plant before, that have no revenue,
25:55
Speaker 2: that are being valued at billions of dollars, and that's
25:59
Speaker 2: not going to last. There might be some that end
26:03
Speaker 2: up coming out of that that are successful companies. But
26:07
Speaker 2: if you think about like the EV manufacturers that you
26:09
Speaker 2: know went public back in twenty one and twenty two,
26:12
Speaker 2: in that whole range, the only two that are still
26:15
Speaker 2: actually around are Riviant and Lucid, and their stocks are
26:20
Speaker 2: doing terribly because the company is not anywhere near profitable,
26:23
Speaker 2: right right, So I think it's an It's a lot
26:28
Speaker 2: easier to build a car than a nuclear power plant,
26:33
Speaker 2: and yet we're just treating it as if, Oh, these
26:35
Speaker 2: guys are going to build like small modular nuclear reactors. Yeay,
26:39
Speaker 2: let's do this, when they've never built a single one before.
26:47
Speaker 2: And this is before you even get to some of
26:49
Speaker 2: the questions about like the regulatory processes on these which
26:52
Speaker 2: have been watered down over the last five to seven
26:54
Speaker 2: years as well, where hey, some of the companies that
26:58
Speaker 2: were initially trying to get through the Nuclear Energy Regulatory
27:00
Speaker 2: Commission in order to build these things, we're told no,
27:03
Speaker 2: like you don't have answers to some of the very
27:05
Speaker 2: basic things that you need to have answers to when
27:07
Speaker 2: it comes to nuclear safety. And now you're saying, okay,
27:11
Speaker 2: let's just move ahead on this.
27:12
Speaker 4: Yeah, that's the that's the piece of.
27:16
Speaker 3: All of this that I look at everyone's asking me
27:19
Speaker 3: right now right Who an analyst asked a Microsoft executive
27:22
Speaker 3: are we in a bubble right now?
27:23
Speaker 4: Right? Was that?
27:24
Speaker 3: Was that the earnings call where that question came up.
27:28
Speaker 3: It's getting asked over and over again on every major
27:31
Speaker 3: earnings call related to AI, and some of the answers
27:35
Speaker 3: that you hear are, yeah, look, valuations are elevated, but
27:40
Speaker 3: look at the companies that are in here. They're super
27:43
Speaker 3: highly concentrated and they're ultra profitable. And my answer is
27:48
Speaker 3: not all of them, no, right, Like, yeah, there's a
27:51
Speaker 3: ton of those, and that's what's driving the stock market
27:52
Speaker 3: as a whole. But there's also all this other kind
27:57
Speaker 3: of garbage that's our potential garbage.
27:59
Speaker 2: But it's also look, understand the accounting on this as well.
28:04
Speaker 2: You have all of these future capex plans that are
28:06
Speaker 2: being cheered right now. When those future capex plans turn
28:09
Speaker 2: into this quarter's depreciation for that capex that was spent
28:14
Speaker 2: three years ago, how do you still feel about it? Right,
28:19
Speaker 2: Because it's it's one thing now to be like, yeah,
28:21
Speaker 2: we're gonna spend five hundred billion dollars next year and
28:23
Speaker 2: it's gonna build out you know, all this AI capacity. Well,
28:26
Speaker 2: when you've built it out and it's twenty twenty eight
28:29
Speaker 2: and now you've got fifty billion dollars of depreciation hitting
28:33
Speaker 2: your you know, financial statements for stuff that you built
28:37
Speaker 2: two years in the past, and then that's happening every year.
28:40
Speaker 2: Is now you've got like one hundred and fifty billion
28:42
Speaker 2: dollars in depreciation hitting for three you know, the past
28:44
Speaker 2: three years. You're like, oh, yeah, this this doesn't necessarily
28:49
Speaker 2: feel as good. So I'm not saying it will or
28:52
Speaker 2: won't work, but man, the next couple of years, you
28:56
Speaker 2: got to get the revenue because otherwise the spending is
29:00
Speaker 2: going to catch up with you based on how the
29:03
Speaker 2: accounting actually works. It's it will be a problem if
29:08
Speaker 2: you cannot revenue wise. They always say monetized, but I
29:13
Speaker 2: think revenue wise is the way that I want to
29:16
Speaker 2: go with it.
29:17
Speaker 4: Let's take a quick break.
29:18
Speaker 2: When we come back, let's talk about home purchases that
29:20
Speaker 2: are falling through.
29:21
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Speaker 4: More Home part.
30:23
Speaker 2: More home purchases are falling through in an uncertain economy.
30:28
Speaker 2: According to data from redfin, about fifteen percent of agreed
30:32
Speaker 2: upon purchases were canceled in September. That's up from about
30:35
Speaker 2: thirteen point six percent a year earlier, so about a
30:37
Speaker 2: ten percent rise. I don't know that that is something
30:42
Speaker 2: that is notable or.
30:44
Speaker 3: It's nothing to me. I like, unless you're gonna tell
30:48
Speaker 3: me what the percentage of canceled home purchases were back
30:51
Speaker 3: in twenty ten. This is not terribly useful context for me.
30:59
Speaker 3: I think one thing I'm comfortable saying people are under
31:02
Speaker 3: more financial pressure than they were a few months ago. Sure,
31:06
Speaker 3: but like, hey, could this cancelation be because all government
31:11
Speaker 3: workers are suddenly not getting paid and therefore no lender
31:14
Speaker 3: is going to let them borrow money?
31:17
Speaker 4: Maybe, Oh, it could be. Yeah, if I'm a lender,
31:21
Speaker 4: I'm not.
31:22
Speaker 3: If I'm a lender, I am not loaning money to
31:24
Speaker 3: a government worker right now, would you No.
31:27
Speaker 2: The counter to that is, they do have some geographic trends,
31:30
Speaker 2: and right now Jacksonville, Florida has one of the highest
31:33
Speaker 2: rates of cancelations in the country. It's seventeen point eight
31:36
Speaker 2: percent in September. Jacksonville is not a center of government
31:40
Speaker 2: employee federal government activity. Instead, it's a big financial center,
31:45
Speaker 2: like Jacksonville is a huge banking center. And it's also
31:48
Speaker 2: last time I checked in Florida, which has a housing
31:52
Speaker 2: market that has falling prices right now in access inventory.
31:54
Speaker 2: So I think that this is something where I say, Okay,
31:59
Speaker 2: that's interesting, but I still don't know that it necessarily
32:05
Speaker 2: you know me, I also don't know that it means
32:07
Speaker 2: anything about the future of where this goes, right.
32:10
Speaker 4: You know, Like, I don't know that it's a forward
32:12
Speaker 4: looking indicator.
32:13
Speaker 3: This follows along with the housing inequality piece from Connor
32:15
Speaker 3: Sen and he speaks to you know, just the demand
32:20
Speaker 3: for housing right now is coming from the very high end,
32:22
Speaker 3: and so that's where the construction is happening, is very
32:24
Speaker 3: expensive homes with high end furnishings. And I think all
32:27
Speaker 3: of that's true. But I don't want to lose focus
32:30
Speaker 3: of something here. This is a symptom, not a disease, right.
32:36
Speaker 3: This is the symptom of what we are seeing right now,
32:38
Speaker 3: which is a big divide in wealth inequality, a big
32:41
Speaker 3: divide in income inequality, and a growing upper class that
32:45
Speaker 3: can afford things and a growing lower.
32:47
Speaker 4: Class that it can't afford much at all. Yes, And so.
32:51
Speaker 3: I think it's important to lose sight of that because
32:53
Speaker 3: in some cases you'll have lawmakers latch onto something like
32:57
Speaker 3: this and be like, oh, we need to we need
32:58
Speaker 3: to fix that through housing policy. And my answer would be,
33:02
Speaker 3: I think we should try and fix that, but through
33:04
Speaker 3: housing policy is probably not how I would try and
33:06
Speaker 3: do it.
33:07
Speaker 4: Yeah, this is the symptom, not the cause. Folks.
33:11
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35:14
Speaker 4: There's a piece today in Bloomberg.
35:17
Speaker 2: It's titled parents are spending one hundred thousand dollars for
35:20
Speaker 2: their kid's chance to chase baseball greatness. The first thing
35:24
Speaker 2: that I found notable in this the sixteen year old
35:28
Speaker 2: pitcher that is profiled in here goes by the name
35:32
Speaker 2: of Striker Pence, which what a name. Yeah, they buried
35:37
Speaker 2: the lead though his two brothers' names are Ace and Maverick,
35:42
Speaker 2: so it's Striker Airplan and Mavericks.
35:45
Speaker 4: Striker, Striker Striker.
35:47
Speaker 2: Yeah, I mean, like you just don't get better names.
35:51
Speaker 2: But basically what it is talking about is like, look,
35:54
Speaker 2: you have like all this money that you know, parents
35:56
Speaker 2: spend on you know, cleats and equipment and batting cage
36:00
Speaker 2: and lessons and this and that, and here's the truth
36:03
Speaker 2: of this. When it's all said and done, your kid
36:06
Speaker 2: is not going to earn a college scholarship for athletics.
36:11
Speaker 2: I'm sorry, but that's just the case. And that's how
36:13
Speaker 2: you have to kind of approach things to begin with.
36:16
Speaker 2: If you look at the data out there, basically you
36:21
Speaker 2: have to be in the top one percent of all
36:23
Speaker 2: high school athletes in your sport in order to even
36:25
Speaker 2: get looked at for college, and then maybe a quarter
36:28
Speaker 2: of those end up being scholarship eligible, depending on the sport,
36:32
Speaker 2: and beyond that, it's maybe the top one percent of
36:35
Speaker 2: that quarter percent that ends up actually being able to
36:38
Speaker 2: play professionally at any level.
36:40
Speaker 3: Do you think that's entirety of the intent with the stuff,
36:43
Speaker 3: because I see a lot of wealthy families who are
36:45
Speaker 3: doing this anyway, and some of them are looking at
36:47
Speaker 3: it as, hey, we can afford whatever school our kid chooses,
36:51
Speaker 3: but maybe this will get them into a better school.
36:53
Speaker 3: I think that's still pretty unlikely. But I'm wondering about
36:56
Speaker 3: that intent. I see, if you're spending one hundred thousand
36:58
Speaker 3: dollars on baseball, great now, then I'm I'm.
37:03
Speaker 4: Not sure you're looking for the scholarship.
37:04
Speaker 2: Here's the thing, and it's it's not to well. No, Look,
37:09
Speaker 2: your kid's not going to get a scholarship for sports. Like,
37:14
Speaker 2: I'm sorry, that's just how it is. And I know
37:17
Speaker 2: there's people listening. They're like, no, mine's different, Like mine's
37:19
Speaker 2: gonna get Okay, maybe you're the exception. I've seen the numbers. Look,
37:25
Speaker 2: I not to toot my own horn. I played college.
37:28
Speaker 2: I played two different sports. In college, I like and
37:32
Speaker 2: I wasn't even very good. Like I was good at them,
37:35
Speaker 2: but like, I couldn't even cut it. I've washed out
37:38
Speaker 2: of one of them in college. I was a backup
37:40
Speaker 2: in the other, and I was a pretty good high
37:42
Speaker 2: school athlete. So like, and I didn't end up getting
37:45
Speaker 2: any money for it as a result. So your kid
37:48
Speaker 2: is not going to get a scholarship for sports. That's
37:54
Speaker 2: where you need to start. If you want to do
37:57
Speaker 2: this because they enjoy it and they just want to
37:59
Speaker 2: get better, and you have the disposable income to do so, fine,
38:03
Speaker 2: I think that's like reasonable, But your kid's not going
38:08
Speaker 2: to get a scholarship for sports so.
38:11
Speaker 4: Long as I can vicariously live through them doing it.
38:16
Speaker 2: Let's take a quick break when we return our two
38:19
Speaker 2: of the financial exchange