Motley Fool Money - New Stock Highs, Supply Chain Woes, and Big Tech Insights

Episode Date: September 24, 2021

Costco ends the fiscal year on a strong note. Nike struggles with global supply chain issues. Adobe posts record revenue. FedEx cuts full-year guidance. Stitch Fix surprises with a quarterly profit. Salesforce and Darden Restaurants hit new all-time highs. And Toast pops 50% on its first day of trading. Emily Flippen and Jason Moser analyze those stories and share two stocks on their radar: Coupang and Compass. Plus, CNBC host Jon Fortt discusses the latest revelations about Facebook, what investors should know about new Amazon CEO Andy Jassy, and WeWork’s upcoming debut in the public markets. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert. Who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's progress right in the app, which makes it so much easier to stay on track.

And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money Radio Show. I'm Chris Hill, joining me this week's senior analyst Emily Flippin and Jason Moser. Good to see you both. Hey, hey. Hey, Chris. We've got the latest headlines from Wall Street. We've got the latest in big tech with CNBC's John Fort.

And as always, we've got a couple of stocks on our radar. But we begin with earnings. Costco ended the fiscal year with a bang. Fourth quarter revenue rose 17%. Same store sales were up more than 9%. And chairs of Costco up this weekend, close to a new all-time high, Jason. Yeah, I mean, this is a business that continues to do what we've really come to expect. I mean, it's just resilient, it's customer-centric, and that continues to deliver a loyal and repeat customer base. Net sales, $61.4 billion, up 17.5% for that. a year ago. Earnings per share up 20%. And that was on strong traffic numbers. Traffic was up 9.2% worldwide. 8.8% of the U.S. transactions, right? The basket, that was up as well.

5.8% worldwide, 5.6% in the U.S. and the renewal rates continue, as I said, just to remain very strong. 91.3% for the U.S. and Canada, up just slightly from a quarter ago. And Total paid households now stand at 61.7 million. That's up 1.1 million from just a quarter ago. Margins holding the line in what we see is a little bit more of an inflationary environment, which is really encouraging. But all in all, like I said, it's just a business that continues to do what we've come to expect. I couldn't help but notice they said they're going to start limiting purchases of paper goods and bottled water. Isn't that why people go to Costco in the first place so that they can load up on

toilet paper and bottled water and cleaning supplies? Well, perhaps they're just trying to employ some lessons learned from the recent past, right? I mean, 2020, I think, taught us all a lot about a lot of things. I think maybe they're trying to see around that corner a little bit because there are still some supply chain issues from a global perspective and it's not just a chip shortage, right? I mean, everything is essentially on a back order it feels. And so it sounds like, it feels like at least they're just trying to see around that corner a little bit. Makes sense, actually.

Mixed first quarter results from Nike. Profits were higher than expected. Revenue was lower than expected, and Nike lowered its guidance for 2022, saying that the global supply chain is hurting their business more than they originally thought it would. Shares of Nike down 6% on Friday. Emily, I have a hunch. We're going to be hearing the phrase global supply chain a lot this earning season. Well, that's certainly the story for Nike, as it has been for so many businesses this year shutdowns and its production facilities, especially in Vietnam, led to longer transition times, labor shortages. But what I think is really interesting and what we're seeing the market react to is the fact

that they had to pull back guidance so greatly as a result of these changes. They pulled back quarterly and full year guidance from the low double digits to the mid single digits. That's a really notable slowdown. And what's even more interesting is that unlike some of the other businesses that have been impacted by these supply chain checks. challenges. There weren't a lot of hints from Nike in its most recent quarter, pre this quarter, about how big of a problem this would be. In fact, management said last quarter

that they were optimistic and handling any challenges well. So that's a big change just from June to where we are in late September between what management saw last quarter and what they're expecting for the near future. How concerning is that? I mean, Nike is an experienced, mature company. They have been in the global game for a long time. I'm not super concerned because this inventory issue, again, is likely to persist until Vietnam takes a less aggressive approach to curb the spread of COVID. And really, that's anybody's guess. So I'm less willing to punish management here for not being more forward-looking

with their guidance. I do think what investors should be focused on that the market's overlooking right now is a slower growth in China. Last quarter was also a weak quarter for China. This quarter was a week quarter for their Chinese sales. And there really wasn't much of an explanation. And that's concerning because historically, Chinese demand has been really strong, a key growth driver for Nike. So this is definitely something to watch over the next few quarters. Adobe's third quarter profits were higher than expected and revenue was a record for the software giant, but shares of Adobe down 5% this week. Jason, is this valuation?

Because it's kind of hard to look at Adobe's results and see any serious cause for concern. I don't know that it's valuation as much as it's just a little bit of language in the call. I'll get into that here. There was another strong quarter, like you said, a strong business, strong quarter. But as we've seen with a lot of digital themes here over the past couple of years, management created at least a seed of just hesitation, maybe. They mentioned the word seasonality several times. They're talking about how with the economy reopening, we're seeing activity picking back up, people willing to travel a little bit more. There's lower web traffic as folks traveling it out of the house. And that's something that has impacted

Adobe's business modestly, and they're calling for the future here over the course of the coming year, as a potential headwin, right? And so when you have a business like Adobe that's valued at around 45 times free cash flow, it's not what you would call cheap. Now, it is a dominant business, so it's always been awarded that premium multiple. I don't expect that to change. I think it was relatively cut and dry week form here. But the numbers were very, very, impressive. Revenue up 22 percent, earnings per share up 21 percent, thanks to their digital media segment. And the investments in Document Cloud revenue, continue to pay off that document cloud revenue of $493 million was up 31 percent from a year ago with their Adobe signed

transactions now up 10 times over the last three years. So we're seeing a big opportunity that they're capitalizing on beyond just their digital media business. All things considered as a shareholder and is one who has recommended the stock before. I feel very good about where they are and where they're headed. Shares of FedEx down more than 10% this week. After first quarter profits came in lower than expected, FedEx also cut their earnings guidance for the full fiscal year. Emily, I know there is not one single stock that is a bellwether for the economy, but FedEx is probably on the short list of bellwether stocks. And this isn't that encouraging. I will say there are some aspects that are impacting this quarter that are outside of FedEx's

control, especially related to the labor shortages that we're experiencing. In fact, we covered FedEx last quarter, at least I did here on Motley Fool Money, and I noticed that they had a great quarter last quarter, record levels of both revenue and profit, but we are still kind of tepid because it was very clear that FedEx would be faced with things like higher labor costs, again, that are very much outside of the businesses control. And so even though they've been largely able to pass these increased costs along to the in-consumer, it was clear last quarter that the issues they've had around hiring, the constraints on their logistics networks during one of their busiest years ever, those would likely end

up hitting margins. And that's exactly what we saw this quarter. Sales were up of 14 percent year of year to just under $22 billion. Profits though actually fell 10 percent to $4.37 a share. So the core reason, again, that their labor pool is just more expensive. shortages caused less efficiency within its networks. So I think the question investors should be asking themselves is, are these issues short-term? And while management thinks so, I think it's important to remember that changes are likely

to happen gradually. And they're headed into peak season, so don't expect these costs to suddenly go away. I was going to say, they also talked about how they are looking to hire 90,000 seasonal workers if labor is part of the challenge here. I know there are some investors who might look at a mature business like FedEx and say, oh, the stock is down 10%. Maybe it's time to pick up some shares for a little bit cheaper, but it seems like they've also got some headwinds going into the holidays. I don't mean to be overly bearish because, as you mentioned, FedEx is a bellwether stock,

right? They've been a pretty consistent performer over the past decade. They pay a dividend. All these things are great, but they are certainly paying up for these peak season workers. And there is a belief among some experts that people are going to be a good. going to go back to shopping in person for the holiday season, especially when they're being told that the lead times on their deliveries may be weeks longer than expected. So they're paying up for tons of workers.

There may be less demand heading into peak holiday season. So all those things, I'm not super favorable, I suppose, for FedEx's prospects over the short term. Another week, another hot IPO. Details next to stay right here. You're listening to Motley Full Money. 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 yourself stocks based solely

on what you hear. Welcome back to Motley Full Money. Chris Hill here with Jason Moser and Emily Flippen. On Thursday, Salesforce held its annual Investor Day presentation and raised its revenue guidance for 2022. And Wall Street liked the sound of that. Shares of Salesforce up nearly 10% this week and hitting a new all-time high on Friday, Emily. I'll tell you what. If someone told me that Salesforce is up 10% on raised guidance, I would have assumed that the jump we saw in guidance was much bigger than what we saw in reality. In fact, they did raise guidance in their most recent quarterly report, but they raised it again during their Investor Day. Previously, they were expecting

26.2 to 26.3 billion dollars in terms of revenue. They raised that a whole 0.5 percent raising it to 26.25 billion dollars. And I think if you're just looking at these numbers, a lot of people will say, wow, that's ridiculous. Ten percent as a result of 0.5 percent increase in terms of guidance. But I don't think it was just because of this earnings guidance. I actually think it was a result of its investor day. They remind investors about the underlying economics and just these huge tailwinds that Salesforce is experiencing that are not expected to go away over the short term. One of the things that stood out to me was a slide that they had updated around six months ago for investors. Six months ago, it had Salesforce's total addressable market at

at $204 billion. Only six months later today, it is at $248 billion. So the digital transformation that is happening, it's happening at a rate higher than many investors expect. And I think that's why we're seeing the growth. Do you expect them? And maybe they address this in the Investor Day presentation. Did they talk at all about acquisitions? I mean, this in Mark Benioff is someone who likes to buy other businesses. Oh, of course they did. I think you can't have a Salesforce investor day where they don't show off their acquisition prowess. And that's definitely what we're seeing here as well. They finalize their acquisition of Slack on August 1st.

That adds a single product to their existing six businesses that are billion dollar plus yearly businesses. And unlike most companies that fuel growth through acquisitions, Salesforce, I think has done a great job of ensuring they make good on their purchase price. So MuleSoft, Tablo, exact targets. These are all acquisitions that at the time were called very exciting. expensive acquisitions by Salesforce that have actually been accretive for Salesforce shareholders. So with that alongside all of their core products growing at double digit rates, I think

Salesforce is definitely taking a little bit of a victory lap here. On Wednesday, Toast went public at $40 a share. Toast is a software company that provides point of sales systems for restaurants, and the stock ended its first day up more than 50%. Jason, can I interest you in an unprofitable company that's now worth nearly 30 billion dollars? Well, maybe the jury will have to have to reconvene on that one, I think. This is an interesting business, but it's not one where I feel like you pay any price for

it. Toast serves as the restaurant operating system, ultimately, is the way they view their business. They have a number of different revenue streams, some hardware, a lot of software and services, but their general goal is just to connect the restaurant across the entire spectrum of operations. It's dine-in, takeout, delivery. Addressing the fact that I think the restaurant industry has evolved so much, there are more points of distribution. It's more omnichannel now.

I think more moving parts means it's more difficult to manage. So a seamless, consistent operating experience absolutely has its merit, and there's something to the business because customers continue to sign up. As of June this year, they had 47,942 locations on their platform. up from 19,891 from just a couple of years ago. So, when you look at the market opportunity, it is a large and growing one. I mean, restaurants in the United States spent an estimated $25 billion on technology in 2019.

It was ultimately less than 3% of total sales. Toast management sees that growing to $55 billion by 2024. So even just a little bit of that market opportunity can certainly go a long way. But we need to really see if this business has traction, if the tech is as good as they it is, and that'll take a little bit of time. Shares of Stitchfix up nearly 20% this week after the online styling service reported a surprise profit in the fourth quarter. Emily, encouraging results, but I can't help but feel like Stitchfix is going to be a stronger business when profits are no longer a surprise. There's needless to say, I think the question around Stitchfix

has been, how big can this business be and what can their margin profile look like? Stitchfix has had periods where they have posted somewhat decent margins. I'll use that term loosely, two to three percent net income margins and three to four percent free cash flow margins, but that was in their best quarter. Their new CEO, Elizabeth Spalding, has really taken Stitch Fix's business in completely new direction. And their founder, Katrina Lake, after she departed, Spalding came in and said, hey, I know that we're known for being a clothing delivery box service, but I want to change that. In fact, I want to launch something, rename something, I should say, known as Freestyle. It's their direct buy system that's being opened up to the public. It used to be

that you couldn't buy things on Stitch Fix's website unless you were a customer and even then limited inventory. But Spalding has taken it and said, hey, we want shoppers to come directly to Stitch Fix without having to get fixes in the mail and be able to make purchases, no longer limiting themselves such as being a retail box business, but being a key destination. for what they call personalized styling and shopping. This is a big deviation, and I will say it puts them in the crosshairs of some really competitive online retailers that have decades of experience in this space. We were talking before the show, though.

I mean, it seems like Stitch Fix. I mean, there is still room for improvement, but it feels like it is at least a mature enough business that it's not going away. There was a point in time where you could look at Stitch Fix and say, I don't know if they're going to make it. Now I look at it and I think more in terms of like, you know, I think more in terms of like, Okay, they're going to make it, but just how big can they get? The way you put it before we started recording was that this business certainly has a floor.

And I completely agree with that. But you also mentioned this business probably has a ceiling. And I personally don't like to buy businesses that have a ceiling, even if there is a floor. And I agree. Stitchfix has a floor in the terms that is not going to go away permanently. But I do still wonder how they're going to compete in the world of online retail. I will say, I appreciate the fact they are shifting focus away from stylists and onto algorithms. Not that the stylists were bad at their jobs by any means, but there was a deviation in terms

of strategy. Stitchfix didn't know what it was. Was the secret sauce to stylists or was the secret sauce the algorithms? Now we know they're going all in on the algorithms. And if those pay off, then maybe that ceiling is higher than what I imagine it to be. Darden Restaurants is the parent company of Olive Garden, Longhorn Steakhouse and other restaurant chains. Strong first quarter profits and increased guidance for the full fiscal year drove the stock to a new all-time high this week. Jason, we love to talk about Olive Garden, but Darden's fine dining division led by the Capitol Grill, that deserves the MVP award for this quarter.

Well, yeah. I mean, and really, I think you're hitting on the beauty of the business is the number of brands it has under that umbrella that covers all sorts of different price points. And so that just results in another strong performance. Sales up 51% from a year ago for obvious reasons, but if you compare it to 2019, sales were still up 10%, which I find impressive. To me, it indicates the strategy that management has been employing over these past couple of years and taking share in markets where other restaurants, unfortunately, have had to shut down. It's working, right? I mean, it's giving them a greater footprint, and that plays into the competitive advantage in this business and scale. A big theme of the call was inflation, stronger

unit performance, coupled with some supply chain constraints, resulted in a lot more spot purchasing, and that ultimately resulted in some higher than expected inflation. But management is being very sensitive as to how they approach prices. They're going to continue to price below inflation, and more importantly, or more notably, at least below their competition. Again, they see their scale, their data, and their analytics as an advantage that allows them to do this. And I like it. To me, it's just the quintessential long-term thinking that's playing out pretty well for them. All right. Jason Moser, Emily Flippen. We will see you a little bit later in the show.

Coming up after the break, CNBC's John Fort weighs in on the latest from Facebook, Amazon, and WeWork's upcoming debut in the public markets. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. For more than 20 years, John Fort has covered Silicon Valley from startups to the biggest companies in the tech industry.

He is the co-host of CNBC's Daily Show Tech Check, and he joins me now. John, thanks so much for being here. Yeah, thanks for having me, Chris. There are a bunch of things I want to get to, but I want to start with Facebook. The Wall Street Journal recently published a series of stories based on internal documents at Facebook and among the headlines for those that didn't see it, that high profile users were being exempted from the rules, the toll that Instagram is taking on teenagers' mental health, and that Facebook executives were fully aware of the negative effects.

of its platform. And one of my reactions when I was reading these stories was, I feel like I've seen this movie before, the movie where seemingly damaging information comes out about Facebook's business. And you know that for most of its public life as a company, people have bet against Facebook and they've largely lost. So I guess my first question for you is, when you look at these stories in these revelations. How legitimately damaging do you think this is for Facebook? Damaging in the sense that it's more damaging than Cambridge Analytica or more damaging, the stuff that's happened before? Or like, what are we talking about? Damaging to the point that it takes a material effect on the stock, that activist investors

start to raise hell or that legitimate changes happen at the business as a result of this? I'm not so sure. Because a lot of what is coming out about Facebook and Instagram, even WhatsApp, there were some stories not related to this in particular, but about the privacy within WhatsApp, perhaps not being as private, as many related to believe. So much of what's happening within Facebook is happening within society, right? These issues of body image among teens and what do you do about that, bullying, et cetera. It's a Facebook thing, certainly. It's also an internet thing. It's also a societal thing. These issues of people in power or people with celebrity, getting away with stuff that everybody else can't get away with. Well, yes, that happens on

Facebook. That also seems to happen everywhere else. We hold Facebook more accountable because of its power, because of its wealth, because it's a controlled company where Mark Zuckerberg gets to call the shots, and it was sold to us by Mark Zuckerberg and others as, well, here you can be safe and here you can be around real people, and here it's curated. And yet they seem to wrestle with the same problems that broader society does. And in many cases, they're more acute on Facebook's properties. Some of the journals reporting shows that some of their fixes, like when they tried to orient people toward interacting more with friends and family, ended up creating an even bigger problem, which sort of reminds you like when you try to fix an ecosystem by getting

rid of what you think is an invasive species or something that shouldn't be there and you end up tipping the whole thing into chaos. It's like we're dealing with a living thing here in Facebook. And so is it a cautionary tale? Do things need to be done? Yes. But is Facebook going to get taken down as a result of it? I've got my doubts. Are you surprised that, you know, Just in this calendar here, we've seen Tim Cook be pretty pointed in his comments about Facebook, and most recently, Mark Benioff from Salesforce. I mean, I think we're used to seeing CEOs go at one another a little bit more when they're in the same industry.

The fact that the CEOs of Apple and Salesforce have gone out of their way to make these comments, that's not the norm. It's not. I mean, Apple does have a fundamental, I think, philosophical difference from Facebook, and that has to do with advertising and private information. They just have different approaches to how they think about technology and how it intersects with society. Beniof, I mean, yes, while Salesforce is an enterprise software company, it seems to play very separately from what Facebook does. he also bought Time Magazine, which is in broad consumer communications. He was interested in buying Twitter, remember, which is a more direct competitor of Facebook.

So he might think of himself and his efforts more broadly than we do and we think about just Salesforce. But, I mean, I do think his comment from years ago when he compared Facebook in particular to cigarettes, rings a bit different now that we. hear about this research, see it into the psychological effects, the social effects on people of, say, Instagram and how teens, they want to use it less, but they don't want to go cold turkey, et cetera. And I think we're not a society that's used to creating laws, regulations necessarily around behavioral stuff, as much as around medical stuff and physical stuff.

So this is brand new territory at a time when there's a lot of disagreement around how much people's freedom to do dumb things, right? Should be limited. You know, don't wear a mask. Wear a mask. Don't get vaccinated. Get vaccinated. If we can't agree on that stuff, how are we going to tell people that get off Instagram? Let's move on to Amazon because when the new CEO, Andy Jassy, did his,

first broadcast television interview. He did it with you. You sat down with Chassie recently. It's not the first time you've interviewed him. I know you've talked with him a number of time over the years. Let me start with this. What is something Amazon shareholders should know about the new CEO? I think people should know that he clearly has Jeff Bezos's confidence. And I don't mean that in the sort of serve at the pleasure of the president manner that it's often used. When I talk to CEOs, I very often know to pronounce difference between a founder and what a founder is willing to say and what a hired CEO is willing to say. Very often, founders will just say whatever the heck they want because they know that they're not going to get either because it's a controlled company. or because they've got, you know, the board is full of people who they put the,

the board's not going to get rid of them. They can say what they want, right? Elon Musk is a great example of that, right? He clearly doesn't care what anybody thinks about what he says. Whereas a hired CEO, he's going to be more circumspect and, you know, blah, blah, blah. What struck me about interviewing Andy Jassy, and I think I first talked to him back in 2015 or 2016, I'm not sure what year it was, back when his title was SVP over Amazon Web Services.

He spoke with authority, not just about AWS, the cloud business, but about Amazon in general. And he wasn't looking over his shoulder metaphorically as he did it. I thought, well, that's interesting. So he's a guy who served as effectively Bezos's chief of staff for a couple of years during the time when he also worked on what became Amazon Web Services. and the bond between the two seems so firm that Jassy is confident in leading the huge part of Amazon that he led for a long time and all of Amazon now without having to do a double take. And so that is significant for those who wonder, how much does he understand the organization? Is Amazon going to miss a step?

Is Amazon going to continue to be bold? Of course, Bezos is still around as executive chairman. It's not like he's left entirely. But I think the mind meld between these two guys is significant. That's interesting because, and I'm glad you mentioned Bezos is still around, because I think for a lot of people who look at businesses, look at the public markets, you don't have to go too far back in history to see examples of CEOs, handing off the keys to the corner office, moving to the chairman role,

and pretty soon, whether it's Bob Eiger at Disney or Howard Schultz at Starbucks, they are back in the mix. That's true. And I think it's also really difficult to measure CEO performance. For example, one of the most cited recent examples of a not-so-great CEO transition or maybe even a not-so-great CEO tenure on Wall Street is Steve Ballmer of Microsoft. People say, oh, look, look what Balmer did. Look at what the stock did during Balmell. Well, also look at the convenient moment when Bill Gates handed over the reins to Steve Balmer right before the market imploded.

Right? So that's a convenient time to stop the clock on your own tenure and to start it on someone else's. And then Gates didn't really leave. He was Chief Software Architect and chairman during many of those years. So it's not like, you know, he left and then came back years later and turned the lights on and, you know, the kids had trashed the place. He was sitting in on those meetings where they designed the Zoom. So come on. Also, you know, even though the stock didn't do much during that period, Satina Della was working there, building server and tools and what became the cloud business. Microsoft built an enterprise business. Their revenue and profit went up significantly during the time. It's not as if today's Microsoft.

Microsoft just emerged from nothing. So I think judging CEO tenure is tough. And that's got to be in mind, too, when you look at these transitions. Don't just look at the stock price. Also look at some of the less tangibles. And look at the businesses that are being built and the research that's being done. It was about this time two years ago that we all got to watch in real time the implosion of WeWork as it was preparing to go public. The IPO did not happen, but next month, WeWork is going public via SPAC. Is there reason for optimism that WeWork is going to have a happy life as a public company? I'm going to say there is. Do tell. The WeWork, a big part of

the problem with WeWork and the WeWork IPO in the beginning, is that it was a very part of the problem. overhyped and highly valued. And it was just, it was based on this optimistic scenario that people were going to keep working in a particular way, like in offices, you know, forever into the future, right? Also, there were some cultural issues, certainly Adam Newman, his leadership, et cetera. Can't overlook that. But what's a polite way of putting that. I'm being polite today, right? Well, look at what's changed. Newman got a big payout, but he's gone, right? You look at who's running this SPAC, that is how we work as coming public. It's Vivek Rana DeVeyvay, right? He's no crazy pot smoking in a private jet, you know, tequila shot kind of guy. This is like, this is a

name we know. Also, some of the companies backing this are commercial real estate names. I think, you know, the valuation ballpark was around $9 billion, which is way lower than was being talked about before. So, you know, this is a company, an idea that was being hyped along with Uber when Uber was being talked about as a $100 billion market cap. It's fallen short of that. We work is being valued way less. They have the opportunity now, after having dealt with some of the debt issues and some of the kind of reality checks, to, in a post-pandemic world, provide a service for, you know, flexible office space, things like that that people actually need. So, you know, There probably is a price at which we work makes sense.

And I don't know what price that is, but the way it's going public now, it's going to be a lot closer to that price than it would have been a couple years ago when they were initially talking about an IPO. Last thing, and then I'll let you go. The big technology companies take up a lot of the oxygen for all of the obvious reasons, but you're someone who's been in this industry for more than 20 years. What is currently on your radar right now somewhere in the technology business spectrum that maybe isn't getting a lot of attention, but it's a part of the industry that you're

interested in, you're curious about both where it is and where it's going over the next few years? I think vertical integration in the cloud and data centers and just how these business models are playing at. So let me, that's a lot of buzzwords. So let me try to make some sense of that. The mega scale, as I call them, cloud providers, the likes of Amazon, Microsoft, and Google Cloud, are architecting, in essence, these massive computers that they are allowing other people

to use for, you know, computing cycles as platforms, et cetera. They've got, you know, artificial intelligence, applications, and platforms and resources that they're letting other companies use. And part of what they're doing at the same time is saying, we don't want off-the-shelf servers. We don't want off-the-shelf server chips for running our clouds. Since we have this whole architected system that we're running, we want to be able to make tweaks based on what we want our system to do down to the way server chips are designed, right? you see Amazon going out and doing stuff with arm chips in servers for a lot of their

data center work in AWS. That's part of that customization. And what I would say is a vertical model that that's happening. That's interesting because it requires semiconductor companies to do a whole different thing than they used to do. In the old days, Intel would say, you know, you can have any. chip you want, as long as it's x86 on this list, right? Here's what you can have. But now, a lot of these customers are saying, well, that's nice that you have a list, but here's what

I want a chip to do. So who's got the skills, who's got the capability in the semiconductor universe to be able to make those customizations and to do that for large providers? So that's one line of it. Another thing that's happening between these cloud giants. is as they try to grow from here and catch up with AWS, and as AWS tries to stay in the lead, they're focusing in on industries, and how do they serve specific industries, particularly with artificial intelligence, applications, and use cases.

And to me, this is similar to what we've seen happen in other stages in enterprise technology, like when Oracle did a hostile takeover of PeopleSoft. That was industry-specific, you know, HR, application, and Oracle saw early on, okay, we're going into a period of consolidation. Let's figure out how we can take the most important kind of either industry-specific or function-specific applications and own those and grow through that. That's starting to happen in the cloud right now.

I think we'll begin to see whether Google or Microsoft can do that in a way that's better or more effective than Amazon has. and if they catch up to Amazon on the top line when it comes to cloud, or if they can't catch up on the top line, if they can provide services and software that are so high value that they're more profitable, then they could end up winning in different sorts of ways. So there are these strategic dynamics playing out, both on the hardware and semiconductor side and on the software and strategy

and go to market side, and there are a lot of companies, in the mid-market and smaller who are going to be affected by how they position themselves. You want to know what's going on in the world of technology? Check out Tech Check on CNBC every weekday at 11 a.m. Eastern. John Ford, thank you so much for your time. Thanks, Chris. Radar stocks after the break, so stay right here. This is Motley Fool Money. Welcome back to Motley Full Money. Chris Hill here once again with Emily Flippin and Jason Moser. We got two minutes for radar stocks. Dan Boyd is going to hit you with a question. Emily, you're up First, what are you looking at?

I'm looking at Kupeng. The ticker is CPNG. They're a Korean e-commerce giant that has been hammered since going public as a result of their increasing bottom line losses. But I'm convinced investors are looking at the wrong metric. I think there's early signs of free cash flow scalability in Kupang's business model that's being undervalued right now. Dan, question about Kupang?

Emily, how much is your stance on Kupang just contrarianism? Is it really contrary? I didn't even realize that. I am our contrary and at heart, so I'll happily take that stance if that's what it is. Jason Moser, what are you looking at? Yeah, digging more into Compass, ticker C-O-MP. This is a founder-led business in the real estate technology space, providing the tools to help agents do their jobs better. Co-founder and CEO Robert Refkin owns about 6% of the company.

Still a big stake held by SoftBank as well, but management sees an addressable market in the U.S. of $180 billion. And this thing has more than doubled revenue from 2019 to 5.5.5.5. a half billion dollars in sales over the last 12 months. It feels like one worth keeping an eye on. Dan, question about Compass? Yeah, certainly. Real estate's very hot right now, Jason. If it starts to cool off, is this going to affect Compass's bottom line? Typically, I think they're going to be pretty immune to this because real estate's fairly strong. Those are tools that they're going to need in the ebbs and flows of the real estate market. What do you want to add to your watch list, Dan?

I got to say, I'm curious, Chris. I'm going to go with Ku-bang. The contrarianism didn't throw you off. Not this time. All right, Emily Flipp and Jason Moza. Thanks so much for being here. Thanks, Chris. That's going to do it for this week's show. The show is Mixed by Dan Boyd.

Our producer is Matt Creer. I'm Chris Hill. Thanks for listening. We'll see you next week.