I'm Buying the Dip on a Stock Everyone Else Is Selling Today

Hey everyone and welcome back to another video for today. So in today's video we have a couple of things we need to discuss. Of course yesterday Amazon reported great report good call. We'll go over the most important points. Reddit reported good quarter stock is down between 15 and 17% or so at the time of recording. I am thinking about actually adding more shares but still being a bit more defensive. And I'll explain why. Because yes, this is a growing company, but there were things that were mentioned during the earnings call that maybe scared Wall Street a little bit. Valuation wise, still quite okay. As for the rest, we had now or we have two consecutive days where the market seems to be rebounding. As you can see right here, again, a solid day. Apple is down over 8%. Why is that? Apple was going into this earnings report trading at a trading PE of 40 times forward PE 36 times when you're not growing 20% plus or so despite them being very very profitable still a very good company very profitable company but I don't think you deserve such a premium so I'm not surprised seeing the stock pull back a little bit it it reached $5 trillion a couple of days ago so I'm not surprised there Google is up close to 3% Microsoft experiencing another small Green Day. Even Meta is catching a bit today and Amazon is up 13.3%. We even have here the semiconductor names here at the bottom. Even they are catching a little bit right now. Now, as for the rest here, if we look at the Neoclouds, well, the Neoclouds were actually up when the market opens when we had pre-market as well. Right now, most of them are pulling back a little bit flat. Let's call them flat. As for the big tech players, all the rest here you can see still an okay day. Now everybody's thinking about okay what what about the next step right because we've had a couple of rough days then we have an excellent day in the market which was Thursday most of it I mean you could say it's because of Microsoft comments maybe it's because of the whole Leopold situation I don't I think first of all the the huge crash that we've seen in a lot of these high-flying names were probably caused by South Korea's index right Cosby the index was down over 30% % in a month. Not a stock, an index. It's mindblowing stuff. Now, where do we go from here? Are we ready to rebound? Is this a dead cat bounce? What the heck is going on here? And by the way, on the Leopold side, apparently his portfolio fell by 67% in July alone, but was still up 80% year to date, which is of course excellent. So I believe they said year to date through May he was up 270% which probably means that in June he was up even more to over 400% because well if you're down in one month 67% but you're still up 80% year to date then I assume June was still a very good month for him. They said here these were very expensive scars but our fund must always be structured such that we can take a loss and fight another day. My core promise to you is that we will not waste the opportunity to learn from these events. He told LPS that his AI focused hedge fund will continue operating and investing in public equities but will stop using bank leverage to amplify his positions. I will not understand why you need to use bank leverage when you're already up so much and you're dealing with an insane amount of money. To me, this just signaled greed. But okay, best of luck to him and congrats on getting married. Now, moving back to the stock side of things, we had of course Amazon, we've had Microsoft, we've had Google, we've had Meta Report, of course, we've had a couple of other names as well, but these are huge players in this whole AI space. Next week, we will have AMD and then onwards we'll have Nebus, Core Weave, so other players. We'll have Oracle down the line and then towards the end we'll have Nvidia, Micron. We still have a long long way to go until we reach Micron's earnings report. But we already have four huge companies report that told us what we needed to hear right these companies core business is doing quite well right across the board and Amazon and Microsoft and Meti Google we covered all of them all of them are doing very well today guidance wise also positive capex wise positive but then on the other hand not that scary anymore all of them told us that capex is going to increase They even used the word significantly. Not all of them, but they said it's going to increase for 2027. Some said fiscal 27, some said calendar year 27. But the story here continues. They're all going to invest more and more because they're already seeing the results right now. And we've discussed this yesterday during the live stream with regards to Amazon specifically. They talked about the buildout, the data center buildout, uh the PowerShell buildout, right? Servers, the lifetime value of all of this, the return on investment. when do they expect to get some cash flow from this? All of this signals to me that we are very very close to see how profitable all of these businesses really are and I think that will start to happen in 2027 and the story will flip significantly. Now yesterday we also had Chad GPT OpenAI come out with of course cheaper prices cheaper prices for very very good models. Eventually, this this is what's going to happen, right? We've had, I think, two months, three months ago or something where, oh, token prices are increasing. Everybody's freaking out because things are becoming too expensive. But right now, what we're seeing is that, okay, we've had Kimmy 3 come out, we've had Entropic start to say, actually, your usage can go up. You can use Fable 5 more, you can use OP 5 more, etc., etc. Now, OpenAI coming out saying, look, token prices everything's coming down even for very, very big models. We have open- source models gaining traction and all of that will lead to more usage. More usage means very very positive for the hyperscalers, very positive for the neocloud players as well. And of course, most importantly for the ecosystem. You cannot have a healthy ecosystem, a growing ecosystem if everything costs way too much, right? We have to use the the ratio that doesn't exist, but the price to outcome. If the price to outcome is too high, then it doesn't make sense. then you're going to see way more headlines saying oh this company is cutting AI spending by X% because well tokens are just too expensive. But if now price to outcome does come down then I guess I guess all of this is going in the right direction. Plus moving forward I am expecting of course one we've talked about part one which is the buildout story. All of the costs right PowerShell cost these are one-time costs. You're not going to build the data center a second time. You've built the data center, then yes, every 3 5 years or so, you will have to upgrade some stuff, but 10% or so of that buildout is behind you. Then moving on, memory prices. I do think that memory prices are peing. I do think that the use of memory will become more efficient, which means the premium that they're paying today, they're not going to keep paying in the future, which means that the overall business is becoming more efficient and more profitable. All of that is going to be, in my opinion, seen in 2027 and onwards. And of course, you would like to be positioned before. That said, let's dive a little bit deeper into what Amazon showed us and then we'll talk about Reddit because I do plan on buying more Reddit shares. I'll explain why. Still a small position all in all, but they did report and it's it's quite interesting what's going on uh there. So, of course, if you enjoy this type of videos, you know what to do. Hit all the buttons. Would really appreciate that. If you want to support me even further, do check out the link down in the description and in the pin comment to the top 10 best stocks to buy now or go to full.com/cotchinvestor. Thank you very much. So, Amazon year to date is now up 16.1%. It's a $2.8 trillion company. Trading PE don't really focus on this because they have some one-time impacts from their investments. Forward PE 31.3 times. Of course, free cash flow here does not really exist as of right now. Now the most of course impressive number for the quarter is as always is AWS although I I will show you a couple of other things here. So first of all let's look at AWS and then we'll look at the comments that management told us. So AWS growth here accelerated yet again beating market expectations beating whisper numbers here. So we have 36.7% year-over-year growth for AWS generating over 42.2 $2 billion in just one quarter. That's not all because if you look at how profitable AWS is, if you look at margin, we can see that margin also increased 39.3%. That's better than 37.6% the quarter before and of course better than the 32.9% same quarter last year. So we have here again same story as with Google for example acceleration in growth and becoming more profitable. Now like I said that's not all because yeah when you look at Amazon you want to focus on on AWS that's fine but if you look at the boring business online stores online stores has been accelerating and this is a business generating over $70 billion a quarter. Of course lower margins but still it increased by 14.5%. That's faster than the 11.9% the quarter before and faster than the 9.8% the quarter before that and of course faster than the 11% a year ago. That's not all. We've had advertising revenue. If you look at advertising revenue, this is a very fast growing business. This is a business that also accelerated. It increased by 26.2% year-over-year, generating now just under $20 billion a quarter. And of course, all of that is great. What do we have here? We have 22 analysts. 17 out of the 22 analysts have raised their price target for the stock. The rest, the five others, didn't really do anything. Now, going back to the report, worldwide operating income reached 27.5 billion. That was up 43% yearover-year. Profit expansion was driven by disciplined operational cost control, fulfillment reorganization and high margin growth across AWS and advertising. We've been seeing this for a long long time. The fast growing segments for Amazon are also the most profitable ones and so this was bound to happen. AWS growth was also the fastest growth in 18 quarters. AWS added over $4.6 6 billion in incremental revenue quarter over quarter, about 80% larger than its largest previous quarterly increase. The annualized revenue run rate hit $169 billion with backlog surging to close to half a trillion and that's up 100% yearover-year. As for their own chip, soium and Graviton, Graviton is the CPU chip. Trinium is the AI chip. So top AI labs entropic and open AAI made multi-year multi- gigawatt commitments to tranium. As for Graviton, this is now utilized by 98% of AWS top 1,000 EC2 customers. Graviton 5, according to them, delivers 25% faster compute, offering 30% to 40% better price performance than competing CPU options, accelerating core EC2 consumption. They also told us that both AWS AI business and the custom silicon business independently crossed $25 billion annual revenue run rates. Both divisions continue to grow at tripledigit percentages year-over-year, which when you think about it is is just incredible. As for capex, so they're increasing capex spend for 2026 to around $220 billion driven by intense AI infrastructure demand and memory chip inflation. Capacity remains heavily constrained for 26 and 27 with striking long-term demand commitments extending into 2028. Now, as for the return on investment, so data centers, they see a over 30-year life. Startup capital spend is 2 years ahead supporting four to six year server cycles without repeating the shell spend. As for servers, they expect five to six year life. So 5-year customer contracts break even in less than 3 years, which means they're going to generate massive free cash flow in years 3 to six. And this of course means that pretty soon we are going to see the overall margin profile of these types of businesses change. Unless of course they've got it completely wrong, the man goes down the drain and this does not work out. Then with regards to some of the rest of the business, record Prime delivery speeds. They delivered over 40% more items same day or overnight in the first half. Amazon now 30 minute delivery expanded to over 250 cities uh globally. We've talked about the advertising growth. Amazon supply chain services which extended Amazon's endto-end logistics to third party enterprises. They signed Proctor and Gamble 3M and American Eagle. This in my opinion is also undervalued. As for Alexa for shopping, they had over 350 million active users and they said that shoppers who use Alexa for shopping spend 40% more per order in the United States. So again, when we think about monetizing AI, Amazon here has of course the whole ecosystem has the flywheel and this is one of the ways of them monetizing AI. If we look at the stock right now, it is trying to go back to all-time highs, which happened at the start of May, which is closer to $280 per share. Before the earnings, the stock was around the 200 day moving average. We of course now have a huge gap up. Amazon to me, and this doesn't even entail all of the operational efficiencies that physical AI, robotics, and everything will have on this uh business. It is and will always be one of the best businesses to own ever. Which is why Amazon, and this is a name I've been owning since 2018 in the retirement account, which as you can see is close to being the number two position. Amazon and Meta are battling it out. Number two, number three. Mele is by far the number one purely because well, I've been adding more Mele when it was much lower and the other names have taken, especially Meta has taken a hit. Mele sits close to 30% of that account. But like I keep saying time and time again, this is an account where I rarely touch. The money just sits there. It is a bit smaller, but it just sits there and does its thing, which is why there are only four positions there. Now, as for Amazon, as you can see right here, $267 per share right now. I do put 50% chance on a base case, which then would represent around 4.3% upside. The bullcase 35% which represent 67.4% upside. And then if nothing goes right, you have here 42.7% downside. And so if you look at the probability weighted price, that's 19.3% upside from the price we're at right now to reach $318 per share, which I think is definitely possible for the base case. I'm putting here a couple of years of still growing just above 10% and then in fiscal 20 it is coming down slightly every single year. But by then I am expecting this business to be way more profitable than what it is today. Moving on to Reddit. And Reddit as you can see is down around 18% in one day. Year to date it's now down close to 40%. It's valued at around 28 billion. Trading PE 33.8 times. Forward PE 24 times. PEG ratio under one. Margin wise very good business. Growth is there as well. It is an undervalued business. I'll show you the DCF in a bit. Now, what was the issue here with Reddit? Well, the issue was not per se about this quarter or what has happened over the past 3 months, but it has more to do with what's going to happen in the future. And so, what we had for this quarter was revenue of 61% growth year-over-year. So, that's eight quarter of over 60% growth. Operating cash flow doubled to $262 million, crossing $1 billion on the last 12-month basis. and they crossed $1 million in revenue per employee on a last 12-month basis as well, which again is very good. What did not work out well was this. US logged in daily active users only grew 1% year-over-year. So basically close to being flat. The Google AI drag. Choppier search referrals as Google AI overviews cannibalize direct linked clicks. Which of course is why the licensing deal is so important because if now because of Google overview they are getting way less traffic than at least get paid through a licensing deal. They are also going to discontinue logged in versus logged out daily active users breakdown reporting starting Q3. And of course, as you know, every time a company removes a metric that they've shown us for a while, the market is not happy with that decision. Two quotes here from the CEO. As the internet becomes flooded with synthetic content, people are craving real human perspective. We are the antidote to an automated web. Yeah. Okay. AI compresses the internet into summaries. Reddit delivers the opposite. deep discussions and lived experiences which again if the data there is so valuable I don't think they should be having any issues revising the data licensing deals and getting way more money from a Google and open a tropic etc. He also said we are not building for drive by search traffic. We are building a daily destination. Now this is very important because you want users to come on your platform daily which means you can serve more ads to these daily users. Of course the company itself as you know is growing fast and it's doing this in a very very profitable way. Now overall as you can see the numbers for the quarter were very good right gross margin up 50 basis points year-over-year 91.3% gross margin gap net income is up 183% year-over-year and adjusted deba is up 106% so you cannot tell me that this was not a good quarter this is a fast growing company but this is part of the issue you can see here that 62% of the global active user is a logged out daily active user. 38% is a loggedin daily active user. Now, weekly crossed half a billion. But again, if they're logged out, you would have to convert them into logged in. And if those are weekly users, of course, if they are monthly and you convert them to weekly, that's already good. But then you have to convert them from weekly to daily active users. And as you can see from the results, the weekly actually grew faster than the daily. you would like to see the exact opposite. Now again talking about what went wrong or what the market didn't like which is again the US logged in daily active users only increased 1%. Now US Arpoo jumped 51% to $11.85 85 cents showing growth came from monetization efficiency rather than user acquisition which again is fine but since Arpoo for US users is so high can be much much higher then you have to make sure that you can grow that user base otherwise yes we will have the same Dolingo scenario here where the user base does not grow that much but you're focused more on growing that user base which okay if it works out great but I rather see the user base grow and then you start monetizing them more and more because well the platform is sticky and you can convert monthly to weeklies and weeklies to uh daily. As for the app retention focus, the relative oneweek new app retention rose 50% year-over-year as Reddit prioritized converting web guests into logged in app users. Again, that's the right direction. As for the advertising side, advertisers using Reddit Max grew over 60% quarter over quarter with revenue expanding over 150%. Lenovo achieved 40% higher purchase value via automated creative variants. Conversion volume surged over 100% year-over-year. Dynamic product ads and app install revenue both doubled. Expanding performance marketing capabilities. And then with regards to SMB and the Shopify uh partnership, the scale channel SMB and midmarket doubled year-over-year. over 500 merchants integrated via the Shopify app with automated catalog syncing ramping up in the second half of this year. Going back to the negative side of things which is again Google Google traffic search referral experienced volatility late in Q2 particularly across machine translated international pages. According to the CEO, he highlighted that while traditional 10 blue links historically built web traffic, Google AI overviews have yet to deliver a positive net traffic impact for publishers. Management did emphasize they are building for direct daily app traffic rather than relying on driveby web visitors. Of course, if you can solve for this, that's very very good for the whole thesis. Regarding the AI licensing stuff, the co said, "Reddit data is valuable beyond just raw training data. These deals aren't binary. They have to make sense for Reddit. And our goal is to maximize the value returned to Reddit." Okay, I guess we'll have to wait and see. On the advertising side, in the age of AI, authentic human conversations have become more distinctly helpful, desired, and valuable to advertisers. Reddit's content combines search-like intent with social debt, which means again I do expect ARPO to continue to grow if they can of course show the return on ad spend. Moving forward for this year, for the second half of 2026, they're expected to rebuild their own feed. Well, sort of because the recommendation systems there are not as good, especially not as good as a meta. As for 2027, they're targeting a 100 million US daily active users and a billion global daily active users through enhanced direct app destination experiences. Of course, if that happens, great. As for a guidance for Q3, they're expecting to grow 48% year-over-year, which of course is a deceleration from the quarter we just had and of course Q1 as well. Looking at the analyst expectations here, we have 12 analysts covering this company. Only one of the analysts raised their price target. Seven of them did lower, but the average analyst price target still sits at $219, which of course represents a nice upside on the name. And as you can see right now, Reddit is trading at its lowest level since I would say around May of 2026 or you have to go all the way back to midappril of this year. On the daily, RSI is very close to being oversold. Now if we look at the DCF which again is available to all of you of course for free. There is a Google Drive link below. You can have access to all of the DCFs. I have here a base case of $24 per share. Bull case $331 and a bare case of $82. The probability weighted price sits at $212 which represents around 41% upside from the price we're at right now. Of course, you can see that these are my assumptions right now with regards to revenue growth, with regards to EBIT margin for the base case. You can make of course your own changes. This is I think realistic, right? Cuz even even the base case, the growth is there, but it's slowing down quite quickly. Even for the bull case, yes, it goes on for a bit longer, which I think is possible because revenue-wise, the base is not that big in order for them not to grow over 20% for the foreseeable future. So it is realistic right now. I do think there is a margin of safety here. 41% upside. I I mean I don't think this is so so crazy to think that they could be trading at above $200 per share today. Of course, again, you can play around with those numbers yourself. If you want to be more bearish, more bullish, you just decide, right? Because a DCF at the end of the day is you trying to tell a story through numbers, through your own assumptions. Now, I'll be lying if I said that Meta isn't a no-brainer right now, cuz I do feel that Meta, what is it? $550 right now. It is an $800 plus stock trading at $550. If my assumptions are correct and 2027 is really the year where all of these players, you can see how efficient they are going to be, how profitable they really are across the board, then the stock will move quite quickly. And we've seen it happen. Couple of weeks ago, Meta was closer to $700 per share. We're now back under $600. Of course, it sucks because we know it's undervalued and it's been undervalued for quite a while. Yet, the stock doesn't move. It actually only goes uh down or goes back to where it was uh 2 months ago. But if you have an investment thesis, if you are a long-term investor, then yes, picking up these names when everybody's laughing at you, it's like, oh, who who cares? Then I do think you'll be quite well in the future. And yes, maybe it is the last time you can buy meta under $600. Maybe it is the last time you can buy SoFi under $17. I think a year from now, 2 years from now, 5 years, 10 years from now, we won't even remember what has happened during this period in 2026. So, all in all, that's about it for me in today's video. Let me know what you think down in the comment section below, and we shall see each other in the next one. Bye-bye.