Motley Fool Hidden Gems Investing - Tariffs and Trade Wars Can’t Slow Big Tech’s Momentum

Episode Date: July 31, 2025

The Federal Reserve holds rates steady for now, but an ever-evolving trade and tariff picture raises questions about for how long. Also, Meta Platforms and Microsoft earnings suggest no slowdown in AI spending.  Lou Whiteman, Rachel Warren, and Jon Quast discuss: - The Federal Reserve’s decision to keep rates steady - A shift in smartphone production - Microsoft and Meta Platforms commit to continued elevated capex spending - Who will be the next $4 trillion company? Companies discussed:  Meta Platforms (META), Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA)  Host: Rachel Warren Guests: Lou Whiteman, Jon Quast Engineer: Bart Shannon   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. Learn more about your ad choices. Visit megaphone.fm/adchoices

Tariff and trade wars can't slow big tech's momentum. Motley Fool Money starts now. I'm Rachel Warren, joined today by Motley Fool analysts Lou Whiteman and Jon Quast. Today we're talking MAG7 spending plans and tariff turmoil. but we have to start with the big macro picture first. We learned Wednesday that the U.S. economy returned to growth in Q2. U.S. gross domestic product, which is a measure of the value of goods and services produced across the economy, rose by 3% in the second quarter. That's up from a 0.5% contraction in the first quarter of the year, and it's actually ahead of the consensus

estimate. We also saw that consumer spending rose by more than 1% in Q2. Now, this was as exports declined single digits and imports fell by more than 30%, reversing a major surge that we saw in Q1 of 2025. You know, John, the big takeaway for me is consumer spending seems to be holding up well, even as businesses have turned cautious. But the question is, with all the headwinds the economy is facing, do you think that this can continue? Yes, this can absolutely continue, Rachel. Consumer spending can hold up. Now, listen, I could give you so many reasons on why to be skeptical, on why the opposite is true. First and foremost, there's $1.2 trillion in credit card debt out there right now. That's up 30% in just the last three years. It would seem

that consumers are spending, yes, but it also seems like they're spending on credit. That's a party that the music is going to end eventually, it would seem. When that music ends, there could be a contraction to consumer spending. That said, I do say it can hold up because there's almost always a reason to be skeptical. Yet, consumer spending almost always holds up. We will probably see shifts in consumer spending. I think that it is playing out. You take, for example, a company such as Kelanova. This is the company that was spun out from Kellogg's. It makes Pringles, Pop-Tarts. It reported financial results this morning on July 31st. It saw a softening of demand. That is playing out for a variety of snacking companies right now. That's a pervasive

trend, people kind of trending away from snacks. That's interesting. On the other hand, you have a company such as Carvana. They're selling 41% more cars in the most recent quarter compared to a year ago. So there is this incredible shift of consumer spending, and it doesn't always make sense from snacks to cars. But yeah, overall, I think that consumer spending can hold up. So John's right. You have to be crazy to bet against the American consumer. But you know what? I'm feeling a little crazy right now, Rachel. I'm more worried about the consumer right here than I am business. I think businesses can snap back as the companies adjust to whatever the new normal is with tariffs. But heading into back to school and then the holiday season, I do think

Main Street is going to feel the pushback of higher prices, maybe more so that tariffs have just been creeping in. My guess is if GDP does continue to push higher in the second half, and I do think it'll push higher into second half, I think it'll be a reverse of the second quarter with business, not the consumer doing the heavy lift. A healthy job market with low unemployment rates and rising wages, that's a primary driver of sustained consumer spending. And wage gains have been outpacing inflation. Consumers, in some cases, have more disposable income to spend. Rising asset values can contribute to that wealth effect. And that can also make consumers feel more confident to spend. We've seen this dynamic where lower and middle income

consumers might be more vulnerable to economic shifts, but those in more of the top third of the income distribution area are thriving and account for a significant portion of spending. Now, it's worth noting the Federal Reserve left rates unchanged at its meeting on Wednesday. Now, we know the Federal Reserve is likely to lower interest rates in September. You've got some economists predicting a further cut in December, according to recent reports. While the Fed held rates steady at their July meeting, the decision was not unanimous. There were two dissenting votes advocating for a rate cut. So with tariff policy seemingly changing by the minute, it's hard to know what to expect. More on tariffs and big tech in a minute.

You are listening to Motley Fool Money. softer, adjust cooler to warmer. And right now, save up to $2,500 during our massive Labor Day event. Hurry into your local Sleep Number store today, because we have your number. Welcome back. We might not yet know the final tariff rates for various U.S. trade partners, but we are beginning to see an impact from the aggressive moves. India has reportedly overtaken China to become the top source of smartphones sold in the U.S., and that's fueled by Apple's shift to assemble more phones in the country. Vietnam now ranks second, and China has fallen from first a year ago to third. Now, Lou, the White House wanted to move smartphone assembly

out of China, but I don't think India was the destination it had in mind. Does Tim Cook have to worry about backlash from Washington? And what are your thoughts on the tariff mayhem? I think Tim Cook probably believes he can outlast the tariff push, and I think he's probably right. Look, this was the inevitable outcome of raising tariffs from China. There was never much of a chance that large corporations were just going to overnight shift manufacturing to the U.S. They'd have to build an entire supply chain, manufacturing footprint. There's just so much complexity, and they'd have to do it largely from scratch. It's just not going to happen. and it didn't make sense for companies like Apple to do that. It made sense for them to lean into

other markets where they are established. If tariffs do shift manufacturing back to the U.S., it'll take time. For now, the message from Washington with all of this chaos has been things shift so fast, there's no reason for corporations to make any real massive CapEx moves. The chaos this week, that just reinforces it, I think. The best move if you're a CEO is to roll with it and not make too many big company altering decisions. That's what Apple's doing in India. And I think that makes sense. It's what, honestly, they should be doing. You know, we are now just hours away from the White House's August 1st deadline for countries to strike trade deals or face higher tariffs. And we've seen a flurry of activity. We appear

to be near deals with Taiwan, Thailand, and Cambodia. The UK led the charge on trade agreements with the US. They struck one as early as May. You know, Vietnam was the second to ink a deal with the Trump administration. President Trump announced a trade agreement on July 2nd that saw the tariff imposed on Vietnam slash from 46% to 20%. Japan was the second major Asian economy to come to an agreement with the U.S. after China. They saw their tariff rate cut to 15%. They were also the first to see a lower preferential tariff rate for their key automobile sector. Now, the EU's agreement with the U.S. was struck just days ago, and that was after lengthy negotiations. EU goods are now facing a 15% baseline tariff rate. South Korea is the latest

country to reach an agreement as well on Thursday, with the terms being somewhat similar to the one Japan received. It's worth noting, though, the U.S. has managed to make only about eight deals in 120 days. Some of our key trading partners remain without a deal so far. That includes Canada, Australia, and India. So, John, the situation is and will remain fluid. But as an investor, how closely are you watching all of this wheeling and dealing? I am not watching it closely at all, and I'll give you two reasons why. First of all, when I buy a stock, I have an investment thesis. A thesis is basically my reasoning for why the stock I bought is going to outperform the market average. In my thesis, I try to conservatively account for risk,

such as geopolitical risk, like what we're talking about right here. If something can be broken, if my thesis can be broken based on changes in economic policy, I'm generally not that interested. So I'm looking for something that it doesn't really matter what these big changes in economic policy will be. The underlying trends for my thesis are still intact. I'll give you an example. MercadoLibre in South America. Right now, I've lived in South America. I can attest to how much paper money is still used in those economies, but that is changing so fast. Those economies are digitizing extremely fast. MercadoLibre is a financial technology company. It's also an e-commerce company. You start looking at the pervasive trend that the economy is going

digital, that's not going to change. I really see MercadoLibre being a longtime winner, regardless of what changes happen in the economic policy. Another reason I'm not really watching this closely is because even if there is a trade deal in place, even when something comes down, It seems like, and I believe this is fair to say, things in Washington these days are far from settled. If we get news today, that might change tomorrow. I really don't see a ton of value of following it too closely. I really think about investing great Charlie Munger. He said, I figure that I want to swim as well as I can against the tides. I'm not trying to predict the tides. I think that's a good rule to live by. I think that's spot on. One of the

advantage of being a long-term investor is everything near-term is noise. I'm looking for companies that whatever may come can survive and thrive over the long-term. I don't necessarily want to predict the weather. I just want to know that sometimes it's sunny, sometimes it rains, and I want companies that can do okay with both. I think that's exactly right, John. I think that's right, guys. Up next, we have Microsoft and meta-earnings and their aggressive AI spending plans. We'll be back with you in a minute. You're listening to Motley Fool Money. Microsoft and Meta Platforms were both out with earnings last night. Now, both companies posted double-digit growth that easily topped expectations,

but the focus was on spending plans. Meta Platforms CFO Susan Lee said, quote, we really believe that this is the time for us to make investments in AI. And that's really backing up the company's planned $85 billion in CapEx this year. Microsoft, for its part, said that they expect to spend $30 billion in the current quarter alone, which at an annualized rate would be even more than Meta or Alphabet is spending. So, John, the numbers here are almost mind-numbingly large, but the core businesses of these companies, they are generating billions in cash, so they can afford the investment. Should investors be worried or excited about these spending plans. I believe that investors should be absolutely thrilled, ecstatic with these plans.

You're right. These numbers are mind-numbing. In fact, they're so big, we really can't even wrap our heads around them. $85 billion. Look, there are 500 companies in the S&P 500. With $85 billion, Meta could purchase any one of about 75% of these companies. These are the biggest, most profitable companies in the U.S., and they can buy most of them with $85 billion. So, that's a lot of money. And we're just talking about meta with that. You start adding in Microsoft, Alphabet, all the mega caps, they're going to collectively spend about $320 billion this year in CapEx, compared to $230 billion last year. That's nearly a 40% jump from last year. I think if you're a shareholder of any of these companies, it's basically good news,

because they need to invest in their futures at scale. And so, it's going to cost a lot of money. but these companies have also made many shareholder-friendly moves in recent years, such as share buybacks and dividends. I feel like there's a good balance here. I think beyond that, though, investors need to think, where is that $320 billion going to go? That's a lot of cash. I think companies such as NVIDIA and AMD are going to see ongoing strong demand for their chips. I think even industrial players, such as HVAC and electrical company Comfort System USA. They've got a rising backlog right now as they're trying to meet all this demand for the facilities being built to support AI. I think there's a lot to be excited about when

you see how much money is getting thrown around. It's clear that Meta and Microsoft are increasing their investments in AI because they see it as a crucial driver for future growth and also to maintain their competitive advantage in various sectors. It's interesting because, of course, Meta has fallen a bit behind the competition here the last few years, but then you have its recent launch, if it's Meta super intelligence labs, their hiring spree that they've been on in a bid to catch up in the AI race. It's getting a lot of attention from investors. Lou, what are your thoughts on what we're seeing here? To me, Microsoft has the most clear use case for AI outside of just refining its own business or internal work. Alphabet and Meta are mostly

deploying AI for internal uses. Alphabet is hoping to use AI to reinvent search, but it's kind of early days there. But Microsoft, thanks to 365, thanks to Office, all these massive businesses, they have a clear lane to the corporate user to deploy AI. It may not be a sustainable advantage. There could be a way to catch up. But I think it's a real advantage right now over these just cloud players. I think we're going to see companies with those strong B2B connections like Microsoft, like Salesforce, even Oracle. I think they're going to lead the way on deploying AI to the workforce, this next step that is really showing the payoff in all this investment. Investors pushed Microsoft higher following earnings. The company joined NVIDIA

as the second member of the $4 trillion market cap club. Time for a bold prediction, guys. What will be the next company to break the $4 trillion market cap threshold, John? Tell us. Rachel, this might be a little bit of a surprise, but I think that Alphabet is the best position to make a run at a $4 trillion market cap. When you look at the valuations of the mega cap companies, for me, Alphabet is the one that makes the most sense. It does seem like it has a fair valuation right now. But when it comes to its financial position, competitive strengths, opportunities, it's as good as any of them, if not better than others. I think the only risk here is that it gets broken up. But honestly, any company making a run at $4 trillion has to be worried about being

broken up at some point. Yeah. I hate to go into Alphabet here because I think you're probably right, but I'll take the dark horse. Meta is currently sixth on the list. It isn't even quite two trillion yet, but look, that advertising business is a powerhouse. And I don't see another business like it elsewhere with less headwinds up ahead than I think Alphabet and some of the others. So I'll take Meta, though I'll be honest, I don't think any of these guys get there in the near term, so it could be a long race. It is certainly an exciting time to be a tech investor and to be investing in the world of AI. So many opportunities there. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may

have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman and Don Fost, as well as our man behind the glass, Bart Janin, and the entire Motley Fool money team. I'm Rachel Warren. Thanks for listening. We'll see you tomorrow.