Motley Fool Hidden Gems Investing - The AI Land Grab Has Started

Episode Date: February 7, 2023

Microsoft's AI event is only the latest sign of the hottest area of tech. (0:21) Jason Moser discusses: - CEO Satya Nadella hailing "a new day in search" - Shares of C3AI, an enterprise AI platform company, doubling in the past five weeks - Zoom Video announcing it's laying off 15% of employees (12:00) Robert Brokamp talks with former Pittsburgh Steelers lineman Jonathan Scott about playing in Super Bowl 45, managing an irregular income, and other takeaways from his book "The Winning Playbook: Strategies for Life on and off the Field".  Stocks discussed: MSFT, GOOG, AMD, AI, ZM Host: Chris Hill Guest: Jason Moser, Robert Brokamp, Jonathan Scott Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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Motley Fool Money starts now. I'm Chris Hill, back by popular demand. Motley Fool Senior Analyst Jason Moser. Thanks for being here again. Popular by you, by your standards, I think, right? Yeah. Certainly, the listeners aren't clamoring for this. Well, we'll get to the company in a second that I wanted to talk about, because the business, the industry is very much in

the spotlight today. Because the big event today from a business standpoint is Microsoft's AI event, which is happening as you and I are recording this. The CEO, Satya Nadella, said, quote, it's a new day in search, and he promised rapid innovation is going to come. Microsoft Search Engine Bing is now updated to answer questions with context similar to the way that ChatGPT does. We'll see how all of this plays out. I'm curious to see what the Bing segment does in the coming quarters from Microsoft. But among other things, Jason, of my thoughts was, this is why it's nice to have deep pockets, so you can make investments like the $10 billion investment that Microsoft made in chat GPT.

Yeah, it sounds like a lot of money and that's because it is. But in the context of Microsoft and its balance sheet, I think they can afford it without really any problems. interesting, you would think based on the conversations of the last week, based on the headlines of the last week, maybe two weeks, you would feel like AI is just this brand new thing that nobody had ever heard of until just now. Obviously, we've been talking about AI for a long time and the potential that it holds. I'm getting a little bit of a metaverse vibe here. What I mean by that. I'm not saying that AI won't reshape how we do certain things. I'm not saying it doesn't have tons of potential, much like I'm not saying that the metaverse won't be a thing that ultimately

creates value and opportunity. But it feels like we've gone from zero to 60 here. And I think it's worth stepping back, remembering this change isn't going to happen overnight. We're hearing a lot of things that are being said, the what really, not as much of the how and the why. I think the how and the why will be important and we'll hear, I'm sure, more about that as time goes on. It seems that search is the area where many feel the most obvious changes can and will occur with these investments in AI. I do get that to an extent. You ask ChatGP give you some output and it does. If that is going to make our world of search better, I think we're all for it. Remember though a couple of things. Number one, this is not just

a Microsoft world. We know obviously Alphabet and its ilk are all making the same investments in AI and in however they see fit to pursue it. Also remember that part of the challenge here is changing actual consumer behavior. I think that's just a little bit easier said than done. It's telling someone who has performed search, for example, in a given way for a long time now, to do something different. It's not to say that consumers won't ultimately do that, but it is not always so simple just to change consumer behavior. There are going to be plenty of questions that come along with the AI, what is going into the outputs that it's ultimately giving us, because I know there are a lot of questions out there today just based on some of these

interesting outputs as people sort of test this stuff. But I do appreciate where Microsoft is coming from. I think Bing has always been something that's held a lot of potential. They've just never really been able to take it over the top in what has just been such a Google-driven world for so long, supplemented by Meta on the social front. But this sounds like certainly a neat step forward in the investments in AI and generative AI. Let's get to C3 AI, which is an enterprise AI platform business. This is a stock you have recommended in one one of the services you run. While the long-term chart over the past year or so has been rough, just in the past five weeks, shares have doubled for C3 AI. I'm wondering, to your point about

how much these big companies are talking about AI on their conference calls, etc., and how much it is now part of the narrative in the business and investing world. Do you feel like we are in some sort of a land grab here? Because one of the thoughts I had was, this seems like the type of business that someone, not necessarily Microsoft, but some larger tech company might want to snap up. Yeah, it definitely feels like we're in the beginning stages of that. The competitive jockeying that exists in this space right now, it's not unexpected. I think it's really fun to watch play out. When you look at a business like C3.ai compared to other companies focusing on AI. C3, they're in the enterprise AI space and

essentially they have a model-based approach to AI. They have a library of conceptual models that ultimately consist of all of the elements that are required by an enterprise AI application. So their customers are ultimately able to incorporate and build out AI functionality and capability in their businesses. They can do it a lot more quickly. They can do it more efficiently. It can be certainly more consistent. And they have, like I said, a very large library from which to choose. And so as C3 continues to invest in that library and the capabilities, I mean, we've seen the announcements really. And I think one of the big reasons why we've seen C3 take off over the last several weeks is simply because they announced at the end of

January their generative AI for enterprise search. This is a generative AI product suite that ultimately is integrating AI capabilities from all of these different companies, Google, OpenAI, and ChatGPT, Microsoft, Adobe, so on. I think we're seeing enthusiasm from that perspective in that C3 is playing in that sandbox as well with a lot of bigger and better endowed competitors. At its market cap today, given the challenges it's witnessed over the last year or so, from the share price perspective, you do have to wonder if someone's not looking at this company and saying, oh yeah, this would be a nice little bolt on to what we're trying to do. Now, I don't know that that necessarily is bound to happen because Thomas

Siebel, the founder of C3, is really the one controlling the company's fate, so to speak. I don't know that's really what he wants to do. But again, when you look at all of the companies in this space, in the investments that they're making, from large to small, competitive jockeying is really fascinating to watch. I understand all of the enthusiasm. I got this question on Twitter the other day in regard to C3 because it's a stock that I own personally. Someone basically was asking me, with this big run-up, should I sell? I'm still down 30% from where I bought in, or should I hold? You know my answer to this, generally speaking. Unless they're red flags to the business itself where I'm saying like, no, I don't think this

one's worth holding onto. I think C3 has made some mistakes along the way. I'm certainly holding leadership accountable and want to see a little bit more consistency in the metrics that it's presenting and the overall strategic vision there. But given the long-term opportunities in AI, given that you've got CEOs like AMD's Lisa Su saying on their earnings call recently that AI represents the largest market opportunity that they can pursue here over the next several years. I mean, it's just a very big market opportunity and to be able to say with any certainty exactly how it's going to shake out today, I think is a little bit much. I think we're going to learn a lot more over the coming quarters and years as to exactly how this is going to be able to impact us

both as consumers and as investors. From that perspective, I think C3 is one worth hanging onto and watching. But that's also, of course, in the broader context of a well-diversified portfolio. Shares of Zoom video popped 7% in the middle of the day when CEO Eric Yuan posted a memo to his company online announcing that 15% of the staff is going to be laid off. Yuan said they've accomplished a great deal over the past three years, but, and I'm quoting here, We also made mistakes. We didn't take as much time as we should have to thoroughly analyze our teams and assess if we were growing sustainably toward the highest priorities." They joined the club. Zoom video, I think this nets out to about 1,300 individuals.

Obviously, it's tough for those folks, but I understand why they have become the latest company to announce layoffs. Certainly, I'm not surprised by the reaction from the investing community. Yeah. It almost feels somewhat ironic, just given what we've seen play out over the last few years. But like you said, this is not something unique to Zoom. The business itself has slowed down considerably. I think that anytime you start to look at the challenges that your business may be witnessing, and we've talked about this before on the show, it is very easy today to look back at the single biggest change that's occurred over your business in the last two to three years. It was what we all went through in regard to the

pandemic and the distribution of the workforce and ultimately what the future of work looks like. I think we're still just watching that materialize. They had to make some big investments early on really to take care of all of that demand. They had so much demand for their services pulled forward into one small window of time. They never anticipated that. Yes, maybe they made some mistakes, but they were understandable mistakes. This was a business that found itself in a very tricky position early on, and it makes sense that they have to right-size a little bit. Again, not unique to them, not surprising at all. As always, we don't like seeing people losing their jobs. But by the same token, from the investor's perspective, this ultimately is

exactly what you want to see. Jason Moser, always great talking to you. Appreciate the time. You got it. Thank you. The highest paid player in the Super Bowl this year is Patrick Mahomes, whose contract pays him $45 million this season. Meanwhile, rookies in the NFL made just over $700,000 this season, and the average player only lasts in the league about three years. After that, the paychecks can vary wildly, with some just falling off a cliff. Back in Super Bowl 45, Jonathan Scott was a starting offensive tackle for the Pittsburgh Steelers. Today, he's the co-author of the book, The Winning Playbook, Strategies for Life on and off the field.

Robert Brokamp caught up with him to discuss what Scott learned about managing an irregular income and what it's like to play in the big game. In the book, you tell the story of being a rookie and having a locker next to Damian Woody, who had won a couple of Super Bowls with the Patriots before joining the Lions. tell us about the advice he gave you it was priceless it was the beginning of really understanding money and you know for him to you know just tell me he said hey man don't compare your paycheck to my paycheck at first glance you would think this you know someone's being arrogant you know maybe talking down but it really gave me insight is that all NFL players all NBA players or MLB players are not created equal. And I'm speaking from a monetary sense.

And it was just one of those moments that I realized is that, you know, he had a beautiful Rolls Royce, phantom Rolls Royce. And it was one of those things that's like I knew that I could buy one, but I couldn't necessarily afford one, right? And so, it put a lot of perspective on understanding, well, one of the biggest payrollees is called the Internal Revenue Service. And I didn't really understand IRS until you saw that check and you realized that a big majority goes to them. So, thanks to Wood, he really helped me out on that one. Yeah, from what I understand, you learned that lesson, and instead of buying a $300,000 car, which is what that caused, you bought a house, which you have appreciated in value, and you now rent out and get income from.

Yes, you are absolutely spot on. So, I chose to live in the house instead of live in my Rolls Royce. But that's the beauty of assets, right? You mentioned taxes, and I think there are many aspects of playing in the NFL that a lot of people probably don't appreciate. And one of them is, you have to pay taxes in every state in which you play. That is correct. So, tell us a little bit about the so-called jock tax. Yeah. So, let's say I play for the Dallas Cowboys in the state of Texas, right?

So we play a game at 18 Stadium at home. That week, you got your taxes, and you look at your W-2, boom. It doesn't matter who you play, right? So now, let's say you're the Dallas Cowboys, and you fly to San Francisco. I know this joke may be a little too soon for some people. But let's say you fly to San Francisco, right? You play that game. The money, the prorated amount that you were going to make for that game,

you have to pay taxes in the city that you played in. So it's literally like being a resident in that city for that one day. So just imagine if you played in New York, if you played in the state of New York or played in New Jersey, right? Some people not only have state tax, they got city tax, county tax, and that can easily be up to 15% of your paycheck. That's not including federal tax. Yeah, and that affects not only the players, it affects the coaches, the trainers, anyone who's traveling with the team. All employees that are assigned, it's under W-2, yeah. Yeah, I read one estimate that California gets over $200 million a year from professional teams that travel to California. It's quite something.

Another aspect that I think people probably don't know about is that if you have a normal job, you're used to getting a paycheck throughout the year. But if you play in the NFL, you don't get a paycheck the whole year, do you? That is correct. You know, you would think you get paid throughout the year. Well, NFL, you just get paid for the time you've been playing. Now, of course, if it's a simple math, if it's a million-dollar contract or a $10 million contract, it'll be dispersed throughout those 18 weeks. If you happen to get in the playoffs, you get a little bonus money

the further and further you get into the playoffs. But after that season's over, so are those paychecks. You got to remember, not every player has the mega deal. Like, that's what we just see on the ticker on ESPNs. But I know when I was playing, league minimum, if you're on the active roster, was maybe $300,000. Now, some people are probably saying, oh, I can do that. That's great, blah, blah, blah. But what about the guy that's on practice squad and is only making $85,000?

And then on top of that, they only get it for 18 weeks. So now you have to think proactively on making your money last or make your money efficient or your currency efficient for those remainder weeks when there is no season and there is no guaranteed contract, right? At least not for every player, right? And so, those are the nuances that you have to forecast and think in the future. Well, how do you do that? What do you do? Yes, the check says $20,000, but that doesn't necessarily mean that I can spend $20,000 this weekend, right?

It doesn't work like that. Let's close with a question about, you know, a certain sporting event coming up this weekend. You've played in a Super Bowl, that being Super Bowl XLV when you were with the Steelers, But that wasn't your only big game, because when you were at the University of Texas, you played in the 2006 Rose Bowl for the national championship. Texas won when Vince Young scored a touchdown with 19 seconds left on the clock in what is considered one of the greatest college games of modern times. So what's it like to play in such a big game? Man, it's you really feel like you're on top of the world. When it started with the collegiate level and then the pro level, you really feel like you're on top of the world.

very few times in life that you can actually have a snapshot of what you wanted to be. And it's exactly that. Right. And, and it wasn't exactly that it was even better. Like it was even better. And it's kind of cool. It's like, it may be a little narcissistic, but it's kind of cool. It's like, no one else can get it. No one else can have it but me, unless i share it or unless i talk about it and it's very precious to me because i recognize too that it's like it's a it's a tremendous blessing to be able to do something that very few people on this earth can do and i hold it dear to my heart right because it's rare it's money baby it's it's it's one of those things that i know very few people can talk about but um i'm i'm

always uh grateful that i got to experience it and it was just it was just fun it's just like what can you say it's a it's a it's an elation of just just joy right it was just it was just great nothing else i can say it was great well our guest has been jonathan r scott former nfl player and co-author of The Winning Playbook. Jonathan, thanks so much for joining us. My pleasure, sir. My pleasure. As always, people on the program may have interest 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. I'm Chris Hill, thanks for listening, we'll see you tomorrow.

Thank you.