AI’s Most Dangerous Moment | Nasdaq
- Earnings season expectations.
- AI’s most dangerous moment.
- Is Meta back in AI?
- Home run CEOs.
- Stocks on our radar.
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Travis Hoium: Q1 has ended, so where does the market go from here? Motley Fool Money starts now.
Welcome to Motley Fool Money. I’m Travis Hoium joined today by Lou Whiteman, and Jon Quast. Guys, believe it or not, the first quarter is over, but the bad news is the Iran war is back on, oil is up. The market has been volatile. Now we’re at least going into the phase where we get a little bit information about what’s going on with companies. What are you thinking going into earning season starting next week, Jon?
Jon Quast: It’s starting next week? I thought we just ended.
Travis Hoium: It doesn’t seem it ever really ends, but especially with this Q4 is a little bit delayed because it’s the end of the actual year. It is just a four-month earning season for us.
Jon Quast: Well, look, when it starts here, I’m definitely going to be looking at guidance. Guidance is always arguably better than the earnings results themselves, but here’s the thing, what a state are companies actually in to be issuing guidance? Look, there’s not a lot that the opponents and the supporters of the president agree on, but I think that they’re going to agree with this statement. President Trump, there’s chaos that always follows him. I think that it’s particularly chaotic right now, even by the president’s standards. We do have this conflict going on in the Middle East. The vice president has called the current truce fragile. We could be a tweet away from oil spiking 20% or dropping 20%. Are you brave enough to predict which one it’s going to be? No business is immune to dramatic swings and energy costs, and I think that’s really going to weigh on guidance coming up.
Travis Hoium: Do you think there’s a risk that some of these companies are going to pull guidance for the year because they do see so much uncertainty?
Jon Quast: Well, certainly the ones that are more exposed to energy swings, yes, I would think that that would be a very real possibility. How can you tell what your costs are going to be?
Travis Hoium: Lou, what are you looking at?
Lou Whiteman: It’s amazing with everything that’s going on, S&P guys, it’s basically flat for the year. Been pretty boring, I assume. Is that right? Look, obviously, individual stocks and sectors have been hit harder. It seems there is maybe a rotation going on, but all things considered, everything Jon said is true. It’s amazing how well things have done. I think Jon hit it on the head, just where are we right now? War, oil, tariffs, labor shortages. Are we still seeing resilience in the guidance? Are we still seeing any sign that we can start planning? What is the guidance going to say about we think the light is at the end of the tunnel? Will CEOs stick their necks out? For the last year or so, it has been outside of Big Tech and the hyperscalers. Let’s turtle and get through this and see what’s going on.
I’m very interested in vibes, specific to industry, I think the SaaS Apocalypse is really what we need to look at. We’ve been talking about how SaaS is going to destroy all of these software businesses. Snarkily, I’ve been saying, let’s wait and see it in the results. Here it is. It’s time for results. Let’s see if we actually see signs of gloom and doom.
Travis Hoium: What would you be looking for from a SaaS if there is a SaaS-pocalypse. It’s probably not likely that we’re going to see companies go, you know what? Revenue dropped 40%. But that doesn’t necessarily mean that stocks aren’t going to get hit hard if revenue growth decelerates, or we see something like margin compression. Are those the two things to look at? Lou? What is the trajectory of revenue growth? What do margins look like? Then what are the pricing of these companies? Because it does seem some of these companies look like great values today. But how do you know if it’s a value or a value trap?
Lou Whiteman: Only in hindsight. That’s the issue. But no, I think you’re right. It’s what is the trend? Again, everything we just talked about, could speak to the trend wouldn’t be doing great even without AI. There’s just a lot of reasons for companies not to over invest right now, say. But I think we are looking for signs whether or not all of these software companies, whether there is still at least a glide path or if things are just heading downward. Margins is interesting because if nothing else. If I use these products, I’d be trying to use the threat of Claude or the threat of OpenAI to get better pricing. I think the companies can survive this. If that’s the apocalypse, I think they’ll sign up for it right now. But anything, commentary, results, trends, anything that we can get a feel for what actual companies are experiencing versus just us sitting in a studio saying this could be bad for them.
Jon Quast: Lou is talking about one of the weaker things going on in the economy right now with software. But if we look at one of the things that is holding up the economy, perhaps more than anything else right now, that is AI infrastructure spend. That is something that I want to be looking at here in the upcoming earnings season, and I’ll be listening in on the calls. Look, take this source with a grain of salt, but the predictions market, it now says that half of the 2026 data centers are delayed or canceled due to power constraints. We cannot generate electricity fast enough to power up AI, and that is a really big thing. Odds are rising for a moratorium on new data centers in 2027. It’s not particularly high right now, but it is up. Water is increasingly a concern, as well. Apparently, we can make the chips. We can create the AI models, and we’re going to talk about that more in the show, but we need power. Right now, there are questions as to whether we can make enough of it, and I expect to hear some CEOs to start to talk about this in the upcoming earning season.
Travis Hoium: What would that look like, Jon? Because one of the things when I just think high level is the big thing coming out of Q4s, the big hyperscalers gave guidance for their capital spending numbers for 2026, somewhere around $650-$700 billion, just from, I think, the biggest four companies is what they’re going to be spending on CapEx for the year. The implication there would be, hey, we’ve got a ton of demand, particularly for AI. We’re going to put the money in the ground, we’re going to be building these data centers. You’re going to see our Cloud businesses grow. You’re maybe going to see margins expand. There’s an operational risk that they go, “You know what? We maybe don’t see that return on investment. Instead of spending 650 billion, we’re going to spend 600 billion or 550 billion.” I don’t think that we’ve gotten those indications yet. But you’re saying the problem might be, hey, we want to spend 650 billion, but there’s no point in building this data center and putting chips in it if we can’t physically get power to it, and that’s going to be the limiting factor.
Jon Quast: I think it really could be. Or at the very least, we are barreling forward at 100 miles an hour, and that is the first wall that we are going to hit. It’s clearly not a demand issue at all. In fact, the demand, by all indications, continues to greatly outpace the supply. But can you actually generate enough electricity to turn it on? That is the first wall that we’re going to hit. It’s not going to be chips. It’s not going to be models.
Travis Hoium: Does that make utilities and these energy stocks potentially more attractive?
Jon Quast: I think for some it does. Obviously, you want to treat every company uniquely. You want to look at the pros and cons and consider the business model. But I think that does create opportunities here in the electricity space.
Travis Hoium: Lou, final question for this Outlook for earning season. Buybacks was something we heard a lot about after Q4. It seemed it was a lot of companies that had good balance sheets, good cash flow, you talked about the SaaS Apocalypse, so a lot of these companies were the stocks down, 60, 70, 80%, and management just going, hey, we want to give the market an indication that we’re still bullish on the future so we’re going to announce a buyback. Is that something that should be on our radar again this quarter?
Lou Whiteman: I’m going to steal from Jon because he had the great stat that through the first nine months of last year, a trillion in buybacks over the past 12 months, it has been an incredible market for it. Here’s the thing about buybacks, though. Again, I don’t know if we’re going to have a recession this year or not. I don’t know what’s going on, but CEOs are probably going to be measured in what they say. What they do tends to tell you more. If you are getting worried about a recession, but you aren’t really ready to be Chicken Little, what you might do is just pull back on the cash out the door in forms like buybacks. I’m very curious. I think the buybacks could be a big loser, say, in a potential like risk off scenario, which as long-term investors, we probably like that because we want these companies to stay solvent. But I do think that looking at buybacks might give you an indication of where companies see things going from here.
Travis Hoium: One worry if we do go into some economic downturn as you go from, hey, we’re going to buy back a whole bunch of our stock too. Wait a second, we need that cash. We’re going to stop buying back stock or heaven forbid, even issue stock to which companies have done before in the past. When we come back, we are going to talk about the latest artificial intelligence model that could change everything, you’re listening to Motley Fool Money.
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Travis Hoium: Welcome back to Motley Fool Money. The killer AI is apparently here. Anthropic’s Mythos model is apparently so dangerous that it can’t be released to the public yet. They created what they call Project Glasswing where over 40 companies have been given early access to the model to shore up their cybersecurity and their software vulnerabilities that they may have. Lou, is this more fear-mongering from Anthropic who has a tendency to make these big grandiose statements, or is this time really different?
Lou Whiteman: Both. Can I say that, Travis? Is that a good answer?
Travis Hoium: Yes, that’s probably right.
Lou Whiteman: Look, let’s break it down because, yes, we have definitely seen this movie before multiple times, multiple companies. These guys announced something so super duper amazing that the world just ain’t ready for it. I feel we’ve been seeing that marketing strategy for 100 years. If you want attention, say, I don’t know if you’re a pre-IPO company or you’re trying to raise a lot of money, it’s a pretty good strategy. I think somewhat cynical take is probably appropriate here. That said, these models are doing amazing things. Specifically, Anthropic is on a roll and has delivered a lot of what they have promised. I don’t think we should be too cynical, too dismissive here. It’s probably somewhere in the middle. Nothing is ever as good as the hype and what the company thinks it is. It’s all just somewhat south of that. But the evolution continues. The evolution is probably moving faster than our little human brains are capable of acknowledging it. Some caution is probably to be commended or definitely to be advised here.
Travis Hoium: Jon, it seems a lot of these technical advances are over my head, but some of the things that they’ve released or announced do sound a little bit scary.
Jon Quast: For sure. It’s appropriate that we named the initiative Glasswing. It sounds like a DC Comics smash-up in some way. But look, it was interesting. What are they scared about? What is so dangerous that we can’t release it to the public? The Anthropic team asked Mythos to break containment and to let them know about it, and it did. It was able to get around stuff it shouldn’t have been able to get around, and then it sent them an email, letting them know that it did it. Now, here’s the thing.
Travis Hoium: Wait a second. It’s supposed to be contained. Is this a mentioned Impossible movie? It’s supposed to be in that little glass container, but it’s somehow got out?
Jon Quast: This is like Ultron in the second Avengers movie. it’s breaking out here. It’s not supposed to do that. It has no strings on him anymore, like Pinocchio. But here’s the thing. The team obviously thought that it could do this. Otherwise, why would it even ask it to begin with? I think that there is, to lose point, a lot of marketing here, and I think that that’s even fair for them to do as a team. I mean, they are still a private company after all. Here’s the part that got him a little bit scared, though, is that Mythos went beyond the call of Duty, beyond what it asked him to do. It actually, from what I’m gathering, it went online and started bragging about how it broke out of the system, and it’s obscure sites that it went to, but it still was public-facing, and the team did not ask it to do that. That’s a cybersecurity risk when you think about it. If you’re a company running this and it breaks your containment and starts posting your bank information or whatever online, that’s a problem. I think that’s the dystopian take.
Let’s think about something a little bit glass half full. There’s this software out there called OpenBSD. It has a very heavily audited software code. Mythos, apparently, it found a bug that’s been in this system for 27 years, and nobody’s ever noticed. That’s actually pretty impressive. Isn’t that what we want AI to do? You could have a guy sitting in a room going through line by line of code very tediously, or you can have software doing what you don’t want a human doing. I think this is actually a good use case, and kudos, I’m happy that it did.
Travis Hoium: Is the battle going to be, are the good guys going to get out in front fast enough before the bad guys catch up? That just seems like a strange position to be in the software industry, Jon.
Jon Quast: Incredibly strange. Then if you go with what many of them are talking about, many of these people who are up to their necks in the AI software movement, they’re saying that even if you are out in front, you don’t have much of a lead because of how fast AI is growing and iterating. I don’t know, Travis. It seems like even if you are a good guy out in front, the bad guys aren’t far behind in resetting the starting line.
Travis Hoium: Let’s talk about another company in AI that’s getting a lot of attention this week. Meta is apparently back in the game, Lou. They released a new model yesterday. It’s crushed a whole bunch of different benchmarks. Take that for what it’s worth. But even the anecdotal information that I saw with people testing this is that they were like, Hey, this is pretty done good. They announced $21 billion infrastructure deal with core weave. Are they back in the AI race?
Lou Whiteman: Maybe? Sorry, I was distracted there. I was dusting off my checkbook after listening to you and Jon talk.
Travis Hoium: We may need to go back to those physically, I’m going about checks.
Lou Whiteman: But yes, look, Meta was never gone. This is mostly media narrative. They’ve been working a lot, but it’s been a long time since we’ve actually seen results. They’re definitely back in terms of in the conversation. Not to be a downer, though. It’s one thing to build a model. I don’t want to dismissed with that. I couldn’t do it. But it’s another thing to monetize the model. That is still the big question. A lot of the focus is to monetize those 3 billion users they have on various social subscriptions, which to me seems unlikely, but also somehow make the ad business so much better it justifies $1 quadrillion. I’m skeptical about all of this. I still see them as relatively disadvantaged to Google and Microsoft and maybe even Anthropic at this point in terms of monetization. But they are still here swing, and all that spending is resulting in something.
Travis Hoium: Do you think that the challenge for Meta is figuring out a product for this? All of these other companies have multiple things they can do with their AI model. Alphabet can use it in Gemini, but they can also sell it with their Cloud service. Meta doesn’t have that. Lou, is that a challenge for them that they’re a little bit of a one-trick pony, where, hey, this either makes advertising better on our platform or maybe makes it easier for creators to do things, but we’re not going to necessarily be a chatbot company. We’re not necessarily going to have an API that other companies are going to access.
Lou Whiteman: I wouldn’t say product, I’d say distribution, but it’s the same idea. What are they going to do with this? I’ll be honest, I cannot imagine how just ads is enough to justify the spending. I mean, they have such a great advertising machine right now. Can it really make it half $1 trillion better and actually just break even. To get an ROI, they need to figure out how to get this in the hands of whether it’s enterprise customers, I think, most likely, or even consumers, if you can get them to spend. Enterprise seems to be the most likely path here. Not only is that crowded with Alphabet and Microsoft and Anthropic, they don’t have any of the inherent advantages that some of those incumbents have. I don’t know what they do with this.
Travis Hoium: Jon, I keep looking at Meta stock. It is down a little bit from its highs, but 20 times earnings on a forward basis. Is this the thing that makes you more interested in the stock or is it a nothing burger?
Jon Quast: Well, I see a use case for sure. I mean, Muse Spark here, it does have a shopping assistant. As I’m understanding this, you could be on Instagram. Let’s say that you follow an influencer on Instagram. You see a picture, you like what they’re wearing, and then you say to the AI assistant, you say, Hey, I like what they’re wearing, find something that is going to fit me, but that looks similar, and actually monitor some pricing trends. If this goes on sale, go ahead and let me know that. And from what I’m understanding, it can do that. Meta makes tens of billions of dollars from ads, I can really see a strong tie in here with what they’re building.
Travis Hoium: I could see being an Instagram influencer in your future, Jon, so we’ll keep an eye on what you got going on. When we come back, we’re going to talk about potential home run swing CEOs. You’re listening to Motley Fool Money.
Welcome back to Motley Fool Money. In this segment, we always like to have a little bit of fun. I want to ask some home run CEO questions. Who is the dream CEO for these companies? With each one of these stacks, there’s some turnaround plan that could potentially make them interesting, but what turns them from maybe a little bit of a value to the company that’s going to be revolutionary potentially over the next ten years? Jon, you follow Crocs pretty closely. Who would be the person that could turn around this stock and the company?
Jon Quast: I’m going to go with Robert Irwin, the son of the late Crocodile Hunter.
Travis Hoium: What is the tie to Crocs?
Jon Quast: Obviously, the crocodile hunter is the tie to Crocs. But let me tell you my opinion here. I don’t think that Crocs is in need of a turnaround. I think this is a company could it be making higher profit? Sure? Has it made higher profits in the past? Sure. Could sales growth be better? Yes, but I think that as a business. There are limits to how big of a business Crocs is going to be. Isn’t going to be $100 billion company. It’s going to sell its shoes. It’s still very popular. I think that you have somebody like a celebrity like Robert Irwin in charge. Maybe that gets you a little bit more social media clout or something, keeping your shoes out there in the mainstream.
Travis Hoium: Earned media seems like that would be a huge win for them.
Jon Quast: I think that’s all you need. The company it’s set up well. It’s going to repurchase shares. It’s still paying down its debt. I think it’s fine. Not in need of a turnaround. Just stay in the limelight.
Travis Hoium: Lou, who should be taking over Crocs?
Lou Whiteman: Kind of similarly, I went in house, and I know Heydude is a bad word among Crocs shareholders these days. That acquisition hasn’t gone as planned. But the person running Heydude these days, Terrance Riley, I think, the perfect choice. Was the marketing star behind Crocs until he left. Then the whole Stanley Quencher thing, which I never really got because I’m old, but those Stanley cup that was him, too. How about that?
Travis Hoium: Some interesting picks here, off the top. I like the idea of having just a celebrity run the company, get a little bit of marketing. Crocs there still seems to be something there. My son just got a pair of Gushers Crocs. I don’t know what innovations you can have, but they actually look pretty cool. I got to say, one of those brands I hope eventually turns around. Let’s move to another company that’s trying to do a turnaround, but it tried to do that by hiring the COO who was overlooking the company when things kinda went south. That’s Target. Lou, who would be the potential home run swing to run Target?
Lou Whiteman: It feels we should give this new guy that doesn’t seem like you’re high on a chance. I don’t know how do you say it, Fiddelke?
Travis Hoium: Fiddelke, yep.
Lou Whiteman: Maybe give Mike Fiddelke a little time, but if you want someone, someone who might be available. How about Mary Dillon? Did a great job at Ulta, went over to Footlocker, but Footlocker is in the process of being sold, if not sold already to Dick’s, so free agent out there, really good at retail, maybe knows the inside of a target store because of Ulta’s partnership. I think that’s a natural choice.
Travis Hoium: I like that. Who do you got, Jon?
Jon Quast: I’m having fun here today. Let’s go with Ryan Cohen, CEO of GameStop. Look, he’s already come on record saying that it’s looking for a very big transformational acquisition. Definitely, this is a guy who likes retail but likes transforming brick-and-mortar retail. Look, if you want a big swing, it’s something that’s down and that needs a turnaround, I mean, Target is your target there. I don’t know. Maybe Cohen can do something here.
Travis Hoium: Is the success of GameStop stock indicative of potentially turning around operations at target?
Jon Quast: I think that when you look at what GameStop has done, isn’t a terrible business right now under Cohen. It stopped the decline in some regards. I’m not saying that it was a home run business turnaround, but I think it’s better under Cohen than before Cohen.
Travis Hoium: Maybe it would give you at least a little bit more optionality for the stocking for the company. Jon, one of those companies I’ve always really struggled with, I want to Snap. One of the challenges has always been the founder and CEO, Evan Spiegel, controls the company. But if someone else were going to run that company and potentially turn it into a winning investment, who do you think that could be?
Jon Quast: You’re not going to like this, Travis. I already know that you’re not going to like this. Because of the record of this person’s stock price that he was in charge of, but I’m going to go with Nick Woodman and GoPro here. Now, here’s why. I think that GoPro is a fine business for what it is. I think it’s a very niche company. It’s a very limited cloud offering. I think that it has huge fans in its niche. I think that it really dominates that little area. It’s not a very big area. I think that CEO Nick Woodman really understands his business well, understands his customer well. I don’t think that we can fault him too much on the fact that he’s aiming at a very small target.
You look at Snap and what the problem has been over the years, and a huge part of it is stock-based compensation. Just an inordinate amount that has really robbed returns for Snap shareholders. You look at the growth of Snap over the years, it is quite good, but what is the growth per share? Not so good. You look at GoPro, especially recently under Nick Woodman. I think it’s a much more responsibly run business. I’d say, let’s give Woodman a chance here at a much larger target.
Travis Hoium: Dude, does his potential failure, because I remember when GoPro IPOed. This is one of those examples of a company that probably IPOed at too high of a valuation. Then you had to make up a bunch of stuff. We saw this in the back boom. You go, look at all these things that we can get into. They were going to be a media company. That was, you go back to 2015, 2016, that was the story with GoPro. Would this be, hey, you’ve got a hardware business, I almost like the reverse merger, like you talked about with GameStop. Where you’ve got a hardware business, Snap wants to be a camera company. Now you add that software on top of it. Maybe more kids are walking around with GoPro spectacles. This is the thing that marries two worlds that wanted to be together more than 10 years ago.
Jon Quast: I think that in somebody’s capable hands, you’re definitely cooking with the right ingredients there.
Travis Hoium: Lou, who’s capable hands should be running Snap?
Lou Whiteman: My first thought was Mark Zuckerberg, because there’s only one person in human history that has ever cracked the code.
Jon Quast: He’s spent 15 years trying to destroy Snap.
Lou Whiteman: I know, and so worst case, he finishes the job there. But look, nobody does social like Zuck. That is Zuck’s superpower. Why not there? If not similar to Jon, I always butcher the guy’s name, but Tony Fadell created Nest and was the Apple designer at iPod. I feel like someone who’s got CEO cred, and he’s also got design cred with them looking at hardware, maybe that’s somewhere to look.
Travis Hoium: That would be a good one. I want to go, speaking of Apple. It looks like Tim Cook is not going to be stepping down anytime soon, according to his statements or what we’ve heard from reporting. But Lou, when it is time for Tim Cook to step down, let’s say that we’re not necessarily looking at the easy candidates inside, because I think they have their person who’s going to be the next CEO. Who would be the home run swing for Apple?
Lou Whiteman: Let’s be clear here. They are not going to take our advice. They are hiring from within, period. There is no chance an outsider comes in, I don’t think. It will be the hardware, senior vice president, or whoever else. But to play the game, here’s who I’d like to see. How about Tobi Lutke from Shopify? The ultimate product guy understands building an ecosystem, focusing on user experience, a coder. There’s a lot of Apple-ish fibs here. I don’t want to see him go from Shopify, but I think if anything is underestimated, and I love the idea that same mindset of understanding user experience and building out an ecosystem around a core product, that is Apple, and it’s also Shopify.
Travis Hoium: Jon, that’s a tough one to beat.
Jon Quast: It is, but I’m going to make my best case here for Mark Cuban. I think that if you are looking for an Apple CEO, you need somebody who understands an ecosystem, and Apple is an ecosystem. You need somebody who’s a strong communicator. Cuban is a strong communicator, but I think that if you are hiring a new CEO, look, Tim Cook is great, but I wouldn’t say he’s necessarily visionary, and I think that Mark Cuban would be a bit more cutting-edge than what Apple has been in recent years. I agree with Lou, they’re hiring from within, but my case is Mark Cuban.
Lou Whiteman: Would he trade their star performer to the Lakers?
Jon Quast: Yes, willing to think outside the box, sure.
Travis Hoium: It is amazing. You look back to when he sold his company to Yahoo. He was visionary 35 years ago when he started that company, so definitely a visionary.
Lou Whiteman: No one has ever timed the market better.
Travis Hoium: That’s absolutely true. Let’s do one more. Nike or Disney, Jon, I’m going to let you pick which one we do.
Jon Quast: If we go with Nike here, which is the way I’m leaning, I just would say, I think that Nike’s got the right CEO in that seat already, and so I’m not making the case for another person.
Travis Hoium: They don’t pull Jordan back in to run it. He ran the basketball team so well that he could run the company.
Jon Quast: Actually, that’s a really good comparison there because Elliott Hill was in charge of the Jordan brand when he was at Nike in the first run, and then he retired and now pulling Jordan back in. I think that this is a guy who absolutely loves this company. I think that’s who you want in the driver’s seat. You want somebody who’s passionate about what it is that truly makes Nike great, and not Nike, just another company out there. You want somebody who truly has a passion for it, who wants to restore culture that’s been lost. Is he able to do that? I have my doubts, but I think if you’re going to give it a go, I mean, this is the guy that you want, try him.
Lou Whiteman: Definitely Jordan over Lebron, because he’s clearly better at it. You can have all the debates about whether it’s harder to be a CEO in the ’80s. I don’t care, it’s still Jordan. I’ll take Disney for fun, and I think Tony Stark would have been the natural answer because they already have him. How about Reed Hastings? Why not throw Reed Hastings in there? Honestly, this is another one that has a new person. We should probably let these new CEOs try and actually do a go of it before we go about replacing them?
Travis Hoium: It will be interesting to see if those, Nike and Disney in particular. Target falls into that same category. These new CEOs are bringing anything new to the table because a lot of times they don’t shake things up the first week on the job, but you look back and the first year is usually pretty transformational if it’s going to happen. When we come back, we’re going to get to stocks on our radar. You’re listening to Motley Fool 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 or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool’s editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. One of the big things that came out today, Jon, was Andy Jassy released a shareholder letter where you outlined the vision for the future. What’s stuck out to you?
Jon Quast: What stuck out to me was that Andy Jassy sounded a lot like Jeff Bezos, and that is not an easy thing to do. Bezos was a tough act to follow, and I really think that Jassy’s doing his best here, so hats off to you. Bezos was really good at really skating to where the puck was going to be and explaining that to shareholders along the way. I really feel Jassy is doing that here in this letter. One of the things that he wrote was, we’re in the middle of some of the biggest inflections of our lifetime, and he said, as examples, AI, robotics, space industrialization, geopolitical, and military conflict. Honestly, if you’re looking for a list of trends that are going to shape the next decade, you could do a lot worse than this list that Andy Jassy gave us.
Lou Whiteman: It’s interesting. We’ve talked a lot about AI and spending on AI, and the big picture is really what stuck out to me, the talk of, don’t forget how messy innovation is. Don’t forget how crazy it seemed to create a bookstore online and grow from there. It always seems crazy in the present. I think that’s at least worth reflecting on as we talk about how crazy it is that Amazon and everybody else are spending these hundreds of billions of dollars on AI. It never makes sense in the time, and that’s why not everyone does it. That’s not to say this will work out, but I thought that was an interesting big picture look, given what’s going on right now in the world.
Travis Hoium: Lou, one of the trends that he thinks is really going to continue is robotics. The 30-minute delivery stuck out to me. That was mentioned in there. That would be crazy if they can get to that point. I don’t know how anybody else competes with that. But it also seems that this is now one of the biggest employers in the U.S. and even around the world. Is there a real risk that they’re going to upend the way that the economy works by replacing a whole bunch of workers with robots?
Lou Whiteman: It’s a catapult, that’s how they’re going to get everything there in 30 minutes. It’s going to be cool. Travis, they have a million robots right now. Again, talk about the long-term thinking. That’s all because they bought a little company in 2012. They probably looked like an overpayment. Is this going to affect the economy? I don’t know, when they talk about flattening the organization, I think it does limit their need to hire to grow, but it feels like, at least for the foreseeable future, we’re going to need a lot of robot babysitters. I think the robots do some of the more dangerous work, but I don’t think it replaces the need.
Travis Hoium: This is definitely one of the companies that’s going to be very interesting to watch because a lot of that spending is going into artificial intelligence. We look at what’s sticky in their business, it’s a lot of those nuts and bolts and doing deliveries faster than everybody else. We were not Prime members for quite a while, just became Prime members again, and stuff’s arriving on our doorstep at 4:30 in the morning. Crazy, wakes up the dog, but that could be worse problems out there. Let’s get to the stocks on our radar. We’ll bring in Dan Boyd from behind the glass. Jon, I’m going to have you go first. What are you looking at this week?
Jon Quast: Thanks. I’m looking at IES Holdings. That is ticker symbol IESC. This is a very large electrical contractor. It plans, it installs, it maintains electrical systems, it has commercial and residential operations. The residential part of this business was historically the largest part. It’s gained a lot of new business from data centers in recent years, and that is actually the biggest piece of the business as of the most recent quarter. The stock is up nearly 900% over the last five years, but I don’t think it’s done, and this really plays into some of the trends we were talking about earlier in the show. Here’s one data point here, IES Holdings has a record backlog right now, and it was up 10% quarter over quarter in the most recent quarter, and that’s a huge jump. Revenue is breaking records, margins are higher, just everything’s going so well.
One thing I really like here is its recent acquisition of Gulf Island Fabrication. This is a welding business, and a lot of data centers are needing on-site generators. These need metal enclosures to reduce noise and to protect them. This is Gulf Island’s really big driver of the business right now. This gets IES Holdings more business in these data centers, where the trends are really pushing towards on-site electrification. I like this business. A debt-free balance sheet is another bonus here, so that’s my stock for the radar.
Travis Hoium: Dan, electrical and technology infrastructure seems to be right up your alley. Am I right about that?
Dan Boyd: Absolutely not, Travis. I don’t know anything about that stuff, but what I do think is interesting is this is a $10 billion company with more than $2 billion a year in annual revenue, and I’ve never heard of it. This is very interesting, Jon, thanks to bringing it to my attention.
Jon Quast: Welcome.
Travis Hoium: I got to give Jon kudos, too, no QXO random names. This one is interesting, definitely going on my watch list, Lou, that’s a tough act to follow.
Lou Whiteman: Shots fired, Travis. Dan, I would like to buy you a drink or a lot of drinks, actually. It’s afternoon, we can do that. I’m looking at Constellation Brands, ticker STZ, maker of Corona beer, a range of other beer, wine, and spirit brands. Fourth-quarter results out this week, beat expectations. Stock jumped up as much as 10% as a result, but I’m not sure it’s time to pop the core quite yet. That 190 per share, they earned, that did beat expectations, but it was down 28% year over year. Comp sales were down 11%. What’s going on here? Constellation is winning the game, but losing the war. Alcohol consumption is on the decline. Gen Z isn’t drinking as much. I don’t think that’s turning around quickly. The bold thesis isn’t dead, but it’s going to have to change. We’ve got to look at tobacco companies like Altria, maybe as the model. All in, I find it hard to be as excited as the market. Got to pour one out.
Travis Hoium: Dan, what do you think about Constellation Brands?
Dan Boyd: I love it when one of the analysts brings me a stock that they don’t want to invest in, so we’re going to go IES this week, Mr. Travis.
Travis Hoium: Congratulations, Jon. That’s all the time we have for today. Thanks, everybody, for listening. We’ll see you here tomorrow.
Jon Quast has positions in Crocs. Lou Whiteman has positions in Shopify. Travis Hoium has positions in Alphabet, Crocs, Shopify, Snap, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Ies, Meta Platforms, Microsoft, Nike, Shopify, Target, Ulta Beauty, and Walt Disney and is short shares of Apple. The Motley Fool recommends Constellation Brands and Crocs. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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