[SPEAKER_04]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_04]: Here's your host, Luke Guerrero.
[SPEAKER_00]: Good afternoon, fellow investors, and welcome to the Tuesday, July 7th, 2026 edition of Invest Talk.
[SPEAKER_00]: I'm your host Luke Gray, and I'll be with you over the next hour as we dissect what happened in the market today, bring you stories that matter and most importantly answer your finance and investment questions.
[SPEAKER_00]: But being that it was just one week ago, I do wanna send out yet another reminder that if you missed our latest wealth webinar beyond the yield, how to invest for your income needs, that is available now on the Invest Talk YouTube channel and it is free to watch.
[SPEAKER_00]: So I encourage you to head over there and check out that webinar or any of our previous webinars.
[SPEAKER_00]: All right, and just a bit, we'll talk about today's market performance.
[SPEAKER_00]: We will run down our show topics.
[SPEAKER_00]: But why don't we kick it off by answering a fresh color question now?
[SPEAKER_06]: Hey, Justin and Luke, I was looking at SAPSE.
[SPEAKER_06]: The company is, it looks like it's down pretty much over the year.
[SPEAKER_06]: And it looks like a pretty good company.
[SPEAKER_06]: I know the AI is kind of the dark cloud looming over it.
[SPEAKER_06]: But what do you think?
[SPEAKER_06]: It seems like it's a solid company that has been doing well.
[SPEAKER_07]: Let me know what you think.
[SPEAKER_06]: Thanks.
[SPEAKER_00]: SAP is SAPSE.
[SPEAKER_00]: It is a German-based enterprise software company, so they got SAP business, they have business data cloud, all sorts of different software solutions.
[SPEAKER_00]: Conquer, you know, my old company, we used to use Conquer, a lot of companies use Conquer, and they have nearly
[SPEAKER_00]: Now, here to date, this thing has been brutalized down 32.9 and 9% year to date down 46.73% of the past 52 weeks.
[SPEAKER_00]: So this name that was once trading at 43 times priced for the guarantees is settled down to about 17.6 now.
[SPEAKER_00]: Their most recent quarter ended April 23rd, rather than they reported April 23rd.
[SPEAKER_00]: Looks like cloud revenue was up 27% pretty solid.
[SPEAKER_00]: Cloud ERP suite revenue growth 30% current cloud backlog rose 25% total revenue was up about 12%.
[SPEAKER_00]: But in spite of the revenue and earnings beat, because earnings rose 20%.
[SPEAKER_00]: Despite that stock fell roughly 6.1 percent, 6.2 percent after hours, and one of the reasons why is the CEO has flagged that for them, they're seeing a bit of a slow down in a deal closing.
[SPEAKER_00]: So although that may not weigh on past revenue, past earnings, certainly could weigh on the future.
[SPEAKER_00]: And in fact,
[SPEAKER_00]: you had this growth acceleration they were hoping for in their guidance really thrown out the window for 2026 and pushed deeper into 2027.
[SPEAKER_00]: Another thing to keep in mind I mean this is not a US company it's a German company meaning if the dollar is strong versus the euro that's a pretty meaningful headwind.
[SPEAKER_00]: I think what I do like, though, is there really is growth here.
[SPEAKER_00]: I mean, they're operating margins or still really solid.
[SPEAKER_00]: He was a margin, actually grew from 2023 into 2025.
[SPEAKER_00]: From 25.5 to 31%.
[SPEAKER_00]: It's probably one of the most important tech companies in Europe.
[SPEAKER_00]: And as I mentioned at the top, I mean, it said it's cheapest valuation in years.
[SPEAKER_00]: It's not the cheapest, it's been over the past five years, but it is pretty cheap.
[SPEAKER_00]: And a lot of it has a, the business has a boat that certainly no business in Europe has cracked in half a century, but you have those things going against it, there's a AI driven modernization cycle that's real.
[SPEAKER_00]: given the slowdown and the business, and slowdown and growth projections into 27 though, what's the short-term, near-term catalyst?
[SPEAKER_00]: I'm not exactly sure.
[SPEAKER_00]: For me, I mean, this thing is kind of at support here.
[SPEAKER_00]: It's broken down.
[SPEAKER_00]: It's technically poor since the beginning of 2025, or middle of 2025.
[SPEAKER_00]: I like this company.
[SPEAKER_00]: I think it's a solid one.
[SPEAKER_00]: I think it has a got solid growth path into 27, but picking it up right here might be a stretch out way to see if it really floats around the support here.
[SPEAKER_00]: Because I mean it's a cheap valuation and the upside certainly is there.
[SPEAKER_00]: That is SAPSE SAP?
[SPEAKER_00]: Thanks for the call.
[SPEAKER_00]: Well, we had a great show yesterday.
[SPEAKER_00]: We looked into a story about the Roth conversion window and how mid-year is really a smart time to start to model conversions because we get to year end.
[SPEAKER_00]: I mean, tax planning gets a little bit rushed.
[SPEAKER_00]: We also answered a listener question on ticker ATI, which is ATI ink.
[SPEAKER_00]: It's an American producer of specialty materials that is headquartered in Dallas, so they produce metals like titanium, titanium alloy, nickel-based alloys.
[SPEAKER_00]: So we talked about that company and some of the reasons why we
[SPEAKER_00]: That question was submitted via the comment section of the Invest Talk YouTube channel, and as always, if you happen to miss yesterday's show, I encourage you to go check it out.
[SPEAKER_00]: And remember, the best way to never miss a show is to follow Invest Talk wherever you get your podcasts.
[SPEAKER_00]: Alright, on to today where we have another great story to bring you, namely, what happens when the AI bubble pops because the trade is really seeming to lose its north star.
[SPEAKER_00]: In fact, Bloomberg is reporting that one of the key signals driving the AI trade.
[SPEAKER_00]: Losing a bit of its reliability, and that raises a critical question for all of us, who have built positions around AI infrastructure, around chips, around related names, because when the narrative cracks, understanding what's driving valuations underneath becomes more important, than ever.
[SPEAKER_00]: Also a story we tried to bring yesterday, but we ran out of time on the earnings bubble fears on Wall Street.
[SPEAKER_00]: An analysis on how AI has really taken over the stock market and the bond market is probably next.
[SPEAKER_00]: And should we have time at the end of the show, we'll touch on how banks are exploring a deal to fundamentally change payments and transactions, and why that might be
[SPEAKER_00]: Little upsetting to Mr. and Mrs. Consumer.
[SPEAKER_00]: We also have some voice bank calls ready to play, including one on Roth Conversion, a follow-up on the show topic yesterday at Seams, and another on applied industrial technologies, which is Ticker AIT, not to be confused with Ticker ATI from yesterday.
[SPEAKER_00]: We ask us some questions that came in from the comment section of the Invest talk at YouTube channel and hopefully we hear from some of you live throughout the show.
[SPEAKER_00]: We are going into a quick break.
[SPEAKER_00]: Please remember you can call any time and leave your questions on the Invest talk voice bank.
[SPEAKER_00]: In fact, if you're listening to our live stream or on AM-1220 in the Bay Area, I encourage you to call now at 808-99 chart.
[SPEAKER_00]: Up next, we'll cover today's market activity.
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[SPEAKER_04]: 888-99 chart.
[SPEAKER_00]: Looks like it was pretty much an across the board down day today.
[SPEAKER_00]: I mean, in spite of that, unlike yesterday, you actually did have the S&P gainers outnumbering to climbers, meaning it's more likely the nod, and in fact, it did the equal weight did outperform.
[SPEAKER_00]: But the top lane indices down 25 bits, S&P down 45 NASDAQ down 116 small caps down about.
[SPEAKER_00]: It looks like 90 basis points.
[SPEAKER_00]: Some of the names that did well yesterday really did ported in.
[SPEAKER_00]: Semis, memory, and infrastructure more than reversed those gains that we saw yesterday.
[SPEAKER_00]: Building products, airlines, credit cards, payments, also some of the worst performers.
[SPEAKER_00]: Then you got those mega guys.
[SPEAKER_00]: Those big tech names with kind of performance all over the place.
[SPEAKER_00]: And then something that hasn't happened consistently.
[SPEAKER_00]: And sometimes software did did pretty well energy.
[SPEAKER_00]: Farm a managed care.
[SPEAKER_00]: It did did pretty well.
[SPEAKER_00]: as well and I guess that'll make sense because treasuries they were weaker yields were up seven to eight basis points pretty much all across the curve golden silver not much movement they're down to in one to 20 basis points in 1.6 percent respectively and then crude oil up 2.8 percent we did get some news that we'll talk about in a sec as well evolving Iran
[SPEAKER_00]: But I mean, the big stir is momentum, right?
[SPEAKER_00]: Momentum weighed on a group that looked like on Monday.
[SPEAKER_00]: It was potentially stabilizing.
[SPEAKER_00]: A lot of reasons why.
[SPEAKER_00]: I mean, you have continued Chinese chip competition.
[SPEAKER_00]: Deepseek said they were developing their own AI chips.
[SPEAKER_00]: You had a sell-off in Samsung because of preliminary results.
[SPEAKER_00]: I mean, that's really just reflective of this extremely high bar for semis in general.
[SPEAKER_00]: Many of just supply dynamics.
[SPEAKER_00]: You have a bunch of equity IPOs coming, a bunch of bond sales.
[SPEAKER_00]: You have to get the money out from somewhere.
[SPEAKER_00]: And then outside of Tech you have renewed anxiety about developments in Iran.
[SPEAKER_00]: You had three strikes on ships in the straightaway moves over the past 25 hours.
[SPEAKER_00]: I mean, notably oil actually didn't react.
[SPEAKER_00]: through the early session, it's spite after settlement on reports that the U.S. was revoking these licenses that authorized Iranian crude sales in reply to those strikes.
[SPEAKER_00]: But really, the market just all over the place and reaction to a bunch of things that saw some pretty wide dispersion companies that had cleaner positioning and more reasonable valuations, they tended to do well regardless of what sector they were in.
[SPEAKER_00]: The opposite is true for those who were on the other side of the spectrum there.
[SPEAKER_00]: On the day to front, ADP weekly employment estimate came in at 21,000 jobs a week for the four weeks through June 20th.
[SPEAKER_00]: We got May trade deficit printed at 77.6 billion wider than what we saw in April.
[SPEAKER_00]: So the trade deficit widening from 54.6 billion just one month ago.
[SPEAKER_00]: But the big story for me, really inflation expectations, I mean you saw the one-year inflation expectation rise at 3.7, that's the highest since September of 2023.
[SPEAKER_00]: The 3-year was up to 3.3, that's the highest as June of 2022.
[SPEAKER_00]: But the five-year did stay steady.
[SPEAKER_00]: Now looking ahead to the rest of the week, Wednesday is May wholesale inventories.
[SPEAKER_00]: You also get the big story the week, June,
[SPEAKER_00]: You got some treasury sales, we're really not much else for the rest of the week, I guess initial claims and existing home sales that we will get on Thursday.
[SPEAKER_00]: All right, let's go to Dan for Rindon.
[SPEAKER_00]: He's got a question about SIRI.
[SPEAKER_00]: Okay, I'll be.
[SPEAKER_08]: Hi there.
[SPEAKER_08]: Yes, I'm Vanessa and that's today's XM Home.
[SPEAKER_08]: I'm curious what you think of it and I'm hoping to be able to pick it up around the 28 dollar range.
[SPEAKER_08]: I'm curious if that sounds reasonable or a few
[SPEAKER_08]: have a better problem?
[SPEAKER_00]: Sure, let's take a look at serious XM holdings, you know, this company has struggled relative to the rest of the market really from 2020 to 2025.
[SPEAKER_00]: Now this year it's up 53.9% year-to-date up 30% over the past 52 weeks.
[SPEAKER_00]: It is a audio entertainment platform, so Sue, Series XM, satellite radio streaming, they have Pandora, they have a podcast network,
[SPEAKER_00]: A lot of their technology is in car, you know, there's most recent revenue, or rather the most recent earnings.
[SPEAKER_00]: Looks like they had a beat on revenue, earnings per share beat.
[SPEAKER_00]: I'll be just slightly, I think, the biggest thing for them is free cash load tripled year over year.
[SPEAKER_00]: because of cost efficiency and the fact that they're spending less money, that is certainly good.
[SPEAKER_00]: One thing to note though, I mean Bloomberg did recently report on early-stage merger discussions, though those are now on pause, but I mean there's a lot of AI speculation or rather M&A speculation I'm using the wrong two letters.
[SPEAKER_00]: For this name, I
[SPEAKER_00]: And so that tends to drive prices in a way that is asymmetric compared to where the company is going.
[SPEAKER_00]: Now, I don't think things are bad.
[SPEAKER_00]: I mean, two years ago, they're losing money.
[SPEAKER_00]: Now, they're making money that's certainly good.
[SPEAKER_00]: I already mentioned free cash flow is up.
[SPEAKER_00]: So if you're looking for more of an income-oriented value stock,
[SPEAKER_00]: that even spite of its run still has a pretty cheap valuation.
[SPEAKER_00]: I think this is a decent one to go about it, but it's also important to note revenues flat.
[SPEAKER_00]: They have just declining subscriber numbers and frankly, they are within an industry that is not doing too hot.
[SPEAKER_00]: So for me, the biggest catalyst for them would be if a merger comes through.
[SPEAKER_00]: That's a pretty risky move to place an investment.
[SPEAKER_00]: So I would pass on a serious exit.
[SPEAKER_00]: Alright, folks, our 24-7 voice bank never closes.
[SPEAKER_00]: You can leave your questions anytime at 80-89 chart and we get back.
[SPEAKER_00]: We're gonna tackle some more of those questions.
[SPEAKER_00]: So hang on.
[SPEAKER_04]: In the early days, in Vestock was Jerry Klein and Steve Peasley.
[SPEAKER_04]: Now the torch has been passed and a new generation of hosts is on the job, Justin Klein and Luke Guerrero.
[SPEAKER_04]: So when you've got finance and investment questions, don't forget to call in Vestock, 88899, chart.
[SPEAKER_00]: Now, yesterday I wanted to talk about this because for a couple of years, I mean, the market has been just doing so well, but I think that understanding earnings estimates realize rings have been great, but earnings estimates specifically is important for any investor who maybe might be a bit too bullish.
[SPEAKER_00]: According to analysts, the S&P company earnings are the coming year is forecast to grow by 25%.
[SPEAKER_00]: In fact, estimates for the next 12 months have ribbon but risen by almost 20% in the past six months alone.
[SPEAKER_00]: And I rate it increases crazy.
[SPEAKER_00]: It's like nothing that has ever been seen outside of like a crisis period.
[SPEAKER_00]: And it's a red flag.
[SPEAKER_00]: That's not a comfort.
[SPEAKER_00]: Because those rising estimates,
[SPEAKER_00]: The SAP trades at about 20 times hoard earnings right now, which looks reasonable, until you consider that the forward earnings denominator keeps getting bigger, but a pace that is just not sustainable.
[SPEAKER_00]: So when earnings estimate rise this fast, it doesn't mean the market's cheap.
[SPEAKER_00]: It could mean that the estimates are wildly wrong.
[SPEAKER_00]: And this is what we call an earnings bubble.
[SPEAKER_00]: Shares in AI supply chain name specifically are price to maintain insane profits and the likelihood of that being reality and sustainable in terms of profitability and growth that's low.
[SPEAKER_00]: Meaning that AI-related equity markets might be approaching a point where earnings expectations and assumptions aren't sustainable, and if that's the case, I'm not saying it is.
[SPEAKER_00]: You would likely see a pullback not just in equity markets.
[SPEAKER_00]: uh... in those names but i mean across the board now at the same time we have seen some of the strongest right that the new wants matters because the strong earnings we've seen are fake s and p five hundred companies genuinely be estimates by eighteen point two percent last quarter and a i infrastructure is genuinely generating real revenue for chip and memory companies but there's a difference between strong earnings and earnings estimates that assume the current pace of growth continues indefinitely memory companies are earning eighty
[SPEAKER_00]: a scent gross margins on every dollar revenue that's crazy.
[SPEAKER_00]: semi-conductor indices are up over 70% year to date.
[SPEAKER_00]: These are super normal profits in inherently cyclical industries.
[SPEAKER_00]: And anyone who's lived through a semi-conductor cycle knows how quickly margins can press.
[SPEAKER_00]: So the question isn't, should I sell everything, right?
[SPEAKER_00]: That's not the question here.
[SPEAKER_00]: But earnings are real to justify exposure to this theme.
[SPEAKER_00]: The question is how much of the current price is paying for growth that's already happened?
[SPEAKER_00]: Versus growth that's been projected to do a future that,
[SPEAKER_00]: Could not come about.
[SPEAKER_00]: One thing that is always worrisome is when every strategist on Wall Street raises estimate simultaneously when the upgrade pace matches only recovery periods, commodity super cycles, and when recombinies and question are spending 94% of their cash on capex.
[SPEAKER_00]: I mean the margin of safety here, it's razor-thin.
[SPEAKER_00]: So the question is, how much longer is this sustainable?
[SPEAKER_00]: and the worry is that you're on the wrong side if it isn't.
[SPEAKER_00]: All right, let's swing back to the voice bank for a question that came in earlier.
[SPEAKER_07]: Hi, Joseph and Luke.
[SPEAKER_07]: Um, I was interested in buying Terek, simple TEX for my Roth IRA, and I just wanted to get you guys a opinion on it.
[SPEAKER_07]: Thank you.
[SPEAKER_07]: Bye, bye.
[SPEAKER_00]: All right, let's take a look at TX, which is Terex corporations, or Terex corporation apologies.
[SPEAKER_00]: Let's pull this up here.
[SPEAKER_00]: This company is an industrial name.
[SPEAKER_00]: What they do?
[SPEAKER_00]: is they manufacture industrial equipment specifically for processing machinery and for waste and recycling, as well as equipment for electrical utility companies.
[SPEAKER_00]: Now, revenue is grown pretty well over the past couple of years and it's up 12% on an annualized basis going back to 2020.
[SPEAKER_00]: But it's also important to note that Texas kind of a
[SPEAKER_00]: because there was an all-stock rev group merger that closed in February, so it doubled the revenue overnight and added a specialty vehicle segments, your emergency vehicles, your waste and recycling.
[SPEAKER_00]: And so if you're looking at this company from a pure income perspective, right, looking at earnings, it's tough because your over your compared pair since are going to be absolutely distorted by the fact that this company is fundamentally different.
[SPEAKER_00]: Then you also got the fact that it
[SPEAKER_00]: Now, that being said, this company is an industrial company.
[SPEAKER_00]: So one of the things you want to look for is the backlog.
[SPEAKER_00]: And they have a $7.1 billion backlog.
[SPEAKER_00]: And this integration has gone really well.
[SPEAKER_00]: It's gone ahead of schedule.
[SPEAKER_00]: It has also shown itself from an earnings perspective, adjusted for the merger to be pretty tariff resilient in end markets.
[SPEAKER_00]: I mean, and when you're working in emergency vehicles, waste recycling utilities,
[SPEAKER_00]: That's a good thing because those things are structurally non-cyclical.
[SPEAKER_00]: And in this case, this is one of the cheaper names within the segment I would say.
[SPEAKER_00]: I mean, it's trading at 13 times price to forward looking earnings, which looks cheap.
[SPEAKER_00]: On a market perspective compared to itself, it's a bit high over the past five years.
[SPEAKER_00]: And it's a tough one because it's transformed and it's transforming itself really well, but it's near an all-time high in terms of evaluation.
[SPEAKER_00]: I would kind of wait a little bit given this merger before I would enter this name.
[SPEAKER_00]: Window things become steady states and come to a point where it's back to normal.
[SPEAKER_00]: That is Terex Corporation TX.
[SPEAKER_00]: On the next investor talk, we'll look at Defense Tech Stocks in 2026 and ask, is this the new growth sector investors have been waiting for?
[SPEAKER_00]: That's smart, but we still got plenty to talk about today.
[SPEAKER_00]: I'm Luke Guerrero, and I'm ready to take your questions any time at 80-80-99.
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[SPEAKER_04]: Luke Guerrero is here now.
[SPEAKER_04]: 888-99 chart.
[SPEAKER_00]: I saw this piece last week that Bloomberg published that I think captures the most important shift happening in market right now.
[SPEAKER_00]: If you look at the Silicon data LLM token expenditure index, which essentially just tracks what users actually pay for AI tokens, it's down almost 20% from its may-high after nearly
[SPEAKER_00]: And this index is really the cleanest real world measure of AI monetization that exists.
[SPEAKER_00]: And it's following it precisely the moment when investors are asking whether all of this money being spent by all of these companies, we've talked about it three quarters of a trillion dollars, is ever going to generate a commensurate return.
[SPEAKER_00]: Now, what it means, and what it doesn't mean, but what it means, what it means is that the price per unit of AI usage is declining.
[SPEAKER_00]: Consumers are becoming cost-centitive.
[SPEAKER_00]: Deep-seek's permanent 75% price cut, which we covered a couple of months ago.
[SPEAKER_00]: It's one of several forces that is compressing what AI companies can charge.
[SPEAKER_00]: Then you have open source models.
[SPEAKER_00]: You have Lama, an air-squeezing cloud source margins.
[SPEAKER_00]: Then you have this idea that the supply of compute capacity is growing faster than the ability of enterprises to build applications that justify premium subscription prices.
[SPEAKER_00]: So when the price of the product falls while the cost of building the infrastructure to deliver a rises, the math starts to tell you you're not getting your money back.
[SPEAKER_00]: And what it doesn't mean is that a demand is going down.
[SPEAKER_00]: You have top NGPUs and high bandwidth memory still sold out through all of this year.
[SPEAKER_00]: And really looking at it, there's no real relief until 2028, not 2728.
[SPEAKER_00]: And the hardware is in the problem.
[SPEAKER_00]: The subtleties that demand is shifting from expensive training GPUs, two more cheap to do inference optimized parts.
[SPEAKER_00]: And that changes the mix of who the winners are going to be.
[SPEAKER_00]: It's bullish for inference-focused chip designers and bearish for companies whose revenues depend on these premium training workloads.
[SPEAKER_00]: But it doesn't hand you a clean short on the sector, right?
[SPEAKER_00]: You're still not.
[SPEAKER_00]: It's still not advisable to head in and say, this whole sector's headed downwards.
[SPEAKER_00]: I think the biggest market picture is kind of where it gets genuinely important.
[SPEAKER_00]: Bloomberg reported this week that the mag seven, so those stocks that really carried the S&B for the past three years, gained just 1.1% in 2026 this far.
[SPEAKER_00]: I mean, the NASDAQ 100 is up 18.
[SPEAKER_00]: The S&B 500's up, 10.
[SPEAKER_00]: So in a way, the AI trade hasn't really ended.
[SPEAKER_00]: It's just my grid.
[SPEAKER_00]: The returns have moved downstream from these mega-capped spenders to their smaller beneficiaries, power infrastructure, memory companies, these picks and shovels that we have been talking about for so long.
[SPEAKER_00]: And in fact, we did a webinar on that is available on our YouTube channel.
[SPEAKER_00]: Now with all this in mind, right?
[SPEAKER_00]: Cause we're having companies falling down on worries about AI chip demand.
[SPEAKER_00]: Is this a buying opportunity or is it more of a time that you should say, okay, the market is reducing exposure?
[SPEAKER_00]: What should I do?
[SPEAKER_00]: Probably a little bit of both.
[SPEAKER_00]: Depending on what you actually own because, again, all of your guys' situations are fundamentally different.
[SPEAKER_00]: If you own the hyperscalers,
[SPEAKER_00]: The trade has shifted from by the builders to show me the revenues companies are spending 94% of operating cash flow and capex, they're showing hundreds of billions in debt inequity, and that money has to come from somewhere and it has to stop something.
[SPEAKER_00]: In this case, what is it stopping?
[SPEAKER_00]: It's stopping the thing that has for the past decade helped with deterrence, they're bybacks.
[SPEAKER_00]: And you see it, they're stocked, they flatlined, because the market is no longer willing
[SPEAKER_00]: Now, if you're in the AI supply chain, memory, semis, infrastructure, maybe the cautious near-term.
[SPEAKER_00]: I mean, that this 20% decline suggests, and I mean, in this token pricing index, kind of suggests that pricing powers are roting, so memory companies trading it, those 80 cent gross margins, those are levels that are probably gonna revert, semis up over 70%, that's based upon being priced to perfection.
[SPEAKER_00]: If you're nothing I related and are wondering whether you missed the trade entirely, I mean, the rotation is actually creating opportunities.
[SPEAKER_00]: The sector that outperform, when a dominant theme unravels are exactly what's been working.
[SPEAKER_00]: Healthcare, having a strong month, consumer staples is outperforming financials.
[SPEAKER_00]: They're benefiting from the rotation.
[SPEAKER_00]: Then you see European equities are hitting records.
[SPEAKER_00]: As capital is leaving US tech.
[SPEAKER_00]: And small caps are doing well.
[SPEAKER_00]: as well.
[SPEAKER_00]: The other part of this, too, is it's positive for breath, I mean the S&P 500's dependence on the AI theme is still enormous, but it's shrinking.
[SPEAKER_00]: The max 7's contribution to index return actually collapsed from over 60% last year to barely anything this year.
[SPEAKER_00]: I mean, we talked about it in between 1% and 10%.
[SPEAKER_00]: So if you're diversified, you go weight exposure, small caps, international like we've been talking about.
[SPEAKER_00]: For any position for the world where AI remains important, but really no longer carries the index.
[SPEAKER_00]: The reality is the token index cutting both ways, is the perfect metaphor for where we are.
[SPEAKER_00]: If the dip is just,
[SPEAKER_00]: makeshift digestion and cheaper tokens keep expanding the market?
[SPEAKER_00]: Well, then the bulk case is intact.
[SPEAKER_00]: CapX is still justified.
[SPEAKER_00]: You're bringing more consumers it.
[SPEAKER_00]: But if it's the beginning of a structural decline in AI pricing power, that nearly trillion dollar question about ROI gets so for a lot of these companies pretty uncomfortable answer.
[SPEAKER_00]: And both readings are legitimate.
[SPEAKER_00]: Both could be true.
[SPEAKER_00]: Either could be true.
[SPEAKER_00]: Here's the benefit of diversity.
[SPEAKER_00]: Holding both at once, but maybe reducing risk and size is probably the only honest response to this kind of information.
[SPEAKER_00]: I let's keep going and drop in another listener question now.
[SPEAKER_05]: Gentlemen, my name is Lauren, I'm from Wilmington, Delaware.
[SPEAKER_05]: And I have a question about AIP, applied industrial technology.
[SPEAKER_05]: and I really want to buy more, but I'd like to get your opinion of this stock before I make it move.
[SPEAKER_05]: I'll listen on the podcast and I thank you very much.
[SPEAKER_00]: Well, Lauren, let's take a look at AIT, which is applied industrial technologies.
[SPEAKER_00]: This name has been very strong since, so all the way back into 2020, where it has pretty much perennially outperformed its industry in the market with the exception of 2025, when it was only up to 7.2% of this year.
[SPEAKER_00]: It's up 22.81% in spite of it being down
[SPEAKER_00]: Now, what they do is they operate through two segments.
[SPEAKER_00]: So they're service center, which is bearings, a power transmission, and fluid power and maintenance, and then engineered solution.
[SPEAKER_00]: So custom automation, robotics, motion control.
[SPEAKER_00]: There's one of those industrial names that we like.
[SPEAKER_00]: We like this name.
[SPEAKER_00]: We've been looking at this name.
[SPEAKER_00]: And I think the theme that this name attacks industrial automation
[SPEAKER_00]: is one of the most appropriate themes, one of the best themes within the industrial space.
[SPEAKER_00]: Now they report earnings pretty soon now, looks like the end of this month, the August 6th.
[SPEAKER_00]: So let's look at their most recent earnings, which is all the way back in April, and so it's going to be pretty stale.
[SPEAKER_00]: I mean, revenue was very solid to past $1.3 billion.
[SPEAKER_00]: which was above the 1.2 billion art forecasters of beat there.
[SPEAKER_00]: And then on earnings, they match.
[SPEAKER_00]: But this together, along with the fact that they had 6% organic sales growth, means it was its strongest, really strongest quarter I would say in over two years.
[SPEAKER_00]: And then they repurchased a bunch of shares.
[SPEAKER_00]: Repurchase 93 million shares during that quarter alone authorized another 3 million share repurchase That's right, 93 million dollars in shares and then authorize a new 3 million share Repurchase same time they raise guidance and in this reason why this name is doing is doing so well
[SPEAKER_00]: It's benefiting from organic growth in, what is a bit of a recovering industrial cycle?
[SPEAKER_00]: You still have the benefit here of the AI theme because they're engineered solutions.
[SPEAKER_00]: I mean, that attacks AI data centers, semiconductors, and from evaluation perspective, I mean, it's expensive.
[SPEAKER_00]: It's 27 times price to Ford looking around.
[SPEAKER_00]: He's, but I mean, you're paying for that growth.
[SPEAKER_00]: It's executing.
[SPEAKER_00]: really at the top of its game anytime you see guidance rays beats organic growth this is exactly what you want to see here um but i don't know you're buying fresh today you're pretty much buying it at a full valuation that at least in the near term has a bit of limited upside here so for me i'd probably wait for a bit of a pullback it's trading nearly the most expensive it's been in the past five years that is
[SPEAKER_00]: AIT, again, not to be confused with yesterday's question on ATI, applied industrial technologies.
[SPEAKER_00]: As to look at another question that came in from the comment section of our YouTube channel, it says, software names haven't been doing greatly because of fear that AI soon will take over everything and so on.
[SPEAKER_00]: I don't really think that, neither do I Jimmy, or at least I think that many names within the sector have fallen too steep.
[SPEAKER_00]: I agree.
[SPEAKER_00]: I've started to buy some Adobe, do you think it might be the right time?
[SPEAKER_00]: to pick it up.
[SPEAKER_00]: Adobe is something I use.
[SPEAKER_00]: I use their their package software because I am an amateur photographer, so I use Photoshop and Light Studio.
[SPEAKER_00]: It's a digital media digital experience publishing, advertising company.
[SPEAKER_00]: It's really been beaten down.
[SPEAKER_00]: I'll say not just because of AI, but because... Well, because it hasn't done a good job.
[SPEAKER_00]: Integrating AI.
[SPEAKER_00]: There's a couple flags here that are important to note their CEO is stepping down after 18 years, which could be a good thing could be a bad thing.
[SPEAKER_00]: They have no permanent CEO, they have no permanent CFO who stepped down on the 15th.
[SPEAKER_00]: And it kind of did this pivot because they're really concerned about their AI user growth over the near term towards freemium.
[SPEAKER_00]: So they're explicitly kind of accepting pressure on subscription revenue.
[SPEAKER_00]: And that's one of the reasons why this thing is down 41% over the past 52 weeks, down 36% year to date.
[SPEAKER_00]: That's despite having a record quarter.
[SPEAKER_00]: I mean, 13% year over year growth, they beat revenue.
[SPEAKER_00]: They're seeing AI first.
[SPEAKER_00]: They are our triple year over year.
[SPEAKER_00]: They beat on earnings by about 2.4%.
[SPEAKER_00]: Any time you have a company that's struggling from a valuation perspective, or struggling from a price perspective, the market sees it in a bit of trouble, in a bit of distress here.
[SPEAKER_00]: And then at the same time, you have an executive departure.
[SPEAKER_00]: I mean, that's a bit worrisome.
[SPEAKER_00]: I would say.
[SPEAKER_00]: So what's kind of the bull case here?
[SPEAKER_00]: You're buying it at eight times before looking price earnings.
[SPEAKER_00]: It's got.
[SPEAKER_00]: 84% return on equity, it's where it's supposed to be this year, but leadership has gone.
[SPEAKER_00]: There are a native tools that are eroding creative cloud, which is the package of Photoshop and Lightroom and all those things that are essentially causing it to lose its position.
[SPEAKER_00]: It's come to a position where maybe it's too cheap to sell because of where the valuation is.
[SPEAKER_00]: But this is one of those things where you could have said it was really cheap last year.
[SPEAKER_00]: You could have said it was really cheap.
[SPEAKER_00]: It didn't even need this year.
[SPEAKER_00]: And it keeps getting cheaper.
[SPEAKER_00]: So until you see a bit of a technical turn here, a catalyst or knowledge about what the path is for for the company, rather than just, you know, trying to essentially milk the user base by a freemium model.
[SPEAKER_00]: I'd probably put it on pause before I enter a position.
[SPEAKER_00]: That is Adobe Ink, ticker, ADBE.
[SPEAKER_00]: I'll say one more voicemail from 888-99 chart.
[SPEAKER_02]: I'm just there, Lou.
[SPEAKER_02]: I'm calling about ticker symbol, F, C, T, E. I don't have much data on it, but I heard about it through a friend that's wondering if you take a look and if you're flipping your system, then let me know if you think it's a good investment.
[SPEAKER_02]: Thank you, bye.
[SPEAKER_00]: So I get FCT, which is V, drum roll, as my computer loads, SMI 314 full cycle trendy TF.
[SPEAKER_00]: I have never heard of this.
[SPEAKER_00]: I have no idea what this is, so let's learn together.
[SPEAKER_00]: It's a small ETF.
[SPEAKER_00]: It's got $242 million under management.
[SPEAKER_00]: It's pretty expensive.
[SPEAKER_00]: 89 basis point expense ratio.
[SPEAKER_00]: It holds 21 names of which it seems they're nearly collided maybe in the rebounds because the top 10 are all roughly 5%.
[SPEAKER_00]: It doesn't have small cap names.
[SPEAKER_00]: It has large names.
[SPEAKER_00]: Apple, HCA, healthcare, metapepsy, lock-heed, Microsoft, McKesson, Alphabet, Johnson, and Johnson, Arista, those are the top 10.
[SPEAKER_00]: And so how the heck are they justifying charging you?
[SPEAKER_00]: This much, that is the question.
[SPEAKER_00]: Well, it's also not very liquid, it's something I should also note here.
[SPEAKER_00]: Let's see what they do.
[SPEAKER_00]: So try and beat the S&P through complete market cycles by targeting companies believed to be the most promising, typically holding about 20 domestic large caps.
[SPEAKER_00]: Value stocks on quality metrics, trend factors, like return on capital.
[SPEAKER_00]: Okay, so this is a highly highly concentrated portfolio because it's nearly 100% in technology and industrials in healthcare.
[SPEAKER_00]: There's just not enough here for me, you know, it's aims to beat the S&P 500.
[SPEAKER_03]: Well, has it over the past year?
[SPEAKER_00]: No, because it's only returned to 9%.
[SPEAKER_00]: It's young, it's new, it's small, it's a liquid, it's confusing, because I don't know how they're selecting stocks, and it's expensive.
[SPEAKER_00]: So that is an easy note for me, and it's an easy now, take our FCTE.
[SPEAKER_00]: All right, let's head into our final break when we come back.
[SPEAKER_00]: We still got a little bit more to talk about before we head off to the day.
[SPEAKER_00]: And if you want your question answered live on this show, pick up that phone and dial 88, 99 chart.
[SPEAKER_09]: I would like to know a more about a company which I've been tracking for some time.
[SPEAKER_03]: Luke Guerrero is here and ready to tackle your questions.
[SPEAKER_10]: And I was just wondering, are there any investment accounts with different banks as you would recommend something that that may offer a good resources?
[SPEAKER_03]: Don't forget to call.
[SPEAKER_03]: In Vestalk, 888-99 chart.
[SPEAKER_04]: There are a few things that make KPP financial special.
[SPEAKER_04]: One of them is parallel investing.
[SPEAKER_04]: This means they invest right alongside their clients.
[SPEAKER_04]: Here's how it works.
[SPEAKER_04]: When KPP financial makes a trade for their clients, just in client makes the same trade for himself and KPP.
[SPEAKER_04]: On the same day, at the same price, and same percentage.
[SPEAKER_04]: No front running, no special treatment.
[SPEAKER_04]: Learn more about Parallel Investing at Investalk.com.
[SPEAKER_09]: is that we need an incentive and you can contribute to law for $75,000 per year.
[SPEAKER_09]: So I don't understand fully how somebody, I don't know, let's say at $100,000, can convert that into the Roth, given that $75,000 limit.
[SPEAKER_09]: We love to hear just more of an explanation on that and love what you guys do.
[SPEAKER_09]: Thank you.
[SPEAKER_00]: That's a great question.
[SPEAKER_00]: And I'm glad you found value in yesterday's episode.
[SPEAKER_00]: So let me clear something up, because you're kind of mixing up two different things here and frankly, it's very common to have confusion this area.
[SPEAKER_00]: The first thing you're thinking of is the Roth IRA contribution.
[SPEAKER_00]: Now, there is a limit.
[SPEAKER_00]: You're right.
[SPEAKER_00]: It's roughly 7,000 a year or 8,000 if you're over 50 because that ketchup contribution.
[SPEAKER_00]: And if you make too much, roughly, a single filer over 150, or married, I think it's 236, you can't contribute directly to Rob Pirado.
[SPEAKER_00]: This is what most people think of when they hear the word Roth.
[SPEAKER_00]: Now, when I'm talking to those Roth conversions, and Roth conversions have know that you can convert $10,000, you can convert $100 million.
[SPEAKER_00]: Your entire traditional IRA, to Roth in a single year, if you decide that's what you want.
[SPEAKER_00]: There's no income limits, there's no cap on the dollar amount.
[SPEAKER_00]: The only constraint is you have to pay ordinary income tax on whatever amount you're converting in that year.
[SPEAKER_00]: This is exactly what we were talking about, right?
[SPEAKER_00]: With being retired and being in lower income years, you do that ladder.
[SPEAKER_00]: You only fill the bracket you want to fill.
[SPEAKER_00]: You don't put yourself in a higher tax situation.
[SPEAKER_00]: Now the reason why that matters is because the difference is it's kind of astronomical, right?
[SPEAKER_00]: The contribution of $78,000 could a decade's to build meaningful Roth balance through contributions along.
[SPEAKER_00]: So conversions are a powerful tool.
[SPEAKER_00]: They let you move these large sums as long as you're willing to pay taxes with no annual cap.
[SPEAKER_00]: So yes, in summary, contributions, there's a limit.
[SPEAKER_00]: Conversions, there is no limit.
[SPEAKER_00]: But as I said yesterday, everybody's tax situation is different.
[SPEAKER_00]: So don't forget to consult with a tax professional before you make any moves.
[SPEAKER_00]: All right, so I know we've been talking about a lot about how the hybrid scaleers have been dominating, returns in equity markets for quite some time, but pretty soon it seems like they're going to be dominating bond markets.
[SPEAKER_00]: Since January, Metta and Vidya Oracle, they've each launched individual bond offerings worth 25 bill a piece, SpaceX 25 billion on top of the 86 billion IPO Amazon 37 billion
[SPEAKER_00]: issued a billion dollar 100-year bond in Britain as part of a larger debt package, and The banks expect roughly 350 to 400 billion in a new AI-related issuances.
[SPEAKER_00]: I adds ludicrous.
[SPEAKER_00]: The five-hibrous scalars total debt climb by 220 billion in the six months to march alone.
[SPEAKER_00]: It's nearly five times more than any previous quarterly increase.
[SPEAKER_00]: Crazy, that's the reason why the central banks are warning that AI projects may not make enough money to repaint the debt that finance them.
[SPEAKER_00]: That's a polite way of saying, hey guys, some of this money is going to be lit on fire, so this is going to be a warning that I think the economist showed that is worth internalizing that when railway default searched after the financial panic of 1873, it triggered a worldwide depression.
[SPEAKER_00]: No such cataclysm really looks imminent today, but the parallels instructive historically, financial instability builds around assets, investors believe to be safe, not only the ones they already see as risky, the assumption that hyper-scale AI debt is vulnerable because the issuers are profitable, rather that it's invulnerable, because the issuers are profitable today is exactly the kind of confidence that precedes problems when the cycle turns.
[SPEAKER_00]: Understand that and as always protect yourself.
[SPEAKER_00]: All right, folks, that does it for another episode of Invest Talk.
[SPEAKER_00]: Justin, the team and I, thank you for listening, and we encourage you to tell your friends and family members about our free podcast downloads, which you can get at iTunes and Spotify, and while you're over there, we could appreciate it if you left us a rate and review.
[SPEAKER_00]: Like I mentioned at the top of the show where ladies' wealth webinar beyond the yield, how to invest for your income needs is now posted on our Investoc YouTube channel, so I encourage you to check it out, and one other thing I encourage you to do is schedule a portfolio review because Justin and I speak with investors such as yourselves, each and every day.
[SPEAKER_00]: It's like, go to the doctor.
[SPEAKER_00]: You don't want to go to the doctor when you're sick.
[SPEAKER_00]: You want to go to the doctor to just get a little bit of a check-up to prevent you for being in a situation.
[SPEAKER_00]: They can harm you in the long run.
[SPEAKER_00]: So head over to Investalk.com and schedule a portfolio review today.
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[SPEAKER_03]: Good night.
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