This Is The Best Opportunity In Years

Welcome back everyone. Today on the Josel Carlson show, we have the most important earnings week of the entire earning season. This is it. This is the big one for this quarter. And if we look at the earnings calendar, it's literally overflowing. We have so many companies reporting. Many of them are big ones that you likely have in your portfolio. Things really start to kick off tomorrow. So on Tuesday right here, we have companies that you've heard of, Coca-Cola and Boeing reporting earnings. Those ones aren't as interesting to me. But then we have S&P Global. This is a big holding of mine, one of my largest investments. I'm looking forward to this one and I'll be going over some thoughts of what I expect. And then further down this list, we have PayPal. I don't like PayPal stock. I think investors should sell it and I'll be making the bare case for this company. We also have Visa reporting Tuesday aftermarket close. And then we have on Thursday, Mastercard reporting as well. Now, I have a huge holding of Mastercard. We'll be going over both of these companies together. But then Wednesday aftermarket, this is where we get into the big ones. We have Meta and Microsoft both reporting earnings at the exact same time. Meta and Microsoft have both performed poorly this year. Meta's down around 7%. Microsoft's down around 17% while the overall market's going up. So, these two companies, these incredible companies are selling at low valuations. They're beat up and the market seemingly wants nothing to do with them. The market is sick and tired of AI and capex spend. The market wants returns. So, we'll be looking at these companies and if they can provide the line of sight to returns that the market's demanding. We also have things continuing on Thursday. Right now, Apple is the favorite of investors. The stock continues to soar to all-time highs while companies like Amazon, Meta, and Microsoft have continued to go down. Is this going to continue going forward? Will Apple just keep sailing away this earning season? Or will Amazon, Microsoft, and Meta report earnings that are good enough to lift these companies? And we're going to be going through all of it. Plus, we have some big news to get to. For example, ASML stock dropped around 7% on the day on a report that China is now making their DUV machines. They're making their own. Big companies are starting to hire again. I've been saying this for a long period of time. So, this article is basically just a told you so. And then we have the fail of the week, which in this case is paramount as they struggle to complete a merger that they desperately need. So, we have a ton to get into. Now, while lots of investment groups charge anywhere from $50 to $200 per month to be a part of them, Qualrum is just $10 a month, and Qualrum includes things like earnings calendars, advanced chart builders, you have the insights page, which gives you a rundown of every company, all the important metrics that you want to look at. It has all that software, plus a sprawling community of investors with over 10,000 investors on a moderated Discord. On top of that, we also have Qualrum Studio, which has original exclusive content. We have more content, things like reviews on the Fitbit Air, reviews on the Meta Glasses. I have deep dives into different companies. We have all sorts of different content. All of this is included at one price. A membership for $10 per month or even a discounted price at an annual membership. Try it out now risk-f free at qual.com. Now, as we get into this week, the first company that I want to highlight here is on Tuesday. If I go down, we see PayPal here reporting earnings tomorrow before market open. Now, PayPal's earnings, this scatter chart shows no pattern, and that's kind of how their earnings have been. It's been all over the place. We show the estimates, they often come above estimates, so they'll likely do so again. But PayPal beating estimates by a couple cents isn't really a bull case. In fact, the important thing when looking at earnings like these is the earnings represent short-term confirmations. You have things like the earnings analyst estimates and whether they came in above or below these estimates. Those anal estimates are usually pretty good. Most companies come in right above or right below. Every once in a while you'll get a huge blowout like Nvidia has done in the past. But overall the anal estimates are short-term in nature. What we do as investors is we look long-term. Long-term is called the story of a stock. When you look beyond the next 12 months and you look at what the company's going to do, its structural advantages, its competitive structure, all of that, that is the story of a company. If a company has a really good story, that's a company that you want to find a buyin price, a time where you can buy in at an attractive price and then you watch this story and whether or not these earnings reports confirm the story ahead. So when I look at PayPal, I think that this quarter, they'll likely be on earnings. In the short term, that's good. And anal assessments are usually pretty good in the short term. Notwithstanding that, I believe PayPal is a sell. It's a company that I don't think investors should spend their time on. I don't believe that individual investors should invest in. I think it's a waste of time. PayPal is a complex business. Not complex in the way of Amazon or Google where they have lots of quality assets all growing independently. No, PayPal is convoluted, complex in all the wrong ways. It is a company that is unwieldy. Even the new CEO that was over into it, that did a great job couldn't fix PayPal. In fact, a hedge fund that recently sold their position at a loss in PayPal, they finally threw in the towel. perhaps said it best. Here is what they wrote as they exited this company. We were wrong, not about the price, but with the business. We severely underestimated PayPal's operational bloat and the extent of the required fixing and consolidation. PayPal's acquisition history left behind a sprawling empire of disconnected platforms. Brainree, Venmo, Zetle, Hyperwallet, Zoom, Honey, Py, these are are all the things that PayPal owns. Imagine being a a CEO and having to work with all these various platforms to try to integrate all of them. Some of them, by the way, are are borderline scams. The way that Honey has ran, for example, there's been in-depth documentaries, multiple series that are credibly pointing to the, I would say, very deceiving business model of Honey and how it's essentially ripping off creators. That's just one of the businesses that I don't think is good that PayPal owns. But besides that, even the other parts of this business, you have Venmo, you have Zeetle, these are hard things to monetize. They say these multiple platforms were on separate payment rails with different interchange relationships, had disperate data sources, and were on separate technology stacks. Each was pulling in different directions. The complexity did not just slow innovation. It made innovation structurally difficult. It was just too hard for Alex Chris to fix. Growth decelerated from high single digits to low single digits. Product execution remained subpar. Patience with the board wore thin and the CEO, Alex Chris, was replaced with Enrique Lores, the former CEO of the mediocre elite run HP. So now you got a guy from HP running PayPal. Do you want the guy from HP running your technology company, running your fintech company? I sure don't. What has HP done overcharged for for undercharged for printers and overcharged for ink? What has this company actually done for the past 10 years? They say our remaining confidence was gone. Most turnarounds simply don't turn. That is the brutal truth. We were patient, but PayPal's business just kept declining in quality. While its stock fell 47% from our entry, the damage was limited to a negative.8% contribution. I agree 100% with this hedge fund. You may be tempted to look at companies like PayPal. You observe the low forward PE ratios, the high free cash flow yields, and to value investors, it may feel like you're picking up a dollar for50, but it's just not the case. When you get into the actual complexity of running the business, you see that it's not going to be able to generate adequate returns and that the low PE ratio is properly pricing those inadequate growth and assumptions. I could also highlight other things about PayPal that I think are troubling. One of which is that they simply have not innovated. When you look at what PayPal has done as a product, when I use the app, it doesn't work well. It's hard to use. It's actually not a great app to use and it's been like forever. PayPal has been there forever. Since the days they were owned by eBay, I haven't seen much product innovation happen from this company. So, investors that are in this company, you may get a bounce. It is a volatile company. You might end up with a nice 20 30% bounce off of this earnings or next earnings. And that's good. And I think you take that as a win if you get it. But long term, we've seen what's happened with these type of companies. We have long-term inadequate returns. And that is because the core fundamentals of the company have completely stagnated. All of this is to say that this quarter may be great for PayPal. Maybe they beat their earnings estimates or beat their revenue, but I don't think that matters much. Now, looking throughout the day, we get into S&P Global, which I believe is a much stronger company. This is one that I have in my portfolio. If we zoom in here, we can see it right there. I have $110,000 in this portfolio, $20,000 in gains. In the story fund, I have another $20,000 with around $3,000 in gains. So, this one's a larger position, and so far it's done okay. S&B Global has held in, but it has not had a super strong performance because it's gone down this year. It's down 15%. So, that's dragged down the returns overall, and investors are looking to the future seeing if this is going to continue. There's a couple important things that have recently happened with S&P Global. First of all, they just spun off a portion of their business. For example, if we zoom in, we can see all the different segments of their business. This bottom segment here, this big one is market intelligence. So, that is their subscription business. That's cap IQ. It's kind of like a Bloomberg terminal. Then you have this other lighter orange part. This is the ratings business. This is the really high margin, the most wide mo portion of the business. This is the part that everybody really likes. We have right here commodity insights. This is where they actually have software that gives uh pricing for commodities. So it's actually much more of a it's a much better business than commodities itself because they're giving insights on commodities. Then we have mobility which is mostly Carfax. Then we have the indices which they own the S&P Dow Jones. So they own the indicy of the S&P 500 and the Dow Jones and a lot of other indices. Now when we look at this, what they did was they spun off mobility. They got rid of this segment of business. Their stated reasons for doing so was that mobility, although a great business, wasn't really helping them out overall. Not a lot of synergies. It wasn't really like an index business and it's one that had lower margins in the rest of their company. So, by spinning it off, they both have greater focus on their plan of being a market business, an indicy business, and they have higher margins. They basically spun off a marginally worse business to make the rest of theirs a little bit better. So, overall, I don't mind the spin-off. I think that the asset they're getting rid of is lower quality than the rest of the company. I will say that Mobility Global is a great company. So, I don't think there's any problem with investors that are actually holding on to this because Carfax is deeply embedded. Everybody uses it. They have dealership deals and all sorts of things to make that a really sticky subscription-based product. However, in my brokerage, I chose to sell off Mobility Global. Part of the reason why was because that's not the reason that I invested in S&P Global. As well as it's it's such a small position. it would have been like $4 or $5,000 that it would not meaningfully move the needle at all. I'd either have to build up the position. So, what I did was I I sold it off. I currently have $6,000 in cash. That's from the proceeds of that sale of the spin-off. Now, with that spin-off, investors are going to be looking at S&P Global and trying to realign the baseline. Looking at the company now, how does it change? How does the overhead change? What are the margins look like? What does the growth profile? What do the cash flows look like with that that spin-off happening? But other things that I'll be looking at is when we're looking at S&B Global, some of the big discussion has been around market intel. Is Claude affecting this business? Is AI impacting this business negatively or positively? And that's a big debate. Lots of investors and the reason that this stock originally sold down was investors are very concerned that Claude makes it so that it's easy to do analysis on companies. You just type in a couple prompts in Claude and you have an analysis. If you have analysis on companies that easily, why do you need S&P Global's expensive data feeds, Capital IQ, and all their expensive business profiles and consulting? That's the bare case for the company. I don't agree with that. I think big firms, banks, money managers, I believe they'll pay a little extra to have extraordinarily higher and more reliable quality data. I think that's actually mostly been proven so far, and we'll see further evidence of it this quarter. So I am bullish going into this quarter with S&P Global. The valuation is rather low. The company is now getting stronger, not weaker. And we should see more fading concerns about AI and the impact on market intel. Now moving throughout this week, we get into some other big ones. We have Visa reporting tomorrow after market close. And then Thursday before market open, we have Mastercard. And let's go ahead and just group these together. When I'm looking at Visa and Mastercard, both of these companies have done all right. Uh, Visa is up 4% this year. Mastercard this year is down 2%. So, they have a little bit of a dispersion in outcomes. Last quarter, Visa really they put up a great quarter, a better one than Mastercard. And I say that knowing that I own Mastercard and not Visa. So, my position in Mastercard is a $184,000 position. It's very close to the top, but my combined position in Google just beats it out at $194,000. So, I still have a bit more in Google. Now, like I just mentioned, Visa's last report was better than Mastercards. They grew revenue faster, and that was primarily because of what they call value added services. So, if you break down either of these businesses, there's basically two parts. You have the swipe transaction fee part of the business, all of this part of it, and then you have the other part of it, which is value added services. Now, these companies, especially Visa, they try to make this opaque as possible. They break it down into these different buckets. And although we can kind of break down what this is like international transactions other which is a lot of the value added services a lot of this is mixed into different buckets. So like a lot of the things that you could put in value added services or in data processing processing or they're in the service base fee and it makes this all a bit mixed. That's intentional for these companies. It reduces both competitive and regulatory threat to not be quite as transparent in showing which exact product lines and revenue segments are growing the fastest. But if you actually break down what value added services is, it's basically all their subscription and all their consulting businesses. So, Mastercard consults different banks. They consult governments on uh where to grow, what branches to open because they know where there's lots of processes and things being transacted. They also have massive amounts of subscription-based services, things that you would imagine things like CrowdStrike doing, cyber security, fraud detection. They have enormous amounts of data and they use that data to sift through it. They can determine if a transaction or a person is likely to be fraudulent. They also have identity verification knowing your customer. When you have someone's entire purchase history, you can understand who they are, where they are, all that type of stuff. With both of these companies, the value added services are growing faster than the payment services. And with Visa, the value added services really picked up last quarter. That's why the stock is doing a little bit better. I believe both of these companies are a buy today. I think both of them are great. Uh both of them have huge moes, international growth. Visa is already so established in the United States, it's not going to go anywhere. And one thing that I like with these companies is I believe you get the best deals when a strong bare case exists for a company, but that bare case is mostly wrong. If no bare case exists for a company, the stock price is already super high. And that's not when you get the best deal. You have to have a bare case and that bare case has to be wrong. In the case of Visa and Mastercard, there's a bare case that exists that all these governments are making their own payment rails and payment networks. Without spending too much time on this, I believe that that bare case is mostly wrong. People are going to continue to use debit cards and and credit cards. They'll continue to gain widespread adoption throughout the United States, throughout Europe, throughout South America, throughout Asia. I believe that these companies will continue to grow everywhere as you're seeing in the data. In fact, the data backs this up to a massive degree. This is the growth of Visa's cards, both their credit cards and their debit cards. Does this look like a company that is being boxed out or beat out by governments? I don't believe so. And this is after a lot of governments have their own payment rails and their own ways their own ways of sending cash. Uh, a lot of it doesn't even compete with these companies. Investors have the wrong conclusions. We can look at Mastercard. Again, when you look at this chart, does it show one that's being boxed out or beaten by governments in their payment rails? I don't believe so. Do either of these companies show any threats in the numbers by stable coins? I don't believe so. In fact, most of them are they're they're growing their value added services by offering a lot of settlement services to stable coins. Again, all those consulting services, that's useful whether or not you're doing a Visa transaction, a Mastercard. In many cases, they're still using these services. And this week when they report, you'll see again two great earnings reports from two great companies. Now, moving on, we get into one of the big days, which is Wednesday. The two big ones, of course, are Microsoft and Meta. And we'll get into those, but before we do, there's a couple ones that I want to just comment on real quickly. One of them is Robin Hood, and another one is FICO. With FICO, I believe there is one central question to the bull case for the stock or the bare case, which is is Vantage score going to take any meaningful market share? That is the big decision that investors have to make and that's the thing that analysts are also split on. Most analysts today, the biggest consensus is that FICO will essentially remain completely dominant and have nearly 100% market share of every important aspect. But then there's some analysts that are saying, "No, actually Vanishore is much cheaper. Lots of companies are looking for alternatives and FICO's mode is not unbreakable, especially when you factor in what the government's doing. There's been analysts that have come on and said that they think that Vantage Score will take 10 20 30% market share from FICO. If that happened, that would be disastrous for FICO. It would not not be a good thing. So, that's the big bare case is if it takes more market share than expected. I believe this quarter there's not going to be really any market share taken. I I don't think it's happening. If I had to guess, I think that FICO is going to retain nearly 100% market share. Even in areas where there hasn't been as much government regulation, where the market can freely choose which score to use, they still use FICO. It's still the go-to score even though it's so much more expensive. So, I'd be surprised if Aniscore takes meaningful market share. But regardless, that's what investors have to decide. We also have Robin Hood. First, I'll say that I've been impressed at how rapidly Robin Hood has come out with different appealing products. And this is the difference. You have a company like PayPal that hasn't innovated anything anything cool for a long period of time. It's basically been been the same product. Then you have Robin Hood which is coming out with stuff all the time. New products, new categories, new uh really fun things. I mean, they're just constantly on the bleeding edge. And so, if I'm picking and choosing which type of fintech company to go into, I'd much rather be in a Robin Hood than a PayPal. But on that note, the only thing concerning about this one is the valuation. It still trades at a 40 PE ratio and that is after the stock has already dropped a ton from its highs. So Robin Hood is down big, but it still trades at a high valuation. Robin Hood could outperform and do really well, but you're also taking on risk buying in at that high of a PE ratio. Instead of Robin Hood, which trades at the 40 PE ratio, I believe there's higher quality companies that are actually trading at lower valuations because of very specific reasons, which we'll address, but those are Meta and Microsoft as an example. These two companies are reporting at the same time Thursday after market close and we have Microsoft and Meta. Just look at the valuation to begin with. The surface level valuation is Microsoft is trading at a 20 times Ford PE ratio. So on a price to earnings very cheap. I realize there's other things to valuation. There's the cash flows. There's the capex. So there's other parts to it. I understand that. But just give this a minute. If we look at Meta, you'll see that the valuation on a Ford PE ratio is an 18.5 around 19. So on the surface level, these companies trade at a at a low 4p. Historically, it's been very good to buy these companies at these exact same valuations. And the other time periods where they traded at these valuations, they also are not growing their topline this fast. So on the surface, this seems like a perfect setup. We have very highquality companies, right? Meta, Microsoft, good companies. We have them growing quickly, their topline and projected to grow quickly for a long period of time. And we have them at low starting PE ratios. They're checking all the boxes for long-term durable growth companies, ones that you want to have in your portfolio. But yet, we still see them struggling. Both individual retail investors and funds are being very reluctant to buy this dip. And part of that is because, well, a lot of retail investors and hedge funds have been beat up this year. If we look at what's going on, this is a bad year for individual investors, me included. Now, my portfolio right now is down 2%. So, I'm down just a hair. The overall retail investor is down 12.7% while the market's going up. The S&P 500 and the QQQ are up above 5%. Why is this happening? Well, of course, because the gains are concentrated in companies like Micron Technologies, Nvidia, uh the chip makers, ASML. Unless you had exposure to those specific companies, which are very few, you missed out on the huge majority of games. All the other high-quality companies are going down. And across the board, retail investors don't own these companies. They don't own companies like Micron or SanDisk. Those aren't the the common ones that retail investors invest in. And this is also very discouraging for most people. This is where your sentiment and your mental game is really important because a lot of investors have done most things right. They've selected high-quality companies. They invested in them at low starting valuations. The companies are also growing very fast and they're putting up good earnings reports. Yet, the stock prices still move down. And all the gains continue to be concentrated in a few commodity- like memory companies. And overall, it's just very discouraging. And we can see that in the numbers. Bloomberg reports that retail net flows dropped near the lowest since the pandemic. So, not only are we discouraged, we're super discouraged. We're as discouraged as it got when there was a pandemic. This is bad. Investors have a real sentiment problem right now. Nobody wants to buy this market. It's just punished you. Every time you've bought the dip, it just keeps dipping. Every time you buy a high-quality company, it doesn't seem to be rewarded. And that is discouraging. But I'll note that the last time individual investors were this discouraged was during the pandemic, which was the exact best time to be buying stocks. And this is a common thread. Retail investors routinely get the most discouraged when stock prices are the most attractive. As the highest quality companies in the world, big tech, are presenting a unique entry point. It is the precise time that retail investors are discouraged and they're no longer buying. Now, I have been rather consistent on this point. I am not discouraged with my companies. I view the reports and they are highly encouraging. I feel better about the companies that I own than I did a year ago. Even at the beginning of this year, I feel better about them today than I did at the start. Even though the valuations have dropped, in many cases, the companies have gone down in stock price, the businesses are growing. This the management teams are excited about the future. All the numbers show that they're gaining more customers, more engagement, product lines growing, expansion happening, earnings per share growth happening, and their cash flow, of which investors are hyperfocused on, is being invested in highquality growth opportunities that present high returns on capital. Even to this point, we should also note that there's reason to be encouraged in the future. And that is that if you're if you're looking at the capex spend and you're worried about that, they're not going to grow capex at the same rate that they have over the past couple of years. Not only is it mathematically impossible, but even the projections from analysts show a massive deceleration in capex growth. For example, if we look at this chart here, this is one from Goldman Sachs, and it's the average analyst consensus estimate of the hyperscaler quarterly year-over-year growth. So right now in 2026, we are going through the highest pinnacle of growth. This is it. They're they're growing their capex spend nearly double year-over-year. That's big. Doubling capex spend in a single year. Of course, investors are a little bit timid. Of course, we're we're a little concerned. And going into these earnings of Meta and Microsoft, this will be the focus. How much are you raising the capex spend? How much are you raising debt? What deals are you doing? This is going to be the major focus. Investors are just tired of this capex spend. But look what happens over the next couple of quarters and over the next couple of years. We have to endure maybe two to three more quarters of capex going up year-over-year. Then we have a rapid deceleration. Analysts expect a rapid deceleration in capex growth through the tail end of 2026 into 2027. They will be spending on this infrastructure as it's vital to these businesses, but they'll also have established a unique moat, an incredibly powerful capex-driven mode that other companies can't copy. Consider all the spending they've done. To replicate their business, you'd have to literally invest hundreds of billions of dollars over a multi-year period. And then you'd have to gain all the customers as a result of that. All the customers that are building their companies, connecting to the AI of all these businesses. So while we struggle through this time period of the highest capex growth I believe it will yield high rewards for investors on the other end and right now when investors are the most bearish when expectations are the lowest when the PE ratio goes down and the stock prices are depressed is an opportunity to buy. While investors patience is wearing thin for all this capex spend I believe that this quarter may be another rough one. What I expect to see is Meta and Microsoft both put up really good earnings reports but I don't believe the stock is going to be heavily rewarded. I don't I don't expect any 10% jump. It could happen. Earnings are inherently unpredictable. But when I look at these companies, I see the same trend. We have company after company putting up solid to very strong earnings reports and subsequently falling in stock price. The first one was ASML. ASML put up a very solid earnings report. The stock is down big since that earnings report. Then we have Netflix. Netflix put up, I would say, very decent earnings report. It was mostly in line with their estimates of revenue growth and they reiterated a lot of their guidance. The stock price fell. We also had Google which put up a rockolid earnings report. Operating income growing 30%, all their major KPIs growing like crazy and the stock fell after the earnings report. But the short term isn't my major concern. And over the long term, I believe that we're working our way step by step to a better outcome for these companies. When I look at the capex span for these companies, I believe it will be very attractive to their long-term business. And part of that is because of the stack that they're building. For example, when we look at AI, we can break it down into three different categories. The very top one is the distribution. This is the SAS-like business. You have companies like ChachiBT and Claude that have their software portion of it, the interface and how it integrates into different businesses. But then you also have huge distribution to AI through Google. Google has billions of touch points to customers all the time through all their various apps, Google Drive and YouTube and Gmail. You have Microsoft with their entire suite which they're enabling as distribution for AI. So the very top layer we have distribution in the middle layer we have the AI models and in the base layer we have the infrastructure and this is something that Chimath Polyhabatia highlighted just recently. I don't agree with him on a lot of things but on this I agree with him. He outlines where he believes the value will ultimately acrew in these different layers. >> The important observation. These models are getting commoditized much faster than anybody thought. And how do we know this? Because there is no meaningful sustained advantage once a model publishes their performance criteria. What you see is literally within weeks other models some open some closed some open weight who are able to match and in some cases exceed the performance. So I think what's happening here is a handful of American companies have realized wo this value that we are seeing today may not be sustainable in a 5 and 10ear period and when you go and present a business model to Wall Street you need to have that certainty otherwise it impacts your valuation and so I think a lot of what's happening right now Jason is a valuation preservation game by the closed frontier labs >> Jimath is correct and the major argument that he's making is that out of these three layers of the distribution, the core models, and the infrastructure, the model is the most commoditized. It's the easiest to leapfrog ahead. And we've seen that with the leaderboards. For example, there there's companies that will work on their flagship models for years and then a new company or a different one or a top competitor will have a model that leaprogs ahead after just a couple months and then that other one will leaprog back ahead. And it's this race of them jumping forward above each other. And in what other business would that be a good thing? Imagine just like Facebook. If Facebook was the biggest social media network in the world and then someone else came up in just a couple years and created another social media network that leaprogged ahead. That would make you question the moat or the commoditization of Facebook or YouTube. YouTube is the biggest streamer in the world. Uh by far the biggest. What if every other week YouTube was bouncing back between third and first place, constantly being leaprogged? and make you question the moat of YouTube. That's essentially what's going on in the model layer. Models are basically algorithms. They're trained on large sets of data, but once the training is done, to synthesize the data and to create the model, you have to have judgment and algorithms that drive it. And that's something that can be diffused. It can be learned by existing models. And other companies can catch up with an increasingly short amount of time. This chart illustrates this dynamic. Here we have the distribution layer which are the software apps, enterprise workflows, AI assistance, APIs, all the ways that those models reach out to users. That's very valuable. That's not easily commoditized. Once your distribution layer is deeply embedded into corporate America or the rest of the world, it's very hard to unroot that. Microsoft knows that. So they want everybody to use their software applications, their APIs, and their workflows. The same thing with Amazon. They want everybody building on AWS. And of course the same thing with Google which has a massive distribution layer. So big tech owns a huge amount of the distribution layer. In fact I believe that big tech is the biggest owner of the overall distribution layer. Then you have the model layer which are the frontier and foundational models. Gemini claude cache llama so on while important at least in the short term this is the one that is being commoditized. It is harder to defend. They of course can have a first mover advantage. models are important to begin with, but we've seen other companies quickly close the gap with their models, quickly make their models at least competitive to the flagship ones. So over time, the model layer is a less defensible layer. The value capture here is not as important and I believe the value will collapse over time and be dispersed to the distribution layer and the infrastructure layer. The infrastructure layer has the compute, chips, cloud, data centers and power. This part is commoditizable to some extent but it requires an enormous amount of money to commoditize an infrastructure layer. We also have the difference between just neoclouds which are very generic infrastructure and the more specialized clouds of which big tech owns. Microsoft's Azure is highly specialized and integrated with their distribution layer. The same with Google cloud integrated with all of their distribution. And of course we have AWS which has an incredibly extensive set of tools to build your entire infrastructure of your company on. So those are actually more modi than a generic neocloud. So if this assumption is correct that most of the value proposition from AI goes to either the distribution layer or the infrastructure layer. We want to own the companies that present the best proposition here. I believe that big tech owns the most important layers of this. Google has massive distribution. Microsoft has massive distribution. Meta and and Amazon have massive distribution. Lots of value is going to acrue to that layer as well as all of them are the ones that own the infrastructure layer. Now investors are cautious of the returns they'll get, but I believe the returns have been historically very hype for this. So I don't see it as a problem to expand that portion of the business. And in terms of the model layer, I think that the model layer is not entirely useless, but it's useful only in so far as it helps out the other layers. So a Gemini, it's not so useful in and of itself if it was a standalone product. The reason Gemini is useful is because it helps out Google's distribution and it helps out the infrastructure layer. The same thing with Meta. Meta's AI is not that great in and of itself as a standalone product. The reason that Meta AI is great is it helps out their infrastructure. It helps out their distribution. It helps out their core products. So overall, we should see a lot of the actual economics shift towards these big tech companies. They are very well positioned for the future. And I believe it's the reason they're spending so much money on this future. We have the companies like Claude or Open AAI. And this doesn't mean that their models again are entirely useless. But even with Claude and Open AAI, I believe with these companies, the most important thing is their distribution layer. They have no infrastructure layer to speak of. So they can't count on that. All that Claude and OpenAI can do is try to get as many people using their app as possible before other models catch up. Eventually, other models will catch up, but they'll hopefully have enough distribution, enough people will just be familiar with uh Claude and Chat GBT. They'll have the apps downloaded that the other models won't be able to take as much market share because they're already there. So, in any case, even with these foundational AI companies, their distribution layer is by far the most important aspect. So you can see the long-term vision here. Over these upcoming quarters, including this week, we see that Microsoft, Meta, and Amazon all face essentially the same challenges. All of them are growing revenue quickly. Investors like that, but they don't like the mass amount that they're spending on capex. And investors are certainly not going to like it when they raise their capex guidance, which they almost certainly will. So the reports this week are likely to be highly conflicting. You'll have the good side where Microsoft will say all these KPIs, all these metrics are moving up similar to Google. You'll see the same thing from Amazon growing revenue like crazy. AWS is on fire, growing super fast. You'll see the same thing with Meta that they their core growth is just astronomical. Their advertising growth, all of it will look really good, but you'll still have investors concerned on all of them raising their guidance of capex and that should drag down these stocks even when they throw up good numbers. But looking to the long term, these are the companies that are best set up to capture the economic value going forward. So I am not only maintaining my positions, but I've been building bigger and bigger positions in these companies. I've been building up a holding in Meta. I I've been building up more into Amazon. Microsoft is a company that I haven't sold a share of. I'm still very bullish on it. But even as excited as I am longterm, I've tempered my expectations going into this week. Now, lastly, we have Apple, which sits outside of the group of Microsoft, Amazon, and Meta. And part of the reason why is because Microsoft, Amazon, and Meta are all building out the massive infrastructure. They're building out the capex that affects their financials, their margins, and the narrative. Apple has entirely avoided that. They've also avoided the layer of the model. They don't have a flagship or core model of their themselves. So, Apple only has the distribution layer. That's it. And Apple made the same bet. They said that not much value is going to acrue to the model layer. So why even bother building that out? They also said not much value is going to acrue to the infrastructure layer or at least not as much as the distribution layer. So Apple just stuck with the distribution layer and so far that strategy is being rewarded. Apple is one of the best performing stocks in the market this year up 24%. In the past year it's up 57%. The past 5 years it's up 132% not counting dividends. It's been a monster. When I look at Apple, as great as their strategy is to just solely focus on distribution, and I think the strategy will serve them well, the breakdown of the valuation right now is simply not as attractive. So even with Apple having a solid game plan, focusing on their distribution layer of which they do best, commoditizing AI and putting it into their applications, dispersing it to their billions of users, and then just making gains by higher priced products, this is probably going to work. Apple will likely do well yet again. But with a starting point of a 36PE, you're already working with a company that has a higher level of sentiment. There's already a lot priced into it. Now, moving on from this busy week, we also have some news today. ASML stock is down around 7% on the day because of news that China is making its homegrown DUV machines. So, China is now making a product that ASML made. This is according to the information. They say that production will be limited initially with about five DUV machines this year and roughly 20 for 2027. So right here we get into the biggest problem with this being a substantial bare case for ASML. DUV are the lower-end legacy machines. These are the ones that create the chips that go into like cars and refrigerators and microwaves. So they're important. It's a big market and it's profitable for ASML. So, it's it's an important business line, but this is not the bleeding edge. And you shouldn't confuse this with EUV machines, the extreme ultraviolet lithography machines. Those are the really big ones. Those are the flagship ones that ASML makes. And this isn't that. They're not making those machines, at least from what we see so far. The other thing that I'll note that I think should be reassuring to ASML investors is the amount of machines they're making. Five DUV machines this year. That's not much. And then even accelerating that to 20 in 2027 is not much. Just for context, this year ASML is going to deliver around 120 DUV machines. So they're making a factor of six times more. And then even when you look at these machines, another thing is how comparable are they really? A lot of the machines that China makes do not have the same yield or throughput that the ASML machines make. In fact, they're almost guaranteed not to. Meaning they can't make as many chips per hour. they have problems. Uh they have imperfections with the chips that they make. So even after buying the machine, you can't make as much with it. The yield is lower and it makes ASML machines worth more. Makes it so that even when companies are buying these ones, they'd rather have ASML machines. So the fact that they have a limited supply, the yield is likely much lower and they're even ramping up supply much lower than what ASML is already doing and these are the legacy machines, I believe should be reassuring to ASML investors. In fact, I don't believe that this really threatens the moat all that much. The next bit of news we have, big companies are starting to hire again, defying predictions of AI wipeout. Remember the big scare, Daario Amade, we have Sam Alman saying, "Oh, it's going to erase jobs. Uh, people won't be able to find jobs. AI is going to do everything. Our our product's so important. It's just going to wipe out everything that everyone does." Now, I've been on the side where I don't believe there would be mass unemployment this entire time. It's very unlikely for a product that enhances productivity to cause unemployment. Now, a shift is emerging across industries. Companies ranging from railroads, giant CSX to Google parent alphabet have told investors in recent days that they plan to hire and to meet growth goals or to seize on emerging technologies. And it's a reversal from the prevailing corporate messaging during much of the AI era. The big problem with these assumptions that AI was going to cause massive layoffs is that it was theoretically and practically wrong. It just on the surface didn't make any sense. For example, the entire assumption was based on the premise that efficiency causes job loss. Because if you make something more efficient, you don't need as many people to accomplish the same thing. And if you look at this this way, then all of efficiency gains throughout all of time should have caused job loss, which hasn't happened. We have record low unemployment with the most highly efficient economy we've ever had in the United States. Other countries that have less efficiency in their economy. They don't have the same productivity tools. They don't have the same distribution. They don't have cars that drive themselves. They don't have as much software. They have lower levels of efficiency and they have higher unemployment. So increasing efficiency does not increase unemployment like people would suspect. And when you even reverse this idea, it makes less sense. Imagine for the sake of growing jobs, we decided to make things intentionally inefficient. For example, instead of having a warehouse by Amazon be automated with a lot of robots, we can just fill it with humans. They can do everything. That would create jobs. Let's take it a step even further. Instead of having big semitrs transport things across the country, we could just have people carry it by hand. They could just grab a package and walk it a 100 miles to the other side of the continent. That would create more jobs. You'd certainly need a lot more people to do that. Well, of course, that would actually not create more jobs. It would create companies that don't have as much profits. The margins would go down. People would lose jobs because companies would have to do massive layoffs. When you have efficiency, you have higher profits. Profits are reinvested to create new opportunities, to create new business lines, to invest in other companies, and you have further growth. The entire assumption that efficiency creates job loss is incorrect, and many people still get this wrong today. Now, finally, we get to the fail of the week, which in this case is Paramount. I have to highlight Paramount because their simple and streamlined acquisition of Warner Brothers Discovery is not turning out to be so simple and not so streamlined. The two companies remain tethered to one another as a federal court considers claims that their $81 billion deal violates antitrust law. These could stretch well into next year. Last week, Paramount said it wouldn't proceed with the merger until June 1st, 2027. That's almost a year, like 11 months, or until legal challenges from 12 states led by California and from the Writers Guild of America are resolved, whichever comes first. So, this isn't for sure delayed until June of 2027, which would be disastrous for Paramount if it's delayed that long, but it could be unless they resolve all the concerns from these 12 states suing them, plus the Writers Guild. That's a tall ask. A lot of people are furious at the idea of these companies combining, these major studios combining each other. They're not going to let this go easily. They're going to have to make huge concessions to satisfy these different states and to make it so that the writers guild is satisfied. So, this could stretch on for months. And with Paramount's deal, the way that they structured it, time is money. While Paramount's trying to keep financing in order, they also have to deal with the potentially billions of dollars of ticking fee payments to Warner shareholders beginning in October. So, right around the corner, the time limit begins and they're paying every single day. Paramount agreed to pay $650 million per quarter if the deal is delayed. A gesture meant to convey its interest in closing the merger quickly and its confidence in a smoother path to approval than the rival bidder Netflix. And if this deal falls through, Warner would receive a $7 billion breakup fee. So, that would be the worst disastrous scenario. If Paramount doesn't eventually make this deal work, that means that they would have paid Netflix $2.8 billion and they would have paid Warner $7 billion plus all the fees along the way and all the legal fees of doing this as well. That would be an unmititigated disaster. Right now, this is turning out to be a giant mess. But I still believe the deal is going to go through. I think that Paramount will do anything, any amount of time. They will go to any cost to get this deal to go through because them it is about survival. Paramount will not survive as a business if the deal doesn't go through. So, they're going to force it through. But, as of right now, it doesn't look good. That's going to be it for this episode. But if you want to see more commentary on these company's earnings reports, just make sure you subscribe to the channel and I'll have follow-up