Latest / ausbiz a.m / 09.10.26 Scott Phillips, the Motley Fool
Transcript
- Andrew: Good morning. Welcome to your morning wrap. It is Friday, October 9th, and we're expecting the local share market to open slightly higher. ASX futures up around one-tenth of a percent. In a moment, we'll preview the day ahead with Scott Phillips first, though, to global markets, which sold off overnight. Europe, the banks index plunging to a three-month low. Wall Street saw a sharp pullback in AI and semi stocks combined with a surge in oil prices and those volatile treasury yields. And the tech heavy NASDAQ dropping one point three percent. Down half a percent, the Dow slight gain, one and a tenth. sediment soured following a Financial Times report that OpenAI's annualized revenue fell short of previous projections. That saw the likes of Broadcom, AMD, NVIDIA slide between 3 and 5%, Intel down 6%. Brent crude, that surged up to 5% to $104 US dollars a barrel, following reports that the US could launch fresh attacks on Iran. Before next month's midterm elections, gold slightly higher 4,130, Bitcoin falling further to around 81.5,000 US, and the Aussie dollar sitting at 69.6 US cents. Well, joining us now to get across those market moves. Scott Phillips from the MultiFools. Scott, good morning. Scott Phillips: Good morning, Andrew. Andrew: So, Wall Street, interesting, obviously. Scott Phillips: Yeah. Andrew: well, AI, I mean that's an issue here. We'll get to that in just a moment. Scott Phillips: Yeah Andrew: but what did you make of those moves overnight of course, you know, where those treasury yields are, that's clearly of concern and well who knows what the US is likely to do next just as far as the Middle East is concerned. Scott Phillips: Mate, that. And that honestly, mate, that set up that question is exactly what's on investors minds, traders minds right now is for everything that is that is company specific macro really is, you know, taking the taking front and center stage. And it probably should be. You mentioned bond yields. You mentioned oil price. We've got general sentiment around AI. And while that's obviously very sector specific, it's also kind of so big now. It's so dominant in the U.S. market. You mentioned some of those falls. some of the biggest companies now in the world are hitched to that and the market as a result is hitched to that. So you've got a couple of macro issues. You've got the midterms obviously coming up and you who knows what gets promised or done. Who knows who wins and loses that one. you know, it is a very uncertain macro time now for long-term investors that need matter of course. but if you're looking at the short term and sort of trying to work out what's happening or what comes next, I don't blame anyone for saying, look, I just don't know. This is, this is very much a a wait and see story. And we are saying, some of those, the oil moves alone, you mentioned 5%, right? Those are daily moves are frankly common ish these days, but traditionally not particularly common. Right. And so it is that the pessimists and the optimists battling every day to try and work out what happens next and where the market goes and whatever. That's the prevailing sentiment. We are going to keep seeing big swings as people on one hand, looking for opportunity and trying to pick the bottom. On the other hand, people say, well, hang on, I don't want to be caught in my pants down here. I'm going to get out. So that that is the macro tail of of trading right now. Andrew: Yeah, and of course the local market too. Obviously we're struggling, clearly Scott Phillips: Mm-hmm. Andrew: with the headwind of where rates are at the moment. But Scott, more immediately and let's address the elephant in the room, shall we? firms. goodness. Scott Phillips: Yeah. Andrew: how things can go dramatically wrong in the space of twenty four hours it would seem. Look, setting looks set to postpone its its IPO. What what what went wrong here in your view? Scott Phillips: I, know, so everyone's a Monday morning quarterback, right? So was easy to say, what they should have done is or what they got wrong is, and that's all, that's all reasonable. I suspect, mate, if this was ready to wipe you off a month ago, gets away. And it's kind of, we just finished talking about the macro and what's going on there. And some of the valuations, some of these companies, I mean, the firm has looked at the space X IPO, looked at the valuations expected or desired by anthropic and open AI and said, well, hang on. We'd like some of that too. Thank you very much. And so it makes perfect sense. went, hang on, let's get to the market. Let's see what we can get. I think what it came to it was they overestimated the risk appetite. Now, maybe the overestimation would have been, said, right a month ago. Maybe it is just a timing question, a macro economic question, the time, place and price you want to list matters deeply. We've seen big moves in those stocks we just talked about. And yeah, so I suspect honestly, mate, while it will be seen by the cynics as too much greed, and I guess by definition it was that one of more than the market would pay. I'm not so sure that in a different universe and maybe a month ago, we're not saying, wow, what an amazing deal. got $44 billion away. This is great. Now I suspected if that is true, if that would have been true, then this has been saved for themselves because those who would have paid the $11 a share that the $44 billion valuation suggested probably right now would have been sitting on meaningful losses because they can't get buyers at apparently allegedly reportedly, as we see in the papers today, as little as $8 a share. and so, you know, that would have been a loss born by the institutional and retail investors who bought in had this listed previously. So maybe it is a case of, missing out, but, but thankfully you missed out on this one. The challenge for firmness is still like AI in general. is people are buying the future. And the question is how strongly you want to believe in that future. Now, I think we need to separate here, the technology and the business case from the investment case. you and I have been around a little while. I was, I was investing during the.com boom and bust and you know, the nasaq fill 85%. Here's the thing. Almost every one of the businesses or business models, I should say that was proposed or operated in 1999, 2000 has gone on to be an amazing business. we, laughed at pets.com and said, ha ha ha. Who's going to do that? You know, online sales for pet food and pet products is now a multi multi multi billion dollar business. And so those models weren't wrong. They were just too early. And while the businesses themselves were a thing. The valuations were too much. And so we've got a very big question. I have no doubt, mate, that AI is phenomenally larger as an offer as an offering. That's as an option as a thing in five and 10 years time. You don't you don't stop this train. The question is how much should you pay for it at this time in the market? Who will Andrew: Yeah. Scott Phillips: the winners and losers be? How much are we prepared to bet on individual companies or the sector as a whole? That does seem to be what investors are reconsidering. Andrew: Well, yeah, it's sort of symptomatic symptomatic of what investors are asking globally, particularly on on Wall Street, given the huge Scott Phillips: Exactly, yes. Andrew: amounts of CapEx that's been spent and they're thinking, Well, how how is this going to be commercialised? So I mean i i it all comes down to how do you value a company like this? Scott Phillips: Yeah, and you, this is where the, you know, this is brave and crazy brave stuff, right? Because like every company, and look, even the successful ones, I own shares in Amazon. Unfortunately, didn't buy them anywhere near early enough, but you know, you go to Amazon and say, well, was 20 cents a share. How do you value an online bookseller? And how would you have said, you know what, one day this is gonna be this big? And you kind of go, well, was it always going to be the case? Or was there a chance? Or was it probable or possible? And that is that is that is the game, particularly if you're a growth investor. If you are swinging for the fence on this sort of stuff. If you get Amazon at 20 cents, you're stoked. If you get my space, you're in trouble and you know, plenty of plenty of winners and losers along the way. And that's exactly the question. So how do you how do you do it? Also, you can't but also you can't reliably. You have to take a view on how big you think a market will be how dominant you think the company in question will be. Here's the other thing though. Where does the value get captured? Again, I'll go back to.com because it's useful. if you put for younger, younger listeners, they may, they may wander around a list, but trust me, it was true. The internet was always going to be a thing. And lots of money went into.com business models that just didn't pay back. The other thing is a lot of money went into things like switches, remember Cisco and you know, was going to be other things that powered the internet revolution turned out that were commodities. And so working out the value chain, not just applied to the value, where is the value captured in this category? That's the big question for investors. So yeah, Andrew: Mm. Scott Phillips: I mean, I suspect AI is is enormous. I suspect it will continue to grow. I suspect it will be built into everything. But like the internet itself, the enabling technology is, I think pretty obvious at this point. Who wins by how much? Where's the value captured? I have no idea, mate. So how do you value it? You you speculate if that's your game, because you can see who's dominant now. Will they be the eventual winners? I don't know. How big will they be? don't know. What are their final profit margins? I don't know. And the more I don't know is you put back to back, the more careful you either have to be or the more you have to simply realize this is a speculation, this is a gamble, this is a crap shoot and we'll see how we go. Andrew: Yeah. Indeed. Well, Scott, it was providing the source of excitement on the local market. Now we have to move on because has to be said, it's Scott Phillips: Yeah. Andrew: been pretty dull. Scott Phillips: Mm-hmm. Andrew: interesting that this week the retailers keep getting mentioned to me that potentially, given we might be at peak rate fears, that we could have found a bottom potentially for the retail. Now it comes with a backdrop and I know you're gonna mention this just in terms of further pain being felt there. One example of course being that to the likes of Country Road pulling out of DJs, you know, the perilous department store. How are you feeling about that sector? Scott Phillips: So I, investing is hard, right? Everyone knows that. It's obvious. It's the most obvious statement to make on a Friday morning. The challenge for retailers is transitory. I know transitory was one of those words people laugh at when central bankers say it, but the reality is whatever challenges the economy is going through, whatever future challenges and things might get worse before they get better. over next, pick it up, five, 10 years, there is going to be a lot of money made by a lot of retailers who do this thing well and do it properly. And the question a little bit easier to answer, I think, than AI is, you know, which retailers are going to be successful, which are not, which are going to fall by the wayside. And you don't, you don't want know with absolute certainty, but take a business like JB Hi-Fi. Is it bigger and better and more profitable in 10 years time than it is today? Yeah, almost certainly. And yet the price is down massively on where it was. Now, maybe the price was simply too high previously. That's always possible. Maybe the markets kind of, you know, taking the short-term concerns going, oops, there's, there's potential trouble ahead. And here's the thing. Both can be right. There can be trouble ahead and it can also be a bargain if you have a longer enough time frame. yeah, bargain hunters are sniffing around retail right now. There are some really, really, really cheap prices and they, well, I say cheap prices. are cheaper than they were share price wise. They are cheap on a PE basis because the market is looking forward and saying next year's profits might be lower. If you have a view and you've to be right that some of these retailers that are seemingly bombed out now because of current economic circumstances. are going to be much bigger and better in time, then this is absolutely the time for the bargain hunter to go shopping. It's absolutely the time to say, Hey, maybe there is an opportunity here. If I can hold my nose, if I can hold my nerve and maybe things get lower, maybe they don't, you'll never pick the bottom. You'll never know where that is. But to my mind, if you've got a long-term view and you can say, in five years time, I think again, JB high five, just for the example will be, you know, make making this much money or a bit more than they made last year because you know, things will probably improve for them. And I'm getting to pay this price for that return. That's where it starts to be really, really interesting. So I like retail in general, but I think brands are king. Frankly, in an AI world, the strength of brands is going to be a really big question to answer. But if you are some of these retail super retail, having Norman, I own shares in both JB HiFi, don't own. But you look at some of these companies and say, isn't it likely they'll be around in five years time? Yes. Is it likely they'll be making more money in five years time? Yes. Is that priced? Is the market pricing that And think from a lot of companies, right? The answer is no. So yes, great opportunity to look at retail. You got to hold your nerve. I'm not saying things can't go lower or won't go lower. With my like mate, they probably will after I say this. But over the long term, it really does come down to the phrase I like to suggest investors think about is underlying earnings power, not profits, not current profits or past profits or new profits. What is the underlying earnings power of this business? it improving? How much can it deliver? That's the test I think. And if you can find a business where you can reasonably reliably understand the answer to that question compared to this year's, well, today's price, that's where opportunities start to bubble up. Andrew: Scott, always great to get across the opportunities you're seeing in the market. Hope you make the most of your Friday. Thanks for joining us in the Moldy Fool. Scott Phillips: It was great to be with you. Thanks, Ender. Andrew: And that is your Osbys morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.