Motley Fool Hidden Gems Investing - Hyperscalers Are Going Into Hyperdrive

Episode Date: May 1, 2026

Big tech earnings have shown that artificial intelligence has become a massive growth business for the biggest companies in the world. And it better be because they’re spending nearly $1 trillion per year on the technology, but will it pay off? Travis Hoium, Lou Whiteman, and Jon Quast discuss: - Big tech’s AI growth - Is the economy healthy or hanging on by a thread? - Market predictions - Stocks on our radar Companies discussed: Textron (TXT), Circle (CRCL), Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), NVIDIA (NVDA), Microsoft (MSFT), Meta Platforms (META). Host: Travis Hoium Guests: Lou Whiteman, Jon Quast Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

If you thought the boom was ending soon, I have bad news for you. Welcome to Motley Fool Hidden Gems Investing. Welcome in, everybody. My name is Travis Hoy. I'm joined today by Lou Whiteman and John Quast. And as much as I would like to move on from the artificial intelligence story, guys, we have to talk about one of the crazier weeks that I can remember during earnings season. On one day, we had Alphabet, Microsoft, Amazon, and Meta report earnings. Not even just a day, within about a 20-minute span. And John, the numbers were absolutely crazy. Alphabet was the one that stuck out to me. 63% growth in their cloud business. And all the other companies are growing at astronomical rates as well. We've talked about

the AI spend, which is getting close to a trillion dollars per year in CapEx. The growth is phenomenal. But are we at this point where it has to be that good to justify these ever larger numbers of CapEx spend? Well, I mean, perhaps the most surprising development over the past week is that I am now the most bullish AI person in this room right now. But yeah, the growth is absolutely superb and it is this good, Travis. I mean, we can talk about the money that is actually recorded as generated revenue, right? But that doesn't tell the whole story. If you look at the remaining performance obligations, much of which are tied to their cloud businesses and much of

that is related to AI spend. You look at Alphabet, Amazon, and Microsoft. The RPO is at $460 billion, $364 billion, and $625 billion, respectively. So, somewhere around $1.3 trillion. And just to be clear, RPO, remaining performance obligations, is like Anthropic signs a big contract for compute that would go into RPO. Is that right? I mean, it could be Anthropic. It could be anybody who's going to spend money on the cloud over a certain period of time, right? The money that you use today, that's generating revenue, but you're going to spend more tomorrow at a locked-in contractual price or whatever. But these three companies, over just the last three months, have added $567 billion to the RPO. In just the last three months, we're talking about

nearly $200 billion a month in spending commitments for the cloud for the three largest cloud companies in the world, we can't comprehend a number such as that. Yeah. Lou, I generally agree with John. I mean, let's just talk, let's talk top line first. We'll get to some of the ROI things in just a second, but it is incredible to see these companies that are the biggest companies in the world report growth numbers that you would normally associate with much smaller companies operating from much smaller revenue bases. Yeah, it's insane. And Look, part of this, RPO is not revenue, right? We all know that. And part of this is a land grab. I better reserve my place now because everybody wants it. A lot of it is wiggly, right? If things

change, you can adjust and maybe not spend that RPO. So it's really hard. It's one of those count your chickens before you hatch thing. You need to make that distinction. That said, I don't see any reason to believe that a good chunk of this over time isn't going to come to fruition. All of the numbers are just crazy down. Lou, I want to move a little bit closer to the bottom line here because the revenue numbers are crazy. Margins are good. If we look at operating margins for a company like Alphabet, Google, Cloud, GCP, they've gone from basically 0% operating margin about three years ago to now over 30% operating margin. So you look at those results and you see, hey, you know what, they're getting more profitable. This must be a phenomenal

investment. How do you think about these numbers that are being put into the ground? Because the remaining performance obligations are huge. But at the same time, these are assets that could potentially, you know, we're buying land, we're building buildings, we're signing energy contracts, maybe even buying energy assets. These are assets that have long duration life cycles. And we maybe know what the next six months to maybe two years looks like, but it's really hard to predict what the next 10 years looks like. And that's where you start to take on debt to build these things and the calculus gets a little bit different. So let's be clear, it's in the name, but let's be clear anyway. Operating margin is operating expenses, right? So it does not include

capex. So yes, operating margins look fine. That's an important metric. It doesn't tell the whole story though, just so we're clear. It would include depreciation. We're getting into accounting world, but it would include depreciation, yes, but not what you're building for tomorrow's capacity. Right. And I'll be honest, Travis, I feel like I don't get it because I really struggle with the ROI part of this. I get the reason everyone's doing this. I get the magic of AI. I get the potential. But yeah, you said it. I mean, Hyperscale is going to spend $750 billion this year. Wall Street has them going to $1 trillion in 2027, just based on estimates. Right now, according to Gartner, total global enterprise software spending, so just kind

of what businesses spend on all software, it's only about $1.5 trillion. So using their numbers, not mine. AI companies, they're going to have to generate $7 trillion with a T in AI revenue through 2029 to just get a really, really paltry 7% return on invested capital. So $7 trillion in combined sales by the end of the decade in a market that's a $1.5 trillion market right now, basically. 7%, that's not great. Alphabet, Microsoft, Amazon, they historically have for 25%. I don't know how we continue to do this. I guess token prices have to go up like way up, like swallow a significant portion of GDP up, or we're just not going to get the payoff that we think here. I get the top line. I get the growth. I get the enthusiasm. I'm not sure I get

the long-term win here for these companies yet. All right, John, give us the bullish case here. Well, perhaps the bullish case was best articulated by Microsoft CEO Satya Nadella, who says, we're at the beginning of one of the most consequential platform shifts that will change the entire tech stack. As agents proliferate and become the dominant workload, this will drive total addressable market expansion and change the value creation equation across the entire economy. Really talking about this AI agent move. And one of the big deals with AI agents is right now, most of our interaction with AI is synchronous. In other words, I need to be there at the computer talking to it, making it do things. And what's going to happen with AI agents increasingly is

that it's asynchronous. And so it is working in the background, whether or not I'm there telling it what to do. And what that does is it does increase the amount of compute that is being used. And to start in Adele's point, I mean, really what we're talking about here is a complete flipping upside down of the tech stack and also just what software we're interacting with. OpenClaw founder Peter Steinberger talks about 80% of the computer applications are going to go away because of agentic AI. Let's dig into that, though, because I think that it's a fascinating dynamic. Nadella's argument then is, and I think this would be the case for any of these hyperscalers. We need to build these massive compute businesses so that we can

effectively destroy all the other software companies. I mean, this is why a lot of the SaaS stocks are down so much is because if Nadella's right, man, you don't want to be in any of these SaaS businesses. So does that fundamentally need to happen for this payoff from AI to actually work out? Is that SaaS kind of has that $1.5 trillion that Lou talked about has to shift over to these hyperscalers. And we're, I don't know, making our own custom software constantly. Yeah, I think that that definitely is part of it, Travis. And I'm not saying that that is the best vision of the future or not. That's kind of irrelevant to this discussion. What we're talking about is, yeah, what is in the minds of the CEOs as they spend

so much money on AI infrastructure? What are they thinking about? They're thinking about two things. they're thinking about total addressable market expansion. The market gets bigger and that's a good thing. But they're also, I believe, projecting that, yeah, there's going to be a lot of value transfer from the world that we have now to the world that's going to be. And they're trying to capture that transfer of the value capture. Presumably, there's got to be some sort of the pie gets bigger thing. I mean, we saw this with the internet, right? It took a long time to get to the point where we're building, you know, the Shopify's of the world and this kind of new ecosystem that didn't exist in the 80s and 90s. Lou, I want to push on one thing that I think

is confusing me a little bit with this. And that is the concept of being supply constrained. Because all of these companies talk about being supply constrained. We don't have enough chips, we don't have enough memory, we don't have enough energy. But supply and demand dynamics, if we go back to econ 101 is all about what are you charging for that thing that you're producing and the thing that they're producing at the end of the day is tokens so if you look at a company like like google cloud gcp their revenue or their their token production was up 60 quarter over quarter but their revenue was only up 13 so that tells me that their cost what they're charging per token is actually going down, you just kind of laid it out. That price probably needs to go

up long-term for these investments to pay off. So what is this supply-demand dynamic? Are we just getting that much more efficient with the chips that are there? It seems like there is a pressure on token prices, right? If John is right and agents are going to take over everything, we can't be at the price point where we are today if my computer is just going to run 24-7 doing who knows what. It seems like tokens are deflationary, but if that's the case, that's a whole different economic question. Yeah. And look, I don't know the answer and I don't think any of us know the answer, but I fear the answer might be that C word that has got to keep all of the CFOs for these companies up at night, commoditization. I think the reason

why token prices are going down is the intense competition among these companies to kind of get you on their stack. This is a real weird world, Travis. You were talking about it off-air that, if anything, a lot of the components, a lot of the inputs for these things are going up now because of scarcity. That's supply and demand one-on-one. Arguably, they're getting less bang for their buck from the spending they're doing, yet they are having trouble charging for it. John's right. The pie could go up. It could become. It could be that it just eats all of software. It could be that we begin to lay off 50%, 75% of our employees because we're spending on that too. So, all of this money is freed up. We don't have to get into whether or not that's a

good version of the future or not. But the other answer here, maybe it is that, yes, this is right, the SaaS apocalypse is going to happen. But the answer could be that it's like one of those bad movie scenes. Collectively, everybody's just in a race and it ends with a huge cliff. Yeah, that's absolutely possible. John, I want to end with this, because one of the dynamics with the hyperscalers in particular, Lou mentioned it, that they've got the incentive to not be disrupted and they've got cash flow in the most recent quarter alone, $150 billion in cash flow from the big four tech companies, Alphabet, Microsoft, Amazon, and Meta. They're spending a majority of that now on CapEx, likely by the end of the year or at least

sometime in 2027, they as a group are going to be negative free cash flow. They're going to be taking on debt to pay for this CapEx build out. At what point would you get concerned that maybe we don't want to use all of our cash and go from this massive cash generating businesses to now debt funded businesses? It's a really fair question. And to your point, basically only of the mag seven only nvidia and apple are expected to generate normal free cash flow this year the other five are expected to be down or even negative according to uh golden sacks estimates and so and it's not supposed to rebound next year they're expecting ongoing worse yeah yeah exactly golden sacks estimating it's not until 2028 until we start to see positive traction again with the

free cash flow on a collective basis and and that is really interesting to think about and that is starting to push it out into uncomfortable territory, quite frankly. Normally, you hear these estimates from smaller companies. Results are bad right now, but in the back half of the year, they're going to get better. It's just a hand wave. When it's, hey, things are going to stink this year, but next year will be better, that's a bigger hand wave. But if we're starting to hand wave to 2028, yeah, that's starting to get into uncomfortable territory. You start to question. What is the actual economic ROI? This is both incredibly impressive and confusing for investors to follow. We'll keep following this here. When we come back,

we're going to talk about the economic impact this may be having on people's jobs and what we're spending money on. You're listening to Motley Fool Hidden Gems Investing. And what better way than with a delicious Pret Organic Coffee, starting at just $1 all day, every day, now until December 31st, at participating A&W locations in Ontario. welcome back to motley fool hidden gems investing john if we are going to have a big payoff from artificial intelligence it seems like one of two things has to be true either we need to get more gdp growth we got numbers from the first quarter two percent growth and that's that's okay but i would argue that uh you would have to be higher than that if we're going to justify a trillion

plus dollars in spending on AI. The other option is you have job losses, and that doesn't seem to be happening either. So when you look at the economic data, where does your head go? My head first goes to, it could be worse, right? So most of the European economies are growing at half the rate. Canada's growing at about 1%. So it could be worse. That said, you look at where is the economy being propped up, and it's almost entirely AI infrastructure expenditure spend. And on one hand, I think it's kind of a good thing because for how long did we talk about these tech giants? You talked about $200 billion in net cash earlier in the show, right? How long did we talk about these companies just dominating and hoarding

quote unquote their cash? Now it's being unleashed and leading to real economic growth. So on one hand, that's pretty good. But on the other hand, you do start to wonder like what all in the economy, the weaknesses? What is it masking? Because it's not going to go on forever. And what is going on right now? I mean, there are a lot of consumers. That's a big part of the economy. And they are stretched, especially on the lower end. You look at the gas prices. That is going to really hurt the lower income spending. And honestly, that's a problem that doesn't seem like it's about to get better this year. So yeah, there are questions. Yeah. And let's be fair. It's usually one or two sectors that are leading the way. It's very rare

for everything to be up at once. So whether it's masking or normal, it's good. It's economic activity. That's what we need. I would note, though, I'm still cautious. Travis, I agree with you. It might be too early to see the AI effect, so I don't want to be dismissive of AI just because we're not seeing it yet. But look, a year ago, when Liberation Day happened, a lot of smart people I listened to said it would take a year to 18 months for tariffs to really impact the economy. If so, we're only just getting there. Similarly, a lot of people are now saying, smart people I respect to the Middle East war or the oil shock, that's going to take six months at least to really impact us. So as annoying as it is, I think the answer is it's okay for now. My gut is we are at

least headed towards a technical recession, if not worse, that there is going to be a recession this year. When you say a technical recession, what do you mean? Well, like maybe one we don't feel, but in hindsight, we're going to look at it and say, yeah, it was a recession. So a mild recession. I think that's still possible. I don't want to be chicken little here, but all of these pressures are building. All we can say is, so far, so good. We'll see how it ends up. The K-shape is real. We've been talking about it. People who can spend continue to spend. Everybody makes their decisions on an individual household level, and a lot of people are still fine spending. I do think that it's inevitable that the critical mass of people who are able

to do that is going to shrink because of all these pressure. The debate, the uncertainty, the unknown is how much that critical mass shrinks and whether or not it shrinks to a point where it can't hold us up anymore. TBD, I still go back to, yeah, it's going to get worse from here, but I think hopefully we can avoid the worst of the worst. It's going to be very interesting to watch what happens outside of the AI boom and the AI build out, because I would argue eventually these companies have got to either flatline spending or even decrease their spending and get some ROI on this investment. And there's a lot of benefits, like John said, from the economy, from all the spending that's going on right now. So we'll see what happens

in the future. When we come back, we're going to get Lou and John's thoughts on where the market goes from here. You're listening to Motley Fool Hidden Gems Investing. You've got to try breakfast at A&W. You've got to try breakfast at A&W. And what better way than with a delicious Pret organic coffee, starting at just $1 all day, every day, now until December 31st. You've got to try breakfast at A&W. At participating A&W locations in Ontario.

Welcome back, everybody. In this segment, we like to have a little bit of fun with investing in the markets. I'm going to give an over-under to Lou and John and get an idea of where they think some stocks are going, where some quantity prices are going, get a general feel for the market. Let's start with NVIDIA, guys. This has been the hottest stock in the market for quite a while now, at least since the ChatGPT moment three plus years ago. Lou, the question is, is NVIDIA going to be over or under a market cap of $10 trillion? Currently, 4.8 trillion so a little bit more than double on january 1st 2030 so you have nearly four years to get there but is nvidia going to be able to do it is this momentum

going to continue or is something going to disrupt what they have going on so i i don't want to be bearish on nvidia i love this company but i do think their history has been you know peaks and then falls, and then peaks and falls. You give me to 2030, I'm probably going to get, to be honest, it wouldn't shock me if they hit $10 trillion between now and then. But I do think that based on our other conversation, AI spending can't continue to go up through 2030. There's just not enough money on the planet. So I do think we will be past the peak and maybe the stock will have settled and it's going to be under $10 trillion by then. knowing them, they'll have the next big thing, robotics or something like that, and it'll be

even higher than $10 trillion by 2033. But I'll take the under on that. John? Yeah, my heart wants to say over, my head wants to say under, and I think I'll go with Lou here on under. But I think it's still going to be higher than it is today, just not over $10 trillion by 2030. And if we were having a longer time horizon, then I would feel more comfortable saying over $10 trillion. I can't believe that I'm even in a world where anything at any point over $10 trillion, I'm somehow comfortable with mentally. But yeah, one of the things that we do need to look at is, yes, there is some constraints when it comes to the electrification of what's going on. And so I

think that that's going to come to bear at some point when it comes to the build-out and how many nvidia products are being placed can we power things up fast enough well the other question john is is the competitive dynamic going to change you know if we go back to the chat gpt moment everything was built on nvidia chips and cuda you you had a little bit of tpu stuff going on inside google but a vast majority of the rest of the industry was building on nvidia chips Now you have the ecosystem starting to be built out for other chips and other components. You had a deal this week with OpenAI and Amazon, and they're going to be building on bedrock, just meaning that Amazon is going to kind of obfuscate away what the actual chip is running.

Is it a GPU? Is it their Trinium chips, which they're investing heavily in? The customer isn't actually going to see that because they're just going to be interacting with AWS. U.S. So does that ultimately lead to one of these potential valleys? And I also want to give this stat. NVIDIA has had negative revenue growth for years and almost six years in the past 20 years. So it is a pretty regular occurrence for them to grow a ton and then shrink a little bit for a year or two. But John, how do you think about those competitive dynamics? I see validity on both sides of the argument. I see validity on the side that says, no, NVIDIA is going to continue to dominate this market and there's no real need to worry about the competition. But I also see the

validity on the other side of the aisle as when you look at a company that is commanding 56% net profit margins, there is incentive for these other companies to come in and say, I don't want to give them pure profit for their products. I would like to create my own products to replace some of those. I think that watching the custom Silicon players is a good idea. So your Broadcoms, even your Arm Holdings, I think is a good one to watch from here. But I don't know. I'm torn, Travis. I can see validity for both arguments. All right, John, I'm going to have you go first on this one. Will Alphabet, same question, $10 trillion by 2030, will Alphabet be over $10 trillion at that point? Yeah, and I'm the exact same answer here, Travis. My heart wants to say

over. My head wants to say under. I think that that's not quite enough time. However, it is impressive how quickly the adoption rate for Google, Alphabet, Gemini, all of its products are really hitting this inflection point, it seems. And it's already worth nearly $5 trillion. And it feels like just now, some of these things are coming to fruition. And as we mentioned here at the top, Google Cloud growing 63% in the most recent quarter. That is a real tangible inflection point and so how much momentum does that have between now and 2030 this could be over by that time lou i kind of feel like they're more of the slow and steady although i'm not sure it's slow so i think yeah it was shockingly fast in the first quarter the search is still growing at 19

right right so i probably you know i don't know i'd probably slightly favor nvidia long term but I think Alphabet probably has a better chance of being at $10 trillion on January 1st, 2030, just because I don't think it's so much of a wave. I can't get there, though. I mean, I'm not going to try and time the market, but we have had an unbelievable run where things have just grown at a rate that isn't normal. I do think regression to the mean at some point is going to happen. For all of our sakes, I hope it doesn't happen between now and 2030. I hope they get there next year, you know, for all of our sakes. But I think I'd probably have to guess that the next five years aren't going to be as amazing as the last and take the under. Yeah. And just to be

clear, if you are a index investor, you own a pretty big stake in NVIDIA and Alphabet, especially in the S&P 500. All right, let's go to a company that is not yet public. That's OpenAI. They recently raised money at an $852 billion valuation. So, Lou, let's have that be our over-under. One, are they public by the end of this year? And two, are they over-under that 852 number when they do hit public markets? And maybe trade for a couple of weeks. They better be public. It's funny, I don't honestly know if they're going to be public, but I think the answer is yes, they will be because they simply just need to open up all of the access to capital that they can and public markets are part of it. Over under $800 billion is really tough. I think that they

are going to struggle to sustain what they go out at unless things turn around for this business. So I will say, yes, they'll be public, but they will be, say, a month after the IPO trading below the IPO price. John? Let's quote the late, great Charlie Munger here, who said, never, ever think about something else when you should be thinking about the power of incentives. This is a once-in-a-lifetime opportunity for investment bankers. I really don't think that they're going to screw this up. I think that OpenAI does IPO this year. I believe that it does IPO at above its latest funding round. I'm with Lou here. I don't know if it's still trading there a month after it goes public, but I think it's definitely going public at a greater than $800

billion market cap. You're right. There's a lot of incentives to keep it up there. I wonder if those investment bankers are going to be tired after somehow getting SpaceX to a $2 trillion dollar valuation when they go public. I don't know how many. They'll be energized. I was going to say, if they get that, they will have their, yeah, they'll be watching their new yachts be built. Yeah. The bonuses on Wall Street are going to be a little bit wild. All right. Let's move to the world of energy. This is going to be maybe a little bit more economic and what's going on with Iran. Gasoline, I think, is the thing that we need to watch. So we talk a little bit about crude prices and things like that. But gasoline is what people

actually pay for. So, John, at the end of this year, 2026, will gasoline be over or under $5 per gallon? I believe it'll be over $5 a gallon, Travis. You look at what is causing it right now, and it is the ongoing issue there in the Strait of Hormuz. I think that the only way that that gets resolved quickly is a much greater escalation on the part of the U.S. And my current read on the president, I don't believe that's what he wants. I think that he wants this issue to be resolved with minimal intervention. And yet I don't think that that is where we're at. I think it's going to take an increase of intervention. And I think that the longer we kind of hope that it goes away without greater effort, I think the longer this goes on, I think that the more the gas prices are

going to go up because it just continues to compound. So I think that's where we're at. Lou, currently, as we're recording, the average national gas price is $4.30. Interesting, going back to 2023, prices never actually got over $4. So I want to know what you think over or under $5, but also, is that going to ultimately hit the economy? Because that is something people see every day, whereas something like electricity prices going up, is, you know, that's an auto withdrawal for me. I guess I'll notice it over time, but I noticed it at the pump a lot more. Yeah. I mean, look, we already discussed the economic thing. Yes, I think it will, you know, how much it does and what it does to the economy. Well to see,

but it's definitely going to hit. But, you know, look, these things go up slowly and we are still a long way till five. I, John, I, I don't know what to think of how, I think it's probably what a three or four month lag from when oil flows normalized to when prices get back to normal. So we only need to be like by end of summer, I think, to hit your bogey and under. I'm going to go under. I'm going to lean into actions speak louder than words. I don't know how this resolves, but I think the lack of fire between the two speaks to both parties would like it to end, even if they're not saying it. Again, the rhetoric is going to be weird. The rhetoric is going to be nasty. But again, wars end when both sides are just tired of fighting. It feels

like both sides are tired of fighting. So I'm going to hope we figure it out by August and we do have things normalized by year end. All right, let's end on this. I want to know about the future of SaaS stocks. John, you made the case that AI is going to replace all other software early in the show. At the end of 2026, if you just take a basket of the SaaS stocks in the S&P 500, so some of the biggest software companies in the world, are they going to be up or down over or under where they are today? As a basket, I think they're going to be down. Now, there will be individual companies, for sure, that are going to excel and thrive. I think that there's going to be some very big software companies that are going to quickly

lose relevance. I forget who said it. I think it may have been Motley Fool CEO Tom Gardner, who says, remember that AI is as bad as it's ever going to be right now. And it's already showing itself so useful, especially with more of the database software kind of an application. And so, yeah, and it's only going to get better from here and it's only going to speed up the rate of innovation. So I think that we are under today's price as a basket. And I think that there are some companies that are going to do really well because they are prepared, leaning into and innovating into the future. So this isn't a long-term call. This is just a year-end call. And I want to stress that because back to the top, we have no idea what's

going to happen with AI or what it's going to do. But here's what I think. I think if you just look back to Liberation Day and look back to the war and stuff, the market normalizes things that shock it very quickly, surprisingly quick. We have seen the first quarter results. I'm yet to see real signs of a SaaS apocalypse, of just things falling off a cliff. What we're seeing is maybe margin pressure and stuff like that. I'm going to take the under on whether or not we really see in the next few months results just kind of get blown away. And I think also investors will sort of normalize or less freak out about the SaaS apocalypse, even if it's coming. I think the basket is going to be higher. I don't know what that means long-term, but I do think that this

will kind of be old news, and it won't have played out to the point where its thesis settled yet. So I think we're just going to kind of adjust and move on. Yeah, the results have not been terrible in SaaS, and there's got to be some sort of value there. I'm still trying to figure out exactly where that is, but trying to do a little bit of dumpster diving recently. When we come back, we're going to get to the stocks on our radar. You're listening to Motley Fool Hidden Gems investing. You gotta try breakfast at A&W And what better way than with a delicious Pret Organic Coffee,

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All right, John, let's get to the other big earnings report from the week. And this is another one of the biggest companies in the world. Apple seems to do nothing wrong at this point. Their growth for the quarter, 16.6%. Like we saw with Google Cloud, that seems crazy given how established they are in the market, but they still are hitting on all cylinders. Yeah. If you like growth, profits, and dominance, I reckon that you would like this report from Apple. Just a lot to like. And by the way, who says that Apple isn't an AI player? The company essentially sold out of its Mac minis and Mac studios. And it's just because consumers are buying them up to deploy their own agentic AI systems. It just kind of emerged as like the

preference for the general community on this whole trend. And so, yeah, they're selling out a ton of products. It's great. One interesting thing to watch is on the profitability side of things. Tim Cook said that they're finding ways to mitigate the memory issue. You look at SanDisk, for example, gross margins have gone from basically 20% to 80%. That's higher than NVIDIA. Tim Cook says beyond the June quarter, we believe memory costs will drive an increasing impact on our business. So they have ways to mitigate it now, but they're looking down the road and saying this could get a little bit hairy for our costs. John has most of the details here. The thing I want to focus on is China, where Apple has struggled. And it's been real questions of

its Chinese preferences just moved to domestic. Revenue is up 28% to $20.5 billion in China, well ahead of the $18.9 billion expected. That is really good news if that's sustainable. I think the big question, always the question, lots of promises, but no real details about the future products in the pipeline. We either need to answer that question or convince Wall Street to stop asking that question. But the business is solid and the business just continues to hum alone. I have a feeling we're not going to stop asking that question, especially with John Ternes, who supposedly has almost a dozen options for next products coming in as CEO. We'd like to end the show with stocks on our radar, and we'll bring Dan Boyd in from behind the glass.

Lou, you're up first. What's on your radar this week? Dan, for years, Textron, ticker TXT, has struggled to get the market's attention. Part of it arguably was Textron's fault. The company is a vast array of businesses. They make business jets. They make golf carts. They make military helicopters. They make auto parts. It makes it all hard to value. And seemingly every quarter, at least one of those businesses underwhelmed. In fact, I think it was five years ago, I said, if they're not careful, some activists come along and say, you got to break this up. Well, I was wrong. The activists never came, but Textron is finally moving to simplify its business. They announced they're

going to exit all of their industrial portfolio through either spin outs or sales and become a PurePlay Aerospace Company. For context, they're shedding about $3 billion of $15 billion in total revenue. So it's small parts, but it's the parts that stand out. This will be messy for a while, but right now, Textron is trading at about 10 times expected earnings if you factor in debt. PurePlay peers in the aerospace business trade closer to $14. I think that Textron's remaining businesses are set up to do well. BizJets had a great book to build. Bell Helicopter is going to replace the Blackhawk for the Army. So that's a huge contract. So you have both a good set of products and a chance to re-rate the company to be closer to its peers once it makes

more sense. Patience has been required here, but I think that patience is about to pay off. I really think Textron has set up well here. Dan, aerospace, defense, and a little value. What do you think? I mean, the Tex in Textron is meant to be textiles, but I guess not anymore. I love the historical context there. John, what's on your radar? This week, I'm bringing Circle Internet Group to the show, and that is ticker symbol CRCL. This is perhaps the riskiest of the stocks that I've brought here on the radar segment, but I think that it is a company position, right trend, right time. This is a stablecoin company, And so its main stablecoin here is USDC. A stablecoin is something that's pegged to a

currency. It doesn't fluctuate in value unlike a cryptocurrency like Bitcoin. And basically, the way it generates revenue is it has reserve assets that bear interest and it can generate revenue that way. From a circulating supply perspective, Tether is far and away the leader. From a transaction volume perspective, USDC is pulling even, so that's good. But you look at trends in AI is particularly agentic. Right now, when we do digital transactions, it's all on the front end where we're interacting. If agents take that over, it's going to be happening on the back end. That really plays into stablecoin infrastructure. This is why companies such as Visa, I think, are partnering with Circle. Very interesting, down over 60% from its high. Trading

at 45 times free cash flow. Don't love that, but the growth is real. I think the trend is real and it's here for the radar. Dan, what do you think about stablecoins? He lost me at stablecoin. I'm not going to lie. So we're going to go text her on this week, Travis. I thought it was a good case, John. Thanks everybody for listening. That's all the time we have. We'll see you here tomorrow.