Chit Chat Stocks - BONUS Episode! 7investing Year in Review Covering Tesla, Amazon, Illumina + More

Episode Date: December 19, 2022

In this episode, we review many different companies that have made significant moves during the year. 7investing joins to give their incredibly well-researched analysis and opinions. Listen closely to find out if any of your holdings had newsworthy updates. Enjoy the show! ****************************** Interested in becoming a member of 7investing? Subscribe with code “MONEY” and get $100 off your annual subscription for life: https://7investing.com/checkout/ 7investing Year in Review: https://7investing.com/company-update/your-2022-7investing-year-in-review/ ****************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of 7investing's work? Follow them on Twitter here: https://twitter.com/7investing?s=20&t=dWSrp6mORbWwyzuupxBSqg Contact us: [e-mail] Timestamps Year in Review (4:42) TransMedics (18:51) Illumina (36:12) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome in. This is the bonus episode on Chitchat Money. So a little extra something for everyone today. We don't have Ryan here. He was out of the office as we recorded this, but it's just going to be me. But that doesn't matter because the entire show is going to be with the seven investing team. They each go through one stock that they're looking at. And as we're recording this, they are going through their year in review. And they just released, I believe, covering 150 different companies, a full year in review, updating all the recommendations,

updating all the research that they've done. So if you want to check that out, use our code money, get a seven day free trial and then $100 off your annual subscription. It is a perfect time to check out the free trial because you can get, look at that year in review,

which will be coming out right as we release this podcast. We'll probably put a link with that in the show notes. And if you like what you read, if you like the research that they're doing, And if you like what all the advisors covered on this episode, again, use our code money, get $100 off your annual subscription. So what do we cover today? We hit six different companies, really going over the gambit here. First one was Affirm. Second one was New Scale Power,

which is a nuclear energy startup. Third was Transmedics, which is trying to disrupt the Oregon transplant market. We have Tesla and Amazon, which I think are self-explanatory. Everyone knows that company. And then a fascinating company within the gene sequencing space, Illumina. So again, really hit the gambit. We try to hit everything in about under an hour. So we're not doing full deep dives on all these companies. Obviously, that would take too long, but a little bit of an introductory thing that'll hopefully get you a taste of what you can get over at 7investing. All right, let's get to the discussion. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer

interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. All right. Welcome in, everyone. Today, we have a bonus episode. We have the entire 7investing team with you on Chitchat Money today. It's going to be a bit of a hectic show. We're going to hit all the advisors, and I'll let them introduce each other when they have their turn.

we're going to hit one company that each person is looking at intensely, or maybe not. This isn't a recommendation on this show, but this is a company that they follow, they're looking at for the new year. But before we get started, Simon, the founder and leader of Simon Investing, why don't you tell everyone what you guys have been preparing for the year in review that comes out on December 19th, which will be right around when this podcast releases? Oh, yeah. Thanks very much, By the way, thanks for having us too. We are huge fans of your podcast and we wanted to kind of all make a showing here. All of us except for Steve Symington is on this show and Steve's going to come on a future podcast, but we're real big fans of yours. We think you do great work,

great analysis on stocks. Thanks again for giving us a chance to all be here together. And the year in review, you mentioned seven investing makes seven recommendations every month. We started in March of 2020, right? So we're two and a half years into this journey now. that's going to be a pretty big scorecard. It's kind of hard to follow all of the recommendations from two and a half years. And so he said, what if we had a one-stop shop? You could bookmark a page and just always keep coming back to it to get our most up-to-date thinking on all of the active recs. And so everybody on this team is probably in agreement with me that it's been a hustle for the last several weeks of pulling everything together, getting up to speed on all

of our recommendations. Not only do we give our most updated thinkings, we also give our most updated conviction ratings, everything from strong buy to potential sell on every one of those previous recommendations. A lot happens in two and a half years. We want to make sure that everything is current and up to date as much as we can possibly be. All right. That's a great overview. And remember, if you want to try them out, use code money, get $100 off your annual subscription and check out that free trial. Simon, I don't know how long that free trial is going to run or the $1 free trial, but a free trial if you use our code money along with the $100 off your subscription, but that is definitely going through the end of the year, I'm assuming.

So try that out. You can check out the year in review, and I bet you're going to want to stick around. All right. Let's hit the first company here on our list, Affirm. We'll start with you, Simon. Give us an overview of Affirm and why you're interested in this company. Oh, yeah. Kind of a cool story, right? This one goes back 20 years in time. There was a small little company called PayPal that probably a lot of people are familiar with. But back in those days, you know, in kind of the dot-com craze, everybody was moving from using paper checks and credit cards and debit cards to actually paying for things over the internet, right? It could be with your email address. You could actually start doing online commerce.

And, of course, it's blown up quite a bit in the two decades since then. But the reason I bring this up is the chief technology officer of PayPal was a gentleman named Max Levchin. And back then, he did such a fantastic job at separating out who were the bots and who were the spammers who were all joining PayPal at the time. How can you filter all those out and actually keep really the true people that want to buy things online and get them in through promotions? It's interesting because Levchin now is the founder and CEO of Affirm, who's on a slightly different mission now. still wanting to break kind of the world from credit cards and this compound interest that can get people into a lot of trouble and make simple interest payments through installments. The industry has started calling this buy now, pay later. And we got some interesting statistics.

I got a trivia for you here, Brett, from Black Friday in 2022. Of all the things that were purchased in America online for retail, what percent do you think we're using buy now, pay later, not a firm specifically, but buy now pay later as a whole to actually pay for them? What percentage out of a hundred percent? That's a great question. I'm going to guess since you're throwing this, you said it can't be too low because or else you would be asking, I'm going to say 5%. Is that too high or too low? Yep. It's a little low. It's actually 10.2% this year. Wow. But it was at about 5% last year and less than 5% the year before that. And that's a total share. We know that e-commerce, the absolute number is going up too.

And it just kind of shows that there's something to this, that people are embracing buy now, pay later. I used it to buy a vacuum cleaner this year, but the consolidated numbers are moving in the right direction. A firm is not only growing its own gross merchandise volume at 62%, much faster than the competitors that it's up against, but it's also because of Levchin and everything that he's done about finding outliers and managing risk, he's done a great job of figuring out how do you only have credit worthy people borrowing money in the first place and making these loans to them. And on the other hand, what is in it for a retailer? If you are selling something through a firm, through buy now, pay later, because of the app and because

all of the machine learning that they've done, the right product can appear for the right person based on transactional history. They'll know who is more likely to buy what. And of course, that's hugely beneficial for the retailers as well. So kind of a neat company here, Brett. The thing that I liked the most was the founder story and the mission that they're on. And the metrics are really supporting that this is more than just a flash in the pan. This could be a generational change on how people are borrowing money and actually paying for things. All right. I'll have two follow-ups here and just a reference for the audience. We're not going to cover, since we're covering six companies today, we're not going to cover everything in extreme

detail, but all the companies talked about here are ones that the advisors cover over at Seven Investing. So again, if you want more research, check them out there. But one follow-up here is, if I look at the stock price of a firm and some of the other buy now, pay later providers, I think many investors are looking at buy now, pay later and thinking it's all bark and no bite. it seems like you disagree with this why is there you know why do you think the market is so wrong with selling off say these buy now pay later companies so much in 2022 i think there are actually some good valid reasons why it has sold off right like anybody who's looked at the macro economy in 2022 knows that interest rates are going up the consumer is kind of pressed you know

it's kind of a hard time inflation you know there's a lot of reasons that people aren't buying as much as they did last year. And that rates going up too, of course, that certainly has an impact on borrowing costs that a firm uses with its kind of lenders. But I think that longer term, when you look at kind of the macro data of is buy now, pay later, gaining share? Yes, it is. Are they getting more and more transactions? Yes, they are. And are they signing on the right key partners where you can actually have a firm right in that checkout screen when you're about to hit the buy button. They're already in there with Amazon. They're already in there with Shopify. They're already in there with Walmart. They're in there with the biggest retailers that

have an online presence. It's kind of hard for those retailers to offer four or five buy now, pay later at the end. You want to work with one. And I think that that's going to be really good for them to get kind of the lion's share. All right. Yeah. And last question. So when you've written about a firm, you said it was a high-risk investment. And I think that makes sense. What do you think needs to happen for the stock to do well over the next decade? What do you think? There's a lot of things to look at, but what are a few things investors should be watching? The secret sauce is going to be the delinquency rate of their loans, right? A firm has to make good loans to credit-worthy borrowers. So if you're actually signing up and you're going

to buy a vacuum cleaner, you have to pay it back. Otherwise, a firm bites the bullet and takes the loss for it. They have got pre-COVID levels of delinquency rates. It's very good. They have less than 1% of gross merchandise volumes. It's actually getting written off right now. Anybody can go out and do something like this where they're going to take on a lot of risk and make a lot of loans for people to buy things. It's much harder to actually control the bad loans that you're writing. I think that's something Max Lebschen has really done well right from the beginning of the company start. All right. Let's move on to our second company, Luke, we're talking NuScale Power. This is a different company than Affirmant and maybe

unique business because it's not going to have revenue for a few years, but that's going to be my follow-up question. Many people haven't heard of this company. So what does NuScale Power do? And let me add a follow-up because I know you're going to talk about this. What potential do small modular nuclear reactors have? Cool, Brett. Let me just plow through all of that. And I'm going to preface this by saying this is a wildly irresponsible recommendation from me. And this is like off the charts risk. And we'll come to why towards the end. But let me just break this in two parts. Why is this a really important sector, nuclear power? And then why or what's NuScale's advantage over everybody else playing in this market?

and then we'll talk about the numbers so the world's in the middle of a global energy crisis triggered by bad things happening in russia um the world's total energy needs are going to double by 2050 we're using using more power and most countries have signed up to net zero carbon dioxide emissions targets by 2050 so more power we need clean power so there's really only kind of two or three ways just for countries to solve that problem like renewables are the answer No question. But if you want to have like reliable, always on power, you need to massively overbuild renewables and you need to pair them with storage, which is basically like hydroelectric. You can only build it in certain geographies or massive grid scale batteries and all the chemicals in those batteries are contending with like scaling up electric cars. It's going to be difficult to create that level of storage.

So nuclear actually, you know, it's a kind of a scary word, but it's a green technology. And, you know, it's efficient, it's good for the environment, and it provides this reliable always-on that's going to make renewables successful. Today, the U.S. has got 92 kind of traditional nuclear reactors, and that generates about 20% of the country's electricity. I'm going to get into NuScout now. Let's give it a context. US are building two new reactors right now. Both of these projects are billions of dollars over budget, and they're both years behind schedule. So typically, these things are like seven to 10 years to build a nuclear reactor. So that's a long time. So in comes NuScale. And actually, they're one of many companies building what are called small modular reactors, SMRs. a new scale got in pretty sneakily and they got the ticker smr as well um so why is a small modular reactor potentially a game changer for this base load of electricity well once once the design is proven it's not seven to ten years it's three years to construct one of these things um much

simpler design for a small modular reactor of like eliminates two-thirds of the safety systems you need in a big scale reactor so it's cheaper you actually you build it it's modular you build it in a factory you ship it by road you construct it on site so much much more straightforward faster construct um more flexible deployment quite an interesting uh factor in the us in particular got a ton of existing coal power plants like 90 something and all scheduled for decommissioning over the next for the rest of this decade where you can unplug a coal plant plug in an smr plant very easily and you've got all the grid connections you've got the mining community and the skill sets very similar from um other than you know being in the pit digging things

to operate a coal plant to operate an smr plant so that might remove some of the kind of fear about uh you know having a nuclear reactor in your back garden basically um so why so this is smrs and why i think they potentially have a place in the energy equation why new scale in particular So they're the only company in the world today to have approval from the U.S. Nuclear Regulatory Commission, the NRC. And it took them many years to get the approval for their SMR design. Nobody else is close. The nearest competitor is several years behind them. Super high risk, though. So as you said, pre-revenue, pre-product, essentially, they've got an approved design, but they're still refining um so let's turn to let's turn to the valuation a little bit i know you wanted to go

there um how do you value a company like this it's impossible right um but let's look at some of the numbers and some of the factors that will go into uh how you would think about the value so market cap of the company today is just under 500 million dollars half a billion dollars 320 million dollars in cash and no debt so kind of enterprise value actually less than 200 million dollars um they're making a net loss because they're not making any revenue they're spending money net loss of about 50 million dollars in the latest quarter gives them a runway to about 2025 so if you invest today you're expecting dilution along the journey um but there's also a ton of dilution built in i'm giving you a real sort of bare argument here for this one i said it's

irresponsible recommendation um 52 million shares of common stock issued but actually they came to market via a SPAC. I know we all kind of hate that word. So there's kind of 5x dilution already built into the model. So you buy stock today, you're going to get kind of 20% before they get to market plus the additional dilution. So that sounds horrible, right? But I think this is irresponsible on its own. But I think if you have a portfolio of super high risk bets like this, And if they're companies like NuScale, now, if you can imagine that they're kind of nobody, they're half a billion dollar company, they potentially are several years ahead of their competition in the small chance that the world determines it does need this type of reactor

to scale out, manage this kind of energy challenge we've all got, then NuScale really are, they're leading the pack. They're the answer. And they could scale up very quickly once they kind of prove their design. And they've got a number of deals in the pipeline, one with Utah, some with Canada, several in Eastern Europe, across the rest of Europe. So I think this company, if it can reach commercial scale, which is actually relatively improbable, I think the return justifies the risk. But if you're running a portfolio, you want lots of bets like this. Forgive the term bet.

I'm a poker player. You want lots of bets like this to kind of make that risk reward add up. Right. That totally makes sense. You hit my follow-up as well. I'm going to open it up. Any of the other advisors have any follow-ups for Luke before we move on to Christoph's? Anyone, if you have any, raise your hand. If not, Simon, I see you may have something to add for Luke. Luke, regulatory tailwinds too, right? They've got some ins with some government agencies, don't they? Sorry, run it by me again, Simon. I was just saying, they've got some ins with government agencies, right? Supportive government for developing these. Yes, they do. Absolutely. And they're quite advanced conversations with multiple countries. But again, nothing formally signed, lots of memoranda of understanding right now. So

if you're a shareholder, and I am, it's going to be a long journey until they start. And one of the key de-risking milestones actually is to sign their second customer. And if I'm really transparent with this one, they're actually in some danger of losing their only signed customer in Utah because of inflation. So, you know, all of this just adds onto this mountain of risk, but if it goes well, it could go very well. All right. If anyone, no one else has any follow-ups, let's move on to our third company. And that is Transmedics. I may have to ask for the follow-ups here from some of the other advisors, because this is a company outside of my wheel or circle of competence, excuse me. But just for Christophe, here's the introductory

question. What opportunity is out there for organ transplants and why? Because when I read some of your work on this, I was kind of shocked to see how the industry is run. I mean, why is the industry still operating with such ancient technology? And I'm referring to the ice boxes or the coolers that are used nowadays. Yeah, Brett. So the opportunity is huge. And the reason is because, and this is a good problem to have in some ways, there are more organ donors willing to give their organs second life than there are currently, than they're being used. In other words, more of these organs that could save a person's life, they're just being underutilized because they can't get to the matched recipients quickly enough or in good enough shape. That created further regulatory pressure to fix this because people are dying, right? And we have the technologies now.

Now, why some of the other technologies are not as good as transmedics, I think it comes down to all kinds of FDA approval hoops you have to jump through, which take a long, long time and massive amounts of money to get a device like the OCS that transmedics creates into market. So it's just such a complicated industry. You can't just say it just takes a long time. Gotcha. All right. Any follow-ups for any of the advisors on this one? If so, I'll open it up here. If not, I have one other question here. And is there anything proprietary with the Transmedix devices? because when I look at something like this, it's kind of a new category and I want to make sure, or if I'm an investor, I'd be worried about a competitor easily copying its products. So do you think that's possible or is there some sort of big technological barrier or regulatory barrier that would keep a company away? Right. I'm going to blow your mind by

reframing this question for you. Okay. the the answer to your question is they have a whole bunch of patents but that's complicated right patents end and and they go away all this stuff but most of their patents are in place till 2030 but that's not the issue the reason this is such an exciting company for me to recommend is because their secret sauce is not the actual device itself. They are now moving away from selling the devices. They are now offering what I termed organs as a service. And they are coming to hospitals and saying,

look, we have this device that we know will save the organs or expand the use of organs. And that's going to save insurance. That's going to improve the outcomes of surgeries, which will save insurance money. It's going to save you money as a hospital and it's going to save lives. So and make surgeons lives easier because they don't have to wake up at three in the morning to perform a surge surgery because time is of the essence. right so transmedics comes along and says we're gonna operate the machine for you we're gonna have our trained staff work the machine and we're going to take care of all the logistics including travel including getting an organ from new york city to say san diego in time in the right way

with a new kind of life that they can't get on other devices. That's called the NOP program, the National Organ Care System program. And Transmedics wants all hospitals to be, all the revenue to be 100% through the NOP program. So nobody's buying the device, right? That's a network effect. Once you have surgeons used to and trusting this program that delivers the organs in the best shape possible on time, they ain't switching to nobody else's better box, right? It's just basic network science.

And this is what I think the market is missing. it's it's still kind of thinking of it in terms of like the quality and technology of these units which are superb don't get me wrong but that's not where the puck is going all right that's a pretty compelling pitch and unless we have any follow-ups we're going to move away from some companies that i think few people have heard of to probably the most popular company stock in the world, and that is Tesla. Anirban, this is your pick today. And it's been one of the top performing stocks the last five years. I don't have the numbers in front of me, but I think it's a 10 beggar. But going forward, I think the first question I have, and you can

introduce maybe some of what the company is doing today, but the first question I have is that they've seen a ton of margin expansion and it's been super impressive. Do you think that is sustainable and has a path to continue over the next, say, three to five years? That's a great question. So Tesla doesn't need much introduction. Though, one of the things that happens when we talk about Tesla is we go back to always thinking about the auto, because that's largely what the current revenues are from any margin expansion there. The margin expansion there has entirely come from scale, from careful cost management, from building out these factories that become better and better

and better over time, right? Can the margin expand further? Maybe a little bit, right? I mean, there's only so much margin that you can get, right? But if you can hold the margin, case in point being Apple, if you can hold the margin there, that's good enough, given that the market itself is so large, right? So I'm not so worried about margin being expanded.

Tesla remains one of the best, I guess, capex management companies you know aside from apple there are very few companies just so clever in terms of how they deploy the cash every other company seems to be wasting the amount of cash they deploy so that's one point i think the other thing we forget is all the other things that they're doing right all the high margin stuff that's happening that hasn't yet layered in right whether that is fsd whether there's tesla energy they just lost it launched in texas with their virtual power plant plan, for example, all of the insurance, all of those things are not yet layered in. So I think I look at Tesla and I say, well, the market is large. They don't need to own

the whole market. They will never own the whole market, but the market itself is humongous. Margins probably remain steady, incrementally increase as the software and other higher margin revenues become a larger piece of the pie. All right. I have one follow up here and then maybe I'll open it up if anyone else has any others. I think people look at the impressive growth and they're excited. But currently today, you look at the leader of Tesla, Elon Musk and the Twitter deal. I mean, that's the biggest news story, at least for the finance world for the last few months. Do you think the concerns people have around the deal are notable or just noise that investors should ignore

or maybe somewhere in the middle? Yeah, so it's like, in my opinion, it's neither here nor there. So I think one of the most dangerous things I've seen on Twitter, this is both an opportunity and at the same time,

it speaks very poorly of the entire finance industry or of people who think they're investors, right? It is dangerous to basically say that one factor, right, moves the share price, you know, and it's responsible for the entire,

so that basically means that, you know tesla's got what 20 000 employees it's just one person's tweeting that decides the share price oh it is down today because some journalists got banned if if that happens the market is stupid and it's dumb right and you should take advantage of that we don't know why the stock moves for example the other you know over the last past week the stock price probably was down because those volume trades being put through by elon musk who was basically selling the stock is now i think it's that is aside from what is happening with you know was uh twitter a good deal or not we don't know the answer for that would i personally have liked him to buy

twitter no uh would i personally have have him invest time on twitter potentially divisive platform as we say no but you know that's what it is like i mean you know and i think people say well you know things are worse we need a ceo we need him to step down you know he's done worse things he has said uh uh funding secured in the past he has smoked joint apparently he has called somebody a pedophile potentially again i don't want elon musk to come and sue me but maybe he said somebody was a pedo worse things have happened right just i think right now it's very divisive because there's this you know what is free speech what is not and it's you know most people don't care i don't care like i mean you know like this is

It's like, you know, you say what you want to do and hurt people. There are all these people who would say, you know, this is left, that's right. I don't know. I don't want to get there. But the other thing I think is important to realize is Twitter is not the world. It's got like 200 million people. It does not, you know, make decisions of what happens in the world. Ultimately, when people have to spend their money, they make the best decisions for themselves

based on what they see, what they understand. Twitter is a sideshow in that aspect. That's my view. I could be wrong. But I think it's very dangerous to say that the price is moving because of a thing. I see that a lot. People are saying, you know, I want to be on the BOD because, you know, we need voice for retail investors.

Why? So the board's job is not to manage the share price. CEO's job is not to manage the share price. If any CEO is doing that, they should just be fired immediately. It's not their job to manage the share price. It's their job to have a vision and to execute on that vision. I see no problem with that. I mean, they have a vision and they've executed.

they continue executing i see no problems with execution that's my point all right any follow-ups for anyone before we move on to the next question all right i'm seeing done let's move on to amazon matt i think you know there's going to be two questions here because i think you can divide the business up into two sections e-commerce and advertising and then aws let's talk about e-commerce and advertising first how do you look at the e-commerce subscription advertising business today? Because I know a lot of investors out there right now, and this could be why the stock is down again. We just had a discussion that there's always multiple factors of why a stock is down. They see it's unprofitable. So how do you look at that business today? Because I know

that people are worried about margins and stuff like that. I think it's an incredible business. So I think Amazon e-commerce business benefits from several modes. And that starts with the network effect, stemming from the vast number of customers that shop and merchants that sell on its site, you know, 57% of its sales now come from third party sellers. And the more buyers and sellers just continually attract more buyers and sellers, you know, enjoys cost advantages, which, okay, it now enjoys cost advantages, because it's built out this incredible logistics and fulfillment network, which is, which admittedly, like it costs a ton of money, but I, from just a very high level, like, I just don't see how building a fulfillment center in Miami, or, you

know, a new like delivery station in North Carolina or wherever, like how, you know, they saw, obviously everybody saw a demand spike after COVID. They thought that would be like a little more permanent than it was. And they kind of built out to meet this demand. Like I personally give management a pass on that, but more importantly, for the future of its business, like, I just feel like that money is not going to, you know, that that's not like wasted money. That's not like gone forever.

I believe e-commerce is going to continue to grow and they're going to grow into like their logistics and fulfillment centers that they built out. You know, the early 2000s, it took like Amazon an average of 18 hours to get an item from when it was purchased through its fulfillment centers on the right truck for shipment. That now is under two hours, you know, and they just continue to get faster. Like now, you know, most of the time I get things like either the same day I order it or the next day. and uh you know shopify is frantically building out they they want to get everything on two-day delivery and while that sounds amazing to me i think that's probably going to be good enough for a lot of their products like at the same time i do wonder about younger consumers like uh you know i've told the story before but my son like ordered like some like like um headphones

or something for that he uses for gaming and he ordered like we ordered he asked me about it like over breakfast or something as we're getting he's getting ready for school and i'm getting ready for I'm like, sure. You know, I ordered it on the app and he came over from school that day and he was like, well, where is it? How, you know, how come it's not here yet? You know? And he just, I think like young consumers, they just expect things like right away. Like he was surprised it wasn't there yet, you know? And so I just think who, you know, when you look at the square feet, Amazon has dedicated to logistics and fulfillment, like you know, I just don't see how anyone catches them in north america anyway and which is you know the most profitable market on on earth so i just think

it's an incredible business and uh like i think they're going to grow into like everything they built out and uh i think that's just like i i just have a hard time understanding how people catch them and so given that like i think they have a lot of pricing power with prime subscriptions uh like their advertising business like with all these third-party sellers and with their logistics fulfillment center will attract more third-party sellers, I believe. And that's just going to create more demand for their advertising. I mean, you know, like when, you know, you go to their website and you search for a product and those first few results, you know, some of the most valuable digital real estate in the world. So I just, I think it's an incredible business.

And, you know, I think there's something to be said, like my colleague at Nearbon has pointed it out? Like, you know, if it's, you know, if it's not, if it's not running as a, if it's not consistently positive free cashflow now, like, you know, when will it get there? I think that those are all legitimate questions, but I think like COVID, I just give them a path for building out like their, their logistics and fulfillment for that COVID demand that they thought would be a little more permanent than it was. Yeah. And if we had a full podcast to talk Amazon, I would want to discuss the Alexa losses, which are in the 10 plus billion dollars a year.

That could be something impacting there as well. But let's hit the most important part of Amazon, and that is AWS, Amazon Web Services. I know there's so many areas you can go into with AWS, but just for how you're looking at it today, how is the leading cloud computing provider doing right now? You know, it might be an even more incredible business than its retail business, right?

You know, the cloud service benefits from high switching costs. It's very complicated for companies to build their entire organization in AWS and then migrate that to another cloud provider, whether that's Azure or Google or Oracle. It benefits from network effects because so many enterprises use AWS for their cloud computing needs. The platform has attracted numerous software developers to build apps and programs specifically for the AWS platform and enjoys cost advantages. Like, you know, just very few companies can match Amazon's investments in server infrastructure, facility development, semiconductor design. You know, all these things just give it an incredible advantage. I think they're, you know, if you look through their last conference call, there's a lot of short-term headwinds. It was the exact same thing with Azure.

They're both saying the same thing. Customers are, you know, enterprises are worried about, like, you know, the economy weakening and softening coming up. And both Azure and AWS, you know, have, like, kind of proactively helped their customers, like, you know, use their services for less money now. And, you know, you saw that, like, AWS's growth rate ticked down a little bit. You know, it only grew like 27% year over year. But, like, I think that just strengthens their long-term moat, and it's going to keep those customers on for even longer. So, I just think, you know, AWS is just another incredible business. like so i mean going back like you said divided into two businesses and they're just both in my

mind they're just both incredible world-class businesses all right that's a great overview any follow-ups from anyone uh on the call uh all right let's move to the last company this is some a business i wish i understood more because it seems like it has just the best brand in the industry dana we're talking to alumina can you introduce the audience to what alumina does because I think it impacts their day-to-day lives more and more as we move into this decade. Absolutely. And that's really Illumina's mission is to unleash the power of the genome in order to help human health. And so what I say, the genome, what is that? I'm assuming that we all kind of know about DNA and all the information or genetic information that's

in our cells. Well, Illumina has enabled the scientific community, the clinical community, to really understand what's going on in the genome by enabling next-generation sequencing. And I'm not going to go into Sanger sequencing and how that differentiates from next-generation sequencing. I could. That could be, you know, like a much longer conversation. We won't go there. But so it enables faster and more accurate reads of the genome and allowing various types of clinicians. So, you know, a lot of hospitals are using next generation sequencing. They have the Illumina machines on site to, you know, if they have a patient, a lot of times they're going to be young patients. So there are a lot of pediatric cases where, you know, they have a, you know, a baby that's just not thriving and they don't know what's going on, right?

There have been no tests that, you know, no indication, you know, they're seeing a lot of similarity in the symptoms to different diseases, but they can't pinpoint it and the baby's just not thriving. They can now do whole exome or whole genome sequencing quickly, like, you know, in hours. And there have been examples where physicians have done this in order to identify what variation in a particular gene is happening in this particular infant and figure out, you know, and identify a solution. And that's just one example. um you know we we you know cancer is is another big topic a lot of you know people understand what cancer is you know something that you hope that you don't get um and you know but we also know that if you um get a diagnosis early um then you have a better outcome right that's you know has been standard you know discussion of cancer you know get tested you know what identify things

early and you know testing you know years ago 20 plus years ago was you know like you know breast exams or you know things things like that you know and those are identifying tumors right you know you can feel things right um but by the time you actually have a mass of cells that you know you can feel, that you can distinguish that cancer is advanced. And so now there are a number of companies that are doing liquid biopsy, really early testing, being able to get a small sample of blood just because tumor cells, they shed, right? They'll kind of move around and you can pick up the DNA from a tumor cell, you can differentiate it from your basic cell, you know, so a tumor cell is going to be different from your basic cell. And then you can kind of identify very

early what's happening. And so, you know, there are lots of different companies now that, you know, will do specific types of tests to look for, you know, really early detection of cancers or other types of diseases. And I can name, you know, like a handful, a dozen companies that are doing these types of tests using Illumina instruments. So, you know, Illumina really enables people to unleash the genome, you know, like what is all that hidden information and, you know, really helping doctors and patients now understand what's going on. Is there any reason this tailwind of genome sequencing or the need for luminous products is going to stop? Because it seems like it's just going to be, I don't want to say never ending, but there's just a long, long runway

of growth of the need for all these products as this industry, which may only be a couple, really a couple of decades old just comes into full commercialization. So, so in my opinion, it's just getting started, right? It's just becoming accessible. You know, we, 20 years plus now, you know, the, the, we identify, you know, they publish, you know, the human genome sequence has been identified. We've, we've, we've sequenced the human genome and now we can, you know, really utilize that information that cost billions of dollars to do that, right? And, you know, even

now, today, 20 plus years later, we're still learning, you know, about genes, how to utilize this information. And Illumina has been really instrumental, no pun intended, in making it cost efficient in order to be able you know to make this accessible to more and more people to make these tests cheaper um and and it just uh released it had um this big genome forum um just a couple of months ago and it released its new chemistry um which is designed to be faster more robust and and more efficient it's also enable sustainability so you don't have you know to ship things on dry ice you know it's a packaging is smaller and that you know works with its new instruments so you know and all with the point of getting the cost down right so if you get the cost down now

you it's really easy to you know sequence to run these tests to do a whole genome or an exome and i can explain that different if you need me to um and you know it's it's cheaper to do that Now, it becomes, you know, understanding what the information from the genome means, right? And so that was the, you know, once we got the cost of sequencing down, the cost of analysis rose. But now we're starting to find balance because as we have more and more genomic data, the more people that can do it, now we have more data and then we have more computation to understand what's going on. So, you know, it's just moving things forward. So I, you know, it's been doing great, you know, these last decade. And I think that, you know, we're just, you know, opening up a new chapter in Illumina's opportunity. How hard would it be for a competitor to displace Illumina? um so that that's an interesting question um i think it'd be very very hard right and and you know the the reason why i say that is that you have your lab protocols you know so even if

you were to bring in you know this new illuminate instrument that um you know that is using this new chemistry that you know is going to have new consumables but you you bring this in you still in your lab, you have a protocol, right? If you were to bring in a different instrument, you know, a different company's instrument, it would be different protocols, right? The steps that you need to take in order to prepare a sample, to do the reads, to do the analysis, are going to be slightly different. The other thing is, so, you know, a lot of the competing chemistries, you know, so there's company PacBio, and they've been known more for long reads. And so when you're reading the sequence, you know, so a gene is really long, I'm like spreading my arms, really long, you know, like thousands of bases, right?

And, you know, but you can't read, you know, one by one by one. So the way they do it is they, you know, break it up into little pieces and then they read each piece and then put it, you know, place it back all together, right? And so that works. And so Illumina has typically been more short reads and PacBio has been more long reads. And, you know, the benefit of long reads is that there are parts of the genome that are hard to read because the sequence isn't necessarily conducive for easily piecing things together. So imagine that you have, you're doing a jigsaw puzzle, right? And you have an area of jigsaw puzzle where everything is white, right? And so you can't really see, there's nothing really to distinguish what piece goes together. So in the genome, you might have those pieces that

are hard to put back together. So if you have longer reads, then you get through those little tricky areas. Well, Illumina just introduced its new technology. I forget what it calls it. It used call it infinity, but it's for, for longer reads. So, you know, basically Illumina is like all of the problems that you have, have come across, um, through next generation sequencing, it is innovating and addressing as well. So I, I it's, it's, it's going to be hard. And then, you know, So the last bit is that, you know, up until just this recent release, this launch of a new sequencing machine that actually has an FDA mark and a CE mark for diagnostics, most of the Illumina instruments were for research use only, right? And so how do you get around doing a clinical diagnosis using a research use only machine? Well, your lab becomes CLIA certified, right?

And so CLIA is the Clinical Laboratory, I forget what the A Act is. And so basically, as a lab, you have all these protocols and you get certified by a regulatory agency, CMS, and they come in and they certify your lab. And so now you're able to use these CLIA certified tests using, you know, predict, you know, whatever instrument it is that you're doing. So if you're a CLIA lab and your protocols are using Illumina instruments, it's you're not going to, you know, bring in a new instrument because you're already CLIA certified for running those diagnostics. All right. Fantastic overview. That sounds like quite the competitive advantage. But I'll let anyone more interested in Lumina definitely check out all the work that Dana has done over at 7investing

because it is a complicated business, but one that, at least from my outsider point of view, has tremendous potential. We're going to wrap things up though. Not take too much time from everyone here. Simon, I think maybe just to put you on a spot here, what, you know, you guys are doing the year in review. What should any potential subscriber

or anyone that's interested in 7investing be looking forward to in 2023? It's just, there's so many neat things going on out there, Brett, right? Like hopefully on the show here today, you got to see some of the passion that our team has for stuff that's going on in financial services, in energy and power production, you know, with Tesla and electric vehicles, you know, with what's going on with healthcare and what Amazon's doing in cloud computing. Steve's going to have another example too on top of that.

But I think that what we're excited about in 2023, as well as every year, is just kind of being at the forefront of what's changing in the markets out there, what's innovative, And then how do we take opportunities for that as investors? That's something that we're doing a lot of research, not only putting it into the reports and putting the passion into that, but we're a pretty fun team too. And with 7investing, you're basically hiring all seven of us. You mentioned money at the beginning of the show as the code. You're not only hiring all of us, $100 off our annual subscription means $300 a year.

So you're hiring all of us for $25 a month to kind of keep at the forefront of innovation and keep you up to date on what's going on. But on top of that, you mentioned the year in review. I mean, there's basically a zero risk trial right now that you get in for a week for a dollar and you can see our updates on all of our companies. And in fact, if you use that money code, you get in for zero dollars.

So there's really not even a dollar on the table risk. We're just really excited about what we're doing. And we think that the stock market's the greatest compounding of wealth machine that's available to the general public that's out there. And we're really happy with what we're doing and having a good time. All right.

Well, thank you, everyone, for joining us. Let me give out the disclosure. Remember, at Chitchat Money, we're not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital, and clients may hold securities discussed in this podcast. Again, thank you to the 7investing team for taking the time to be on this call today. We'll see you next time.

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