Chit Chat Stocks - Google's Quantum Breakthrough; Uber Stock's 29% Drawdown; General Motors Ends Robotaxi Efforts (AMZN, GM, GOOG,)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. welcome to chit chat stocks 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've got a lot of news this week including potentially a major computing breakthrough from one of the world's largest big tech companies and uh one that was perceived to be a laggard in ai for quite a while so a little

Starting point is 00:00:58 bit of a counter narrative there. But we've got some other stuff to get to as well. I've got an interesting small cap of the week, not kind of the traditional one I typically do. And then Brett, any big topics for you this week? Yeah, not much news out there from an earnings or investing perspective, just on stocks and stuff. I had some more info, I guess, to spoil what your company is. Google announced some more products in the AI space. Stock went to all time highs. I had some interesting discussions that I found on Twitter regarding portfolio management, idea generation, stuff like that. And then some fun stuff from, yeah, just some maybe less informational or educational stuff and some more entertaining and nonsensical stuff we found in

Starting point is 00:01:50 the investing world this week. All right. And before we get to that, we do want to talk about our friends at public heads up folks interest rates are falling but you can lock in a six percent or higher yield with a bond account at public.com it's a pretty big deal because when rates drop so can the interest you earn on your investment a bond account allows you to lock in a six percent or higher yield with the diversified portfolio of high yield and investment grade corporate bonds so while other people are watching their returns shrink you can sit back with regular interest payments, but you might want to act fast because your yield is not locked in until you invest. The good news, it only takes a couple of minutes to sign up at public.com. Lock in a 6%

Starting point is 00:02:31 or higher yield with a bond account only at public.com forward slash chit chat stocks. All right, Brett, where do we want to kick things off? I don't know. It's kind of a, I wouldn't call it a down week, but this is one of the low periods, especially as we get into the holiday and out of the you know the end of the year uh yeah there is something i want to talk about project willow quantum computing something that we're uh quite quite uh in depth on i i can't tell whether these new releases are just something that's not going to be any for anything close to commercialized like within the next 15 years or if this is the next breakthrough in all of computing.

Starting point is 00:03:19 It's kind of hard to tell. Yeah, there was, I read a couple of follow-up interviews with the guy that's like, I think his title is chief optimist of the Google quantum computing division. So it's basically, he kind of runs it and Google put out this press release this week. First of all, I did not realize Sundar Pichai

Starting point is 00:03:41 was on Twitter until this week. Apparently he has a Twitter account. Five million followers, Ryan. I know. Join the club here. I guess I haven't been paying attention, but basically it's kind of this Google blog post announcing this sort of big breakthrough. So here's the tweet from Sundar Pichai, the CEO of Alphabet. He says, introducing Willow, our new state-of-the-art quantum computing chip with a breakthrough that can reduce errors exponentially as we scale up using more qubits.

Starting point is 00:04:13 I think I'm pronouncing that right, quibits maybe, Q-U-B-I-T-S, cracking a 30-year challenge in the field. In benchmark tests, Willow solved a standard computation in less than five minutes that would take a leading supercomputer over 10 septillion years. Yes, that's a real word. 10 septillion years is longer than the age of the universe. um so basically it's it's a huge breakthrough in quantum computing there is uh i thought i read this follow-up interview basically that chief optimist guy that i was talking about said uh there's not really going to be any commercial applications or it's unlikely to solve any commercial applications for before the end of the decade is what he said so so probably three

Starting point is 00:05:01 that's the cheap optimist i doubt you know what i mean the cheap optimist guys that are saying well we're going to mars in a couple years or we're gonna have full self-drive you know we're gonna have uh self-driving solid one everyone is saying that back in 2017 it might take a couple of years but i'm i'm the optimistic one you should probably multiply that by three yeah and it's uh And it's interesting because Google stock jumped like 5% on this, which it's unlikely to have any real revenue contribution, if ever, for at least quite a while. But if anything, this breakthrough will probably just mean more investment for the foreseeable future, which probably will hurt earnings, if anything, but maybe long term. Maybe. I mean, they're already doing this. i know but usually you hit these milestones and it just encourages kind of that next level up of

Starting point is 00:05:57 investment or at least reduces the chances of them scrapping it but here's kind of this crazy part at the end of the article it says and it kind of kind of mentions this in passing and i don't know really what to think of this but it got a lot of attention in the news it said willow's performance on this benchmark is astonishing it performed a computation in under five minutes that would take one of the today's fastest supercomputers uh 10 septillion years it lends credence to the notion that quantum computation occurs in many parallel universes in line with the idea that we live in a multiverse a prediction first made by david deutsch so yeah caught a lot of news any headlines there what's the uh what how are you adjusting your portfolio to account for the

Starting point is 00:06:42 multiverse yeah right and i guess the i think they're they're pretty much joking around that but it does fit up with some of the theories that would line up with i don't know i you know i'm obviously no expert on quantum computing but essentially the way they think about it is if it's able to solve all these things simultaneously and it can be zero one or anything in between uh at any one moment so it's not you know zero or one it's every single instance that could be proof that there is an infinite amount of universes out there where we're all going through you know kind of oppenheimer movie stuff all those crazy scientific stuff but with and all those universes i am underperforming the market yeah exactly exactly people were

Starting point is 00:07:28 joking you know there's blue links and all the multiverses blah blah blah blah all roads lead to google but i will say from a commercial standpoint what i thought was interesting is this breakthrough and obviously it's not there yet people think that given the high you know computation intensity uh and stuff like that that it's able to perform that this could not only break but it could allow someone that solves this first maybe alphabet to mine the rest of the bitcoin that's going to come online that could be worth at least as the time right now about 100 billion dollars and it potentially i don't know how but i think it's because of you know like the level of cryptography within the bitcoin and stuff like that that a

Starting point is 00:08:16 computer such as this a quantum computer could break you know some of the security around there and there's actually a huge i don't know if it's a panic but it's probably just because you're reading the stuff online it seems like a panic there is a lot of discussion about prepping for crypto in a post-quantum world because it could break the entire uh you know reason for the industry it's a little disheartening to think that we've had this massive breakthrough and the first thought for everyone is how much crypto can this mine how much bitcoin can we mine with this yeah i think maybe even getting more serious on alphabet this could you know i think the reason the stocks up today is that people might be realizing that the company is still on the

Starting point is 00:09:08 cutting edge of all sorts of computing technology but when it comes to building their moat widening their moat uh making sure they're on the cutting edge of being able to provide all these different ai tools to the billions of people that use them around use their products around the world adding any sort of efficiencies to the cloud infrastructure that they've built and trying to extend that lead is going to be helpful for them in expanding those that moment economies of scale where we look at some of the ai startups they have to spend so much they have to outsource all this so if quantum computing you know helps with that hey uh that that could uh you know make computing costs lower for for the cloud customers and themselves yeah yeah and we're

Starting point is 00:10:00 going to talk about another uh i guess instance here of google kind of being on the leading edge and it never seems like they're on the leading edge until you start to get um departures from competitors and we saw that uh with a certain self-driving competitor we also got a question from john here or i guess more of a comment uh he asks about my moving boxes for those that listen to this on the podcast i'm recording this in a uh not my typical place i we i am moving ultimately these are not moving boxes but uh yeah it kind of looks like the north pole back here um yeah for anyone watching on youtube i'll just say that once so that we don't end up getting too many questions about it but yeah he also mentions my tobacco basket has done great this year

Starting point is 00:10:46 Altria, British American Tobacco, and Turning Point Brands. How's TPB doing? Turning Point Brands. I haven't looked at that one in a long time. A little bit of a teaser here. We may be doing a little bit of research

Starting point is 00:11:02 on one of those in the not too distant future, so keep an eye out for that. John, I don't see Philip Morris in there, but it's the one you're missing, which I apparently have to shout out every single podcast episode because that's uh that's ryan's new favorite

Starting point is 00:11:21 company look at 20 point brands here though not bad performance stock was below 20 or shared just slightly below in basically halloween of last year and today it's at 64 so multi-bagger in a year i wonder what happened i have not followed that one as closely but okay i want to mention this real quick general motors gm is shutting down their self-driving division actually not not the self-driving division but any attempts at having a robo taxi fleet i think they're still going to invest in some of the self-driving technology but really only for um personal automobiles not like a robo taxi fleet and you look at finchat our uh sponsor one of our sponsors here. It breaks out the cruise division. So for context, General Motors acquired Cruise,

Starting point is 00:12:15 which is one of the self-driving companies. One of the leaders in self-driving, or it's seemed that way for a while. And I think they've owned them for like five years now, maybe. And the cruise division has burned, I believe, $7.5 billion over the last four years. that's the cruise ebit so they've lost seven and a half billion dollars you kind of wish and there's this quote from they had an event basically to announce that they're they called it a status update which is a nice way of saying that we're killing this division yeah the sneaky like no uh like anti-climatic press release and it's one of the most important things what what So when a CFO gets fired or something like that, they just try to sneak it out of the rug with some press release.

Starting point is 00:13:09 Like, company update, we are changing our full year guidance. And oh, also, by the way, one of our most important executives decided to resign. We're narrowing our range. Yeah. And also our executives are quitting. But the – so in this status update, which is just hilarious corporate speak, it kind of reminds me of the workforce restructuring speak. Oh, right. Yeah, exactly.

Starting point is 00:13:37 Nice word for layoffs. Right-sizing our workforce. Right-sizing is my favorite word. That's got to be a McKinsey word right there. Don't say you're firing them. You're right-sizing your workforce. Yeah. So the CEO said, when we looked at the amount of money to deploy a robo-taxi business and then to maintain that business and grow it, it's quite a bit of capital.

Starting point is 00:13:59 And as you know, a robo-taxi business is not General Motors' core business. I feel like you could have probably figured this out a while ago that it's going to be expensive to run. There's no way that's like a new revelation. Yeah. But anyways, it says none of these options seem to serve the best interest of the business and our shareholders, mainly because launching and operating a robo-taxi is expected to require a significant amount of incremental time and capital beyond the $10 billion we have already invested. So I guess that's a win for Waymo, potentially. Or a loss because they're saying that it's wildly expensive to run. Yeah.

Starting point is 00:14:47 But on the flip side, you could say they've – they're a lot further along. They have true – they're already in the revenue recognition stage. So it's not as if they're – it's just some concept. They are – it's a true revenue generating business. Um, and it also goes to show that there really are only a few companies in the world that have the balance sheet and the cashflow machines throughout the rest of their company to be able to make big bets like this. And Google is one of them. And the culture. I wonder what GM's balance sheet and cashflow looks like.

Starting point is 00:15:34 maybe they're spending too much on buybacks or something like that or paying too much on dividends. I don't know for sure because I know the business is doing better than people thought. I'm trying to load it up here, maybe toss out the free cash flow. I think that's probably a proper one to use. I think what's interesting is when they say this, and this is something that I guess has just confirmed many people had this as they were aware of it or this is their idea, is that the tesla route their path to trying to build full stop driving is much cheaper than the waymo version at least from upfront costs and stuff like that because isn't gm almost pivoting to this with cruise is they're trying to make it just embedded in their vehicles

Starting point is 00:16:21 uh probably but i'm not 100 sure i mean they shut down this whole thing that no i sell it really sell it off i think they're probably going to continue investing not to the same degree but in the technology um to benefit their own cars and potentially outsource it to other cars as well uh tyler asks why not spin out cruise i think it just it's not as if they're totally killing the cruise business but the ambitions of becoming a robo taxi operation have it seems like they're getting rid of that and so i'm sure there's some benefits to having crews within your company the other part is i don't know if crews one i don't know if they're going to be able to find another buyer and if they spun it out i think you need a parent

Starting point is 00:17:15 company with a big balance sheet at this point to be able to finance the ambitions of the cruise team. Yeah. Or you need to, I mean, the Waymo is even doing this. Alphabet doesn't even want the entire stake with them. They're raising money from outside investors. I think what's tough with Cruise is that they, I'm guessing investors are much more pessimistic after they shut down their testing routes where Waymo took almost the opposite path and as it started expanding rapidly in cities across the United States. But I look at this here, it might be the perfect metric because i know sometimes you know investigate what their true earnings power is but we look at our friends at finchat um and i'll just go back to 2020 general motors free cash flow

Starting point is 00:18:00 11 billion dollars seven and a half billion dollars 6.8 billion dollars 10 billion dollars 8.3 billion dollars you got enough money to invest pretty heavily in cruise maybe it is so yeah it's an interesting idea because you've got google who has like 100 billion dollars plus in cash on the balance sheet you've got gm who generates significant free cash flow every year now here's kind of this kind of speaks to the innovators dilemma which is that gm for one they got to pour money back into their own business the core business. They also have to probably please shareholders to some degree and return some of that capital. And you've got executives that are probably paid in options in some way

Starting point is 00:18:53 that don't want to risk just pouring that money into a cash burning machine for the foreseeable future. So it makes sense, I guess, that they're getting out of it. But it does kind of concern me a little bit that maybe we are significantly underestimating how expensive it is to build out some sort of a robo taxi fleet um i wouldn't another thing i wouldn't underestimate is how adverse some of these legacy companies can be to long-term projects it's just the nature of being a mature business run by outsiders you don't have the founders there anymore Or, yeah, at one point back in the 1920s, General Motors was the innovator. They were the one that said, we're pressing our advantage and we're investing for a multi-decade time horizon.

Starting point is 00:19:41 They might not be in the same point today, and you might have a shareholder base that doesn't agree with this as opposed to an alphabet where Sergey and Larry, they control everything. Yeah, it is so – the innovator's dilemma is just so real. I was thinking about this with Amazon because we were doing that David Gardner episode. I was thinking about Amazon early on, being early to selling books online, e-commerce. There was – for one, you get a lot of buzz being kind of the first to market and you get a lot of attention for it. So they had a lot of eyeballs and the other part is you have a ton of focus on that singular project. the then you have a competitor that comes out called cd now which is selling cds online you've you've gotten advantage over them if you're amazon but i was thinking if i were in barnes and nobles

Starting point is 00:20:36 shoes in 1997 1996 and you saw amazon doing really well i thought how come amazon how come barnes and noble didn't just kill them well i mean it didn't look profitable at the time yeah right if you push them if you push your recurring customers to an online destination instead and it's more costly for distribution and all that you're losing your own business you've got all these incentives that are short term you're not going to get paid you treat it as like this side project as sort of a hedge but you never really have the focus it just makes so much sense that when the young company comes in with singular focus on one thing it's it's easier to disrupt big companies than i think people anticipate myself yeah we have yeah and we have a comment here that says the cruise should

Starting point is 00:21:30 spin out itself or gm should spin out cruise raise a bunch of money get get that equity premium for an innovative business but the thing is they should have done this hindsight is 2020 they should have done this before. Everyone got extremely pessimistic that they were behind the ball, which they are. So I don't know what kind of multiple they would get when the fact that Waymo seems to be running away from them rapidly in deployment. Now, I guess we inadvertently talked about Google again there. We had a comment here that wants to talk about the Gemini 2.0 updates from today. I guess that's another update from them. I don't have any specific thoughts, but i can maybe read some of the updates that they have they're what's interesting

Starting point is 00:22:18 and this is gemini 2.0 i they got a dozens of names they need they probably needed naming czar of someone that just comes in and says same it's like with xbox too you know the those ones hey look just you you guys make all this research you got the smartest people in the world you're inventing quantum computing but naming is your forte how about you just pay me a thousand bucks a year call me and say what should we name this uh there's a plenty of people out there that would it's hilarious before you get into it like the quantum computing you had this massive breakthrough this awesome chip and you named it willow like can't you name something a little more exciting just they they name stuff too much and they change the names constantly like people really need to

Starting point is 00:23:06 learn from playstation playstation 1 playstation 2 playstation 3 just keep it simple and you know which i mean okay look at this update this gemini 2.0 update there's a long blog post they put out you can find on the google website and their google research blog and you can read all that stuff they got all these parameters the large language model underlying everything but what i thought was interesting is and maybe we can talk about whether we think people want this But they have this thing called Project Astra, and I don't think it's out there yet, and I'm sure it's going to be applied to almost all their products, but it seems like they want this underlying large language model, Gemini 2.0, or just Gemini as it keeps progressing, and they want it to be multimodal and able to understand essentially every single input from the real world. So it can ingest any sort of data, and then it can come and spit stuff back out to you with dialogue, with video, with audio, with written context, and that seems to be their end goal and what they're really hyping up with the Gemini app and this new AI assistant. they also seem to be talking about adding it to smart glasses but that we don't know exactly um

Starting point is 00:24:29 and maybe that is astra is the smart glasses but again i get confused with all these names it's really hard to uh just i don't know keep them keep them together what do you think here ryan is that the right path for them or is this still are we just gonna go through the 2016 2017 alexa cycle again where we get all this new hyped up technology that seems interesting but no one really wants to talk to phones um i'm curious well answer that first and then also have you seen the gemini commercials because i know you don't watch that much american football but about every commercial break they got this gemini commercial i'm curious if you've seen it i have seen the gemini commercials

Starting point is 00:25:11 they are very dystopian honestly i'm getting like ai fatigue and this is someone who's i'm honestly fairly interested in the space especially after just our discussion with sean wang and you work in an ai company yeah and it's just like there's so many different like days like gemini day you know the gemini 2.0 big release right after the chat gpt open ai one now they're doing the 12 days of open ai it's just it feels to the anyone who's not a developer it just kind of feels like fatiguing i imagine and i can't imagine there's a whole lot of people that watch these gemini day type of events they know what's watching though there's like a people not the average person isn't watching them

Starting point is 00:26:07 the way they see it is these commercials and they go talk to gemini yeah what the hell is a gemini on the flip side you know what a commercial you mentioned a while back that i hadn't watched but is excellent is those new starbucks commercials that just are just coffee yeah it's just attractive people going to starbucks they look like they are having the time of their lives ordering some five dollar coffee and then there's some catchy jingle you know yeah apple used to go back to that because that's what they used to do and now they're having these commercials uh have you seen the apple intelligence ones because those are on football ones all the time they're probably the only ones that potentially are worse than the gemini they just do these

Starting point is 00:26:50 things where they call themselves geniuses where it's essentially like this person screwed up in their life whether they forgot someone's birthday or they forgot to do a work project and they just go hey apple intelligence do my whole work project for me and they just load it up and click send i'm like yeah that's exactly what we want to do is just outsource all of our work to to apple intelligence but besides the point yeah i've had a lot of anecdotal evidence actually with apple lately gone in store a couple times feels like we've got way too many employees in those stores like the products should sell themselves well i think that's the apple the the store stuff where you can like go in and talk to

Starting point is 00:27:33 the experts whatever they call them do they call them the geniuses yeah well some of them i don't think they're all qualified as like that like there's the geniuses which i think are like the tech like customer support more and then there's like the like sales side i think it was like a the store was busy and it was like a one-to-one worker to customer ratio it just seemed a little much but hey they're generating great margins when you sell overpriced you know when that brand adds about 30 to the average selling price another news headline here did you see that amazon is officially you can you can buy a hyundai hyundai on amazon now is a hyundai yeah you're seeing someone i've watched a lot of car commercials given my american football viewing habits so

Starting point is 00:28:22 trust me so you can they tell me how to say it yeah it's uh okay hyundai people this is a quote here people in 48 u.s cities can now browse order finance and pick up hyundai vehicles on amazon's new car shopping site says with amazon autos we are bringing the simplicity and ease customers expect from amazon to car shopping one of their largest purchases while offering dealers a new channel to connect with a broad audience two things here first of all if you're a carvana shareholder do you think this should concern you second of all if you are a uh dealer or even just a straight up auto brand call it gm or ford or any of the others does this channel entice you or would you worry about selling on amazon yeah that is interesting i don't know about

Starting point is 00:29:19 if i would be that concerned if i'm carvana because carvana seems to be way beyond just buying a car or browsing for one they have the i don't know the vertical integration of the used car marketplace they deliver it to your house they have all this stuff i mean the concern there is probably the profitability just given all the investments they've made and some of the other stuff there but this seems potentially interesting i don't i guess there is i think everyone would agree there is room for disruption within the car buying um process where tesla you know they kind of disrupted that a bit where they didn't go with the dealer model they went vertically integrated it seems like the dealers i'm saying the car the car dealers where almost majority of

Starting point is 00:30:12 the time in the united states you have to go through a dealer to buy a car and they're usually just almost like a franchise they're not even owned by the car makers i think there's room to disrupt that with the internet it's surprising that it's taking this long maybe they just have so much power but if amazon can do i don't know it's just such an early such an early thing i'm just not sure whether i would buy a car on amazon i mean maybe browsing but i would really don't you have to test drive it yeah you can go crazy you can go to a dealership you can test drive a car and then you can go buy it online especially if it's cheaper and you don't have to pay like you know i guess there's not embedded commissions stuff like that yeah yeah if you it's kind of the

Starting point is 00:31:00 uh yeah that's what people used to do with other products right they look up on their phone oh what's the cost here i can get the same one okay it's cheaper all right yeah and honestly you could cut out if you're a auto brand here you can cut out some uh some costs potentially selling on amazon but um it i imagine there's some benefits to kind of owning your distribution channels as well so um there's i don't know i would be surprised if this was a huge winner for amazon yeah it might be nice for hyundai but i don't think it'll be a big winner and carvana carvana is more of a logistical issue like i don't think they're going to be able to compete with carvana just because it's the used car market and it's i think the difficulty there

Starting point is 00:31:51 is the purchasing of the used cars the options and it's used it's used cars versus new cars so yeah exactly entirely different we've got some questions here actually you mentioned amazon did you watch the bezos interview uh parts of it man i love that guy he's just yeah can i find another ceo like him today please he's well i like him more than about 20 years ago right now he's doing uh he i think he's lowering his voice i gotta say i watched a lot of i've watched a lot of old bezos stuff i think he's he's doing elizabeth holmes and lowering his voice but who knows maybe i'm just making that up but what i thought was interesting it relates to a question we have here from tyler in the comments how do you think this is what he says how do you think musk will

Starting point is 00:32:41 uses influence to affect his companies tesla spacex twitter and ai which for reference that's because musk has a pretty big relationship with the incoming presidential administration and they asked the same thing to bezos given that bezos has a space startup and there's a lot of regulatory stuff around that and it's a direct competitor to spacex basis is the larger competitor and what i thought was really interesting is he bezos almost did the buffett thing where they ask you know like buffett gets asked about an invest a stock he owns and he goes oh occidental petroleum would never do that this is their plan and it almost says it's like it's not activist investing but it's saying well i'm telling the world and when i say something it

Starting point is 00:33:32 becomes a whole news thing so essentially what you're doing is what i say you're going to do but i'm not actually telling you i think bezos did almost the same thing in a way where he said oh well i'm taking musk at face value and i'm he said he's not going to use his influence to negatively impact any of my any of his competitors he's not going to use it for regulatory capture and i believe him and i don't think he's going to do that so if musk does that you know what i mean Like he's almost trying to set it, set it up where he wants to be proactive. Yeah. Yeah.

Starting point is 00:34:10 Yeah. I think he's, I don't know. I just think he's a really good communicator and this is a good example of it where you kind of speak it into existence in a way. And if you're proactive here about like, oh, he wouldn't do that. Maybe Musk feels a little less inclined to do it. But the one takeaway I had from that interview was – well, I guess there was a lot of value to take away. But I didn't realize he still cared so much about Amazon, honestly. I didn't realize he was still in the mediums, stuff like that.

Starting point is 00:34:43 He kind of seemed from the outside looking in like he's just completely removed, not really a part of it anymore. but he says it's still a decent chunk of his focus. So it's kind of nice to know. Yeah, and what he was saying is it's similar to what happened with Sergey Brin. I'm not sure if Larry Page is back at Alphabet, but Sergey Brin definitely is, and it was the AI stuff that brought them back. And it's kind of – I feel like this would – if you're Sam Altman, this really boosts your ego because you're like, all right, well,

Starting point is 00:35:14 I made all the founders come back to try to compete with me. but they must all see it and this AI stuff. And we're seeing, you know, it's, it's true that the spending there is crazy. They must see it as so important for the future of their businesses that they said,

Starting point is 00:35:28 I got to come back and start monitoring this. But I, on the one hand, I thought that was very interesting that he, that he believes AI is so important, but on the other hand, i don't know if long term this is the best way to manage amazon's culture because you don't want the cult you want to the transition period yeah exactly

Starting point is 00:35:58 it seems like jassy has more control of disney than bob chapek did when Iger left like it's that's true yeah like he's been in the business for so long too it's not like this is his first real step up into a leadership position like I don't know it it doesn't feel like he's still micromanaging it's hard to tell from our position but it doesn't feel like Bezos is micromanaging Jassy yeah I just the first thing I thought of when he's like I still am there and I still have projects that I influence and I'm like, well, that means Alexa spending is going to stick around. And he said that too. I think at one point in the interview, he's like, I'm quite willing to change my mind on a lot of things.

Starting point is 00:36:52 But there are some things I just simply won't change my mind on. Alexa's probably one of those things. yep if you read the amazon business biographies alexa for some reason has a hold over bezos when it seems like people don't whatever we've gone over that time and time again but he also mentioned that fulfillment by amazon was one of those things um was one of those initiatives that a lot of people said let's let's cut this out and it's going to be too costly so for every alexa you get you get a fulfillment by amazon maybe good probably a few more losers than winners there but yeah nevertheless all right other question thoughts on the potential tiktok ban or sale

Starting point is 00:37:31 did you know that's supposed to come through i think it goes through like january 18th or two days before the new presidential the presidential switch so that there's a wrench in the mix it's still supposed to happen um and it's not i guess a ban it's a sale if you don't sell it so people call it a ban if they're on tiktok side but they call it a forced sale if you're on the anti side if it happens uh here's the question here does china punish tesla and apple and if sold who is the best buyer well it's not getting sold for some reason tiktok says we are incapable of selling it which i think means that the government is telling them because they keep saying things like we're in it's impossible for us to sell it and i would just go well what

Starting point is 00:38:19 do you mean like we this is happening selling companies has happened before we got a historical president here i think we can make it work but i think they're just saying the ccp is not gonna let them do it i was gonna say that feels almost like admitting guilt in a way here it's like you can't sell it we can't sever it off from our china business it's like why not but i thought it was separate you're trying to pitch well uh it's just logistically wouldn't work yeah Okay. Well, on the pushback stuff, on the pushback stuff, would this – if the ban happens, are you more nervous about US companies with exposure to China? Maybe. Maybe there's some sort of retaliation there, but – I'm already nervous about it.

Starting point is 00:39:00 Yeah. I don't think it would change. I was going to say, I would – if you have a company based in America doing a lot of business in China, there's already a lot of cause for concern. And I'm scared to say it's already priced in, but I think for a lot of companies that China risk, especially like Starbucks, for example, LVMH, that's not an American company, but you're seeing the repercussions of it already. It's probably not priced in for Apple or Tesla. Definitely priced in at Apple, 41 times earnings. I'd say that's priced in. How much – it's mostly the manufacturing side, right?

Starting point is 00:39:35 It's not – they're not the leading – Oh, I mean Apple does tens of billions in revenue in China. Really? I didn't realize it. Yeah, 41 times earnings, maybe not priced in quite that much for Apple. It's a bond. It's essentially better than a bond. It's less risky than treasury bonds according to the market. All right, we're over halfway, Ryan. So I think we need to talk about more of our advertisers before we move on to the next segment. Yeah, let's talk about one of our new sponsors here for Chitchat Stocks. It's Blue Chippers Club. Blue Chippers Club was recently started by two friends of ours with the goal of building a tight-knit community of stock-focused

Starting point is 00:40:16 investors. Inside this community, you can share, break down your portfolio. You can participate in weekly calls, which Brett and I are both on, and compete in some fun portfolio performance monthly competitions as well. I honestly do love this idea and what they're trying to build here, and it's why we're promoting it on the show. Brett and I are part of the community and we get a lot of value out of it. And it's really just nice. I remember when I first got into investing,

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Starting point is 00:40:58 There's literally no expense whatsoever other than a little bit of a time commitment from you the link will also be in the description do we want to talk small cap of the week yes we can yes we can and as a note here follow up on the china revenue they call it greater china greater china revenue which also i think is telling on yourself for uh who's in charge no sorry that sounds too conspiratorial for who has some influence over your business and what your business segments they did 67 billion dollars in revenue in greater china for fiscal year 2024 and 73 billion in fiscal year 2023 i i have to admit i don't read much of apple's

Starting point is 00:41:49 reports these days what percentage of its business is that they're at like 350 billion revenue somewhere around there you're asking for a lot of math um what's yeah overall revenue is like and the 300 billion so it's not inconsequential but it's not overly consequential it's maybe a way to put it let me just pull up total let's just do us total revenue yeah 390 billion america's 167 billion europe 100 billion japan 25 billion rest of world 30 billion so china's pretty big where'd you find those numbers by the way uh well i did pull up well it was on the ir page but you can pull up all this data on our friends at finchat.io use our link get a nice discount um yeah okay let's talk small cap of the week here uh yeah those are attempt at plugging

Starting point is 00:42:46 finchat so small cap of the week presented by yellow brick investing the company this week is called parker vision now i'm going to shamelessly plug two of our sources here who happen to be two of our sponsors but if you look up hedge fund letters online fin chat will be the first link and it's just a compilation of uh fund letters in one of those i saw a mention of parker vision typed in the ticker to yellow brick and found a really good write-up on it this is not the typical small cap that we do where there's maybe some chance of it being like a great compounder. Maybe there is, but this is more sort of an event-driven small cap. So this quote is from one main capitals fund letter. It says, the fund initiated an opportunistic investment in

Starting point is 00:43:33 Parker Vision after the company received a highly favorable ruling from the Federal Circuit Court of Appeals in its longstanding litigation against Qualcomm. So to kind of give some context here on the long long-standing background between qualcomm and parker vision parker uh founded a long time ago they pioneered this direct conversion radio frequency transceivers which led to combining of transmitters and receivers into a single chip apparently it was pretty revolutionary at the time um long story short these inventions allowed smartphones that operate without these inventions smartphones to operate on multiple bands of rf frequencies would have been much larger and more expensive so big application here um big commercial applications

Starting point is 00:44:27 as well and potential for revenue and to protect its inventions this is a quote from another fun letter that i found on yellow brick it says parker engaged one of the top global intelligent intellectual property protection firms to build a patent portfolio that resulted in more than 200 patents around this technology with the goal of licensing it to its wireless chip makers. They apparently demoed this product for Qualcomm. They

Starting point is 00:44:52 even sent prototypes of this tech to Qualcomm. And in 2006, Qualcomm started using the same tech, apparently in its own designs, its own applications. Kind of a copycat. Bringing Yelp into Google and talking about an acquisition,

Starting point is 00:45:08 spilling the secret sauce and going, actually, we're not going to buy it, but Watch out a year from now. We're going to copy everything you do. Yeah, basically, I think. Little more than a year, but yes. This has been going on for almost 20 years now, this debate. So apparently now there are some emails that Qualcomm employees sent that are pretty damning,

Starting point is 00:45:31 including one that characterizes Parker's technology as a holy grail invention. And another that says it's going to be very difficult for anybody to use this technique without stepping on one or more of parker vision's claims oh that's that's good that's nice that is damning right that is nice now here's what gets a little more interesting prkr prkr parker vision today has a market cap of 96 million dollars earlier this year it had a market cap of like 15 million dollars so it's up like 400 plus year to date because there's been these kind of favorable rulings. The case, according to this fund letter, is estimated to be worth $2.6 billion, $1.3 billion in expected settlement revenue or just settlement cash. Then there's like another

Starting point is 00:46:22 $1.3 billion in interest that Parker Vision has been accumulating over 20 years of litigation. So you've got a $96 million market cap and the potential for $2.6 billion in a payout. essentially and the ruling the final ruling is expected in the first half of 2025 so in the next six months roughly there is a chance of a 20x here if they win and it seems like it might be heading that direction i have to go to zero but yeah i have tried to veer away from investments like this because i've been hurt in the past and it's just not really how i want to invest anymore i want to find those potential multi baggers that can you know you don't have to monitor quite as much but this just kind of draws me back in uh so any interest yeah i guess

Starting point is 00:47:13 i wouldn't totally get rid of it from your investing style like i i would rather just own a bunch of high quality stocks at reasonable prices and let them compound but when an opportunity like this presents itself i don't think shying away immediately is probably not the best thing to do this does seem interesting given the fact that you know there are those kind of patent companies out there and stuff like that that seem to just kind of delay and delay and delay and they don't actually have anything materialized they just talk up a big story but if they have an expected date here and who knows with rulings and trials and anything judicial you can get pushed back a bit so you never know and you know it might take a little while longer

Starting point is 00:47:57 than the first half of 2025 but if something happens hey yeah it seems like there's that binary outcome and it's one of those where would you make this a five percent position in your portfolio no but maybe less than one percent something like that seems interesting i yeah not a recommendation whatsoever but does seem like an interesting one for people that want to dabble in the micro cap space and stocks quite volatile just fair warning to everyone yeah i mean 96 million dollar market cap it's certainly a small cap i think that might be deemed a micro cap as well i think micro cap is anything under 150 by most yeah maybe 250 250 but yeah big thanks to yellow brick investing it's join yellow brick.com slash chit chat

Starting point is 00:48:47 That is where I find a lot of these high-quality write-ups, and it's really fun to just browse. If you're looking for new ideas, just browse that website. It's free to join, but if you want to upgrade to a paid plan, that link will get you a discount as well. Any other sponsors as we hit the 15-minute mark here, Ryan? Yeah, we should call out our first sponsor as well, Public. Again, heads up, folks. Interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high-yield and investment-grade corporate bonds on public.com. You might want to act fast because your yield is not locked in until the time of purchase.

Starting point is 00:49:24 Lock in a 6% or higher yield with a bond account only at public.com forward slash chitchatstocks. We got questions in the chat here. I have a question for you. I was thinking about this. I have a question for you before we talk some of these questions. we've done a number of investor research episodes now i think probably eight maybe a little less bill ackman pat dorsey stan jock and miller norbert liu uh david gardner how many others there's been some others right um peter lynch peter lynch which of the ones we've done

Starting point is 00:50:04 do you most want to have you been most inspired by to adopt some of their approach well gardner but that was something that i was inspired to adopt before his approach and that's essentially the letting your portfolio determine your winners for you and having a discipline and some people call it we talk about this in the episodes we don't go into it too much here But having the discipline, the counterintuitive discipline to hold a stock while it's overvalued for a multi-year period. I agree. Yeah, it's something that I've personally lacked. So I think David Gardner is probably – it might be a little recency bias there because we did the –

Starting point is 00:50:51 It might be the bubble talking to us. That too. um but certainly um that that one of kind of inspired me a bit to maybe adopt some new approaches okay let's take some of these questions and then i want to get your thoughts on the kroger and albertson deal um well yeah our uh our home state broke it up i think or sort of that's where the competitive overlap was yeah i think there was i think we're gonna buy up all the worst grocery stores in the state of washington yeah uh but you want to take some of these questions first sure this one seems interesting maybe a snap judgment here what company in your portfolios do

Starting point is 00:51:34 you think will do the worst over the next 12 months pretty hard to predict but what comes to mind first right hate to answer um oh gosh well let me go to my portfolio real quick I could see Philip Morris taking a dive if there's these more narratives around the ozempic weight loss drug type stuff hurting smoking rates. That's obviously good for society, but there's a lot of headlines around that right now. I could see that happening. The multiple has gotten extended a little bit, so definitely could see that. Oh, I lost you there for a second. but the uh you said philip morris was kind of yours yeah snap judgment yeah i'm looking through

Starting point is 00:52:25 mine now i can see philip morris being one which is concerning because it's a good chunk of my portfolio but number the one that comes to mind for me uh is probably dream finders homes that that one i've kind of been i made a deal with myself to only you have to hold companies for three years so i'm gonna stick to it but i mean i've been getting a couple red flags out of that business lately which make me think it's only year one in the year one of the investment right so two more years yeah but you know what there has been true real growth in that business uh since it's been founded so true there is maybe some proof of the business model there but yeah the red flags are kind of glaring me in the face doesn't matter i have to hold it i'm committing

Starting point is 00:53:18 to that probably not going to add to it but yeah yeah it's true you know that you don't have to add and for individuals you got money always coming into the account hopefully if you have a job so you can diversify away from anything like that over time something we talked about on that david gardner episode which came out this morning another question uber reaching an attractive valuation does the fud compound and reach 2022 meta levels a 10x multiple in a few months i think that could be interesting for uber what's in what's super at right now let me do some yeah we do some digging for us aka just looking at it on finch i think the stock's gone into like a 25 drawdown not too aggressive but i think what the questioner here is saying is will get worse

Starting point is 00:54:08 maybe i mean if waymo starts growing really fast it could but isn't that a risk that i i think waymo is a bigger risk to uber than tiktok was to meta i'm gonna be honest i'm very optimistic about waymo because the product experience the customer reviews say it is just way better than uber than a traditional car so i you just can't take that i don't know like it's not something that you know meta just copied tiktok's product format and you got a company that no they're outsourcing all this they're they're forced to partner with them yeah and And you got a company who's willing to burn the money the same way you were early on if you're Uber, right? You had so much venture capital backing that you were willing to take the losses early on.

Starting point is 00:55:05 Waymo is also willing to do that and seems like a superior experience. That would be one of the most interesting – that would be one of the most shortest-lived disruptors, I think. That is true. Uber goes in, disrupts the entire taxi industry, and then potentially disrupted like 10 years later by Waymo. So I'm looking at the multiple here. It's down 29% drawdown. Forward EV to EBIT, which I think is a reasonable metric for them. Yeah.

Starting point is 00:55:39 I don't want to do free cash flow because they are big stock-based compensation issuers, so that doesn't get included there. forward ev to ebit is about 26 times not bad when does this what price does this get attractive for you i could see the waymo concerns being a bit overblown because there is the potential that there's certain cities where waymo just can't succeed like uber can um i don't even speak internationally yeah latin america europe yeah um the metrics for uber the growth looks great the i don't want to just do relative valuation here because i see 26 times a bit and i think oh you know it's not it's it's cheap but i'm thinking of that relative to uh s&p 500 and which is at like kind of record highs and some of the other big tech companies that are also trading at high multiples.

Starting point is 00:56:46 So I would say below 20 times forward EV to EBIT, I would get interested here. The number that popped in my head was 15, but maybe I'm just pessimistic on the way – Well, the forward returns would be better there. Yeah, that's true. They're always better. yeah i think like look is uber dead no like people that would just probably say like waymo's guaranteed to succeed and dominate the space like that that's absurd and obviously they're not doing that right now but i want proper

Starting point is 00:57:22 just accounting for that risk i'm not sure we're there yet but we're getting there stocks on the 25 percent drawdown while the business keeps doing phenomenally I'd like to see what their capital return strategy is, because if we're going to get into that mode where the narrative just gets worse and worse and worse, I would hope that the buyback can start accelerating. But yeah, 15 times, I'd be interested. But for a company that has disruption risk, 26 times earnings, it's not going to do it for me. I'd rather sit in treasuries and wait to see if that disruption happens. Yeah, that's fair. All right. Another topic here. Kroger and Albertson deal was officially blocked. Well, blocked. It was blocked by two US courts, but Washington being one of them, the real issue here is that Albertson's terminated the merger.

Starting point is 00:58:23 So Kroger could have appealed the decision, but Albertsons basically just said, no, we're terminating the merger. And now Albertsons is now suing Kroger for billions of dollars stating that Kroger refused to offer an adequate divestiture package and repeatedly ignored regulators' concerns, moves that Albertsons claims caused the merger deal to be blocked. First of all, adequate divestiture package. That's what you do up front. Yeah, it's not something you probably should have figured out earlier on. It's easy to ask for more now. Who cares about these companies, honestly? Who cares?

Starting point is 00:59:02 That's all I'm going to say. My thought here is like grocery is not so capital intensive that if you are one of the major, I guess, grocery stores in the area and you start price gouging everyone. It's not – the barriers to entry are not so high that someone couldn't pop one up next to you and be a discount grocer. So I kind of think like maybe this didn't need to be blocked, but I'm a fan of courts stepping in when it seems like there is not the possibility that competition could arise. I don't think that's the case for grocery, which is probably one of the most hyper-competitive industries in America. Yeah. And in the state we live in, you can have an example of the Kroger-owned stores and Albertsons. Yeah, combining those, that's a pretty decent chunk of the market, but there's plenty of others out there. And it seems to me like those other options, at least in the area we live in, do better. The Whole Foods types, Trader Joe's, Farmer's Market, Trader Joe's, the local Whole Foods competitors. Yeah, I don't really get this, but Albertsons and Kroger's of the world have underinvested so much.

Starting point is 01:00:27 It's like their stores are – it's like going back to 2005, and eventually that catches up with them. yeah i will say the checkout process has improved if we go back to if we compare it to 10 years ago but low bar yeah there's a low bar look i mean what are you expecting here i'm just saying like like unless these are trading at just stupid cheap multiples there's no way i'm interested in these yeah i guess and there's certainly quite close to saturation already maybe it's got to be like a big dividend yield for me like yeah you have to be they have to have be committed to paying the dividend and it has to be yeah like you said a really really

Starting point is 01:01:22 cheap multiple because you're not buying these for growth no i mean yeah i guess you're buying Maybe inflation. You're going to get inflation, you know, but yeah. All right. Other questions as we wrap up here. What are your thoughts on the administration's threatened tariffs? Well, incoming administration for the United States. Do you think there is any risk to your holdings? Well, so far, you would say my Mexican companies would be at risk, but they seem to have gone up. And the way I look at it is I'm hoping to own these companies through multiple presidential administrations in the United States. And I don't think the relationship between Mexico and the United States economies are going to get worse over a multi-decade period.

Starting point is 01:02:09 So it's only going to increase. The incentives are there, especially if China is the boogeyman, where are you going to replace a lot of that manufacturing? Latin America, specifically Mexico. We're seeing all that stuff go down there. And is tourism going to decrease in Mexico from the United States? No. And as the individual Mexican gets more wealthier as their GDP per capita, income per capita, breakthrough thresholds of $10,000 a year, $15,000 a year, $20,000 a year, you have much more room for consumer discretionary spending. And in relation to the airports, fast food, restaurants, stuff like that, just tourism and general travel, I think it's going to help you know the mexican airports especially both those well i mean you should look at all of

Starting point is 01:03:00 the routes that are going into monterey i saw something like a direct route between tokyo and monterey i think like why are you doing that electronics manufacturing it's uh i guess yeah i'm not too worried about some of the tariff threats it's also probably important to contextualize this and you go back to 2016 when um during first trump's trump's first presidency there was so much concern about the relationships with mexico and if anything a lot of threats yeah a lot of threats a lot of it was just kind of a negotiating tactic and ultimately the relationship between us and and the trade relationship between the us and mexico got better over time if anything so um yeah i suspect that will continue the there if you have a company

Starting point is 01:03:53 that does a lot of manufacturing in china the tariff threats might be an issue um if if something were to get worse there i know like yeti for example yeah i think they do a lot of manufacturing in Asia. I mean, it must be in China given that the stock sold off so much when Trump was elected. I'd be more concerned about companies with outsourced manufacturing that direction than any trade relations between Canada and Mexico and the US. I agree with that. The one thing I will be watching is any sort of news on Mexico and the United States creating buying opportunities. where we could see stocks hit a drawdown we could see the peso depreciate which we actually did see and that could create you know some opera opportunities and i think prepare the watch

Starting point is 01:04:48 list now you never know what's going to happen but there could be some opportunities out there all right we got to wrap things up we had one final one uh from someone that joins a lot that asked about the donkey kong country getting open at universal japan did see that seems like nintendo keeps doing stuff there and they asked do you think nintendo will utilize more ips within the parks yeah i think for sure now the question is you know as we've talked about the nintendo theme parks are not going to be very material to their own financials but it's all about it's all about regaining not regaining keeping your customers happy keeping the kids the players the families attached to your franchise and entertainment characters.

Starting point is 01:05:31 So the key is, from a financial standpoint, when this new switch comes out in 2025, which the company has essentially confirmed now, which is good because it's not just theoretical anymore. They have said they're bringing out within a year. Well, if that's successful, then the earnings stay higher. But the theme parks, that's kind of a sideshow and more of a long-term customer retention thing.

Starting point is 01:05:58 It's not going to impact the financials. All right, we're going long. Ryan, anything else before we get out of here? No, a little bit of a tease. We do have an exciting episode coming out, which I think a lot of people will like. We've talked a lot about the excess in the markets and the valuations of certain stocks

Starting point is 01:06:15 getting to levels that we don't like. We're going to find some stocks for you that we do like, So we will touch on those in an upcoming episode. Yeah, stocks in a bear market, little AI interview, lots of fun stuff. If you want to talk about this episode, talk about any sort of investing topics, join our chat community on Substack and subscribe to our free newsletter. Give us a review on Spotify or Apple Podcast. It takes five seconds, and that is the best way to support the show.

Starting point is 01:06:44 As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I are 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 on the live show or listening on YouTube, Spotify, or Apple Podcasts, and we'll see you next time. Thank you.

Chit Chat Stocks - Google's Quantum Breakthrough; Uber Stock's 29% Drawdown; General Motors Ends Robotaxi Efforts (AMZN, GM, GOOG,)

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