Chit Chat Stocks - Meta's $100 Billion AI Bet; Will Jerome Powell Be Fired? Nvidia Sells China; Earnings Season Kickoff (NFLX, ASML, TSM, IBKR)

Episode Date: July 18, 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: (01:27) ASML Analysis and Market Volatility (09:56) Taiwan Semiconductor's Growth and Market Position (17:26) Netflix's Earnings and Business Model (25:00) Bubble Watch: Meme Stocks and Market Valuations (32:58) Evaluating Palantir's Future Cash Flow (35:43) Interactive Brokers Earnings Review (41:20) Cloudflare's AI Crawler Blockade (47:08) Meta's Ambitious Data Center Plans (54:51) Musk's Circular Investments and XAI (01:00:08) Political Pressures on Jerome Powell ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by TSOH Investing Research. Long-term equity research with 100% portfolio transparency.  Subscribe Today: https://thescienceofhitting.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, a podcast where we help you find your next great investment. And today, earnings season is officially kicking off. I'm one of your hosts, Ryan Henderson, and I'm joined, as always, by the one and only Brett Schaefer. This is our weekly Power Hour episode. We talk all things financial markets, and as I assume the title is going to indicate, we're talking about earnings this week. netflix reported asml reported uh interactive brokers trying to think of all the taiwan

semiconductor we've got huge capex plans from meta and i literally mean physically huge and we have a massive crackdown from cloudflare on ai scraping which may have some big implications if you're a google shareholder we're going to get to all of that in a second quick housekeeping items. We do these shows live on Thursdays at five o'clock Eastern time, 5 PM Eastern time. If you want to tune in, head on over to our YouTube, check out chitchat stocks and feel free to ask some questions. We also post these on our podcast players. So don't mind if you listen there as well. And if you like the show, please, please, please, please give us a review. That's the best way to help us grow. Let's kick things off, Brett. Let's talk earnings.

Where do you want to start? You want to start, want to go by the, chronologically here, go by the first reporting? Yeah, what would listeners like to listen to first? ASML, we had a lot of people talk and ask about ASML, I think three or four. So why don't we kick it off there? Stock's looking a little cheaper. I will say, if you want more in-depth analysis, go check out our friend at Best Anchor Stocks, Leandro, writes a lot of good stuff over about ASML.

Ryan, you made the notes. What happened? Why is the stock down? And then we can get into the valuation. Yeah. I honestly find, before we get into some of the numbers, I find ASML just kind of a bizarre stock, I guess, because it's very volatile, but the business itself, like it's it's going the growth is fairly predictable in the sense that you know they will grow they have this just massive moat and they're a total choke point in the semiconductor industry and you know semiconductor spending overall is growing like if you see the taiwan semiconductor is spending tons on capex that that bodes well for asml so like you have good indicators for them but then you have so much volatility it just kind of surprises me i guess

the big thing here like if i just go through some of the numbers the numbers looked pretty good like just the headline numbers uh net sales were up maybe i don't have the actual figure but net bookings were 5.5 billion which bookings is kind of a misleading figure for them because it could be one day later and they could add 400 million dollars in bookings with one new machine sold um so it's the sales is kind of the figure of the track there net sales were 7.7 billion dollars 7.7 billion euros excuse me uh gross margin of 54 percent and everything looked pretty good they said they expect a full year 2025 net sales increase of around 15%. So kind of business as usual for them. They just continue to be the innovator in the

lithography space. But then they had one quote that I guess sent the stock plummeting more than 10%. Let me find it. Okay. It says, looking at 2026, we see that our AI customers fundamentals remain strong. At the same time, we continue to see increasing uncertainty driven by macroeconomic and geopolitical developments. Therefore, while we still prepare for growth in 2026, we cannot confirm it at this stage. What do you think about that quote? They don't know what the government's going to do.

The United States, they seem to switch their strategy every month. So they have to say there's some uncertainty there. I think the key for any investor, and I'm looking here while you're talking, I've loaded up the chart on fiscal AI trailing EBIT to EBIT, which I think is a fairly good metric. You might want to toss in some forward ones there and maybe normalize some stuff if you think there's any sort of lumpiness, but that's more of an in-depth discussion on ASML. EBIT to EBIT, 21. Right now, that's near the low on a kind of post-COVID basis, even a little bit pre-COVID as well. If you think that demand is there and you have a longer time

horizon than 2026, which I think a lot of investors don't. A lot of investors might be impatient there. This could be a good buying opportunity. If you believe that earnings can grow at a double-digit rate and you can buy it at 21 times earnings, you have five times earnings yield plus a lot of earnings growth, that's not a bad scenario, especially for a company that a lot would consider a rock-solid monopoly. so yeah definitely i'm not buying it's a little big for me i like smaller companies these days maybe it's still maybe that's a weird thing to say to artificially put myself on but i i would i think it works from here if you have a five-year time horizon yeah i mean they can only grow so

fast like they could take on a bunch of bookings well for one they only have so many customers that can afford their machines but they can take manufacturing capacity they only have so much manufacturing capacity they could take on a bunch of bookings but that doesn't mean they can deliver it right away because that manufacturing capacity so you're like there is some ceiling i guess to their percentage growth rate the thing that surprises me here is like if they didn't say anything like if they would have not said a word about 2026 i imagine the stock would be up but they tried to quell i guess any future damage that could be done by saying like look we don't you could have replaced their quote with we don't know what's going to happen in 2026

and it would have been functionally the same did anyone going into this think that tariffs like like what they said could not have been new to anyone obviously customer demand could change if there's a big change in tariffs so it just kind of surprises me that the stock is so volatile here's the here's the thing that i think matters the most and what people should care about it's a quote from tsmc's i guess quarter ago conference call i think they re uh restated these numbers and it was still the same but they said combined with our previously announced plan to build three advanced semiconductor manufacturing fabs in arizona this brings our total investment in the u.s to 165 billion dollars to support the strong multi-year demand from our customers they have

They have plans to build, I think it was 11, more than 10 new fabs between Taiwan, Japan, and the US. I don't know what the dates are on those. That is just music to the ears of ASML shareholders. Because what do you think those fab facilities are going to be packed with? Yeah. Pretty good. Pretty good. Pretty good growth trajectory for sure.

are you buying ryan do you own this stock i don't own this the other thing i'll mention is they are buying back a good chunk of stock so four and a half they've spent 4.5 billion dollars on buybacks over the last two quarters which i think comes out to about 1.6 percent of their market cap so now cash flow is somewhat lumpy for them so it probably isn't useful to annualize that but if they did annualize that figure you'd be looking at about three percent of their market cap being bought back uh being repurchased on a uh on a go-forward basis i i think you can make money here but yeah i'm kind of with you it's a little too big for me which is funny because we're about to talk about tsmc i know i know so what's what's the i think maybe not too big i don't love

i guess a i don't understand them perfectly although i think i get the gist but i don't love that their growth is somewhat capped by manufacturing capacity like time on semiconductor you could make the same case but they're growing much faster and they can frankly raise, well, I guess ASML could raise prices too. But I don't know. I feel like growth could be higher for TSMC, I guess. Growth could be capped on ASML for sure. It's almost like a guaranteed, and that's a dangerous word to say in investing, but it's almost like a guaranteed 10% to 15% return. We have a comment here that says 20, 30 guidance is about $44 billion to $60 billion in revenue. I think that's euros,

but converting to dollars, not that big of a difference. It's not that much growth compared to what TSMC is doing, which I guess we can go straight into them, kind of related. They reported this morning $30 billion in revenue versus $21 billion a year ago in the same quarter, so pretty fast growth. I think that's about 50%. 50% operating margin, 60% of revenue coming from five nanometer and below. So five nanometer and three nanometer, 60% of revenue coming from high performance compute growing 14% quarter on quarter market cap of $1 trillion, Ryan. They should do a hundred billion dollars in revenue soon. I would think by the end of this decade, $200 billion in revenue and a hundred billion dollars in operating income isn't an

insane assumption. Are we still underestimating this company? And maybe I'm preaching to the choir here i'm not an owner of the stock you are a recent uh buyer of the stock what did you think of the quarter seems like a another fantastic result from one of the best companies in the entire world yeah it struck me as a pretty good quarter the i think people are underestimating it Obviously, if something really were to happen to AI demand, which I don't see that happening anytime soon, at least, it could impact their growth rate in a big way. But I just don't see – if we think that in five years AI spending overall is larger or is higher, I don't see how TSMC doesn't make a boatload of money in the process and get to that $100 billion figure. Are you telling the next five years compared to the next 12 months or from the previous 12 months? Because the next 12 months we could be getting into, which I'll talk about in another section here, potentially bubbly territory.

So, yeah, okay. Spending could be higher next 12 months than five years from now in terms of like they're building out these massive data centers like Meta is. But even in those data centers, they're going to need to upgrade their chips. I assume they want to continue to be on the leading edge. that just can that means more spending for tsmc so that's what i i mean in terms of more spending is more spending on leading edge chips which is always going to benefit taiwan semiconductor i thought the quarter was good these quarters can be i guess somewhat i don't want to say boring but management keeps things pretty close to the vest like they analysts try to ask questions

and they are basically give the same answers over and over it's like useless just don't yeah don't it's like read them we're gonna we're gonna continue to serve customers and we're expanding capacity and everyone's like i know but like what exactly is the gross margin going to be in two years it's like who cares they don't know they don't know they don't know uh hopefully as high as possible yeah they're they're they're a company i trust very much but their conference calls are useless just read their presentation there's a couple notes that You just need what are margins looking like, what was the revenue number, where is it getting divided into what segments, high-performance compute, smartphones, and what have you. Besides that, I don't think you need to do much.

I think you can safely assume about half their revenue goes to operating income. So if you're right on the revenue trajectory, you probably – Let's look at the historicals. I think it's been lower than before. I think they're at about 48% operating margins, if I'm not mistaken. Right now. I'm saying – It could come down slightly with the US fabs, which is what they're forecasting.

But the bridge between gross margins and operating margins over time, I imagine, should continue to contract, which they have. Here's my thing. they basically laid out in the conference call they're like like analysts kept asking well you know if margins contract are you gonna do anything for pricing and they were just like they basically said yes if we want to extract more value we will like if they will get to a margin target if they want to on price yeah they do because they have that power yeah yeah it's it's really interesting to look at the semiconductor space because asml and the equipment providers have pricing power tsmc has pricing power some of these other

companies that are manufacturers also have pricing power nvidia and apple i guess and all these other customers of tsmc seem to have pricing power it's because it's such a lucrative industry such an important industry so large and there's so few players that seem to have many monopolies at each step in the chain that everyone wins and we're looking at the operating margin chart it has trended upward over time i conservatively i maybe think 45 makes more sense uh but that's still really really strong better than apple better than other manufacturers out there and it continues to be high and they have that pricing power because for advanced chips they keep extending their lead versus samsung intel and i don't know the chinese players that well but

they're ahead of them yeah and we're going to talk about the nvidia news too i think if they're selling into china that means more demand for taiwan 7 connector more demand for everyone yeah i think do what do you think did jensen go to the white house and say hey if you put out this headline the stock market's going to go up that's all he needed to say might be all it takes uh let's jump to that but before we do we want to talk about the tsoh investment research service new sponsor for us uh i'll just go ahead and say i absolutely love this service we read it regularly it's run by a friend of ours alex morris inside his research service subscribers get access to six high-quality stock research reports per month, including initiation reports,

as well as regular updates on current TSOH holdings and watchlist stocks. Plus, there's 100% portfolio transparency. His coverage, on top of him being a phenomenal analyst, and I think making things very digestible for all the readers, he covers interesting companies, or at least interesting to me, companies like Airbnb. be Celsius, Roblox, Netflix. I know most people won't think this one's exciting, but Ally Financial, he helps me with that. TSOH is a premium research service. And if you're serious about investing, this is like outsourcing a professional analyst. I lean on him for quarterly

coverage of a couple of the companies I own. He has also, he does get, like I said, full portfolio transparency and he talks about his returns and he's absolutely crushed it over the last two years if that intrigues anyone but you if you're interested in the service head on over to the science of hitting.com the link will be in the description again that is the science of hitting.com do you want to talk netflix earnings sure sure let's talk netflix i haven't looked what were the numbers this may have i know this is not a good tease for anyone listening to the podcast but this might have become one of the most boring reporting companies out there. It seems like a very predictable business at this point,

and they have such good control over their margins now in terms of they can really turn up pricing, they can turn on the ads. It just seems like just a really well-run business. 16% revenue growth, slightly above their guidance. 34 operating margins versus 27 a year ago also ahead of their forecast now in this case the primary driver of their outperformance relative to guidance was a weaker than expected fx headwind but they grew members they increased subscription prices and they increased ad revenue and i would say they did this all with a pretty weak content slate and now that's

that's your personal opinion but also not a love island fan ryan huh well okay so people are watching isn't that their number one show i don't know i'm not sure but they do give that data out so maybe i could check the it's i i think it was kind of a poor slate but they also said they produced all these solid results record engagement record members and price successful price increases when the majority of their content slate is weighted to the second half of this year. So hopefully, I imagine for them, it should be even better results coming out of the second half of the year.

I thought this was an interesting stat and it kind of puts – it goes to show just how valuable Netflix is and how they're not dependent on any one thing. So it says, we are not dependent on any one title to drive engagement. For instance, even our biggest titles that have tens of millions of views account for less than 1% of total viewing. They really are, you think about like HBO, maybe even Prime Video to some degree, Apple TV, those services, they might produce great content. But they're typically driven by a couple of franchises and viewership, I would guess, is somewhat cyclical and tied to those franchises. netflix is just not the case they are growing when they're with their top titles accounting for one percent of the viewership they're still growing members in the biggest service the world

biggest service stream streaming service so it's just it's an exceptional business there was one quote that stood out to me that i want to find that basically encapsulates their entire business model at this point. Let me find it real quick. As we deliver more value to members, we continue to refine our plans and pricing to improve monetization, which in turn allows us to reinvest to make Netflix even better for our members. They're at the point where they have this competitive advantage. They've got a wide enough content slate. They can start to take profitable gambles, I guess you could say, on different types of content like live events and even gaming um not sure if gaming's a profitable gamble but you i imagine those live events are

given the engagement they get and they can just reinvest in the platform at a much higher rate than pretty much all the other streaming services so last year we said netflix won the subscription wars or the sorry the streaming wars i see no evidence to disprove that theory i think the streaming wars are over i agree for the most part the only thing that would be a leading indicator of a long-term concern over the next and this is not going to happen next year but over a decade is the fact that watch hours on tv youtube is growing market share much faster than netflix now both of them are taking share from traditional players and there's still about half of viewing hours that on regular cable or legacy broadcast stuff that is going to go away that i would say

that is a bit of a concern i got nothing to say on netflix good company evie to evite do you want to guess what it is right now i'm looking it up right now on fiscal ai trailing evite trailing evie to evite maybe it hasn't updated this quarter yet but shouldn't be too much of a difference it's gonna go 50 times pretty close 48.6 not a buyer here gosh just no i guess people are scared and running to quality uh but at a price of 1200 bucks man that's it's just not appetizing now i've okay i've got the revenue per region pulled up here as well and a beautiful chart uh shout out fiscal ai and if you're interested check out our link fiscal.ai slash chit chat gets 15 off growth in all regions this quarter 15 in north america 18 in europe

9 in latin america 24 in asia pacific they have content for every region i i just don't see how someone like i could see how it slows down although they've got a lot of monetization levers they can pull now with advertising but i don't see how anyone ends up supplanting them as the leader in streaming youtube youtube for sure i mean youtube is the leader in streaming sorry the leader in original content paid streaming it's all overlapping you can pay a subscription to watch youtube without ads i think that is their number one competitor video games is a competitor staring at your phone as a competitor

the competitors that amazon maybe with sports but apple tv hbo uh i'm forgetting the other ones paramount it's a joke it's it doesn't matter netflix has beat them their competitors are well who i just mentioned video games youtube essentially people's leisurely hours staring at a screen can they win more hours of that probably in the u.s i think it's going to prove more competitive than people think over the next five to 10 years. There's only so many people in so many hours that you can spend watching TV. Although maybe I'm underestimating the laziness of people. Yeah. I think you underestimate how many people are willing to pay for a service like this, have it on in the background and play on their phone at the same time. Okay. People have

doing that but yeah it's you are correct that is what a lot of people do before we jump to we've got a lot of ai topics i guess you could encapsulate it as ai news the news keeps coming every week let's maybe do something fun do you want to hit either a quick bubble watch or maybe we could talk about uh mr jerome powell on the hot seat as always the bond market's gonna save him someone asked what we will or we use for streaming services i made a rule for myself i'm only watching sports now honestly i got not wasting my life anymore but that's just to answer that question there let's do bubble watch there is a new acronym ryan i'm sure you saw it because jim cramer the man

you may love him or hate him he's got style right he knows how to put on a show jim kramer famous cnbc host said a new acronym for the meme stocks that just won't quit three exclamation points park palantir app loving robin hood coinbase some people reversed it and said that these could be crap stocks he may have done that on purpose because he knows how to drive memes I think I think he knows what he's doing. He's an entertainer. Let me give you some numbers on what these stocks have done since the beginning of 2023, which is just a tad over two and a half years. Palantir or Coinbase cumulative return. And this is the worst performer cumulative return of 1,000%. Palantir, 2,250%. Apple Lovin', 3,270%. Robinhood, 1,170%. If you bought at

the beginning of 2023 with any decent amount of money, you are very rich. But I think you have to make a really tough choice now because are these insanely overvalued? I haven't looked deeply at most of them palantir i'd say yes um honestly full disclosure i put on a tiny short on palantir really yeah yeah is that your first short yeah very small percentage of the portfolio but just i don't want even we're talking probably about something i should uh disclose stuff like that nothing against the people that made two thousand percent on the stock i just think it's one of the most overvalued in history it's price to sales above 120 maybe at this point it's a market cap of 350 billion dollars and it's i don't think ever going to grow into its valuation

let's take it let's take a second here do you think this is the most overvalued stock in history i think given the market cap yes now people are giving examples back of the dot-com bubble yahoo uh as an example they were smaller market caps yeah the price to sales ratio might have been just as insane but i think if you include the actual size and maybe we're not adjusting for inflation but i think it takes the cake you have something like tesla in 2021 that could be an argument but they their financials were much larger even though i would say that they've proven to be fairly overvalued from that level i don't think it's as insane as palantir yeah trying to just for fun trying to do the math on what it would take to get it to

a reasonable valuation yeah yeah it would require outrageous growth and i i can already hear some people that maybe own shares like well they can grow at an outrageous pace but to do it for they'll need to do it for 15 years at amazon level growth rates which frankly they don't have the addressable market to do it at uh so i it's absurd i honestly i agree with you i think it's one of the most overvalued in history and if you go down the list of i know this is like a flawed way of thinking anyways but if you go down the list of companies that it's larger than it blows my mind yeah it's like 25th largest company in my market cap in the entire world larger than bank of america yeah yeah bank of america does i think 27 billion dollars in net

income i'm pretty sure palantir does like maybe i'll put some numbers on it really yeah three billion in revenue let me pull up a chart i'm gonna pull up a chart keep talking let me put some so i'm gonna put some numbers on this when i mentioned that investors have to if you own these you have to get put into a tough spot because i i just think okay let's say you have a huge winner in one of these i would applaud you for that but i don't know if all four of these are grossly overvalued right now maybe one still reasonable something like that but if they are grossly overvalued and you think ah this could be dead money for 15 years you have to make a tough choice you either keep it and maybe forward returns are terrible or you sell and take a huge

tax hit i just don't like these type of stocks my question is ryan if i know you wouldn't neither of are doing this forced to go long or short this basket equal weighted not your entire portfolio what would you do short yeah come on it's dangerous though you can't this is why if you short stuff i know it's dangerous but you'll have to do one or the other yeah exactly exactly i would be i agree with you yeah well maybe you could go along maybe one of these works and here's the thing that i find interesting is like the companies that always get the most insane valuations are the ones that have legitimacy to their business model it's not the ones that are like well and maybe you can make

the case for nicola or whatever and in in 2020 and there are some concept companies that get to extreme valuations. Rigetti? Quantum computing? But when you have legitimacy behind your business model as well, then I think it can get to crazy, crazy numbers. Like Shopify.

I'm pretty sure Shopify has put up incredible numbers over the last four or five years. Talking about revenue, financials? I still don't think they've hit their all-time highs from 2020. No, stock is at, I think they did a split.

Stock is at $127, give or take, and it peaked at $167 in November of 2021. At that point, the market cap was $200 billion. I think they were my old pick for most grossly overvalued stock, maybe Snowflake as well, because their price-to-sales ratio was at $60. But Palantir's is double that, Ryan, double. okay so i got some numbers on it bank of america over the last 12 months actually 28 billion dollars in net income look at that chart palantir which it's it's not like oh they don't have any earnings they they are a profitable business like and they've they've shown some operating leverage 571 million in net income over the last 12 months they are uh doing some back of the napkin math

here bank of america earns 54 times more money on an annual basis than palantir and palantir is bigger it makes no sense to me well okay that's a big gap to make up i have a question for you over the next 20 years will palantir earn cumulatively free the either free cash flow minus spc or the net income that bank of america has earned over the last 12 months of one year over how many years for palantir next 15 20 i maybe you have to think about it the fact they might be able to get there yeah yeah the fact is that you have to think about this we are not not at the mag 7 level i don't think but we are at 2021 vibes across the board on all these shit goes across the board you this

isn't time to stay conservative wait for the fat pitch the fat pitches are not here i just it's it's getting dangerous out there that's all i'll say i honestly don't know anyone that is actually buying palantir at these prices and so maybe that's just my circle of people but obviously some people are but i don't even some of the most bullish people i know have gotten to the point where like i love palantir but i i think the valuation's a little stretched and they're like oh yeah most optimistic take a little stretch what a wow really going out on a limb there my god prices will drive people to conclusions that they never thought they would make the most irrational conclusions price drives your narrative you have to remember that that's your instinct

and this is what the same thing has happened in 2021 learn your lesson that's all that's all i'm saying to the listeners okay before we move on and before we talk about potentially interactive brokers earnings, let's talk about our sponsor, Interactive Brokers. Are you tired of moving money between your bank account and your brokerage account? Well, with Interactive Brokers, there's no longer a need to have a separate high yield cash account. Interactive Brokers offers up to 3.83% interest on instantly available cash. That means if you've got some cash sitting in your brokerage account and you're waiting to deploy that money until you find your next great investment, maybe a stock talked about here on this podcast, now it's actually going to be earning something

in the meantime. This is just one of the hidden advantages that comes with being an IBKR customer. They simply do not cut corners. And I constantly find myself surprised by just how much they're willing to do for customers that other brokerage platforms are not. If you're interested in checking them out for yourself, head on over to IBKR.com. Restrictions apply. Interactive Brokers is a member of SIPC. Now, shall we talk about Interactive Brokers earnings? We can, yeah. I always feel weird that they're an advertiser and they've been a good investment for me.

I would say go back and look at my research report. I did a full hour-long podcast. If you want the full details and just as a disclosure, it always feels weird that they're a sponsor, but I own the stock. I want to hold it for the long-term and they seem to be doing well so far. Stocks up about 4% to 5% after hours.

Ryan, you got something before I go? Just to be clear, those are two very separate things. Brett owns the stock and us talking about it has nothing to do with the sponsorship. Yeah, exactly. So let's go through the numbers. Commission revenue was up 27%. Interest income up 9%. So I guess they're getting a little slow down on that. Interest rates have come down a tiny bit from last year. Pre-tax margin expanded from, and I didn't even think they could get more margin expansion, from 72% to 75%. Could we see 80%? These numbers are insane. This company is so efficient. Customer accounts are up 32%.

percent daily active revenue trades which i think that's what darts are for their acronym increased 49 percent all i have to say is incredible business not surprised the stock is up and i think looking back 10 years from now when i bought at during the april panic and i think it was about the 40 range. I think it's going to end up, feels like it's going to be one of my best investments over the next 10 years. Dangerous words, but this is a company I just really have high conviction in that they're going to keep growing. People love the platform. It's better than everything else. There's going to be slow switching because there's friction to switch to new brokerage, but they're gaining a lot of momentum. And I think word of mouth is going

to spread across the board for them well you mentioned slow switching some of these numbers might disagree with you here total accounts shout out to fiscal ai for tracking this data has gone from 690 million sorry 690 000 total accounts in 2019 to just under 4 million today so it's five x it's total accounts now i will say the average run a lot of room this has been i believe due to the very successful rollout of their ibk are light because if we look at maybe i can pull up some custom metrics here on fiscal average equity per customer is it down yeah relative to well maybe this is just the bubble period but it's shaved off a little bit probably down 30 percent yeah basically 30 percent of since 2019 so my guess is they've

made a plan or they've built a plan that's accessible to people that don't have that aren't massive accounts and they've on now average individuals can unlock the benefits and honestly they're best in class trading uh execution so that's probably been part of the reason for the average equity per customer going down now do you want to see a sign of the times brett maybe this would help you with your bubble watch i'm going through a whole bunch of data on fiscal ai here total customer equity yeah which is just it's predicated primarily on market valuations it's you know it could be hit oh that's a nice bump yeah this quarter was real good and now they did grow active accounts but my guess is the majority of that has to do with uh market valuations

yeah they're calming here ibk is the best brokerage platform hands down uh thank you for agreeing i think our sponsorship they they like those comments from the listeners when you say 3.8 million ryan remember ramen has 25 million accounts and other can be overlap with people ramen has 25 million i think schwab is 30 to 40 million vanguard has like 50 million and this is just in the united states globally i think ibkr has can easily get to 10 million and just keep slowly gaining accounts over the next decade and and beyond it's not it's not like oh you can just download this platform and try it it takes a long time or there's a lot of friction to switch like hey i need to get my accounts transferred over it's a multi-step process but it's a great business

And those margins, they'll make you salivate. That's it's basically there's that visa hurdle. If margins are above visa, you know, it's a damn good business. What are the highest post-tax margins possible? Because for them, income tax is like what's 20 percent, slightly lower, 15. Sure. Let's just assume that. So, I think they could get the pre-tax of 80%.

So, 65% to 70% post-tax margin seems doable. Why couldn't they get to 80%? Is that the highest margins you've ever seen? I think so. Maybe Evolution Gaming. Maybe some weird software companies, but outside of something that's a strange situation, that's almost like a licensing deal.

Yeah. these are dang this it's a good business it's a good business yeah it is i'll say it a million times before we go talk about meta's outrageous spending i want to talk about this crackdown on the ai platforms did you hear about this i did not yeah maybe since i'm sure it was spread around your internal communications you're more in the know keeping up on the day-to-day stuff since you work literally at an AI startup. Yeah. So Cloudflare, which is, I believe,

one of the most popular content delivery networks in the world today, 16% of the world's internet traffic goes through Cloudflare. And if you want to remember just how impactful they can be, think back to their outage when they launched one product

that had like some flaw in it. They launched some update and it basically took down the global internet. And so apparently Cloudflare is going to start blocking artificial intelligence crawlers from accessing content without website owner's permission or compensation by default. Here's a quote from Ben Thompson, who is always exceptional at dissecting this kind of news. He says, Cloudflare launched an easy-to-block AI crawler a year ago, and they say that more than 1 million customers have enabled this feature since then. That, however, was an affirmative choice. Now tens of millions of websites will block AI crawlers with immediate effect unless they affirmatively agree to be crawled.

And then he talks – he has a section about Google's advantage. He says, there is one important exception to these defaults, Google. which has two crawlers google bot crawls the web for google search while google extended crawls the web to capture data for gemini what is critical to understand however is that data for google search ai products including ai overviews and ai mode is gathered by google bot that means if you want your website to show up in google search you have no choice but to have that data also be used by any ai product that are under their search umbrella this feels like a kind of a flex of power on cloudflare's part but this feels really damaging to the i guess answers out of a lot

of the foundational models uh pretty much everything except google am i thinking about this wrong is this not a massive win for google i would think so looking at the outside uh not sure how this tech really works besides the basics that people outline seems like google will do well if it's 16 of the internet traffic though maybe that in a vacuum is not the biggest loss but from what i understand the most important thing is conversational stuff such as gmail you of Reddit, Twitter, YouTube, I guess, for video and conversations. They'll probably train on this data that you're giving them right now. I've found that you can with, so I've written like 2000 articles for the Motley Fool or something like that. They can, they probably train on a

lot of that data and they can put something out that's kind of gibberish that doesn't actually make sense, but it's in the exact style of how I write for the Motley Fool and how they want people to write if that stuff goes away yeah i think this could be a concern here in all this art uh you could start having to use the the what is it called the fake data the artificial data that that is just created it seems very strange for me um but over the long term the companies with the data seem to have a more rock solid foundation open ai and thropping and some of these other companies have gone wild west, I would say, to try to capture all this data and train, and that could be reversing going forward. I've seen a lot of lawsuits out there, don't know how

they're going to work out, but Alphabet, as usual, has a clear competitive advantage in essentially everything in AI. The only question is if they can execute with branding, product strategy getting distribution to customers yeah i agree the i've always been sort of unclear on the legality of like chat gpt's business i guess in that crawling every website training on other people's data scraping other people's data and using it has always been a confusing concept to me it's always felt like maybe it was wrong but everyone was doing it so it was like was it acceptable so i imagine this is pretty impactful this from cloudflare and might impact the answers or the quality of the answers that you get from a lot of the conversational models we'll see uh

i'm a google shareholder so maybe i i'm gonna it's not like a astrological sign yeah exactly that's why i think it's funny to say that uh yeah as a google shareholder i think this has got to be viewed as a positive i think so as well okay meta's data center plans run you want to learn about depreciation expense let's do it did you see this chart i put in meta and i guess zucker brooks is awkward so i'm leaning the charge here he has been And I think it's maybe to get people onto the Twitter competitor threads, which I don't really like too much, maybe because you need an Instagram account. That's besides the point. But he's on threads, putting a thread together about their new data center plans for their super intelligence teams.

We talked about last week, I think two weeks in a row now about how they've been trying to acquire all the best scientists with huge salaries. and in order to acquire them and entice them, he wants to build the best in class infrastructure out there. Again, I would say this is trying to catch up with Alphabet, who has been doing this for 15 years. So here's the quote. For our super intelligence effort, I'm focused on building the most elite and talent-dense team in the industry.

We're also going to invest hundreds of billions of dollars into compute to build super intelligence. We have the capital from our business to do this. Two things I think should make investors nervous. won hundreds of billions of dollars, not a hundred, hundreds, and saying, second, we have the capital to do this. Not saying it's going to have a positive ROI, but we have the money, so let's burn it. Apparently, Meta is the first company on track to produce a one gigawatt cluster. I forget all the exact terminology, but essentially gigawatt is a lot of electricity

and a lot of electric power uh usually you're in i think some of these like 100 megawatts so there's just the scaling up here is tremendous zuckerberg says further on in the thread they are going to be spending hundreds of billions on multi-gigawatt clusters so i think that means one data center that he says is going to be the size of manhattan that will have multiple gigawatts of power in that single data center which would be tenfold increase from like current levels of these giant data centers my first question ryan crazy stupid smart or all three i honestly think could be all three yeah i mean this isn't the first time that he's i don't want to say staked his reputation but more committed to spending billions of dollars

on questionable projects i believe i think it was must have been three years ago when he changed the name of the company to meta he said i think this work is going to be of historic importance and he basically said he's willing to lose a lot of money on it he has shown an ability to like still grow shareholder value in the process so i will give him i guess kudos to that what i don't love and i'm we're seeing it with all big tech companies now is the bragging about capex specifically like it's a it's a capex brag fest everyone's like who can build the biggest data center look i would rather him talk about the returns that this could drive the impact this could have on the consumer experience the impact that it could have on the business overall i'm

just curious what their business model is with this if they're plowing all this money into llama i would be very skeptical yeah i agree although okay let's look at the let's look the numbers capex for reference 44 billion dollars in the last 12 months i think he's saying they're going to go well over 100 billion dollars a year eventually once they can get there currently and depreciation expense uh this might not include all of depreciation amortization but i think it was the majority using a fiscal ai chart here that i'm sharing for the video watchers it has grown at a 32 rate since 2015 going from 1.2 billion dollars a year to about 16 billion dollars a year for reference um and let me stop sharing the screen here for reference meta's revenue is

170 billion dollars if he does this and they start spending hundreds of billions and depreciation grows to maybe this is a bit high but 50 billion a year will there be enough new revenue to get a positive roi on that spend because it's going to impact the income statement and you need an increase in revenue in order to make up for this gargantuan levels of new depreciation that are going to roll through are they going to get a positive roi i understand the open ai anthropic or google argument because they have business models but metas is advertising sure but that's different ball game are are they how are they going to make money by just making it free on whatsapp and instagram yeah i'm not sure if it's using ai i'm not really sure what's going on here

but somewhere in the back end to improve ad efficiency and ad targeting then maybe there's a clear revenue bump there but i can't imagine they're bragging about building this one gigawatt cluster the data center the size of manhattan specifically just for those back-end ai improvements it's got to be big spending for llama the consensus analyst estimates so you talked about how capex has exploded over the last decade from 3 billion to 44 billion this year they're expected to do 67 billion that's analyst estimates i wouldn't be surprised if that ends up being conservative if they can get to the capacity yes i think from reading his thread we're looking at 100 billion in 2026 wow that's that's insane the most capital light business of this size

you think about the business seven maybe even five years ago they were doing 100 what was it let's go back to their 2020 financial statement shall we okay 2021 118 billion dollars in revenue less than 20 billion dollars in capex today or this year cap that's the capex as a percentage of revenue is probably going to go from about 15% to, I would guess, 30% to 40% this year. They've become like the capital intensity of Amazon, despite having one of the most capital-like core businesses of all time. Yeah, and the multiple keeps rising. I'm not a buyer here.

Anyway, all right. Good business. yeah it's of course it it certainly was and is its core business is incredible but i can't understand people when i say that these businesses models are getting worse like if the business was rock solid these meta was one of the is one of the best businesses ever instagram is one of the best businesses ever facebook still one of the best businesses ever whatsapp is developing into a good business with a strong network effect but they were capital light if you have the same exact business but it's capital intensive it's a worse business it it

just is yeah i think the argument most people would make is that they can turn this off if they choose to but capex seems like an addiction to some of these management teams yeah it's a good way to put it all right do we want to talk about musk's uh circular investment shall we call it well yeah yeah sure these should be quick we can hopefully hit musk and jerome powell maybe rocket lab since people are asking about it musk i'd say i'm a very strong musk follower i know uh known him well after reading too much into him for the last 10 years And I think the most important recent development people need to track is these cross-investments and proposed cross-investments that he's dropping into the Twittersphere and trying to make happen by just saying things. You, the listener, can make your own conclusions on why he's doing this.

But this week, SpaceX made a $2 billion investment into XAI. Were the huge VC backers of SpaceX okay with this? I thought they were investing in a rocket company, but now we're going to invest into a, talk about CapEx intensive, AI startup that is well behind scale-wise. XAI and the company, sorry, he loves the name X, and Twitter, essentially Twitter and this XAI startup merged for $113 billion in combined value. Elon wants Tesla to invest in XAI. I predict that what the man really wants is to merge everything into one company. Yeah, probably. To me, it's reminiscent of the 2016 SolarCity debacle where liquidity was tough, things were spiraling for his empire of companies, and he took on a really, really bad acquisition to save his cousin.

This very, very much reminds me of this. have you so this might not be xai's core business but i tried to use i don't know if grok and xai are the same i assume grok is like the conversational model on top of xai the i tried to use it and like asked it a question about a uh if there was any standout quotes from a company's earnings call and it fed me my it fed me an answer from my own tweet and i just realized they're pulling from probably one of the most unreliable data sources sarcastic data sources yeah like think about all the crap you see on twitter and unsupported opinions for the most part it feels like it's going to be hard to parse uh what's truth from what's not and what's sarcasm

from what's not and it just feels like a pretty we talked about data as an advantage i would say this might be a disadvantage to to be using that data maybe maybe and people talk about grok they can talk about it all they want i know what i'm using i know what people use chat gpt and gemini and google google slash gemini people can add grok in replies and get a stupid response that's not a business model um yeah it i pulled up tesla's stock price it's at almost exactly a trillion dollar market cap would you think it's reasonable to take 10 of that stock and do an all-stock deal for x and xai here's my question probably they'll probably need to raise honestly like 50 billion dollars but i'll take your question and i'll i'll raise you one

which business would you rather own tesla or x and xai yeah oh man neither you gotta own one at 113 billion dollar valuation what's gonna lose less money i think tesla you think you'd rather own tesla there yeah x and xai are probably burning an insane amount of money have no path to profitability and are wildly overvalued at 113 billion dollar combined market cap now tesla is wildly overvalued but i think there is some semblance of normalization of the ev business that could get established sure i think x and xai could easily go to zero fairly easily okay jerome powell apparently potentially fired i didn't even know this was possible yeah a letter was drafted ryan we're actually we're going to spend another hour

going through line by line the federal reserve renovation plans and doing an investigation to make sure they were not misappropriated no that's going to be next week but as a reminder when we discuss anything political we're not we're looking at through an investing lens we don't care what side and if you are on we're on none of your sides quote trump confirmed that in a white house meeting tuesday night with about a dozen house republicans he had discussed the concept of dismissing jerome powell long a target because of his refusal to lower interest rates as trump wants apparently most of them said he should but i mean these are house house representatives people uh bond yields ripped higher on the rumor so people are nervous it's the exact opposite of

what they'd want. But then they fell back to, or whatever, rose back when the idea was shot down and that, oh, we're not actually going to do it. They kind of tossed that onto the news cycle. Trump then said he was told the markets wouldn't react well if he fired him, so he has held off. And the big bank CEOs, such as JPMorgan Chase's and Goldman Sachs, have said publicly that it shouldn't happen many people have started to say this it seems like the market and the bond market are going to keep this in check as well as the federal reserve presidents that are members that are in the president's ear but if powell gets fired will that change your investment approach at all because i'm telling you it makes me nervous i think fed independence is very important yeah

But I'm not sure I can do anything about it. Yeah, I don't know if it would really change my investment approach. But yeah, it would make me very nervous and kind of cynical a bit. Honestly, it would turn me into a bit of a cynic. This is honestly why I love the market because it's the ultimate feedback mechanism. anytime trump has a dumb idea and he puts it out there the market tells him how dumb it is yeah and it's i mean you see that in this case it happens right away like the feedback is obvious because bond yields rip with equities sometimes it takes a little longer for the truth to come out but it

is like the ultimate weighing machine as as uh munger says so it's it's it's nice that in this way it's actually nice that he kind of uses it as his scorecard a bit i've always thought trump cares a lot about what happens to the market and most precedents do i guess um and i doubt he really wants bond yields to rip higher uh so i imagine he'll hold off It's interesting, though, because if I think the Fed is worried about what tariffs are going to do to inflation, that came out this week. And if we look, it has accelerated in recent quarters or recent months. April is 2.3 percent, May 2.4 percent, June 2.7 percent. So we're getting off of that 2 percent target.

What do you expect the Federal Reserve to do, especially when a lot of the macro stuff looks solid right now? It doesn't matter that homes aren't affordable. that seems to be what they care about they're calling for interest rates to be i think at three percentage points lower for the fed which would be i think one and a half percent i would be very worried about inflation if that happened yeah that seems unrealistic i just i honestly feel for powell i know we're running up on time here but like I can't imagine – what a horrible job to have and have him putting all this political pressure on you. He's serving – hey, he's a good patriot.

He's serving the country. That's all I'll say. It seems like he's made some mistakes, as anyone does, but – Yeah. I think he's trying to do his best. I think that's going to do it. Thank you, everyone, for tuning in. Thank you to our sponsors, the TSOH Investment Research Service, Interactive Brokers, and Fiscal.ai, which is an awesome tool to have during earnings season.

Thank you, everyone, for tuning in. We want to remind you that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Stocks is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast, so do your own work. Thank you again. We'll see you next time. real canadian superstore has everything you need this back-to-school season save on lunchbox savers like ziggy sliced deli meat products for always 375 and get life brand

pure vita shampoo or conditioner for eight dollars each at real canadian superstore when When you're ready, we're ready with a whole world and more.