Chit Chat Stocks - 6 Hidden Suppliers For The AI Boom; Microsoft's OpenAI Gains; Amazon and UPS Layoffs As Recession Indicators?

Episode Date: October 31, 2025

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Welcome to Chit Chat Stocks, a podcast that helps you discover your next great investment. I'm your host, Ryan Henderson, and I am joined as always by my co-host, Brett Schaefer. Today we've got our weekly Power Hour episode where we talk all things financial markets. It is the heart of earnings season. Today, big tech is reporting, or at least most of the big tech companies. So this is when we have the most news, plenty to talk about, and we have plenty of topics for this week. Of course, there are more open AI partnerships. There is earnings. We've got Netflix, Visa,

SoFi, PayPal, and plenty of others. And I've got a little fun topic for the listeners as well. I dug into some of the most critical suppliers to the data center space, the picks and shovels providers to the data center build out. So I'll go through some of those as well. But before we get into it, first off, please, if you enjoy these episodes, give us a review. It always helps. And we also have a newsletter, which is totally free. So go ahead, check that out. We put plenty of good charts and information up there. But without further ado, Brett, how has earnings season treated you so far? Not bad. Haven't had much reporting. I want to ask you, how does it feel to be back two weeks off doing a live show again, talking earnings? Was

Is there anything you were itching to talk about that you couldn't last week? Netflix earnings, a little, of course, people in our newsletter chat were making fun of the fact that OpenAI seems to be announcing stuff just in your face every week, so we have to talk about it. We will be talking about the Microsoft OpenAI deal. I'm assuming it's not that, but is there anything you want to talk about the most? i did a decent amount of work on this uh data center suppliers but maybe we can save that for later on in the episode netflix earnings fascinating visa earnings frankly boring

and predictable but still what a business and then uh so far macro indicator matt always my favorite consumer macro indicator yeah there i mean there's a lot to talk about especially in the payment space. We've seen a lot of payments companies report so far. So PayPal reported yesterday. SoFi reported. SoFi's quarter looked pretty good. And Pfizer reported this morning, the stock is down 43% before the market opened. I haven't even checked what the markets are doing. What happened? Yeah, we actually had a little message in the group chat. Yeah, the stock's down so much. Someone wanted us to talk about it. What happened? What's the deal? So, from what I can tell, I haven't gone through the entire conference call, but Pfizer, there's been – this is one of those where it seems like the street was ahead of everyone else because – and you see this all the time where there's a slight decline in some of the fundamentals.

There's cautious management guidance and all of a sudden the stock is hitting like five-year lows. The valuation looks super cheap on a trailing basis and you see people thinking, oh, value play, value play, value play. But really the street probably knew something most investors did not and this quarter showed that. So Pfizer reported its slowest organic growth in five years. they cut their full year guidance and then they launched a strategic overhaul with a new cfo new co-presidents and three new board members uh-oh the strategic overhaul you gotta that's when you know things are going bad that's like when the manager gets relieved duty and on the sports team we're not gonna i'm not gonna be doing the offense anymore someone else can call the

formations. Yeah, apparently this is supposed to be a total company reset. So here's one quote from the conference call that I saw. Pfizer's recent results have increasingly relied on short-term initiatives. These initiatives place too much emphasis on pursuing in-quarter results as opposed to building long-term relationships by prioritizing business that both meet our client's needs and comes with high recurring revenue. As a result, we have made the decision to deprioritize these short-term revenue and expense initiatives, which of course has some near-term impact on our growth and profitability. For those unfamiliar, Pfizer is sort of a hodgepodge of payments processing businesses. They've been an acquirer

over the years. And I think we've kind of seen, especially lately, a divergence between the stitched together payments processors and the built from the ground up payments processors like add-in and stripe and we've seen sort of a divergence in results and it i think you're seeing it from the customer perspective it can be cleaner to just go with a one one-stop shop solution like a stripe or add-in as opposed to some of these other stitched together businesses but i don't know the business super well so i might be uh that might be why i get confused on this one i mean it bores me to sleep honestly i'm glad uh i'm glad i'm not interested because it's down at 40 that's for a company like this this sounds i i would not believe you if you

said this was possible now an addion sure but pfizer i thought they were supposed to be steady eddie yeah they have had i think like decades of double digit earnings per share growth so this is this is like a a major turning point and this is their largest drawdown in 35 years they are down 70 from all-time highs i i saw a lot of people talking about the buyback yield they have been a big repurchaser which that's when like i i love buybacks but when the buyback yield is above 10 percent there's typically a reason so i found that like the best share cannibals where you get like better than expected earnings per share growth because they're buying back tends to be a lower current buyback yield but you know it's steady and progressing so

Anyway, that's kind of a side tangent, but after their 70% drawdown, Pfizer stands at a $68 billion market cap, roughly. They do $6 billion in annual operating income, so priced operating income is around 10 times. If this is a major reset, that is not cheap. How's the balance sheet? I'm pretty sure it's like $20 or $30 billion in net debt because the enterprise value is almost above $90. Okay. Not terrible. What's the meme?

Not great, not terrible? Yeah. The Chernobyl meme? Yeah. Well, it could be a buy. What excites me about this company now? Nothing. Sorry.

if people can make money on this i'd like to make money on companies that actually interest me and if that means there's an opportunity to buy this boring business so be it uh someone else can do it but i have you know i have absolutely zero interest in any any of these type of businesses um not not necessarily like the ad in the world but these legacy payment processors and all the good stuff all right let's talk about one that the listeners unless you have something to add there i just want to add that like unless you are a like a constellation software where you buy these businesses and you just let them operate independently i tend to be wary of the like opportunistic acquirers where it's not like a stated part of your strategy you don't

have this blueprint to like buy and then integrate and and like it's just like you kind of buy businesses to fix holes in your current product suite. That I don't like because it's the quickest way to enter a market, but it always leads to problems down the road. And I think you're seeing that now. Adyen chose to build from the ground up, build their solutions from the ground up. I think at any point they could have gone out and acquired companies to basically bolster their product offering and instead they said no i want to build these solutions on our own because it's easier to diagnose issues later on it's easier to you own the infrastructure you're not like it wasn't built 20 years ago by developers that are no longer with the company and

anyway i be cautious with these opportunistic acquirers i would say all right ryan talk of pfizer is putting me right back to sleep let's talk about a company that people are very interested And I am, I wouldn't say I have an egg in my face because I was never bearish on them, but unfortunately never got bullish at the right time. Maybe it's still now. And that is so far. It's one that you put some good notes together on. We have some comments in the chat here.

I'd say for recording this Wednesday morning, this week, thank you for everyone that's joining. We have a new comment that says, I think a new listener, favorite book on the shelf behind you both. I see the rule breaker investing there. Yes. And for anyone that hasn't listened, I think our number one listened to episode of all time now is the David Gardner interview. Go listen to that. I thought we asked him some fantastic questions. I'll answer that one and say an underrated book behind me is The Toyota Way, a kind of history on how Toyota became dominant in manufacturing and how everyone essentially learned from them. Ryan, do you have an underrated investing or business book behind you?

i honestly wasn't sure what all was behind me they're just for looks for the show those are the ones that just have good color schemes i'd say probably the most evergreen and the one that actually applies to me the most is uh the rule breaker investing with from david gardner but also our friend alex morris uh scripted is back there and that obviously has plenty of timeless quotes and advice from two of the greatest investors of all time. So I'd add that one as well. But let's jump to SoFi Earnings. Look, yeah, I missed the boat on this one. Maybe the opportunity is still in front of us, but I'm disappointed because this was – obviously, it's competitive. Online banking is now more competitive,

I think than it's ever been, but they have just nailed it in terms of attracting customers and being sort of an attractive brand to younger people trying to build wealth members. They had 1.2 million members at the end of 2019, 1.2, five years later, they have 12.6 million members. So it's been staggering growth. And this quarter, they added more members than any other quarter in their history. They added almost a million members this quarter alone. Over the last 12 months, they have added 3.2 million members. For context, Ally Financial has like 3.4 million total retail depositors now a retail depositor that's worth more members does not have an exact correlation to like deposit growth well ally has 5x the deposits but so far is catching fairly

quickly and should catch them within 10 years if ally doesn't grow like they are today yeah so so if i got its banking license late 2022 i believe and within three years they've gone from zero deposits to 33 billion, which is pretty impressive growth. And loan origination volume, I guess here's maybe the part that I don't know if I worry about, but they're getting this flood of capital from depositors. They're getting this flood of money. And the biggest category of loans that they're offering as personal loans, which in a world where, I don't know, there's a recession or something like that, I think there's probably higher variability in the delinquency rates in that sort of just overall lending category. But loan origination volume grew 57% year over

year. Most of that growth is coming from personal loan growth. The delinquency rates stayed pretty consistent compared to last quarter. So the results look good. Obviously, there's some risk anytime you quickly grow a lending business because things look good until they don't. But I think the results across the board were really impressive here. There was Anthony Noto, CEO, went on to CNBC after the earnings, and they asked him about paypal and open ai's partnership i don't know if you saw this but two of the most press release happy companies of all time open ai and paypal uh announced a combined press release so wait for that mercato libre uh partnership to to gel with with paypal well you know eventually

it'll it'll bear fruit anyway the uh they asked him about it and he said we're launching products not press releases. I love that quote because one, PayPal is just a press release machine. They love partnerships and press releases. And it seems like SoFi is showing real growth, real traction with customers, deposits, and on the lending side. So things look really good right now. If I'm a SoFi shareholder, I would be happy with where they're at right now can you predict i'm a load of right here at our friends at fiscal ai use our link get 15 off any paid plan i bet well not to tease it but i'm almost 100 certain they will be doing a black friday sale so within the next month slash uh you know cyber cyber monday whatever

you call it get ready there's gonna be a nice discount for you out there and we recommend using our link to get that extended discount all right what do you think their forward pe is and what do you think their current price to book value is i think price to book is like four times close five five okay pe i don't know because i don't know how much they're earning or where they're at 72 72 i feel like they're probably under earning a bit since they're reinvesting if you normalize it to what they could probably earn i i guess we're pretty close to fair value now that might sound egregious for someone that is a value investor but i'm just saying like if the pe can get a little bit lower i'm actually seeing a

different reference here that someone says 57 but again you know it's forward estimates so it depends on what estimates you're using the stocks at 31 in 2022 and 2023 you could get it for five so that was where the great opportunity was today would i still be holding of course i mean seems like a fantastic growing business but is it a buy today probably not now yeah it's Sorry, do you have anything else on that? It's such a – it kind of sits on both sides of the fence for me because on – in terms of consumer applications, I want a – you want exactly what you're seeing with SoFi. Massive membership growth. There's even somewhat of a flywheel effect.

More people using SoFi. They tell other people. They're launching all these products. They're offering cards. They're kind of generating revenue in a lot of different ways. But on the lending side, when I'm looking at a bank, I get really uncomfortable with rapid lending origination growth because I don't know what the net interest margin or the delinquency rates are going to be like five years from now. It depends what kind of categories they're in, but especially personal loans. I'm both really optimistic about the consumer side and shaky on the banking side.

yeah you can never get a hundred percent confident i mean it's a new bank fast-growing bank stuff like that it's not new bank which is its own company and we do have a great interview coming up with dave ahern covering new holdings as well as people are asking in the newsletter chat to discuss argentina and uh cap airports corporacion america airports we will have an interview with ian bezek coming up in november to discuss all that latin america get the update and all of everything that's happening there. I'll go to maybe one of my topics since Ryan has had two to start. We didn't get a chance to discuss Netflix earnings last week with Travis. We had, I think, a lot of good topics and we covered a lot of stuff within his portfolio, which I thought

was fascinating. Very, very interesting opportunities out there. But I wanted to discuss Netflix this week, even though they reported last week. I'll go through some of the numbers, 17% year-over-year revenue growth. This was the highest level of percent revenue growth since June 2021. The advertising tier is scaling and Netflix is gaining share of TV time spent. Here's a quote from, I think it's the investing letter. We've come a long way in building our advertising business in less than three years. In that time, we've gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets. And we will continue to grow from here building out our ad sales and operations team and enhancing our

capabilities for advertisers including launching our own first party ad tech stack they are on track to double ad revenue in 2025 stock now trades that maybe i should update this uh because i put that in a week ago i said a week ago i was trading at an ev to ebit of 38 we're at ev to ebit of 37 now so it's probably about the same the question i have and maybe you can agree or disagree on this take and this is in context of so within overall consumption of tv media netflix is gaining share because that's a lot of the linear is still declining i think that's still 40 or maybe even half of consumption in the united states and higher in other areas lower in other regions around the world but if you look within streaming youtube is taking share of time spent there's some

great charts about this and netflix is seeing declining share of time spent within streaming video and my take on this is that all of these services from the tech players are going to have to necessarily combine but become more like each other where netflix you know we're seeing this with the podcast licensing they're doing to put kind of talk shows on their service netflix is going to be trying to become more like youtube who is going to become try to become more like spotify who is going to be tried to become more like youtube who is trying to become more like netflix i know that is a kind of a tongue twister but do you get what i'm saying here ryan and do agree or disagree on netflix's excuse me path going forward if you are a regular listener to

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industry-leading sources, including Reuters, Dow Jones, and Morningstar. Head on over to ibkr.com. Restrictions apply. Interactive Brokers is a member of SIPC. I think I agree. The only one that maybe I need you to describe is how do you think YouTube is trying to become more like Spotify? Podcasts or talk shows are their biggest growth driver yeah i just don't uh i don't know if it's to me it doesn't feel like that's a targeted initiative from youtube as much as people migrating to that platform a hundred percent is they're not pouring money into exclusive licenses with podcasters or anything no no people just go there directly well that's i mean that's not their business

model but they are catering and building tons of tools and i'm sure investing millions hundreds of millions of dollars in the back end stuff for that you and we have a comment here mentions youtube music youtube premium youtube music has the podcast and connections what too i mean you've seen all about podcasts at pretty much every event or every speech or every talk they give it seems to be their number one thing along with uh sports and stuff on the tv yeah i see it a lot more the other way i see it a lot more where every podcast the event talks about how everyone needs to be on youtube every people are just going there because youtube has the audience it doesn't seem like youtube's going to receive no matter which way media heads people

will head to youtube i think that's just they've got the audience but either way i mean with regards to netflix is it cheap uh i could see how it works out from here but i just to me it's a bigger business like it's already reached global scale so the majority of revenue growth or sorry earnings growth is going to have to come from lower content costs as a percentage of revenue and price increases mixed price mix increases or higher ad load but i'd be surprised if subscriber growth was too too high moving forward i can't they don't report it i guess they don't share anymore yeah the bane of fiscal ai for not yes we're not giving you that chart anymore to post on that the fiscal ai twitter account so you look at the growth drivers they need to get i think a little

bit uncomfortable where, okay, one, the advertising, they hit the mark on that and it's doing well. And you can probably see that consistently scale over the next decade and probably grow faster than their underlying legacy business. And then you look at sports, which is a bit tough. They're doing some live events, some one-off events, but they're definitely going into that because they see that that's a huge part of the market and they have to go after it, even though historically the return on spend is much tougher than other areas and then you have things like gaming and then you have things like live talk shows and all these other things that are maybe not within Netflix's core wheelhouse that they're trying to add on to convince people to stay

get churn rates down and increase that pricing power yeah I wouldn't buy here it's not my favorite uh i think the charts of youtube taking time spent from netflix and them basically taking market share and netflix is decreasing within streaming time spent i think that's something investors in netflix need to worry about i'm sure they're tracking this but it would be a big concern for me if that if that continues where's your pricing power yeah i mean they have done a phenomenal job over the years. Every like big crossroads they've come to, they've done a pretty dang good job, like moving to sort of a new medium, not medium, but evolving the platform. So you said it advertising for the longest time, they were ardently against it and they rolled it

out in a really successful way. And they've also done it in a way where as long as they have good content i think you have pricing power on the ad free plan because people will want to get away from ads and then the flip side the uh password sharing crackdown seems to have been a success i remember a lot of people being very worried about that it made all the sense of the world and now you see a whole lot of other platforms following suit there's a lot of takes on netflix people have either very bullish or very bearish takes a lot i remember when they entered gaming and people thought that that was going to disrupt xbox and playstation and it hasn't but that doesn't mean that you know they probably had negative they probably lost money on that

initiative but hey it's fun to test out maybe maybe it has a future for them yeah we got some question here thoughts on the warner brothers discovery buyout to create a scaled competitor with netflix would that degrade netflix's pricing power or just create a rational duopoly i think people subscribe to netflix for the ongoing content not the old catalog for the most part like i hold my netflix subscription not because they have a whole bunch of old content that i got to get to but because they constantly release things that i want to watch i've never had good thoughts here i only have it now because t-mobile gives it for free i wouldn't have it um i don't know it's the one i think duopoly is the duopoly is youtube and netflix not warner brothers

yeah no yeah it's a new world i would much rather like if you were betting on one of the platforms independently i think i would feel more comfortable owning youtube i i think the upside for that business is higher but obviously you can't buy them independently it still remains a phenomenal business i just think it's very uh i think it's closer to maturity than people maybe give a credit for maybe maybe but we netflix has been doubted time and time again i'm so scared of doubting them because of their track record it's like doubting amazon they just keep chugging along chugging along and finding new growth opportunities all right let's get to your uh what you put into a

lot of research here it's six hidden suppliers powering the ai boom why did you want to do this what are the criteria and then just get into your list well the reason i wanted to do this was because i hear so much talk we talk about it seemingly every single week on this power hour where we talk about the boom in ai infrastructure spending and you see it every single quarter mark zuckerberg says we're gonna you know build data centers the size of manhattan people you're seeing it in the capex spend from hyperscalers and it's all going towards these massive data centers and we're recording before these people the these companies have conference calls this afternoon uh we had some listeners here say that they wanted us to predict whether

capex is going to grow or decline maybe that'll be a good tease to talk about these six companies this is very it is almost a coin flip i would say but ryan what do you think the aggregate capex guide is it going to go up in 26 are they going to guide for up in 2025 just in general do you think it's going up compared to 2025 excluding oracle because they're they're crazy sorry do i think capex will be higher in 2026 for the big for the big four microsoft meta amazon alphabet yes i think it will be higher but i don't i don't know what the tone will be and if they've raised guidance from their already raised guidance so the second derivative is gonna slow down there yeah so we don't know

we can't predict what the stock is going to react on but i'd agree i think it's almost certain given what they're saying that capex is going to be higher i mean look at that microsoft open ai deal 250 billion dollars that's that's quite sizable yeah and so i guess the the goal here was this is sort of the modern gold rush and there will be beneficiaries we're already seeing it Obviously, there will be beneficiaries that are not the hyperscalers. There will be – to use the picks and shovels analogy, and for anyone that's unfamiliar, sometimes I think we spit out that analogy and people don't know what it means. During the sort of California gold rush, people moving out west to go strike gold, find gold, there were a whole bunch of prospectors that went out there, wanted to get rich. A lot of them did not get rich, but the companies or the merchants that made the most money were the people selling the critical supplies for all the people going out to find gold.

That was the quote-unquote picks and shovels providers. So who are the picks and shovels providers for data center spending? I found six. There's probably more. I might have missed some. I, before we get into these, I'll say the cat's kind of out of the bag on a lot of these. It's shown up in the results. It's shown up in guidance. The stocks are, have all done very well for each of these, but I'm going to go through them. The first one for me is Amphenol. They,

we've talked about them before for a, one of the largest manufacturing businesses in the world. I think a surprising amount of people don't pay attention to them. They make like point to point cables power distributors sensors it is sort of a boring business but they are reporting pretty much their highest revenue growth in two decades right now despite being like substantially bigger than they were in the past 53 percent revenue growth this is one of the largest manufacturing businesses in the world because data centers are turning to them during these build-outs. They need Amphenol. And yeah, it's just seen a massive acceleration. So Amphenol is one of the critical suppliers. The second one here, this might be the one I'm most attracted to.

And I talked to John Rotante about this. He said, this company is the first call, as soon as a hyperscaler or whatever decides we're going to make a new data center, they call Quanta Services. It's one of the first companies they call. So they are one of the largest designers and installers of electric transmission and distribution lines so basically there's been a big strain on the electric grid from this we've seen all the commentary about how energy prices are going up for people because data centers are consuming so much power and in order to get power to this data centers they need quanta so they will literally call uh they will call quanta plan it out map it out see if it's feasible to have a data center in

certain locations see what it's going to require here's a quote from quanta ceo he says if we're going to lead the country in the world you have to have power and we are right in the middle of the infrastructure brett maybe you can pull up some of the charts from these companies because you're going to see pretty much every single one you're going to see an acceleration in revenue over the last 12 months right i was gonna ask revenue all right i think quanta has like an absurd backlog figure too if i'm not mistaken but yeah anyway quanta is transmission lines amphenol is cables and sensors and then the third one here admittedly i don't know i'm going to use some terms here that i don't know if i know very well but it's a risk to networks

they make high-speed switches and routers as well as specialized operating software that connects servers and storage system within data centers so people call them apparently the toll booth of ai since basically like so much data is moving that it has to be it has to be fast it has to be reliable and it needs to have super low latency none of that would be possible if it weren't for arista networks yeah you're showing what do you got there uh quanta yeah i'm moving to i'm moving on for you to arista next it's and and i actually i think the insider ownership on arista networks is incredible uh let's see if i can pull this up i think this is the one where the founder still owns like 90 of the company let me double check this i know this doesn't make for great

audio no okay i got this wrong i think i was thinking of a different company someone else hey look at look at this 2012 to 2025 estimate but i mean we're almost there revenue has gone from 193 million to close to 9 billion and grown a 37 34 annual revenue annual growth rate it's quite impressive yeah and it seems like every one of the companies on this list has had a pretty good go of it lately but yeah arista it's been a decade of just higher and higher demand for their uh switches and routers and operating system the last three here this one is veritive holdings they are basically powering and cooling solutions. So with, with the data centers, the one thing you see pop up

time and time again is that there's a whole bunch of cooling providers. So Veritiv is not the only one, but because GPUs require a lot of power, they generate a lot of heat that heat needs cooling solutions. And Veritiv is one of the leading providers. I think they have like a, let's see if i can find it uh liquid cooling some sort of liquid cooling technology that has been in high demand as of late also fairly recent to public markets if i'm not mistaken which is kind of surprising given how big the business is already but there's been there's been a couple things with all of these businesses they have not only have they seen massive demand but they've also seen significant operating leverage because there is so much demand that they're raising prices

for to provide their services and it's just been i'm sure that there's going to be a pullback at some point on spending from these providers and i imagine with most of these companies there's a lot of upfront revenue there's probably some maintenance revenue as well because you obviously have to maintain the systems the transmission lines whatever if you're any of these companies but there is probably a lot recognized up front i won't be honest i'd be so scared to buy any of these so scared yeah the bot revenue could be down 90 if if people are right that it's like the telecom bubble yeah i mean these data centers have to be maintained so if you're if you're if you have a big services component to your business like i think quanta services specifically has a

huge portion of their revenue that's not a lot of revenue i think they're going to be in a good position and a lot of these businesses what if they mothball the data centers what do you mean like they're the like they don't get used they shut them down i think at some point someone's going to come along and pick them up i would be i mean you think i don't think it's going to be as bad as telecom like that was what 15 years of overbuilding i i just i have doubts that it's 15 years overbuilt already true wow maybe not there yeah maybe maybe by the end of next year if we have the trillions in dollars spent uh you mentioned vertib i think they were actually a spec because the price was

at ten dollars for a long time uh if we look at their stock trade it looks like they went public during the spack boom ten dollar spack merger price and they're at 200 today so it's been a i know the math is not exact there but about a 20 bagger in five years pretty darn good yeah all right last two here this one very well known micron so here's what i understand And GPUs also require a memory system, and they require memory chips. Apparently, they require five to six times more DRAM, which is moving memory. They require five to six times more DRAM capacity than traditional servers. so micron one of the largest dram chip providers in the world them and sk hynix i think are the two biggest maybe samsung as well they have seen a huge surge in dram demand so here's a quick quote from their ceo it says our hbm performance has been strong and robust demand tight dram supply

and discipline execution have significantly strengthened the profitability of the rest of our jam portfolio this is one for for people that don't know is dynamic random access memory so dynamic ram i wanted to look that up it's essentially for for part of the we're not experts on this but it's is you know similar to the ram on your own computer but you know they're selling it in data centers yeah from what i there's nand and dram one of them is considered a moving memory uh and dram is considered sort of the the memory chips needed for gpus this is probably the one i'd be the most concerned about because if gpu demand declines they are basically a byproduct or they are a layer on top of that which would also mean

demand declines for micron unless i am totally off on that but they've seen a huge surge in moving memory chips because of the growth of data centers and the need for gpus they've historically been a very cyclical stock a lot of drawdowns a lot of tough periods but they're one of the only players left yeah last one here this one actually interests me as well comfort systems provides mechanical electrical and plumbing contracting services in other words they are the company that makes the industrial buildings actually livable so more of a construction company yeah yes i assume there's some like services element to it but if you can you know if you're the plumbers of data centers but uh yeah basically they are sort of a construction provider and then

And the big three hyperscalers are their three largest companies by far. They're another 20-bagger over five years, 88% total return CAGR over the last five years. Not bad if you could find Comfort Systems five years ago. Here's the issue is I don't feel really comfortable owning any of these given how much of a jump there's been in demand. but and this doesn't matter now but we talked about this on our show yesterday the ama and that's going to come out later these businesses will be better off most likely unless they're investing into it and they ruin them sort of create their own demise these businesses will be better off 20 years from now because of the ai boom they're going to have a whole bunch of cash

they're able to reinvest it it's to me that's like the amazons of well maybe not the amazon but whoever the picks and shovels providers were during the dot-com era there's there is for sure well maybe not for sure it's likely that there will be a slowdown in demand but that doesn't kill them like if the ai boom never happened i think they're they would be in a worse position than having all this demand come through all right folks before we move on we need to tell you where we get our financial data fiscal.ai fiscal.ai is the complete stock research platform for fundamental investors i use the platform pretty much every single day you'll see the charts on our podcast and you'll see it in our

newsletter this is our one-stop shop for stock research they've got up to 20 years of financial data on all companies globally including company specific segment and kpi data that means amazon AWS revenue, SoFi's total members, Google's paid clicks growth, and literally millions of more data points. They've also got earnings call transcripts, ownership data, company-specific research reports, and much more. If you want complete financial data at your fingertips, then you need to check out Fiscal.ai. And if you use our link, fiscal.ai slash chitchat, you will get 15% off any paid plan. Again, that is fiscal.ai slash chitchat. The link will be in the show notes uh any of these excited i might just say being more nervous about that i

think cisco either is barely or below its dot-com price which is the company you were describing and i would remember when we studying studied peter lynch and he said if a company starts accelerating its revenue growth and growing at extreme rates it can be difficult because you need to have a management team that can deal with this and it can be quite hard for a business that's growing quickly you can get less efficient you stop worrying about things and we've seen this with silicon valley companies all the time i'd much rather have a business what's my what's munger's quote i just hate to be the quote guy but munger said i want to own a business that never gets overvalued just steady eddy growth consistency over and over and over there could

be major downsides to this what if they lever up what if they what if they have just insane inefficiencies what if they again do 15 years of demand in five and then you have nothing to do for 10 years do you fire everyone that you hired do you because you have twice the employees now i mean what what happens i think this is these guys had businesses they had businesses prior to the data center explosion you look at arista networks it's not like this is a business that just emerged from the data center boom like i know but what are you gonna fire 70 of your employees probably not okay then you're gonna be extremely unprofitable if the bottom falls out i think i think there's more recurring revenue to some of these businesses than

well maybe not all of them but like quanta arista networks they i think they both break out a services line that's meaningful to the business let's look at arista networks if you if they have a large services component yeah that's definitely something to look at is like all right what of this is recurring and what this is one-time spend like if you look at the companies such as super micro computer you go okay well they're just that's a tough one that's But they might be the quintessential one that I'm kind of describing here. If the bottom falls out, they could be in real trouble. Yeah, I'm not seeing how much is from services for Quanta, unfortunately.

But we'll see if I can – I mean services is in the name. So I've heard it's largely services businesses, largely services business. But yeah, I do think you're right. the demand is likely to fall here and they are pricing it it seems like the investment community is pricing in all of the commentary from the hyperscalers that we're going to be building seven trillion dollars or whatever that estimates are for the next up to 2030 and if that happens yeah there's going to be plenty of cash flow for these businesses okay let's talk visa ryan you ready for some macro talk sure all right so they reported yesterday and i like looking at them

just in reality for consumer spending a little bit for business spending but if you look at north america and global just consumer spending they are going to be since they do over 15 trillion dollars in payment volume they can be a fantastic indicator with the government shutdown and the loss of some of the statistics stuff for inflation. Have you seen this Ryan? That like 35% of inflation inputs now are just pure estimates. That's another rabbit hole that we don't have time to go down on investing power, but looking at Visa might be a better indicator of consumer spending and consumer health. And then combine that with banks and you can kind of get a good look at things. So let's go through the numbers. Net revenue up 12% year over year,

payments volume grew 9% year over year. For reference, Amex grew 8%. So about the same, probably depends on what decimal you're using. I'm sure it's fairly similar. Total cards grew 6% to 4.9 billion. Now, some people have multiple cards. So again, that's not 4.9 billion people. For the full year, which this is the end of their fiscal year, 50 net income margin 18 billion dollars spent on repurchases this year 2.6 percent of the current market cap is this one people a lot of people are asking about the thoughts on consumer health in relation to these layoffs and two is this the perfect stock to buy when inevitably not saying it's going to happen tomorrow but at some point the market crashes

uh yeah maybe just because it's inflation protected and it's very profitable but i still don't love the valuation on visa if unless i haven't checked in a while so i'm checking it right now let's see ev to ebit i think it's a fair multiple for them yeah or pe 28 times you're probably getting 10% EPS growth would be my guess that's what they were about growing yeah I think they had some one time stuff but

yeah today look not buying especially it just bores me macro indicator sure yes and it's a good business but I just like worrying about the best one of the best competitive advantages ever the size of it

Well, why I put the repurchase number in there is if you can get them at a cheap enough price, it can be similar to the Amex in 2023, where you have such a good buyback yield that even if growth isn't as impressive because of their size, hey, that can be a phenomenal return. Never sell stock for your portfolio. Yeah. Yeah. I mean, I think it has been for pretty much everyone. It has, if I'm not mistaken, actually underperformed the market. I'm going to double check this right now. Maybe five years. Could be true. Yeah. Total return last five years, S&P 500, which granted the S&P 500 has had a very good five years is up 123%. Visa is up 93%. My thing is like, why would I own Visa instead of American

Express? I like American Express better. I agree. I agree. I mean, both aren't too cheap today. At similar valuations, I'd maybe lean Visa just because they've been the better grower and they're more efficient, but look, they're not at the same price. Amex is cheaper. The gap is narrowed. I think both of them are one that if the price gets down to a reasonable multiple, let's say 10 to 15 times for Amex, maybe 15 to 20 for Visa, those are ones I would just buy without thinking in a recession.

See, that's my issue is, okay, yes, all stocks are down, whatever. like let's say all stocks drop 50 i would love to buy visa at i would feel very very comfortable and it would be an easy decision to buy visa in a massive drawdown my thing is that like it's buying visa for me is like admitting defeat on active investing it's like no what's that yes that's not a good way to put it because the cat's out of the bag this is the biggest network effect business in the world everyone knows it i um other than meta i uh well it's got a better network effect than meta now um since it's not social media anymore but i disagree i disagree i disagree it's not giving up on active investing it's just that seems to be a bit that seems to be

a bit of a stretch i get where you're coming from but ryan you own alphabet and amazon Yes, but like I said, I didn't buy them at 29 times earnings. If this got cut in half, I would feel comfortable buying it. Yes, very much so. But buying an already obviously good business at a 2.5% buyback yield when treasuries are at four or whatever, that's not that attractive to me. No, but you got to keep the watch list up. You got to keep track on the business. Yes. Yeah, yeah, yeah. No, I'm on board with the business being high quality, but it feels to me like anyone buying here is doing so on autopilot. There's probably a lot of index funds that own this that just buy it blindly because, oh, it's a good business, whatever. It's been a good business for 30 years. I'm just going to buy it. I don't care about the price. I agree with that. Yeah. that to me it's like i might as well index i mean i'm not yeah yeah i'm not thinking of buying whatsoever at these prices let's talk about microsoft and open ai we have to uh since

microsoft shot up to on this news i think nvidia went through five trillion microsoft went through four trillion dollars i'll maybe as a quick shout out the uh two founders of microsoft and nvidia the two largest companies in the world do you know what schools they went to ryan at least one of the co-founders of of microsoft one our alma mater washington state and you know where jensen wong graduated from on undergrad oregon state university shout out the pac-12 huh yeah almost 10 trillion dollars in market value from the good old pacific northwest well let's talk about microsoft and open ai they open it officially spun out its for-profit arm where it has this, I was confused at first why they're doing this, but I guess they want to

funnel money, some money from the business to a nonprofit, which I guess is fine if you just have a separate stock. They just have a ownership stake in the for-profit corporation. So it's nonprofit holds an equity stake worth $130 billion. And that is a 26% stake in the company. It's worth $500 billion. 47% is held by current former employees and other investors. So those employees are worth quite a bit of money. Microsoft holds a stake value at $135 billion. Good on Microsoft. I mean, it's been probably a 10 beggar for them. Quote, the OpenAI Foundation will make an initial $25 billion commitment to work to accelerate health breakthroughs and technical solutions to AI resilience. AGI now has to be verified by an

independent expert panel because that's part of the contract with Microsoft utilizing OpenAI's tools. That's also, again, you know, it depends who's defining AGI. Here's another one that's important. Microsoft has IP rights for both models and products extended through 2032 and IP rights now for the consumer hardware that OpenAI is developing. Lastly, OpenAI has contracted to purchase an incremental $250 billion of Azure services. Where it's going to get this money, i'm not sure but that's not microsoft's issue would you invest in the open ai non-profit or excuse me for profit arm not the non-profit i would probably not microsoft stuff deserve this bump maybe i can answer first on the microsoft part they seem to be crushing it with this deal

it's kind of a win-win situation for them they huge stake huge azure commitments all these ip He writes, they're just doing great with this open AI relationship. Yeah, it seems to benefit them in plenty of different directions and having the – I don't know. Having the tie up here is just a nice way of basically not having to build this internally and not having to front the expenses. They're kind of being subsidized by venture capital in a way. If VCs are pouring money into OpenAI and a lot of that spend just goes to Azure services or a lot of the innovation that OpenAI does on its models benefits Microsoft, they're one of the first customers to benefit type of thing, it seems like a nice position to be in for Microsoft. Okay. I have other ones, but I want to finish on this.

OpenAI plans to IPO by 2027, and they said that, and I don't know if this is going to make you excited or nervous, they said that with this reformation, they can now finally be aggressive with fundraising. That's essentially what they were saying, yeah. So it's going to get worse. Okay, maybe we can timestamp this. i bet i bet they do not go public by 2027 markets at some point it's going to be like the we work situation obviously there's a little more validity to this business model than we work but it was all hyped up everyone thought it was going to be a huge ipo markets soured on their losses i think open ai is going to release their s1

and then they're going to delay their ipo because people are not even released that's one yeah okay hot take i'll uh yeah time stamp this someone if they go public someone can uh come back and remind ryan on this because we'll probably forget forget about this moment yeah yeah the i think whoever is involved in the latest rounds of open ai's funding will lose a ton of money private funding it reminds me of or at least it'll be dead water but remember like uber had that massive the private round before going public at a huge valuation with softbank yeah it was underwater for like five years maybe that's what vcs expect but in a late round investment but it's

i don't know i just it feels like this is bound to flop there's so much hype right now and as soon as that s1 comes out i think people are going to see whatever 20 billion dollars in revenue and then like wait 20 and keep in mind the forward guidance for this year i think was 13 billion in revenue for open ai let's say they're at 20 billion next year maybe more the valuations on these things are already absurd if that's the sales in whatever however yeah they had 500 billion dollar market value look uh the initial investors the initial outside investors they've been diluted down to like one percent or less which is still billions of dollars but it reminded me of the the social network situation hey we got some new investors

coming on there uh microsoft and softbank we need a lot more money and you know they're gonna yeah i mean they're winning it away they've got a business i guess that's that's what happens i'm sure they have pro rata what like a lot of these i think most funding rounds you get like pro rata rights or whatever so you can invest in all the following ones to like top off your current stake these funds probably didn't have the money they just they needed 10 billion dollars so exactly but when you're raising 10 billion it's like oh okay topping off our stake is not an option here but at the same time your stake is smaller of a much larger pie yep all right we have dealer's choice ryan doordash short report or amazon and ups layoffs what do you want to talk

about well i was gonna say paypal and open ai's partnership but i'm tired of talking about open ai so let's do amazon and ups layoffs all right so these happen both this week i don't feel like a bit of a coincidence that it's two of the biggest delivery companies for consumer spending. That would maybe make me nervous about retail spending. Although, do we invest on this type of stuff? No, we're long-term investors. We have a multi-year time horizon. Amazon is laying off 30,000 people in corporate. According to my sources, aka friends at the company, they already laid out half this week. And despite this, they're hiring a ton for, this might not be music to your years, Ryan, in things like Kuiper and other places that are their big tech research places.

They're accelerating hiring for the science projects, which may or may not work out. UPS is laying off 14,000 in corporate and 34,000 operational roles. On top of this, is much smaller. Target is taking out 1,800 corporate roles. Is this news or noise with consumer spending? Obviously, you don't celebrate layoffs, but thinking objectively from an investment perspective any thoughts here i really don't know what to think because on the one hand this could be i remember when amazon announced their layoffs in 2022 everyone was like this is a sign demand is screwed and it ended up just being like a contraction yeah i could see this being more of the same but at the same time going it feels weird to lay off 30 000 corporate

employees right before the busiest the supposed busiest time of the year for amazon so i don't know it makes me feel like this is sort of a bad indicator but i'm not against amazon prioritizing their research projects, quote-unquote. I actually think Kuiper could be a promising business for them. It's going to be super capital-intensive. But if they're able to emulate or copy SpaceX and Starlink... Got to get it out there, though. They just seem to be slow versus Starlink.

They had their first couple launches, right? Or first change. But it's... we'll see it does have potential for sure yeah and and those ones it's also beneficial to their own business like having whatever internet connection and remote areas for deliveries or whatever i'm sure there's ways that it can benefit themselves beyond actually offering it to customers the but i would be worried like i guess not worried but i think this is a bad sign for the e-commerce side going into q4 going into the christmas season to lay off 30 000 people

maybe 30 000 operational people which is non-corporate now yeah and it's not like i saw people some people saying it's like no it's they're just being replaced by the robots like it's all automation this is not this is corporate this is not warehouse employees and these are supplemental roles to like a lot of those corporate employees are probably tied i imagine to the e-commerce business whether it's management managing teams at those warehouses whatever it is i assume a lot of them are tied to the e-commerce side so yeah i guess call me a little bit worried yeah i'll say yeah what should i say not cautiously optimistic cautiously pessimistic i think i'll lean that we're gonna go corporate speak slight slight nervous on this one we'll

see what the numbers play out as but well i don't know maybe this just means amazon's profit margins are going to keep expanding but the timing on this feels suspect did they say whether or not this was specific to a certain uh no it was widespread they said that there's just they still too have too many middle managers i'm okay with that and from what i've heard they overhired I heard that there's a, yeah, there's a little, a few too many, uh, people just banishing people. And that's a great way to end the episode. All right, Ryan, anything before we get out of here? I guess we want a few minutes long. No, I think that's going to do it. We didn't get to Philip Morris earnings. Maybe we can go back and talk about that in a week or two, but, uh, hopefully

people enjoyed the episode good luck to everyone this earnings season may the odds be in your favor yeah all right that's a that's a good way to end it as a disclosure we are not financial advisors anything we say on this show is not formal advice or recommendation ryan i or any podcast guests may hold securities discussed in this podcast may have held them held them in the past may and may buy sell or hold them in the future thank you everyone for tuning in we typically do these live on thursdays at 5 p.m eastern time next week we are not doing anything live we have pre-recorded the ask us anything episode that will be coming out friday morning so look out for that on the youtube page spotify or apple podcast or wherever you get your podcast thank you everyone for tuning in once

again and we'll see you next time Thank you.