Chit Chat Stocks - Google's Monster AI Growth; $TSLA Wobbles; Chipotle's Plunge; $OPEN and The Return of Meme Stocks

Episode Date: July 25, 2025

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks Podcast YouTube channel at 5:00 PM EST. This week we discussed: (01:24) Meme Stocks and American Eagle (03:02) Alphabet's Earnings Report (23:24) Philip Morris: Market Trends and Performance (29:00) OpenDoor: A Meme Stock Analysis (36:59) Tesla: Market Reactions and Insights (47:13) Chipotle's Declining Performance and Market Position (53:30) Home Builders: Current Trends and Future Predictions ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks, the podcast where we help you discover your next great investment. This is our weekly Power Hour episode. I'm one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Schaefer. We have a number of big topics to get to this week. Google slash Alphabet reported earnings, Tesla reported earnings with an interesting conference call, a lot of forward-looking hopeful statements I would maybe say. Chip potley looks like it could be at the beginning of the end apparently based on some comp sales figures so we're going to analyze whether or not that seems to be a dying brand philip morris the world's largest tobacco company we're going to be talking about them as well and then we got a lot

of questions on home builders so we're going to get to all of that and more in a sec before we do i want to do uh mention a couple quick housekeeping items if you are a listener to this show please give us a rating review. It always helps us grow. We do these episodes live on Thursdays at 5 PM Eastern time. So if you want to tune in, ask us some questions, head on over to YouTube, look up chitchat stocks at five o'clock Eastern time on Thursdays, and you can ask us any questions. I'm sure we'll get some in the chat today, but that's going to do it for housekeeping items. Where do we want to start, Brett? There's sort of, and meme stocks are back. Ryan, I have a very important question for you.

Are you buying, and you don't have to answer this because you could get in trouble at home. Are you buying American Eagle? Oh, boy. Well, I actually haven't. I'll answer that. I'll answer that for you. I almost, I'm not joking, I almost bought some.

It would have worked. It would have worked. I tried to stay reasonable, rational, logical with my investments, And it turns out if you just had a hunch on a new advertisement, it would have made a 20% gain in one day. Do we – so, okay. It's up 20% today? I actually haven't checked. I think if you include yesterday, yeah.

Wow. And to give some context to all the listeners out there, American Eagle recently partnered with a notable actress who has been, shall we say, popular as of late, Sydney Sweeney. I think people know what we're referring to. If not, they can look up American Eagle. It'll be the first thing that pops up. Yeah. And honestly, I just thought in this environment, with the meme stocks back, it would have been such an easy investment. But hey, look, we'll just keep in boring old stocks, earning nothing.

Yeah. There are a couple of other meme stocks, which I think we should get to at some point in this episode. But maybe we start with some real topics here. Where do you want to start? Tesla earnings or Alphabet? Let's do Alphabet. It's such an important company. You made some notes on here.

Cloud doing phenomenally well. The AI threat, the AI potential. I mean, it's just one of these that's turned into such a battleground stock. And as you're going to go through here, the financials have not been affected and have probably been helped by AI so far. Yeah, there's a lot to unpack every time Google reports earnings because there's like four or five huge businesses under the hood there that are like some of the biggest digital businesses in the world. So I guess let's start with search. google search google search revenue grew double digits i believe it was 12 i should probably have that pulled up but double digits there was just since basically the rise of chat gpt there has

been sort of a simple thesis of conversational ai is taking share so google search is dead which means google is dead that that's kind of been i guess the skeptics look at it and it's pretty easy to go down that path. You use conversational AI for the first time or maybe a couple of times and you start to realize you're replacing some of your own search queries that you would be using Google for with chat GPT or with a conversational AI. And all of a sudden you think, wow, Google search is screwed. We are not seeing that play out in the numbers yet. So far, not only is Google search revenue growing, but the number of paid clicks continues to grow as well. I believe it grew 4% this quarter, which is actually up. It's an acceleration from last quarter.

And there was some really interesting commentary. This is the primary battleground area of Google, is the search business. And it's because it accounts for more than 50% of revenue still. But all the commentary from Sundar Pichai and the management team has been, well, obviously they want it to be really positive, but it's hard to read their comments and be too cynical about the business. So here's a quote from the conference call. He said, overall queries and commercial queries on search

continue to grow year over year. We are also seeing that our AI features cause users to search more as they learn that search can meet more of their needs. That's especially true for younger users. So they actually, it sounds like have some internal data that shows that a lot of the people that are using AI

are increasing their query volume. So it's – it seems – they seem to believe that it's like accretive basically to search, that it's not cannibalizing them. It's just adding new search queries. There's probably some level of cannibalization there, but I'm going to leave that for a second. We can hold that discussion. Second big segment for them is YouTube. YouTube ads grew double digits and interesting quote here as well. it says in the u.s shorts now earn as much revenue per watch hour as traditional streaming on youtube

which i guess requires going through a lot more shorts than than just watching a normal stream but it's amazing how quickly they close the gap on that because i think they launched shorts i want to say about two years ago for them to be able to kind of close the monetization gap there i find that pretty impressive and then the third segment here and i'm saving kind of the best for last in this case is uh subscriptions this is not the best one this is uh i would say well it might be one of the best ones uh subscriptions are also growing double digits on a percentage basis i believe they were up 20 year over year and that is being driven primarily by youtube subscriptions is what they said and then google won so youtube i find this i i really wish they would break out

youtube subscription revenue because you've got a massive subscription business now i want to say 50 billion dollars in revenue in google subscriptions and they're saying it's primarily being driven by youtube and then you have another nearly 40 billion dollars in ad revenue on an annual basis from youtube i'm curious i would be so curious to see how much in combined revenue and profits they're generated from youtube overall because it just seems to be one of the most durable digital businesses in the world right now and flexible they've adapted to other uh not computing platforms but uh consumption platforms really well in terms of streaming tv mobile desktop they've really been able to evolve i think the revenue i've said this before but i

think the revenue would impress people and the earnings would disappoint margins there's a lot of revenue that gets paid out to the creators the youtube tv stuff that's extremely low margin so that's about my take but still good business and what's weird though is you look at this 50 billion dollars in revenue give or take for youtube maybe a little bit more now it's pretty irrelevant to the stock especially if you think that the margins are going to be much lower than google search and as you're about to get into google cloud as it's gaining scale yeah this was by far the standout part of the quarter for me and it's becoming an increasingly important piece of the sort of google puzzle so maybe a month ago i think it was about a month

ago, someone asked me, it might've been you, if I am more or less optimistic about Google than when I started my position. So I started a Google position, I want to say like six months ago. I've added a little bit here and there, but it's not a huge piece of my portfolio. But I mentioned how a lot of the developers were reacting positively to Gemini 2.5. And that seemed like maybe not the biggest deal at the time, but now it's really starting to show up in the financial. So this earnings report gave us a lot of clarity on just how much of an AI winner Google is on the development side. A month ago at some conference, I think it was their Google IO conference, Google reported that 7 million developers were building on top of

Gemini's API. That was up from 5X from the year prior. So I'm assuming that's basically a year ago, 1 to 2 million developers were. And then this quarter, a month after their IO conference, they said 9 million developers are. So they've gone from 1 to 2 million developers building on top of Gemini to 9 million in a little over a year. And when we look at Google Clouds, And it's not just the revenue growth. And shout out to Fiscal AI for this because they made it really easy. Google Cloud surpassed $50 billion in annual recurring revenue this quarter. And the quarterly ARR growth was well above any quarter in their history. They added $5.5 billion in annual recurring revenue for Google Cloud this quarter alone. And let me actually pull up the backlog figures because this kind of blew my mind. And they're actually not that far off, I don't believe, from AWS's backlog figure.

at least basically i think backlog's a little closer to aws than uh the revenue is anyway i'm going through a lot of numbers here they went from 92 billion dollars in google cloud's backlog to 108 billion dollars quarter over quarter so sequentially they added 16 billion dollars roughly in backlog. There are so many businesses truly building on top of Gemini now that I think this can become a really big business for Google. So here's a quote from Sundar Pichai. We operate the leading global network of AI optimized data centers and cloud regions. We also offer the industry's widest range of TPUs and GPUs along with storage and software built on top. That's why nearly all gen AI unicorns use Google cloud. I honestly, I think within five

years, a hundred billion dollars in Google cloud revenue is achievable. Definitely. A hundred percent. What are we at close to we're at 50 now, right? So double in five years, easy, honestly, much more. I'd say you have the other numbers here. I'll let you take a breath. $85 billion dollars in capex increase 10 billion dollars from last before i think people were a little bit worried about that but honestly with alphabet compared to someone like meta or microsoft i guess can can make money off it pretty easily but especially with alphabet because they have both the consumer side and the infrastructure side i would be bullish it would be bullish to see more capex at least for me because not only do you have this cloud revenue that can and now they're

making money 20 operating margin on it now you have this cloud revenue that can you know you get a good return get a good roi and all this capex coming in you have the gemini consumer app and i'm not sure if they calculate the monthly active users with the people that use the api or the development tools as part of their monthly active user account but according to the conference call they have the gemini app now has 450 million monthly active users that is catching up to open AI and ChatGPT. ChatGPT is still bigger, but pretty impressive coming from a standing start just a couple of years ago and fumbling at the start when they had all these name changes. The stuff didn't work very well. They were putting all the pieces together. Unlike when,

who would it be? Zuckerberg claiming that Meta AI has a billion users. I actually believe this number because it's not accidentally clicking it on WhatsApp or Instagram. And the fact that you have these $20 subscriptions that you pay for. I pay for it. I think it's quite valuable. You have the bundle with Google One. Gemini, not only, sorry, with AI, Google Cloud will not only, you know, as you mentioned, probably get $100 billion in revenue, if not much more within the next decade. They are going to see through advertising on Google search with, you mentioned AI overviews, and then the subscription revenue with Gemini probably eventually adds on the free tier there there are so many ways they can monetize that compared to anyone else they're

just separating themselves from the pack within this ai race and i i don't want to call it it's not over because there could be some innovations and something could come out of the blue and disruptions and all that good stuff it's pretty unpredictable but if you had to make a bet today if they were going to say who's going to win the ai race and vegas put out odds i think now alphabet would be a favorite like mine yeah which is shocking given the valuation relative to the other tech companies yeah yeah well so when google search dies let me know it hasn't yet right to put some numbers on this here's the i'm gonna pull up a chart here that really stands out to me so this is quarterly growth in cloud arr versus quarterly growth in capex maybe i can stack

this here so it's easier they this basically what i'm trying to say here is they are increasing capex because they're booking it in revenue it's not like this hopeful thing where i think with meta and well maybe not so much microsoft but really definitely meta you see a lot of this capex spend or this capex estimates i guess as not not like a clear direction like okay they're going to produce llama 4 how creative is that going to be to revenue now how are they going monetize that yeah meta is the only other one that's vertically integrated but so for example what i mean by that is open ai has to spend money on some other cloud service in order to get revenue which just makes it way way harder to be profitable and generate positive cash flow

medic does have this vertical integration where they're both building the infrastructure and trying to monetize it themselves but i don't know and i think you're about to mention that they're the path to monetization is so much less clear than alphabet right yeah okay so alphabet increased their CapEx by $5.2 billion this quarter. And all the big tech companies are increasing their CapEx really quickly on a quarter-over-quarter basis. But they're doing this. They increased CapEx 5.2. They increased Cloud ARR by 5.5. So you're already seeing a revenue jump directly from it. And they are increasing it because there is demand for ai compute services gemini's products and their capacity constrained and they keep talking

about that the very capacity constraint there's a huge lock-in when you're running on running various services on foundation models so when you're are when gemini's core to what you do and you have various processes throughout the company that are using gemini's reasoning or detection models, you don't want to really rip and replace that that frequently. So this is the ARR growth, but there's really high lifetime value to locking in some of these businesses. And they talked about signing some huge, more than billion dollar contracts for Google Cloud alone with single customers this quarter. It just seems like you hear all this talk about them being an ai loser and under the hood they're powering most of these gen ai businesses like yep they are

a winner under the hood but just no one seems to be giving them credit i just 17 times forward a bit i really think this is like a two-foot hurdle here i saw one of the large customers could have been uh service now i think i saw that um not sure if that's confirmed or not not sure if they're switching from another provider because i assume they were with someone else before that but they signed a billion dollar deal with service now stock is only up one percent today ryan are you buying more are you shocked that it's not up more yeah on the numbers i'm pretty surprised that that stock didn't jump more than it did i think the the the one thing that demonstrates where they are at in the ai stack like if you

want to compare all the companies how and and where they're at in terms of like ai capabilities open ai just became a huge customer for google cloud using i assume some sort of gemini product Microsoft is seems to be in a just ruined its starting position with their relationship with open AI. And that's really all they had within AI. And now it's maybe going away entirely. I wouldn't want to be Microsoft. Ryan, well, not you're not going to actually do this, but gun to your head long, long alphabet short Microsoft and Apple, would you do it as a pair trade? Do you think that works? i have a hard time shorting microsoft no i'm saying just the difference you take the shorting money like so it just has to google just has to our alphabet just has to outperform microsoft's apple by a good amount right yeah yeah i would take that apple for sure i think and i guess you're as perplexed as me why do you think apple and microsoft keep trading at higher multiples

i honestly do not know i would say like some sort of indexing thing but that doesn't you know google's in the index just as much as they are so it's not like passive flows are dominating for apple yeah it it doesn't make a lot of sense to me maybe there's just a sense that google is in a more fragile position i i think that's kind of the general sense with like people that aren't really looking at google that closely where they feel that okay google search is in a little bit of a fragile spot the moat's not as wide as owning the the iphone or owning the operating system but then you look what all these services are really running on under the hood and and google's the back end so maybe it's just like they just think the mode is wider but

i would probably disagree yeah i disagree as well i i should have bought in april on the dip was thinking about it's been on the watch list um wish i was a shareholder but to ryan and all the other listeners that are likely shareholders congrats on the solid returns and i think it's going to be another strong year unless of course they're tied to consumer spending so if consumer spending collapses hey replay this clip stock is probably going to be down anything else before we move on we got a lot of other topics no the only other the big risk that i see here is that advertising spend slows like across the board and people see it as google search decreasing specifically like because like google search could decline just purely because the

advertising cycle turns but people would be like well this this is the beginning of the end like look see the search revenue is down but really it could just be an ad advertising cyclicality if you are serious about investing you need to consider interactive brokers i've said this before and I'll say it again, the number one reason I use interactive brokers is because they do not cut corners. IBKR gives investors powerful capabilities that make a difference in the long run. For example, they offer margin rates up to 53% lower than the industry. They provide up to 3.83% interest on instantly available cash, and they allow you to easily make extra income on your fully paid shares of stock held in your account through their stock yield enhancement

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research platform for stock-focused investors. If you use our link, fiscal.ai.chitchat, you will automatically get two weeks of Fiscal Pro for free. And if you find that it's worth upgrading, which I think you will, you'll get 15% off any paid plans with our link. Again, that is fiscal.ai slash chitchat the link will be in the show notes want to talk philip morris this is one that we cover a lot uh you trimmed i believe but still own some i cut my position by about 60 nice good timing on that not well now i'm wishing i sold all of it yeah i guess i got well we're back to let's see what was the stock finish at 161a we're back to about the price i sold on liberation day so hasn't worked out bad or well for me uh what happened here ryan you made the

notes seems like people were simply looking at a slowdown in zin growth naked team pouches growth and forecasting that to the future of what them losing market share to velo british american tobacco and it's not going to be a winner takes all space yeah that really seems to be the focus is like zin versus competitors but zin still is not that big of a big of a piece of the business icos is bigger which is their other smoke-free product heat not burn technology and then cigarettes is still the largest portion of the business and both those segments are doing really well. Zin had its first sequential volume decline in, I want to say, three or four years, which to be clear, there are supply chain-related issues with that. Maybe there's some seasonality

to Zin consumption. I wouldn't really think so, but it could be. On a year-over-year basis, it looks really good. I think that Zin volumes grew like 41% year-over-year, but they did decline significantly compared to last quarter here's my thing so i guess let me go through some of the numbers and let me forget that it's philip morris but just imagine this is a consumer packaged goods company seven percent revenue growth 15 operating income growth 19 earnings per share growth They raised their full year guidance. And those were all above expectations.

That sounds pretty good for a consumer packaged goods company. Let me give you next 12 months earnings. PE 2021, EBITDA 16. That feels fair value for a company like that if you understood that they have an enterprise value of $300 billion. So I feel like we're back to kind of a fair price. stock's up 67 this year it's not like shareholders are dying no it just goes to show that if you have a company trading at a premium valuation you not only need good results but you need such good results that they surprise to the upside so not just beating estimates but

kind of reassessing estimates altogether and you didn't really get that this quarter you did get that last quarter because there was that huge uh initially there was a big supply uh supply chain like back backup essentially like they weren't able to fill all the orders they wanted for zen and then they did it all last quarter there was a huge jump in volumes and now we've seen it kind of turn back the rest of the business is doing really well combustibles is growing revenue slightly volumes i think are down like one percent year over year but yeah they forecast global declines because they're x us so us is growing or decline much faster about two percent volume declines in a normal environment you can monetize that pretty consistently with price increases they

should see currency adjusted, a single digit revenue growth from that business. It's very, very predictable. I think it just comes down to expectations investing. Expectations got a bit out of hand, a flight to safety, maybe, especially because they're diversified from the dollar and some of the stuff that's been impacting portfolios so far in 2025. And expectations got too high, but it's still good business now what price would you add to your position i was trying to think about this during this drawdown i kind of think the 130 140 range is where i feel like forward returns look especially if they turn on the buyback really strong again yeah i'd say if they If it gets to a low teens, like 12 to 13 times forward, EV to EBIT, which is just sort of – that's usually the metric I use for most of my valuations unless there's some deep flaw in the IT in there, which is interest and taxes.

but usually that's encapsulated in the enterprise value it 13 times i'd probably add i think they're probably at what like you said 17 18 yeah it will ebitda was 16 next 12 months so yeah i'd assume it's in between the the pe and the ev to ebit yeah so decent decent drop from here but definitely doable and it's still i still think a great business what do we want to talk about now it's a bummer i wish i i wish i had sold more but uh hey i a couple weeks ago i was kicking myself for selling it all so things can happen quickly in financial markets true what about uh dealer's choice ryan open door or tesla

let's talk opendoor okay i had not thought of this stock for about two years i honestly thought it was headed for bankruptcy it looks like investors believe that too it was trading at just 50 cents a share about a month ago or sometime in july and yet it's up 370 percent in the last month because it seems to be a specific target for meme stock hype without saying who this person is. There's a hedge fund manager on Twitter who has been on CNBC and Bloomberg, so they don't care if someone is talking about what they're doing. They're doing this all publicly. So it's not like I just don't want to give them any publicity by sharing their actual name. They this investor has gotten increasingly vocal about the stock, saying

it is the next Carvana. And remember, Carvana came back from the dead and was has been, I think, a hundred beggar since the lows at the start of 2023. And this investor is calling for the stock to hit $82 a share open door stock by this year, I think. So that would be a hundred beggar from the lows. And this is full sarcasm for the listeners. This is definitely fundamentals, right? And not because there's a massive short interest in open door stock and trying to drive all of the traders on Wall Street and trying to do a whole roaring kiddie thing. Here are some quotes from tweets just this morning. If open shareholders focus all our energy on buying and holding our stock and calls, if that's your lane, the reflexivity kicks in. The rewrite will be

violent. We're talking at Cisco.com levels of upside as the turnaround clicks. Strap in believers and haters. Eighty two dollars is coming. Ryan, are you a believer or are you a hater in open door? i am a hater one side i'm a hater this okay it's a bad business isn't it it's just a bad right so look i'm not if you want to buy it because it's a meme stock whatever that's fine we want everyone to make money but we also don't want people to lose money i am still a believer that you should look at stocks for the businesses that are behind them and i just think open door is what a horrendous business model like you okay maybe there's some maybe this is a cigar but maybe it was doomed for bankruptcy and there was some value there like that's how i think meme stocks tend to

start like gamestop was that they had like a 20 dividend yield and it looked like they were going to cover it starts as a value play and all of a sudden it turns into a meme stock the but the business model here is so bad it's so bad yeah way way worse it's not necessarily yeah it's like the industry's dying it's not like residents for real estate purchases are dead this is a really bad business model it's like you invented a business model that was worse than individual home flippers because you can't lock in 30 year and fixed rate mortgages you're taking bad loans out you're loading up your balance sheet with residential real estate inventory and then you're trying to flip it for a higher cost it is so tough and it's such a bad

business model it's actually laughable think about think about think think about this from your own personal view listeners if you have a house think about the stuff with your house that might be a little wrong that there's something wrong with it maybe there's like issues with the foundation there's some repairs that you know need to be done whatever would you the whole game here is margin of safety so they're offering like they're spraying and praying with low ball offers if you have a good house you're not going to take the low ball offer like you're and most people are not like i gotta get out of this yesterday like i'm going to take whatever offer i can get when it comes to a huge like a home so the people that are accepting the

offers i don't think that's the supply that open door really wants and my guess is they have drastically on a recurring basis drastically underestimated the spend that's needed to improve some of these homes now i saw a whole bunch of things on forums reddit forums like oh i got unbelievable i i've never expected to get an offer this high open goes the only one that gave me this offer like that you cannot imagine worse commentary for your business model the fact that everyone got out of this so quick zillow i think redfin got into it too got out pretty quick just goes to show that they probably saw the cracks in this business model and it's not like oh this business is more resilient because they stuck around it's like they didn't have any

alternative ryan ignore all this imagine if all the force of retail and institutional took the energy of wall street bets and focused it on buying and holding all possible shares and options of one stock with a genuine genuine turnaround story open door that is another quote from this hedge fund manager i think the odds on calci or what is this other one called polymarket about an sec investigation into this uh twitter account whoever actually owns it is high it's high those odds are rising i you can because this type of stuff it i guess was made legal for crypto for whatever reason you can pump and dump but this is pure pump and dump is it not am i seeing this in wide open just in front of everyone's faces

now speaking of pump and dump there's never been a better time to buy google we should off i'm just kidding the it's yeah it makes of course there's it's unethical i'm not sure on the rules i assume that's against the law pumping up is supposed to be illegal crypto is made legal for god knows why but i guess you have to technically like lie pop it up and then we don't know if he's done the dumping part do you know well you see my notes in front of me the listeners maybe try to guess in your head how much and i just used the fiscal ai for this was quite helpful just pull up the chart add everything together how much in cumulative cash flow has open door lost since 2017 drum roll 5.2 billion dollars market cap today wait let me pull it up

because it could be it could be trading wildly 1.7 billion it is lost so much money it's i mean the business model just got worse and worse as it got bigger it's had to shrink there's no way that it's it's it's the it's an impossible business model i can't even find the words to describe it there's no proper way to say how bad this business model is i hear when you say 5.2 billion in cash lost all i hear is deferred tax assets that is true yeah yeah yeah they might have some good net loss carry forwards that someone would want to acquire that's fair that is fair maybe that's the bold thesis what about tesla let's do it i saw a hilarious tweet that wasn't meant to be a hilarious tweet uh from

what's his name the bloomberg character on twitter uh walter bloomberg oh yeah yeah let me pull it up this wasn't it was my favorite thing is that he tweets everything so matter of factly like he doesn't have any aggregation from bloomberg yeah just headline aggregation now let me pull up oh wow i can't pull it up okay i'm not sure what's happening here twitter down twitter down on you uh no okay i got it wait tesla reports q2 free cash flow of 146 million dollars estimate 760 million dollars yeah that's tough that can't i don't even know how you'd estimate that yeah it's got to be a tough thing to estimate but it's just a hilarious headline so why don't you go through some of the numbers there was some

maybe it was slightly better than some people expected i i'll i'll raise my hand and say i was expecting a little bit worse honestly but go through some of the headline numbers yeah and maybe before any of the listeners say yes you know we are forgetting the tesla diner in los angeles part of the growth story i know when they open one in austin i expect ryan to go have you updated your dcf yeah i will update the dcf honestly that is a decent business idea especially with the charging kind of problems it's it's just kind of funny the way they brand it um all right here's a quote from this is the first line of the press release q2 2025 was a seminal point in tesla's history the beginning of our transition from leading the

electric vehicle and renewable energy industries to also become a leader in ai robotics and related services the related services diners but uh i'm curious to know why they're leading in ai but XAI is getting all the funding for Grok and all of Musk's endeavors. That's kind of a different story. But I think this narrative that they're building is very key for investors to look at because they are telling you that they are pivoting away from the traditional car business and renewable energy because, well, these businesses are either stalled out or collapsing. auto revenue is down 16% year over year energy generation revenue down 7% even if those supposed to be a major growth engine for this business operating margin in the quarter of just 4.1%

heading into a period where tax credits on EVs are going to expire so that's going to get even worse I think in 2024 they had 2.4 billion dollars in tax EV credits cumulatively since I think 2016 they've had 11 billion dollars this makes up a huge portion of their net earnings free cash flow was trying to mention was pretty flat and they do have 37 billion dollars in cash i will this might seem like a dumb question but if with the ev credits gone the the fact that they're uh unit figures around the globe and basically any forward-looking indicator for the automotive business looks like it's going to start burning a lot of cash quickly with no new models coming online and the Cybertruck being a total flop. They have $37 billion in cash. Is that going to

be enough? I'm serious. This could turn ugly really fast, especially if they're investing in AI. What do you think, Brian? I'm sharing this total automotive gross profit chart here and it's down, well, let's just check from its high in december 2022 so in december 2022 they were generating 20 billion dollars in annual gross profit from their auto business these are the last four month figures yeah okay today they're generating 12 and a half billion in automotive gross profit so gross profits for their car business which you can call auto a car or sorry you can call tesla a car company or not it's up to you how you want to categorize it but currently the lion's share of their financial

of their revenue and income comes from selling cars it's down almost 40 percent from the highs And they're going to be losing one of their most – one of their highest margin assets, I guess you will, in the EV – or sorry, in the tax credits, regulatory credits. Yeah, $1.5 billion of that $12 billion is about to get wiped out. So it's hard to imagine this part, the auto business not seeing more pressure on the gross profit side. now there was a lot of talk in the conference call about you actually listened you took the time for that ryan that's a sacrifice i will say i hesitated i was thinking about whether or not to read it i started it was a little tough to read you're sacrificing for the listeners and i appreciate it yes honestly that's exactly what i did i i did not want to read it i have no interest

in the company long or short. And I knew we were going to talk about it on the conference or on today's podcast. So I read, I tried to read the conference call. If you are skeptical about some of the accounting and the hopeful statements that come out during these, they are very hard to read. It's very frustrating. This call was no exception. There's a lot of talk about full self-driving and the value unlock there. But what I don't understand, first off, for a long time, full self-driving was the call option on the business. That was the hidden upside. It was like, this could be the biggest value unlock as soon as all these cars can drive themselves and people have to pay for it. It's like just a hundred percent profitable to deliver this software.

now it's the only thing holding this up like if they don't get full self-driving available for their entire fleet i don't see how they generate enough cash to warrant the valuation so it's not become a nice thing anymore now it's a necessity and all it's all they talked about on the call yet what i don't understand is for them to roll this out they have to do it the way waymo did they have to do expensive yes which they got to build custom cars for this with lidar technology on them it's not like they're just going to license it out to their existing fleet that's not what's going to happen so maybe i'm wrong maybe that's still somehow possible but that doesn't seem to be the case in terms like if you look at what they're doing in austin that's not

the case it's not like they have some guys some random guys tesla going around doing these fsd rides that it's a custom built car for this that is expensive to build out that takes time you need regulatory approval and he said he this was the most outrageous part to me he believes they will be serving half the popular half the u.s population by the end of the year wait what no that's not happening that's not happening yeah he said the full self-driving rides will be serving half the population by the half the u.s population by the end of the year and then he did his classic assuming we can get regulatory approval uh yeah he said it's up to the regulators well of course you get the whole if you get the whole population it wasn't up to the regulators

yeah it just it's uh what's it's groundhog day like we heard you so many times end of the year it's gonna come I would – that might be one of his most outrageous claims so far is somehow turning this to half the population in six months seems unlikely. I 100% agree. Stock was down 8% today, down 20% this year, but up 40% in the last year. I will disclose – full disclosure. I'm sure to hold two shares. so just to get that out of the way i don't want anyone to not know that that's listening i am

biased um i think the stock is vastly overvalued but it is a minuscule part of my portfolio what companies are you short palantir tesla and this again this makes up less like less than 10 percent of say net so it's a small small part overall you know most of the times people have much larger short books um the nuclear i don't want to call use a swear word the nuclear pure plays uh that are pre-revenue the electric air taxis and quantum stocks i kind of have some of those pre-revenue ones yeah didn't know you'd been expanding your short book so much well but remember this is these are minute like the sizing is tiny i don't want to get caught up in making one short position like a tesla or something like

that 10 of my book it's tiny i want to be very diversified that seems to be the way that works out best for most people i don't have to worry about something even if it goes up 300 crushing my returns that actually happened to one of the nuclear stocks uh and you barely even notice so yeah yeah when having a huge short position just seems like stressful stressful yeah okay chipotle is chipotle a dying brand ryan can i can i pat myself on the back i've been early on this last five years but i would have been wrong so far i was about 200 ago on the stock yeah early it may have been a little too early but now your gripes came from quality food yeah i think that's that could be impacting that could be impacting the numbers

let's go through some of these numbers gonna pull up fiscal ai real quick the number that popped out to me more than anything else and probably is the one everyone needs to pay attention to comp store sales declined four percent this uh compared to last year that is the worst comp store sales growth they have seen since the pandemic and if you strip out uh june 2020 so you strip out the pandemic impact that's the worst they've seen i assume since the e-coli crisis now the do they have any excuses for this i don't have time to read the call let me give it a peek here let's let's read let's read the press release shall we shall we we are seeing momentum build

as we rolled out our summer marketing initiatives as our comparisons ease our talented restaurant teams sorry it's so funny yeah i love this is one of my favorite things in corporate speak is when people talk about how the forward growth is going to be better because we had bad results recently like we're having bad results now so it's going to be easier to surpass them in the future that's the bull thesis no it says our talented restaurant teams remain focused on delivering handcrafted meals uh let's see if he actually gives anything useful i am optimistic that our positive momentum will continue as we further nope not useful not useful at all this is negative momentum yeah they're just comp sales decreased four percent margin down i remember seeing that

yeah i mean margins have to come down if you're right especially yeah especially with inflation I pulled up the call. I actually was able to, this is another free advertisement for Fiscal AI. I was able to pull up the call and search through it for comparable sales. And they said, considering the ongoing volatility

in our trends in the consumer environment, we now anticipate comparable sales to be about flat for the full year. And then blah, blah, blah. We have a strong plan. So comp sales flat for the year is their guide. I don't know if I can have a full take on Chipotle yet. i want to see how they compare to other restaurants if every restaurant is doing terribly

then hey maybe chipotle's okay but last quarter they saw a huge decel they have a further decel this quarter and some other brands were doing just fine i can't remember what domino's posted if i think domino's was was just fine so i think this might be a chipotle level issue domino's comps were positive so the the really the thing here is props to brian nickel former ceo of chipotle he left chipotle at absolutely the right time and also he's now like might be one of the top fast casual restaurant food ceos in the world because his timing was impeccable and he also sold i believe all of his shares after he left chipotle so he started unloading pretty quickly they had a stand they had the cfo leave and the ceo leave that's good timing if you're ever gonna

get out of a get out of a company it would have been good timing to sell and he joined starbucks which i i personally think could be turning the corner to growth again and it just good for him Honestly, good for him. When he felt like the valuation on Chipotle and maybe the concept was getting towards saturation, to move to something that I would argue is stickier in terms of customer attention, coffee. It's stickier, less competitive, and more advantaged maybe. I've heard people say we're ending the age of Chipotle. were entering the age of Kava. Could be true. Could be true.

Do they have those in Austin? Kava? Yeah. Probably. Probably. They don't have them in Seattle. Do you want to guess what Chipotle's price-to-earnings ratio is? 25.

41. Really? Yeah. What a great short opportunity when the CEO left. it was the pe was like 60 if i mean restaurants are tough honestly minimal operating leverage well yeah i mean running a restaurant's tough but it's just i don't know when you hit saturation it feels like it's almost like retail a bit where consumer habits can change unless you have like a really

big advantage in being like a low cost provider like dominoes i think is the low low price provider and it's sort of a self-reinforcing competitive advantage there and their input cost bread tomatoes cheese a lot better than meat for uh for cost wise it yeah it's got to be a difficult it's got to be difficult to be the one that steps into the ceo suite there replaces brian nickel at an all-time high valuation do we want to talk home builders we got some questions we did yeah do you want to do you want me to cover this um i guess yeah this is kind of shout out to the not i guess we don't talk with them that much but we've met them before friends at value after hours that do their veggies every week this is kind of a veggie

segment we went through the fun stuff now this is some i wouldn't call it dense i think it's interesting macroeconomic uh topics so we got a few questions on home builders for when we ask what we should talk about this week the big home builders are all at least in a 20 percent drawdown right now uh lennar is actually in close to a 40 percent drawdown but in the last month there's been a recovery stocks like pulte group up 10 in the last month yes that is the pulte pulte that you're thinking of it's the same name grandson of the founder yeah is the one whatever job fh whatever federal housing administration that tweets constantly almost as much as the open door guy home sales revenue was down 4% for Pulte Group last quarter. They reported this week or late

last week. Gross margin was down to 27% versus 30% a year ago and backlog is steadily falling. DR Horton homes revenue is down 7%. So we're seeing compressing margins, a little bit of decrease in home sales volume for them. Stocks all traded a PE ratios of around 10. it's kind of a these these companies could be expensive they could be cheap you got to ask are earnings depressed will growth resume if mortgage rates fall i kind of think and i can share some of these charts from the calculated risk blog that well it might be hard for you to see i can just describe them but the macro the macro indicators out there they look to me a little bit bleak you have rising inventories so we have this chart here that shows new homes month

of supply. So essentially what this shows is the amount of new homes on the market that compared to how many are getting sold each month. So if you have, currently we're at close to nine months of supply on the market, the higher, the worse it is for home builders because you have more supply out there. The other times that new home months of supply hit these levels would be the great recession and other recessions going back to, I think, the 1960s. So it's kind of an indicator that things could be looking bad for the housing market. And then there's also another one I think is quite interesting, which is new home inventory. So this is a little bit different. It's another way. It's more of a specific way to measure inventory. And the amount completed isn't that

high, at least compared to the great financial crisis, but the amount of new homes under construction are at the highest levels, excluding the great financial crisis and are getting there quite quickly, going all the way back to 1973. So I think for me, these are ones I don't want to touch. They were fantastic buys. What was it when the mortgage rate spiked in, was that 2022? something like that yeah but i think yeah yeah i mean dr horton's still a double from there but i think today i'd be very i'm very very nervous about these companies if some things go wrong there's a lot of inventory that could be out there and if existing home sales pick back up again that's some more supply hitting the market i'm a dr horton shareholder i was a little surprised

by the stock's reaction to this quarter i read through the conference call and it's just going to be a period it strike strikes me as a it's probably going to be a period of just them not earning as much as they used to it i don't think it's going to be cataclysmic or detrimental to the business model especially since they've really kind of pivoted to being so asset light and they don't really they don't own their land for the most part 75 of it's owned by their land bank and then their turnover time or their inventory turns continues to come down so they're building them quicker and selling them quicker but the issue here is that there's just some compression on the gross margins so this is probably going to happen across the board with

all home builders they the reason that what are you pulling up here yeah they are buying back a ton of stock there's an interesting quote on the conference call uh maybe you can pull up the conference call brett for context brett's pulling up fiscal ai here and uh keyword in valuation okay so before i get to this quote basically gross margins were a little better than expected this quarter because they stopped pulling so much of this or offering as much incentives from what i could tell basically there's different levers they can pull to increase the attractiveness uh or encourage people to buy homes today like they can do mortgage rate buy

downs they can lower the price there's just different things that they can do they can offer uh different stuff with the mortgage sides especially since their lend most of their home buyers use them for home loans as well but they said incentives might kick up here in the summer and into the fall because they are still seeing a hard time. It's less affordable, essentially. People are having a hard time affording homes still because rates are higher. Now, with that said, the valuation has come down a lot. People are soured on this. People are worried that interest rates are going to cause a crisis i think frankly for home builders and here's what bill wheat the cfo said he said

obviously with where our share price has been we feel like the valuation is attractive and so we're taking advantage of that during this time they are buying back nine percent of their market cap in cash annually right now i believe the buyback yields at nine percent assuming that earnings have plateaued like earnings it's not like they're at pink or peak earnings anymore they were at 30 gross margins now they're at like 23 24 so you we've already seen earnings collapse a little bit if earnings can stay flat or even grow over the next five years and they're buying back 9% of their stock,

you honestly don't even need earnings growth for the shares to do well. Yeah, I can understand that thesis. It's good that they're buying back a lot of stock. I think management seems smart. I look at the gross margin and we're still not back to pre-pandemic levels from a gross margin perspective.

So I do think there's still risk of margin compression going forward. but i can understand the thesis what are they at pe like it's like 10 right so you still even if you get a compression and they start buying back and they look you know if the downside stuff materializes it's not like the i don't think the stock's gonna collapse or anything but the housing market it looks like from all the forward indicators is flipping from a seller's market to a buyer's market and we're just on the start of that little uh anecdotal evidence here for the week i checked out a house in the austin area which is always nice to go from growing up in

seattle to like checking out houses in austin market for buyers in the country austin feels like just so nice like you can just get a lot more anyways but the realtor was like honestly just just offer whatever price just throw out a price and i like not to her but like offer it to the company to the home builder and see if they might bite because it sounded like they are having a hard time getting rid of their inventory now that matches that wasn't dr horton i checked you're making sure yeah this could be a tough period uh still some of these are good businesses mbr dr horton my anecdotal evidence and i guess we're going over time here is that there are a lot more for sale signs going up used to be totally empty for existing home sales and i think

some people are trying to sell but there's this whole mismatch between what they think they their home is worth for you know what zillow tells them what they want to sell for for these existing owns versus what, you know, someone like Ryan or I's age, a first time home buyer can purchase. And that's going to slowly match up either. I think this is unlikely. Either our salaries are going to go up 50% or home prices are going to come down. I think home prices will likely come down instead. Ryan, anything else before we wrap up? No, I think that's about it. Next week, we got more earnings. Amazon, I believe should be out. big tech i believe reports kind of next week as well so we're gonna have a lot to discuss

next week i'll be on we'll have a replacement we'll have a sub brett will be out uh so we're gonna have a listener favorite john rotante will be joining the show yeah make sure to tune into that hopefully record viewership when i'm gone that'll that'll make me feel that'll make me feel great but no everyone should listen to john and he always comes with great insights perfect timing with big tech earnings, and I'm excited to listen to that one. Okay, let's get out of here. Full disclosure, we are not financial advisors. Anything that 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 in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for tuning in to these live episodes. They go 5 p.m. Eastern time on Thursdays, give or take. It could change sometimes, but you can listen to the replays on YouTube, spotify apple podcast that come out friday morning uh give us any suggestions for what to talk about on twitter substack what have you let us know what you'd like us to talk about if you enjoy these episodes give us a review on apple podcast or spotify and we'll see you next time

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