AVOID the TRAP in these AI Stocks: The Earnings Divide.

software or hardware. Buy now or wait, that is the question, especially after today's earnings because we just had earnings from Snowflake and Broadcom. And we're going to compare some of these numbers to different plays in hardware and different plays in software. And when I look at these numbers, I just can't help but think to myself, oh my gosh, there's so many opportunities in the stock market. Like, these companies are printing freaking money. Now, there are existential threats. It's kind of like when you walk across the street, you could get struck by lightning or bus. Uh, and so those threats do exist, but when we actually look at the numbers, some of these companies are just crushing it. And it makes me want to increase the good old bear bull scale, which is currently sitting at 71. Cautious dip buying. I still find that to be relatively reasonable. Uh, and and there are dips to buy. Let's go through a quick overview of what happened though with Broadcom earnings because Broadcom is down 3%. Missed its revenue forecast again for the next quarter. That happened last time on custom chip deliveries and they tanked 20%. Down 3% again right now after hours. Not great. What's going on? Was Credo Technologies a little bit of a heads up for this coming? A little bit of that compressing pricing power maybe? I don't know. We'll go look at it and we'll see. Then of course you had this crazy explosion on Snowflake. Snowflake shoots up 20% within like 10 seconds was what it felt like of earnings. It's like wait a second. This this can't be fundamental. This feels like a short squeeze, baby. Let's go through both of these and try to understand what's going on right here. In fairness, as a sideeshow, Hulip Packard Enterprise also reported uh we had a little bit of color on HPE. I'll get that one out of the way really quickly. Uh they did have an expanded partnership with Oracle and they issued them some warrants, but uh they basically beat on their Q3 EPS estimates by 19.3% which is great. Q4 forecast also beat by 16.8%. They're just not getting a lot of love in the after hours. But for now, we're going to focus on snow and then we're going to focus on Broadcom. Okay. So, on screen are some of the actual numbers that just came out. The basic earning stuff. That's fine. Okay. So, we get basics like, hey, product revenue at Snowflake up 3.76%. It's not actually that much, but their adjusted earnings per share beat by 37% for the second quarter. That's a big deal. We'll be addressing that in just a second. Uh, and it's on the pricier side. It's trading like a rich annual recurring revenue cyber kind of stock. Broadcom on the other hand missed that Q4 forecast only a 7% miss. Let's go look at the actual fundamentals and see if we can pull some conclusions from this. So uh Snowflake is right here. Snowflake's interesting. Snowflake has a stable pricing power on the top line, but they're actually increasing their pricing power on their operating expenses. So, while revenues and and gross expenses are rising about 35ish%, their GNA costs, their operating expenses are only going up 16%. So, in other words, for every dollar of extra uh uh uh money growth, they're only seeing a spending growth of 50 cents. And that spread is juicy. It's sort of widening on on just the growth side. So, that's fantastic. That's increasing pricing power. Uh but if we look at the rest of the company in terms of like a cash flow yield, this company has less than a 1% cash flow yield. We're talking maybe.9% compared to this $120 billion company or $130 billion company after the runup that we've seen. So their cash flow is a little nominal. It's not like they're borrowing. They did repurchase stocks in the last 6 months. So it's going to be in the last quarter. They did not reby any stock in the last quarter here. And uh as far as their balance sheet, let's go pull that. That is going to be coming right up. I've got $2.3 billion in cash plus another 718 in accounts receivable. I've got lots of money to pay the 1.1 billion in bills. I've got I got like $3 billion here. You pretty much pay off all of your long-term. It's not like the most glorious. They don't have infinite money to go buy other companies or buy other deals. It's not like they're sitting on this fortress of cash, but it's fine. you know, they don't really have a debt problem. What they have is a company that's scaling from an operating loss to profitability. And I think what's happening here is I think they are going through a short squeeze because I think people look and go, you know, I I think it's almost too simplistic. Hey, I'm bearish software companies. Uh, who am I going to short? Let me find some software companies that are trading with infinite PE ratios. Oh, okay. I'll just use a trailing PE. Uh, and oh, wow. I'll just find all the money losing companies and I'll short those. This company went into earnings with an elevated short interest. Takes like 4 days to cover the short interest that's outstanding on this. Almost 4 days. 3.89 days. That's a lot. And the company's actually forecast to go profitable. So, if we do a little bit of math on this guy, where did I write it down? Uh, if we do some math on this one, we've got, let's see, where did I put it? Um, okay. Well, we'll go do the valuation ourselves. Oh, I think we put it on the uh on the web page. That's fine. That's going to end up showing up in the uh stock tab of the uh meet Kevin membership. So, if you're not part of that yet, join us that we did extend that coupon code one week, but it's only because we got screwed in the payment portal went down on the coupon expiration day on Friday. So, join us over at me.com. It's up again. Everything's good. Teachable's happy. Everyone's happy. It all worked out. They apologized. and uh and we'd love to have you join us at meet me.com to get that lifetime access. But let's do a valuation here on Snowflake. So, if I do the valuation on Snowflake, I get in here with a forecast of $1.96 of forecast earnings. It's trading for what? Somewhere around 365 divided by 1.96. This thing's trading for like 186 times on a PE ratio. Even forecasting into earnings, like into positive earnings with 41% expected growth over the next four years on average per year, that works out to about a 4.5 peg. This is expensive. Like I said, it's trading like cyber. cyber you know like it is the problem with cyber is cyber doesn't have and this is I think why the valuations are higher on cyber uh cyber doesn't have the existential risks in my opinion that a lot of the regular sort of software companies have if you're a salesforce and you're like hey we're going to headlessly allow you to take our data and ingest it in a claw so people don't have to leave the same sl you know either the slackbot which I guess that's CRM in fairness Uh or you could just do it all through claude and you don't have to leave your claude chat and you could do all you know that that could essentially read all your data. Then are you kind of like selling away your moat and over time does that potentially create a risk of you not being able to convert as many customers which wow that's exactly what Salesforce said in their earnings report last quarter. Just a few days ago, Salesforce is like, "Yeah, you know, we were able to make some more money from our existing customers, but we converted fewer new customers." Now, I own Salesforce, so it's kind of like something to pay attention to. See, I'm not afraid to tell you something bad about a stock I own, cuz I honestly don't really care if all the stocks go to zero. We own so much freaking real estate that that's where it really matters. So, I'm I feel liberated to just tell you the blunt truth every single day about these stocks whether I own them or not. But I am going to tell you when I when I've got exposure or not. I don't own anything on Snowflake and it's up a lot. But I also didn't want to buy Snowflake because to me it's so pricey and it doesn't have that cyber security like endpoint management mode that the cyber companies have. So it's like I don't know if you could justify this valuation for this company. Great. It's squeezing fantastic, but that was a little pricey for me. And I do have questions about those moes going away. Anyway, speaking of moes, I actually really think there's nobody that's doing what we're doing with real estate AI. So, what a lot of people are doing is they're emailing us for the bundle code. They're going, "Hey, I'm already a course member at meetke.com or I just joined to be a course member at meetke.com. Can I also lock in lifetime access to meet reinvest?" And so, email us at staffme.com. We'll give you a special coupon code. this. We're going to get rid of the lifetime access for this homes AI uh which is really exciting. We got a lot more updates coming in the pike for this so it gets better every single day. And what's really remarkable is I mean you could review what it is over here. It's my startup's uh AI here. You could even watch the little video demo on it. But it's really incredible. And so we're going to get rid of the lifetime access so we can start selling it on a monthly and annual recurring basis. Right? Very excited about that. Anyway, so let's now think about Broadcom. So that's the software side booming on a short squeeze but you know questionable valuation right then you have literally like the opposite story and it's like a tale of two cities almost. Here's a company that is a $1.75 trillion company. It has projected cash flow for 2026 of $ 52 billion. 13.6 six of it in this freaking quarter right here. 13 uh uh billion in a quarter. 50 51 forecast free cash flow is a 3% cash flow yield. It's pretty good for a 1.75 bill trillion dollar company, excuse me. 3% free cash flow yield. That's incredible. They've uh stopped borrowing. So, they've been paying off debt uh the last two quarters and then the quarter before that they did do a little refinancing. That's like the one thing I don't love about Broadcom. It's the one thing that stops me from like wanting to buy this company. Although I've wanted to I've been salivating over this company. I have a thesis for this at the end. But I've got $48 billion in short-term cash. Plenty to pay my bills. I've got 20.5 in bills. Fine. So I've got 28 billion in free cash basically. I got 57 long. So call it 30 billion long after I spend my cash if I want to spend my cash on it. You know, 30 billion long debt for a $ 1.75 billion company. Maybe it's not that big of a deal. Maybe I'm just like, "Oh man, 30 billion sounds like a lot." But then again, the company literally has net margins of 55%. It's totally insane how much money they make. Uh the bot let's see what the bottom line was in this quarter. Uh bottom line was a little weaker actually in this quarter. So the annual forecast bring them down to bring them to about 55%. You'd see the net income. So after income taxes, after all the BS compared to their net revenue 29591 44%. Still, dude, that blows Apple out of the water. That's like a Microsoft level net. Their forecast net is to be over 54%, closer to 55%, especially over the next few years. They bring a lot of money to their bottom line. Now, in fairness, could some of the negativity on Broadcom just be because of the threat of maybe Frontier AI becoming less desirable? Basically, the same thing that we saw happen with uh what's it called? Um C uh uh Credo, right? So, we covered Credo earlier. If we look at Credo's quarterly report, both of these companies, Broadcom's like the leader in the CPO, uh less so in CPOs. They care more about copper. So copper inside of data centers, they do a little bit of photonix. Marll is trying to really double down on photonix. Credo apparently does. I don't know that much about Credo relative to Marll or Broadcom, but you know, you look at Credo, they were down 20% today and their cost of revenue was up 22% when their revenue was only up 9%. So you actually had a pricing power squeeze at Credo, which isn't good. Did you have that at Broadcom? Well, let's go see. So, we go to Broadcom. What did we see at Broadcom? We saw revenue accelerate 85% year-over-year. Sequential growth of 33%. Insane growth numbers. But the answer, yes. Also, weaker pricing power on cost of revenue. So, just like Credo, their costs grew faster than uh their revenue, at least in this quarter and year-over-year. So, those were the two comparisons we did. In both cases, you had a faster growth of uh costs. However, in the case of Broadcom, their research and development was actually negative. Their SGNA was negative. So, they offset higher costs of goods sold by basically being a more efficient business. That's impressive. You know, if I go over here, Credo had to increase selling by 43%. Broadcom smoked them. In other words, Broadcom was way more efficient. Credo was actually less efficient, unfortunately, in the quarter and had weaker pricing power. Broadcom was more efficient, but did have a little bit of that squeeze up there on margin. So, now you look at the valuation. This was juicy. So, I look at the valuation for Broadcom, and Broadcom comes in with a nine peg, which is wild because there's a 4-year expected growth of 34% and it's trading for 30 times. whereas sales for or sorry snowflake is trading for like you know 4.5 times or whatever it was which is insane. So, how do we put all of this together? Right? All right. So, this is my opinion on this, the bottom line, how to reconcile what's happening right now. Okay. My clear opinion, bear bull scale style opinion. Okay. So, I look at it like this. I think everybody hates stupid dumb highinterest rate lameo real estate. Fine, their loss. So I'm like a you know our company's like 85% real estate and like whatever 12% cash or 13% cash, whatever it is. Okay, I I don't know right now what it is. It's somewhere around there. It's it's a lot of cash. Uh then like fractional exposure to stocks. Okay, fine. So, let's just put fraction stock. Okay, stocks. All right. So, now you have two things going on in stocks. You have hardware that has two directions that's going in and then you have software. Okay, this is all relative to AI. Hardware is going through a little bit of a split right now. Hardware inference is where it's at. Hardware inference is going frontier inference. Okay. And then it's going enterprise inference. Enterprise inference is going to be like your Dell. Okay. They'll set up the server rack for you. Great. Frontier inference is really going to be a little bit uh you know uh Nvidia will be a little bit on both of these sides, but Nvidia is going to make much more money on the Frontier side. Frontier side unfortunately also is going to be Marll um Credo that's more data center frontier tech hyperscalers. So some of these guys that are suffering a little bit they're kind of over here on that frontier side. Then you got software which there's still this long-term displacement fear. And so my take is, you know, if the whole thing is a bubble, right? If this whole cap stack is a bubble and it all comes collapsing down, fine. AI is going to be the bubble. It ain't real estate this cycle. And I'm positioned like this because I think it's not going to be real estate. I don't think it's not going to be real estate because I'm positioned like that. Does that make sense? It's like what came first, the chicken or the egg? Okay. The thesis came first, then the positioning came. I think that's important to say. But anyway, uh so so when you break this down, these frontier guys, the hyperscalers and that, you know, they they've had their play. Uh now it's sort of like who can monetize it amongst the hyperscalers. I think who can monetize this amongst the hyperscalers is meta. So this is meta in my opinion right here. So let's uh let's jot down the the W's here. Okay. So, you've got Meta right here on on sort of the frontier W side on enterprise. You have Dell. It's already run a lot. You know, maybe you've got something like a Corsair, but that's going to be more consumer grade computer stuff rather than enterprise racks. So, it's sort of like eh asterisk like do I really want that exposure? Like PC sales are in the toilet, right? So, uh, you'd really have to believe that people are buying these components for workstations and then the margins still suck. But then again, even with bad margins, Dell's doing well. Fine. Software over here, you still have the displacement warning that I talked about regarding CRM. But then you also have such horrible expectations that companies that are either getting shorts squeezed or or are booming, I think, have a lot of potential upside. One of them, for example, is UiPath. We had the press release here somewhere. Oh, yeah. Here it is. Here's the press release on UiPath, for example. UPath announces partnership with Snowflake, uh, you know, as part of their, uh, agentic automation process for robotic path optimization, whatever. Okay, so you've got UiPath. How does that compare valuationwise to some of these other companies? Well, I actually wrote that right here under Snowflake just to compare. UPath has margins of 24 to 25%. So still like half of what broadcoms are, but it's trading at a one peg based on only 22% forecast growth. It could actually way exceed some of those growth levels. So my take is software went through its oversold period and I still think it's relatively oversold. Path Salesforce service now for the people who are into service now. I'm not jumping up and down ser about service now. Here I'll explain that really quick. So you because everybody always ask like why don't you like Service Now like oh man I don't know why everybody always asks me about Service Now but apparently a lot of people like Service Now. Uh the reason I didn't like Service Now and I wrote this down for course members. So I'm just going to go to the stock tab. I will type in Salesforce. See this is for course members uh service. Now if I go down where is it? Where is it? Where is it? Where is it? Here it is. one of these notes here. So, the problem with Salesforce, these are all the sort of notes you get when you're a course member. Here we go. Margins are compressing. 18% increase on cost, some PP shrinkage. Uh gross margin did compress a bit. We've got uh operating expenses do match the topline growth. So there's still like there is optimism to be had, but they hope that token costs come down more and that's really what they're betting on rather than pricing power. So it just made me a little more interested in Salesforce. That's it. Uh so you know they're both they're all it's like rising tide thing, you know, they're all they're all in the same boat. Uh but so that's that's kind of software that's uh Service Now UiPath. Honestly, our our software says 32 right now. I think it's probably more like a 40 to 50. So, I think it's still got a double to 2 and a half uh in it. If I go to CRM, CRM, I've got a 458. Yeah, probably. I think that's a I think that's a fair forecast. If I go look at AVGO, okay, ready for this? This is I just want you to see how cheap these have gotten. I've got this at almost $1,000 because of the margins they have. They have Nvidia like freaking margins. So, Frontier AI keeps going. These data centers keep going, man. Broadcom's in a great spot. Really like it. Look at a company like uh you know, Marll 420 buck uh forecast. Remember, you could get this just at meet.com. Join once, join before J-hole expires. We just expend extended that. Um as far as let me go back to the sheet here. Going back to the sheet. Hardware seems to be going through its oversold period right now. You know, Snowflake had a little short squeeze. I don't really like that one. But hardware seems to be going through an oversold period. Now you've got Nvidia at just 75 75 on a peg. AVgo.9 Credo one, Marll one, AMD 1.58 peg. These guys are cheap. So the market seems to be sussing out the risks that software is going to get fundamentally disrupted. Uh at the same time that Frontier Compute is going to get disrupted. Those are a lot of terminal risks. I think all of those risks are part of sort of like the AI bubble narrative. If you have the Titan balls to get beyond the bubble narrative, it could happen. Who cares? Whatever. Just don't be so exposed that it takes you out, right? As long as you get past the bubble narrative, there are good deals to be had there. There are companies that are making great cash flow. Uh, and there are companies that that have gotten really cheap relative to their earnings. So, either something breaks or these things are all going way higher and we're going to alltime highs, baby. And you know what that means, right? >> Oh, man. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.