[SPEAKER_06]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_06]: Here's your host, Luke Guerrero.
[SPEAKER_02]: Good afternoon, fellow investors, and welcome to Invest Talk.
[SPEAKER_02]: I'm your host, Luke Guerrero, and it is at Thursday, August 6th, 2020, 26th, honestly, sounds pretty crazy, saying that we're already well into August.
[SPEAKER_02]: It feels like 2026 is almost over, but none of that matters because each and every day we come here to invest talk in order to help educate you, to provide you with actionable material, to help improve your investment outcomes.
[SPEAKER_02]: But that being said, in just a bit, we'll talk about today's market performance and run down those show topics.
[SPEAKER_02]: Why don't we tackle this call the question now?
[SPEAKER_08]: Good morning.
[SPEAKER_08]: I have a question about D L R. D is in David, L is in lazy, R is in real T, D L R. What do you think about
[SPEAKER_08]: The stock is at a good time.
[SPEAKER_08]: Goodbye.
[SPEAKER_08]: Thank you.
[SPEAKER_02]: DLR is digital, realty trust.
[SPEAKER_02]: They are the world's largest cloud and carrier neutral data center reach.
[SPEAKER_02]: So they have just over 300 data centers.
[SPEAKER_02]: They are spread across 31 countries.
[SPEAKER_02]: And just under 60 metropolitan areas.
[SPEAKER_02]: They have 5,000 customers.
[SPEAKER_02]: which includes every single hyperscaler.
[SPEAKER_02]: And so they are benefiting from a lot of this AI spending that has been pushing the market higher for quite some time.
[SPEAKER_02]: There's a reason why, even as rate expectations, tick up this rate that, remember, reads typically perform as bond proxies, reads utilities, staples.
[SPEAKER_02]: So we've rate stand to go higher.
[SPEAKER_02]: That's been the case over the past three months, but you're today at this thing, it's up to 24.47% it's outperforming its industry by just over 10% on the year.
[SPEAKER_02]: Looks like it reported earnings, Q2 earnings, a couple weeks ago, two weeks ago, and that's pretty good.
[SPEAKER_02]: I mean, they had record core funds from operation, which was the thing that you really care about when it comes to REITs.
[SPEAKER_02]: And you had more importantly, I would say, from a market perspective, you had guidance being raised for the second consecutive quarter.
[SPEAKER_02]: A lot of the big benefits to companies that are
[SPEAKER_02]: Participating in AI capex receiving that capex is backlog and any maybe huge backlog.
[SPEAKER_02]: It's just under two billion dollars
[SPEAKER_02]: And so with these records, you know, what has been going on here, I think that with the overall AI theme, right, you've seen a bit of a pull back and in some of those AI adjacent names certainly memory has been one of them.
[SPEAKER_02]: You're starting to see maybe a little bit of hesitation from the market with respect to okay.
[SPEAKER_02]: Are there bottlenecks out there?
[SPEAKER_02]: One, people say it is memory, certainly, the situation in the Middle East that is hurting input materials for semiconductors could be a bottleneck.
[SPEAKER_02]: Another is, a lot of people don't want data centers in their backyard.
[SPEAKER_02]: Now,
[SPEAKER_02]: Is part of that drawdown that is another part of it that this thing is trading at a pretty expensive multiple compared to to where it's been I mean it's price to book value is nearly at an all time high here it's had a run is it just is it just turning a bit back around that's entirely possible.
[SPEAKER_02]: I think you try to get exposure to.
[SPEAKER_02]: The AI theme with far less volatility in your income focused investor.
[SPEAKER_02]: I think this company has a lot that is going for it.
[SPEAKER_02]: I worry that with a lot of the companies that are touched by that secular driver, though, that structurally speaking, they've run up a lot.
[SPEAKER_02]: The market's a bit more hesitant.
[SPEAKER_02]: And AI infrastructure is a theme.
[SPEAKER_02]: may see a bit of a rotation out of it over the next six months.
[SPEAKER_02]: So I hesitate to enter into a position here, not just because of its valuation concerns, but because you're seeing a bit of poor momentum and you've seen that over the past three months.
[SPEAKER_02]: That is, digital reality trust, ticker, D, L, R, thanks to the call.
[SPEAKER_02]: Well, we had a great show yesterday, we looked into the story, uh, focused on the Iran peace deal, a rather signals about a deal, and, you know, how to invest when there's all this volatility.
[SPEAKER_02]: With headlines or moving markets, Justin also answered a listener question on a relatively unknown company called the Walt Disney Corporation.
[SPEAKER_02]: So if you haven't missed it, I encourage you to check out yesterday's episode and remember the best way to never miss an episode of Investock is to subscribe wherever you get your podcast.
[SPEAKER_02]: Onto today where my main focus point is about the AI arm's race and asks the question, is the US lead over China already gone?
[SPEAKER_02]: There was a provocative new op-ed and I saw that argued the US has all but lost its AI advantage over China, just as hyperscalers are posting massive, massive earnings from AI infrastructure spending,
[SPEAKER_02]: So, let's take a look at what this competitive shift means for technology investors, all investors really, and long-term US economic leadership.
[SPEAKER_02]: We'll set the touch on the yen intervention between Japan and the Treasury, and I would say a side effect of most Treasury Fed policy unintended consequences.
[SPEAKER_02]: Well, Satachana, another story about AI, and not just about who's leading, but how aside from these companies, it's really done a lot to transform the American economy.
[SPEAKER_02]: And should we have time at the end of the show, I always love why don't bad way to phrase it, I don't like bringing you stories about scams, but I like informing you in order for you to protect yourself.
[SPEAKER_02]: So we'll touch on a new crypto scam we've been seeing predominantly focusing on investors
[SPEAKER_02]: We also have plenty of questions to answer, including a couple of voice bank, ones on companies debt, as well as the travelers company, digger, DRV, and some questions that came in from the comment section of the Invest Talk YouTube channel.
[SPEAKER_02]: Now we're headed to New Break, when we come back, we will talk about what happened in the market today and more importantly, answer your findings and invest in questions.
[SPEAKER_02]: For listening to our live stream, we're possibly on aim 12, 20 in the Bay Area.
[SPEAKER_02]: I encourage you to call me now in 88, 99 chart.
[SPEAKER_06]: It's official.
[SPEAKER_06]: Total lifetime downloads for the Invest Talk podcast are now more than 63 million.
[SPEAKER_06]: Luke Guerrero is here now, taking your calls live.
[SPEAKER_06]: Invest Talk, 888-99 chart.
[SPEAKER_02]: 88899 chart is the number if you want to get through live before the end of this beautiful Thursday.
[SPEAKER_02]: But until we get more calls and more questions, why don't we talk a little bit what happened?
[SPEAKER_02]: Today in the market, we're things we're...
[SPEAKER_02]: Pretty negative, I mean, not deeply negative, but still negative across the board.
[SPEAKER_02]: You had the Dow down 85 Bips, who are the S&P down nearly 20, the Nasdaq, roughly flat, though still down about six.
[SPEAKER_02]: And small cap, some of the worst performers on the day.
[SPEAKER_02]: You had memory that was broadly lower.
[SPEAKER_02]: You had software and biotech not performing well.
[SPEAKER_02]: On the flip side energy back to being one of the outperformers on the day commodities doing well, chemicals doing well, and a lot that I had to do with, you know, treasuries being weaker you saw the curve flattening yields were up for to seven basis points across the curve.
[SPEAKER_02]: He saw the dollar up about 30 bips and gold was flat while oil was up 2.8% now that was not a finish as high as it was during the trading day and in reality, you know, a lot of this is because of the latest straight-of-war moves headlines.
[SPEAKER_02]: I mean, in spite of it, it's not on track for a pretty notable weekly drop.
[SPEAKER_02]: Cause again, we started the week down, down quite a bit in oil.
[SPEAKER_02]: You know, there's not really much definitive in what was causing the price action today and the pullback.
[SPEAKER_02]: If you take a look at Q2 results, there's still very strong overall and generally analysts have been pretty upbeat on not just current earnings, but the revision dynamics.
[SPEAKER_02]: You know, you saw pockets of scrutiny here, where we've used to it, software semis, memory names, their earnings certainly disappointed today that dragged that specific area of the market down.
[SPEAKER_02]: But I mean, maybe you just have the market saying, okay, we have these lingering geopolitical issues.
[SPEAKER_02]: We have oil notably higher, though, again, still not crazy compared to the rest of the week.
[SPEAKER_02]: You had reports that this reopening of the straight could, you know, according to a leaked draft or supposed draft of Iran's deal with them on,
[SPEAKER_02]: a bar in US and Israeli vessels.
[SPEAKER_02]: Now is that going to happen?
[SPEAKER_02]: Probably not.
[SPEAKER_02]: I would say we're still more likely in a scenario where a deal doesn't happen at all rather than one where the US is blocked from entering the straight.
[SPEAKER_02]: But all that's to say pretty listless in terms of what caused the directionality in today's market.
[SPEAKER_02]: Now,
[SPEAKER_02]: Now, looking ahead to the rest of the week, we are getting July employment report caps off the week on Friday.
[SPEAKER_02]: Now, today we had limited data initial jobless claims a bit better than the consensus, continuing claims a bit worse than the consensus.
[SPEAKER_02]: But in terms of employment report, non-formed payrolls expected to increase 80,000 in July, following that 57,000 increase.
[SPEAKER_02]: We saw last month.
[SPEAKER_02]: All right, what are we gonna do?
[SPEAKER_02]: We're gonna do a voicemail, we're gonna do a, oh, let's do one from HubSpot.
[SPEAKER_02]: We don't get that too often.
[SPEAKER_02]: We do love our HubSpot questions.
[SPEAKER_02]: So this one is from our good friend, Fahin Dean, and it is on Apple oven.
[SPEAKER_02]: All right, let's take a look at this name, type it in really quick and let's see what your question is on Apple oven.
[SPEAKER_02]: Oh my computer's frozen, that's fun.
[SPEAKER_02]: So the question is, I'd like to get your input on a position I have an apple oven at around 350.
[SPEAKER_02]: It had its earnings today after hours, and the stock's been down a good bit, would you recommend hold or get out cutting short any losses?
[SPEAKER_02]: Let's see how it's trading after hours.
[SPEAKER_02]: After hours, I mean,
[SPEAKER_02]: It was down about 19.66% as a bigger APP.
[SPEAKER_02]: So that was today.
[SPEAKER_02]: It was down 20%.
[SPEAKER_02]: It's pretty flat after hours, but not doing particularly, not doing particularly well.
[SPEAKER_02]: Now this company is advertising platform.
[SPEAKER_02]: Right, they pretty much have staked their entire business on this axon machine learning engine that is supposed to connect app developers and advertisers.
[SPEAKER_02]: So what they're trying to do is is expand outside of where their primary advertising is been, which is mobile game it and really into e-commerce.
[SPEAKER_02]: Now, I mean, the crash was significant, right?
[SPEAKER_02]: It had fallen
[SPEAKER_02]: 35, 36, 37% year-to-date already before we had seen this drawdown on us on 50.18% year-to-date and the reason why I fell so much is because the stock was really already pricing into disappointment and so with that this miss
[SPEAKER_02]: very clearly triggered post earnings because you have to understand these earnings expectations adjust over time.
[SPEAKER_02]: And so if you're already expecting to be disappointed and you're even more disappointed, I mean, they had free cash flow margin collapse from 70% to 45.
[SPEAKER_02]: That's probably the most concerning metric cash generation is just not not keeping up pace with earnings.
[SPEAKER_02]: And so, you know, this is a situation where
[SPEAKER_02]: It's probably one of the most brutal drawdowns I've seen in quite some time to show the year it's 700 and the metrics just don't look great right now now.
[SPEAKER_02]: The better it is, it's cheaper than it's been for quite some time but
[SPEAKER_02]: Structurally speaking, not looking great, technically speaking, not looking great, is there gonna be an earnings catalyst in November?
[SPEAKER_02]: I'm not sure, but the opportunity cost of holding something that is just getting beaten down as clearly weighed on you to the point where I think there's just better opportunities elsewhere.
[SPEAKER_03]: But as APP, thanks for listening.
[SPEAKER_02]: Our 24-7 Invest Talk Voice Bank never closes.
[SPEAKER_02]: You can leave your finance and investment questions anytime on 888-99 chart.
[SPEAKER_02]: Our work continues after the break.
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[SPEAKER_06]: One of them is parallel investing.
[SPEAKER_06]: This means they invest right alongside their clients.
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[SPEAKER_02]: If you've been listening to the past couple episodes or really just paying attention to what's going on for a macro perspective, I'm sure you've heard of the yet.
[SPEAKER_02]: And what has been a bit of an unprecedented move by the US government.
[SPEAKER_02]: No, what they've done is use this lending facility at the Fed that pretty much nobody outside of a bond desk had even heard of a month ago.
[SPEAKER_02]: It's called the Foreign and International Monetary Authority's repo facility.
[SPEAKER_02]: It is FIMA, not that FEMA, but FIMA, maybe.
[SPEAKER_02]: And it's centered with happening here as a foreign central bank posts US treasures as collateral.
[SPEAKER_02]: The Fed lends them dollars.
[SPEAKER_02]: Short term, 60 billion per counter party per day.
[SPEAKER_02]: It was built as plumbing, right?
[SPEAKER_02]: They use this four banks.
[SPEAKER_02]: The repose are repurchase agreements.
[SPEAKER_02]: They are short term loans where you give money.
[SPEAKER_02]: or collateral, you get money, and in turn you pay that back at a given rate.
[SPEAKER_02]: This specific one was supposed to keep foreign governments from dumping treasuries into a stressed market when they need cash, which obviously is good for the US government.
[SPEAKER_02]: What it wasn't built for was what it's being used for now, currency intervention.
[SPEAKER_02]: Now what happened was on Friday, so this is the last Friday, the 31st, the U.S. Treasury joined the Japanese Ministry of Finance by buying in.
[SPEAKER_02]: Scott Besson confirmed it on X, that's Sunday.
[SPEAKER_02]: The yen had fallen to 40-year lows.
[SPEAKER_02]: It was trading around 163 after the purchases.
[SPEAKER_02]: It rallied to about $158.
[SPEAKER_02]: And so they used $60 to $80 billion here.
[SPEAKER_02]: Now if Japan intervenes for the yen, that's pretty routine for a country to try and protect its own currency.
[SPEAKER_02]: for another country to intervene, that's kind of strange.
[SPEAKER_02]: And in a lot of ways, I'm precedent.
[SPEAKER_02]: And now, Bessant wants something else.
[SPEAKER_02]: He wants the Fed to upsize this facility.
[SPEAKER_02]: Because Japan holds roughly 1.14 trillion in Treasury.
[SPEAKER_02]: So the logic is rather than let Tokyo sell 80 billion into the market and push you to higher.
[SPEAKER_02]: Why don't we let them borrow the dollars against it instead?
[SPEAKER_02]: Here's my thing.
[SPEAKER_02]: If you're willing to ask the Fed to modify a facility in order to avoid 80 billion dollars of Treasury sales, you're essentially telling the market something
[SPEAKER_02]: There are analysts who spent years at Treasury, who have now come out and made that point publicly, that these facilities are supposed to fund lender of last resort activity, not intervention, and the reason why that is, is because you don't want to draw attention to a cap to facility, and then the market just goes, hey, what would the limit of this cap is?
[SPEAKER_02]: Now another problem I have is,
[SPEAKER_02]: Lending dollars out, what does it do?
[SPEAKER_02]: It actually expands the fence balance sheet.
[SPEAKER_02]: It adds liquidity, and it does that when the second quarter GDP report is already showing inflation running at 5.1% annualized with core at 3.4 stripping out food and energy.
[SPEAKER_02]: War said recently that the target range is still 2%.
[SPEAKER_02]: And so at the same time, with a White House pressure and no hikes, you have effectively the Treasury Secretary asking,
[SPEAKER_02]: the central bank to effectively ease.
[SPEAKER_02]: And that part's a bit worrying, especially when you cap on the fact that you're adding speculative net shore positions in any futures.
[SPEAKER_02]: We have seen what happens.
[SPEAKER_02]: I remember, back in August of 2024, the NECA fell roughly 12.5% in a single session.
[SPEAKER_02]: It was the worst day since 1987.
[SPEAKER_02]: S&P was down three VIXs.
[SPEAKER_02]: It was back above 60.
[SPEAKER_02]: The positioning there was the ablefire.
[SPEAKER_02]: Of course, the trigger was the B-O-J hike combined with soft jobs numbers, but the positioning matters.
[SPEAKER_02]: If you own own US stocks, you have a young carry position, whether you signed up for one or not.
[SPEAKER_02]: You hold it through the leveraged buyers on the other side of your trade.
[SPEAKER_02]: So the way the hedge isn't shorting the yen here, that's a crowded trade.
[SPEAKER_02]: The hedge is owning things that don't need the carry trade to function.
[SPEAKER_02]: Your cash generating businesses, your shorter duration credit, some actual cash.
[SPEAKER_02]: And keep in mind, if the bank decides now, the bank of Japan to signal a hike in September, do we get a repeat of 2024?
[SPEAKER_02]: Maybe yes, maybe no.
[SPEAKER_02]: But either way,
[SPEAKER_02]: you need to be prepared for it.
[SPEAKER_02]: On the next investor, we'll look into this story, workers are dropping out, what falling labor force participation signals for the economy.
[SPEAKER_02]: More Americans are
[SPEAKER_02]: exiting the workforce entirely, rather than searching for new jobs, with many signing a job market that has simply worn them down.
[SPEAKER_02]: This shift in labor force participation has deep implications for wage growth, inflation and super spending, and the Fed's next move.
[SPEAKER_02]: Lot to unpack there, but that'll be tomorrow.
[SPEAKER_02]: Today we still got plenty of show left.
[SPEAKER_02]: I'm Luke Guerrero, and we are ready to take your calls any time, at 8.98.99.
[SPEAKER_01]: question for Justin or Luke, you're the best person to ask it.
[SPEAKER_07]: I wanted to pick your brain about Apple.
[SPEAKER_07]: What did you think about their earnings call?
[SPEAKER_07]: This is a good time to add to my position.
[SPEAKER_01]: Call in Vestock.
[SPEAKER_01]: 888-99 chart.
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[SPEAKER_05]: Accountability means more than advice.
[SPEAKER_05]: It means we invest alongside you.
[SPEAKER_05]: Through our parallel investing approach, when we recommend an investment for clients, one or more KPP principles invest their own capital at the same time.
[SPEAKER_05]: same day, same price, same percentage.
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[SPEAKER_06]: In Best Talk, tell your friends they can listen live, download the free podcast, or watch in Best Talk on our YouTube channel, and they can leave their finance and investment questions anytime on 888-99 chart.
[SPEAKER_04]: On the general question that I've analyzed in the company and their debt, how do you analyze the company's well-term and short-served debt?
[SPEAKER_04]: I know that they have too much debt on their scholarship.
[SPEAKER_02]: Alright, so that was a bit difficult to understand, but I think the gist of it was, obviously when you're trying to look at companies and analyze their debt levels, what are you looking for?
[SPEAKER_02]: What is too much?
[SPEAKER_02]: What is, maybe not enough, because again, leverage amplifies equity returns, so not all debt is bad debt.
[SPEAKER_02]: And the answer to that is, as most things, big complex.
[SPEAKER_02]: Now, different types of businesses, generally carry different debt levels.
[SPEAKER_02]: A non-profitable biotech company, a telecommunications company, airlines, probably gonna carry a bunch of debt on their balance sheet.
[SPEAKER_02]: And so you can't really compare,
[SPEAKER_02]: some of those companies to others that generally don't need to.
[SPEAKER_02]: So that's number one, you need to, as with everything, analyze it within the frame of comparable companies.
[SPEAKER_02]: There is generally a number across different sectors where it's just too much.
[SPEAKER_02]: And oftentimes it's hard to decide on your own what is too much and the benefit of
[SPEAKER_02]: Four, a lot of companies.
[SPEAKER_02]: We have a market for that.
[SPEAKER_02]: I'm sure you've heard me mention credit to fault swaps.
[SPEAKER_02]: So that is essentially insurance against a company defaulting.
[SPEAKER_02]: When the cost of those go up, it's because market participants believe that a company is highly likely to default.
[SPEAKER_02]: And so you don't have to judge it by yourself.
[SPEAKER_02]: I think that that is one of the best tools for figuring out
[SPEAKER_02]: If a company frankly has too much debt and that's a critical piece of it and understanding the makeup of that debt.
[SPEAKER_02]: The implications of that debt can help you decide whether or not that company is right for your portfolio.
[SPEAKER_02]: Let's talk a little bit about AI and I saw this Stanford report back in April.
[SPEAKER_02]: And it measured the gap between the best American AI model and the best Chinese one.
[SPEAKER_02]: And that gap ran anywhere from 17 to 31 percentage points in 2023, but by April of this year, it's 2.7.
[SPEAKER_02]: 2.7% that's not catching up.
[SPEAKER_02]: That's pretty much caught up.
[SPEAKER_02]: And you've had people start to sound some alarms here.
[SPEAKER_02]: There was a former Defense Department official who did an op-ed and CNBC who essentially said that China has built an ecosystem
[SPEAKER_02]: that produces frontier capability repeatedly from multiple firms.
[SPEAKER_02]: And it doesn't much matter whether any given advance came from original research or distilling somebody else's model because we've been focusing on deep-seek this and moonshine and olivaba and tense and the idea is at least from this guy that there are so many avenues through this ecosystem state craft.
[SPEAKER_02]: But I think that the acknowledging of this is certainly something that needs to be acknowledged.
[SPEAKER_02]: I was thinking at the same time, most of the investment conclusions people are drawing from it or probably wrong.
[SPEAKER_02]: Because when people here, China caught up, they essentially jump straight to cell U.S. tech, right?
[SPEAKER_02]: That's the wrong inference demand for American AI.
[SPEAKER_02]: It's not going a way.
[SPEAKER_02]: pricing power at one specific layer is going away.
[SPEAKER_02]: These are different problems, very different implications for your portfolio.
[SPEAKER_02]: Think about where the money actually is, right?
[SPEAKER_02]: Compute layer, chips, data centers, power, mobile layer, the frontier systems themselves, then there's the application layer on top.
[SPEAKER_02]: Try to as competition is landing almost entirely on the model layer.
[SPEAKER_02]: Chinese open-weight models run 60 to 90% cheaper than the leading American proprietary systems, and a lot of U.S. companies have noticed that.
[SPEAKER_02]: So when a task doesn't need the very best model, teams root it to the cheapest one, and that's good enough.
[SPEAKER_02]: That's not really a national security China has beaten us or caught up to a story.
[SPEAKER_02]: That's more like a gross margin story.
[SPEAKER_02]: But if you look at Compute Layer,
[SPEAKER_02]: Things look better, right?
[SPEAKER_02]: Because if inference gets cheaper, nobody buys less inference, they buy more of it.
[SPEAKER_02]: So the question I'd ask about my AI holdings, or any AI holdings, is are you paid for scarcity, or are you paid for volume?
[SPEAKER_02]: If your thesis needs a proprietary model to stay meaningfully better than a free alternative,
[SPEAKER_02]: You're under attack right now, right?
[SPEAKER_02]: That's when I would start to be worried.
[SPEAKER_02]: Now, how do you evaluate any of this without just chasing whatever the headline says?
[SPEAKER_02]: And frankly, that's easy.
[SPEAKER_02]: You get one that says, Chad, she'd be teased better than, and Throckx better than Meta's catching up.
[SPEAKER_02]: And all these sorts of things.
[SPEAKER_02]: It becomes a bit of drowning in information.
[SPEAKER_02]: I mean, take a look at what happened a couple weeks ago.
[SPEAKER_02]: You had Asian chip stocks, just completely come apart.
[SPEAKER_02]: Samsung was down in the teens.
[SPEAKER_02]: I'm three days later, the MSCI Asia Pacific was up as much as 4.3% as the best day in nearly four years.
[SPEAKER_02]: S.K.
[SPEAKER_02]: Hinex was up over 25.
[SPEAKER_02]: Same stocks, same thing happening, pretty much the same week.
[SPEAKER_02]: That's not really the market forming a view.
[SPEAKER_02]: That's the market essentially flipping a coin twice and having a lot of conviction about both choices.
[SPEAKER_02]: So if your process is just read the headline and adjust your portfolio, you essentially got run over in both directions inside like three days.
[SPEAKER_02]: So we need to do here is separate this, again, this demand signal on the margin signal and only act on the demand signal, demand moves slowly.
[SPEAKER_02]: and their hard to fake capacity backlogs.
[SPEAKER_02]: This power interconnect cues memory pricing, capex guidance, margin signals are benchmark scores.
[SPEAKER_02]: And model launches, those move quickly, and they tell you almost nothing about what is actually going to happen in any given five-year period.
[SPEAKER_02]: And then you have the policy issue, right?
[SPEAKER_02]: Policy flip-offs as well.
[SPEAKER_02]: you had in January, the Commerce Department, essentially creating a rule that allowed Nvidia's H200 sales to China on a case by a case basis, that reversed a ban, and then they attached to 25% tariff in one day.
[SPEAKER_02]: At the same time, you had a bipartisan group in Congress pushing the exact opposite direction for a blanket ban on shipmaking equipment to all of China.
[SPEAKER_02]: And this is about diversity here.
[SPEAKER_02]: If you build a position, and it requires a specific policy outcome, you're not really investing here.
[SPEAKER_02]: You're concentrating.
[SPEAKER_02]: And more importantly, you're essentially forecasting what an administration's policy is going to be.
[SPEAKER_02]: So what would I actually do here?
[SPEAKER_02]: What might make sense here?
[SPEAKER_02]: Understand the difference in layers.
[SPEAKER_02]: Compute and power.
[SPEAKER_02]: I think over the past,
[SPEAKER_02]: six months, I've certainly become more attractive to me than this model layer.
[SPEAKER_02]: Understand the differences between demand and margins, volume and scarcity, but most importantly realize that most of what you hear on a day to day basis, it's just noise.
[SPEAKER_02]: It's not a signal.
[SPEAKER_02]: And don't build a portfolio that demands a specific policy outcome.
[SPEAKER_02]: Over the next decade, because things change, and they change quickly.
[SPEAKER_02]: All right, let's put it back to the National Voice Bank.
[SPEAKER_02]: You know the number?
[SPEAKER_02]: 8-8-99 chart.
[SPEAKER_04]: Hey Justin, I appreciate the show.
[SPEAKER_04]: Listen all the time.
[SPEAKER_04]: The question for you is Taiwan's semiconductor.
[SPEAKER_04]: I just want to know your thoughts on these fundamentals and technical moving forward.
[SPEAKER_04]: I'll listen to the answer on the show.
[SPEAKER_02]: Let's take a look at Taiwan semi-conductor that is ticker TSM, I'm going to pull this up for year.
[SPEAKER_02]: Now Taiwan semi-conductor has been doing well for four years now, I mean they're lowest return in the past four years, well technically is this year because they're only up 37.6 percent, only 37.6 percent.
[SPEAKER_02]: But full year 23, they're up 40 and then 24, they're up 90, then they were up 50, three and 20, 25.
[SPEAKER_02]: And so the reason why is because this is a company that is the, oh, really the only manufacturer of these leading edge, very, very, very, very small chips.
[SPEAKER_02]: They produce chips for Apple, for Nvidia, AMD, Qualcomm, Broadcom, Intel, every AI accelerator on the planet, right?
[SPEAKER_02]: And so they've benefited greatly.
[SPEAKER_02]: I mean, their revenue has absolutely exploded.
[SPEAKER_02]: It's a $1.9 trillion market cap company.
[SPEAKER_02]: And their revenue is growing at 21% on an annualized basis.
[SPEAKER_02]: 21% that is insane.
[SPEAKER_02]: In say, at the same time, let's take a look at their margins.
[SPEAKER_02]: EBIT margin increased from 2023 was 42.6 projected to be 58.8 this year return on equity setting at 36.2%.
[SPEAKER_02]: And compared to where it's been, I mean, it's trading at 21.1 times price to forward looking earnings.
[SPEAKER_02]: One of the reasons why is, okay, you know, they've announced earnings, price is flat over the past three months.
[SPEAKER_02]: It hasn't had as much of a sharp downturn as a lot of the AI theme, but it certainly has been a bit flatter than it has over the past 52 weeks when it's up 80%.
[SPEAKER_02]: I mean, again, I can't stress this enough.
[SPEAKER_02]: This is the most important and I can Dr. Company in the world, executing at absolute peak performance.
[SPEAKER_02]: It is the foundational layer of everything.
[SPEAKER_02]: And at a price that is a bit more reasonable than it has been, I think, including this as a part of your portfolio is a perfectly reasonable move, understanding the inherent volatility that this intuitively exudes in normal cycles.
[SPEAKER_02]: But as Taiwan, some I conduct your manufacturing, take your TSM, exit call.
[SPEAKER_02]: Looks like we got a live call from Bill in Northern California, it was an on AM 1220 in the Bay Area.
[SPEAKER_02]: How can I help you?
[SPEAKER_00]: Hey, Luke.
[SPEAKER_00]: Thank you.
[SPEAKER_00]: Sterling infrastructure.
[SPEAKER_00]: I know I've heard you cover this in the past.
[SPEAKER_00]: You know, and the price has been, you know, back up, you know, up and down.
[SPEAKER_00]: So I bought some, like it was yesterday, the day before at 527, I thought it had dropped enough starter position, but not too small position.
[SPEAKER_00]: They just want to, oh, you look at it at this current level, and go forward the next couple of years.
[SPEAKER_02]: Yeah, so certainly infrastructure.
[SPEAKER_02]: It's a name we've certainly answered questions about before they are a infrastructure construction company.
[SPEAKER_02]: So they operate really based through building residential commercial concrete through highways, bridges.
[SPEAKER_02]: And most importantly, I mean, they are more than anything, the dominant contractor for AI data center just ground up development.
[SPEAKER_02]: I mean, there's a reason why this construction company is this infrastructure company is up 75% year to date.
[SPEAKER_02]: These returns are crazy, and I can't see my screen, but you know, 2023 up 168% up 91% in 24 at 81 in 25.
[SPEAKER_02]: Now, 75% this year, there's been a bit of a pullback right through down about 40% over the past three months.
[SPEAKER_02]: but they just reported earnings and crushed it and they had revenue up 90 percent year over year.
[SPEAKER_02]: They had earnings per share up 116 percent year over year.
[SPEAKER_02]: There's a 16 percent beat, EBITDA margins expanded 1.5 percent.
[SPEAKER_02]: And then they raised guidance on full year revenue.
[SPEAKER_02]: I think the biggest benefit and it's something that I saw in this MDNA here is that they've essentially come into a position in the market where they can really concentrate on not having to take every project.
[SPEAKER_02]: And that's the benefit of they're just being so much demand for their services out there.
[SPEAKER_02]: I mean, their margins are solid hitting a five year high this year at 13.5% net margin 18.6 EBITDA turn on equity, you're going to sit in 37% and it's not cheap by any means.
[SPEAKER_02]: It's trading at 23 times price to forward looking earnings, but it's certainly cheaper than it has been.
[SPEAKER_02]: I think that, you know, this is one of those names that has been so successful
[SPEAKER_02]: and has had one of the most consistent crazy beats in terms of revenue and earnings over the past couple years.
[SPEAKER_02]: So with this drawdown, I think it's perfectly reasonable to continue to enter into this name here, given valuations have come down a bit.
[SPEAKER_02]: I probably would enter a full position here just because momentum has been so weak for so long, but certainly I do like the name.
[SPEAKER_02]: That is
[SPEAKER_02]: As a desktop, I'm Lou Guerrero, we have one goal here, and that's to help you achieve your financial freedom.
[SPEAKER_02]: Our work continues after this break, so get your questions in now at 888-99 Chuck.
[SPEAKER_06]: Lou Guerrero is here, and he's ready with answers to your financial investment questions.
[SPEAKER_06]: Call in Vestock, 888, 99, chart.
[SPEAKER_03]: Hello, Luke in Justin.
[SPEAKER_03]: My name is David from the Northeast United States.
[SPEAKER_03]: Long time listener and client, back to Mr. Steve Peasley days.
[SPEAKER_03]: I'm a heurus in peace.
[SPEAKER_03]: PRV, travelers, companies, and cooperated.
[SPEAKER_03]: I'm up 124% 75% long term, 25% short term, up in my 60s wondering what is a good cell point to preserve my hold.
[SPEAKER_03]: Before I want to think some bragging, I don't want to pay all the tax on this.
[SPEAKER_03]: Obviously, can't have your cake in need of two.
[SPEAKER_03]: So any any help you can give me on that.
[SPEAKER_03]: It's in a non IRA Roth account.
[SPEAKER_03]: Second question, I just wondered if you haven't already.
[SPEAKER_03]: The Wall Street Journal today has a headline, the investors who space-exhares and vanished before they could cash in.
[SPEAKER_03]: Could you please educate us on what happened here and why it's a bad idea?
[SPEAKER_03]: Sorry, reiterate, please, why it's a bad idea to buy an IPO.
[SPEAKER_03]: Thanks very much for all you do.
[SPEAKER_03]: Thanks again.
[SPEAKER_02]: But second question is actually kind of funny, because I almost had that be one of the talking points today, that story.
[SPEAKER_02]: So I have to tell Justin, who's doing the show tomorrow, that that should be an interesting warning lesson for why it's best to stay away from IPOs, especially pre-IPOs.
[SPEAKER_02]: Because that's what that story focuses on.
[SPEAKER_02]: Now,
[SPEAKER_02]: Take a look at travelers, company V travelers, companies to your TRV.
[SPEAKER_02]: It is a property and casualty insurer.
[SPEAKER_02]: So they're doing business insurance, thank commercial lines, they do bond and specialty insurance, they do personal insurance, and it's been very successful over the past.
[SPEAKER_02]: Really two and a half years.
[SPEAKER_02]: I mean, it's up 26.5% in 2024's at 20.4% last year.
[SPEAKER_02]: Up 33.1% this year, I know you got some gains.
[SPEAKER_02]: Unfortunately, taxes are the price we pay for being successful.
[SPEAKER_02]: So it's definitely much better to have to pay taxes on your position than get that capital loss carry forward.
[SPEAKER_02]: But I mean, it's doing well because it's just crushing on earnings.
[SPEAKER_02]: I mean, Cory PS was up 54% year over here, be consensus by 88%.
[SPEAKER_02]: Net income was up 46% year over year.
[SPEAKER_02]: Cory return on equity was at 24.9%.
[SPEAKER_02]: And at the same time, you're seeing net written premiums up.
[SPEAKER_02]: And when they most recently did their quarterly report, they did raise guidance as well.
[SPEAKER_02]: We've talked about all the reasons why the market likes this.
[SPEAKER_02]: You know, it's not all good news.
[SPEAKER_02]: Right.
[SPEAKER_02]: I think that a lot of these exceptional results were driven by some reserve releases from previous years.
[SPEAKER_02]: and the fact that they've had what looks like significantly lower than normal catastrophe losses.
[SPEAKER_02]: And so is this repeatable in future years?
[SPEAKER_02]: Who knows, you also have this potentially cyclical or, sorry, secular catalyst, which is how is AI going to power underwriting transformation?
[SPEAKER_02]: right they had their travelers has converted to having some lever on level of AI driven operations across their catastrophe claims.
[SPEAKER_02]: And so that inherently reduces costs increases margins, something you like to see for these these types of companies are really any company.
[SPEAKER_02]: So I think amongst PNC insurers
[SPEAKER_02]: This is and has been for quite some time the gold standard.
[SPEAKER_02]: I think their profitability metrics show that.
[SPEAKER_02]: I think their consistent beats are showing that.
[SPEAKER_02]: And oh, by the way, in a single quarter, they return $1.3 billion to shareholders.
[SPEAKER_02]: The big risk is you have a reversion to the mean in what they actually have to pay out.
[SPEAKER_02]: And so for me, you know, I think you need to preserve some of these gains, trim some of your position, obviously the lowest tax impacts of those long-term gains would be the ones you want to get rid of first.
[SPEAKER_02]: But either way, the best thing to do is to be able to take profit on a winning position, unfortunately, you just gotta pay the taxes.
[SPEAKER_03]: Thanks to the call.
[SPEAKER_02]: Well, folks, that doesn't for another episode of Invest Talk, Justin and I thank you for listening and encourage you to tell your friends and family members about our free podcast downloads.
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[SPEAKER_02]: This is Invest Talk.
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