Is Wall Street Turning on AI?

[music] Is the market turning on AI? Molly Hidden Gems Investing starts now. [music] Welcome to Molly Hidden Gems Investing. I'm Travis Hoy joined today by Jason Hall and [music] Asset Chararma. Guys, we got to start with what is going on in the world of AI and investing. We're recording this a little bit early on Thursday, but we do have earnings from Alphabet to talk about. Microsoft reported a little bit of a less less of a negative reaction from Microsoft but asset the reaction to Alphabet's report is kind of crazy down stocks down 13%. They reported 100% growth in their cloud business. Nobody seems to be talking about that because search seems to be on everybody's mind. But I wanted to start kind of big picture because you follow this AI trade very closely. What are we learning about what the market is looking for right now? Because it seems very different from where we were just 6 or 12 months ago. >> I think the market is looking for some reassurance, Travis. And we have a situation where a year ago, most investors when they thought about this capex buildout were concerned with how depreciation expense might show up on income statements. Meaning thereby you're building all these big data centers, you're putting in GPUs, those have an economic cost associated with them. What's going to happen in the future? Will you be as profitable? Fast forward today and there's a lens that everyone is filtering this trade through, which is, hey, this stuff costs money. It was coming out of your your cash flow and some equity raises. Now, increasingly, you big players are turning to the debt markets. And there's such a lag between the time you first sign your promisary notes and the time that a data center is ready to go into full production mode that creditors, the lenders are are really thinking through, okay, who can pay for this the whole way through if things get delayed? Who can bridge? We we want to lend money not just so these guys can build, but they also will be capable of bridging until they can pay us back. And that increasingly is a narrower set of businesses. So looking at this, the market wants to be reassured by Alphabet that hey, your earnings, they look fine. We get that cloud growth is great, but overall, you know, the earnings could have been better. In fact, they they disappointed us a bit. What does that mean about your capacity to repay later on? And you would think, I mean, that's crazy, right? It's alphabet. Why do you even worry about this company's ability to repay anything? I think Jason has some thoughts on that. But then look at Microsoft. The the market wants some reassurance from Microsoft. Their cloud growth rate is a stunning 48%. Now that is half the growth rate of Google Cloud's business. But the market's happy because Microsoft isn't getting overextended. They're paying with stuff mostly out of free cash flow. Oracle, you know, this week on their investor day said, "Look guys, we're going to actually put a little bit of stop to all this crazy borrowing and we're going to turn free cash flow positive in a big way, sooner than y'all expect. We promise." Investors were very happy with that. They felt reassured. Jason, it wasn't all that long ago that Microsoft was the company that wasn't spending fast enough. I think they they kind of paused their capex spending for what seemed like two weeks and the market was really unpleased with the fact that they weren't spending as much as they possibly could on this AI buildout. And now it does seem like we've gotten to a point where not only do investors with in the the debt markets I also brought that up debt markets have gone kind of crazy with the yields that are now on you know core's debt and some of these nail clouds companies like that >> but also the big players even Alphabet has $265 billion worth of cash on the balance sheet as of the last quarter they don't need to raise cash their debt is not really a problem but the market is saying hey wait a second you're now negative free cash flow we don't really like that. Whereas M Microsoft is positive free cash flow. It reminds me a little bit of Apple the last couple years. They kind of get a pass because it's like, you know what, we're just going to sit out this this crazy investment cycle. We'll just keep collecting money from people buying iPhones every year. We're going to have a great business. And that stability was the selling point that investors were buying. And now investors seem to be going, "Hey, forget about that growth. Where's the stability?" >> Well, look, Apple's never been the first mover. uh as much as it might seem like they are, they let others prove out the market and spend the risky money and then they perfect it. They've done that with products, right? We've seen that. So, their business model is a little bit different. And the thing with with Microsoft, what they've done is they've kind of like refined their approach. Free cash flow was roughly double analyst estimates for for Microsoft this quarter. And that was a big positive. Hey, we're still spending money, but we're generating it, right? We're starting to see cash flows like Asa was talking about kind of ramp up um as as we're bringing assets online. At the same time, you look over at Alphabet, I think there's a couple of things that are happening at the same time. There's a ton of focus on the the ad business, right? Uh the the estimates are that operating income from the ad business like the part of the they don't disclose like pure ad but analysts can kind of figure it out and and they estimate that it was about a billion dollars short of what the consensus e expectation was. The flip side though is that Google cloud and that part of the business like you said where revenues doubled it's much smaller than Azure which partially explains the growth rate. Operating income there grew by about a billion dollars. To me, there's there's a little bit of reassurance because of the big players in advertising, this is the one, Google is the one that's most exposed, the most at risk to disruption. And it's clear that uh Alphabets management is not afraid to disrupt that ad business. >> The market doesn't love that it seems to be happening at a faster rate. A couple things are happening I think they're the market's ignoring. Last I checked, YouTube's a pretty awesome business and relatively AI resistant in terms of the ad business being disrupted in the same way that Google search is. But it's coming at a big cost. Just this last quarter, even with all that cash, took on another 20 billion, $29 billion in debt, issued about 12 billion in new stock. They've got another 28 billion the board's already approved that they can issue. They probably will. Both of those numbers are probably going to continue to grow. But I think the market was just surprised that the ad revenue part of the business is getting hit this. It's still growing like that's still growing. It's just not delivering in the way that estimates were um that analysts were expecting and and that's created some worry that I think is probably unfounded. >> A when you look at a company like Alphabet, we have been getting this disruption story. I remember the interview with Sam Alman a couple of years ago when uh you know he was talking about disrupting search. I think Sati Nadella talked about making Google dance. They're dancing and and they're kind of disrupting themselves as an investor and as a long-term investor. I I think that's kind of what we want, right? What is it's not going to be 10 blue links forever. What is it going to be? AI mode, AI, you know, whatever these things are called. Seems like people are using that more and more. uh you know the numbers are a little bit mushy because they pull a lot of different things together but people are using Google's products more and more but they're not monetizing quite as well but we've seen this before we saw this with you know Instagram and reels right we're going to video we got to get to video and move from pictures towards video guess what that hurts your bottom line short term but long term the pie is bigger is it possible that the the market is just looking at this as a shortterm problem that is it actually a long-term problem or is this actually a long-term problem? And this is the canary in the coal mine. >> It's not a long-term problem. The market looks at Alphabet like it's a toy boat in a bathtub. But really, what this business is is a battleship out in the ocean. And you cannot turn a battleship in 3 minutes. >> So, you have to be able to look far ahead and interpret various signals from land and shore from space these days. They're really good at that. I think Alphabet understands that the way their business is set up, they can't just be this total stack provider the way that Microsoft is. Microsoft has a bunch of servers that are CPU based. They're going to play very well in this agentic space. It turns out agents and as Jason uh and I were chatting about a few weeks ago, they take up a lot of CPU usage. So that's great. Plays into Microsoft's hands. But the way Alphabet is structured, they almost have to innovate at that frontier model level. and that served them really well. They've grown the ad business. I mean, the ad business is still healthy. The metrics are fine. It's just that monetization has trailed off just a bit. But if you're steering that battleship, you like that trade-off. You know that search isn't going to last forever. You see where the winds are blowing. So, what do you do? You invest in the technology that's going to be next generation. And I think Alphabet's done an absolute bangup job of putting out models that are competitive with anything that Anthropic and OpenAI and Meta can produce. Jason, when you look at a drop in 13 of 13% of Google stock, Alphabet stock, you look at this as a potential buying opportunity or is this more of a sign that maybe maybe the market is pulling back on on this battleship turning around? Yeah, I I tend to be I take a little bit of the David Gardner uh train of school of thought when it comes to the market. The market's usually kind of right uh when it when it does things like this. And I I I think it's revaluing the company for reasons that we should consider and also we have to like take a more holistic view about what does you know outside of the myopic you know double digit nearly low teens percentage drop today. What does it represent in terms of valuation for the business? And when I step back from that, think about the trajectory, all of the things was talking about turning the battleship, being willing to disrupt yourself, the strength of the things that are going to be more important 10 years from now, like all of that kind of thing. I do think that this is a a probably a really really good time to be buying within the caveat that this is still a gigantic company and investors that have a lot of index funds do need to be mindful of not creating too much exposure by buying shares if you already are heavily exposed to index funds. When we come back, we're going to get to what's going on with Anthropic and their latest filing. You're listening to Mly Fool Hidden Gems Investing. Welcome back to Mly Fool Hidden Gems Investing. Anthropic dropped their S1. This is the filing that you have to put out to investors before you actually go public. It's kind of the information that you need to know about a business. Describes everything about a business. What are your financials? As said, I'm sure you read the entire several hundred pages. Uh, but when you looked at that filing, what was there and also what wasn't there? What stuck out to you, especially in relation to how it how it's going to impact some of the public companies that are that are out there today? I'm going to guess that Aset probably used Claude to read it for him. Well, was it Claude or was it was it Chat GPT? Was it Gemini? Right. To get to get an objective opinion, right? Don't feed it into Claude. No, I I'll say really quickly, I I used to pride myself on reading S1's cover to cover. And I still read certain portions of them all by myself and form my own opinions. But look, this thing was 400 pages. And it was so great to be able to use large language models to parse some of this stuff. So, you know, Jason and I had a show. We hopped on. I was able to sound reasonably sort of informed. I'm more informed now. I've had some more time. So, let me jump right in. I mean, one of the things that's very important to so many of these model makers and other companies relying on AI inference for their bread and butter is like, will you guys be able to turn a profit over the long term? >> Mhm. >> And turns out one of the biggest costs that Anthropic is going to have going on are training cost. Travis, you pointed this out before the show. about twothirds of compute spending for anthropic goes to training. So is this like a good payoff or not? And I think it is. I think in the um former period before we got to today where there are several frontier model builders, there was so much money that was spent on pre-training getting the model ready to go prime time and then we used it. Now Anthropic has shifted a lot of its resources in training to post-training. So once that model is solidified, they specify use cases like coding is a great example and anthropic in particular hit the enterprise market very early with all these specialized use cases. I think that's a great place for them to play and in their S1 they talk about how much of post training now is agentic because that's honestly where the world is going. That's where the money will be in the future. So I think it's a fruitful spend to them. your question. Uh, when we were chatting before the show, Travis was, is this like a treadmill for them? Will they always be on it? And I think >> I think they sort of will. Let me say that Dario Amade, the CEO of Anthropic, probably sees this more as a closed loop type of virtuous cycle. But hey, what is a treadmill? It's also a closed loop, right? Yeah, Jason, there's so many things. It was seemed like one of those documents whether you're an AI bull and you think that this is going to disrupt everything there was something for you. If you're an AI bear and you think this is, you know, just lighting money on fire, there was something for you. What stuck out to you uh in the numbers that we know so far? Because it does seem like this is one of the fastest growing companies at this scale that we have ever seen. That alone is incredibly impressive. >> Yeah. But it's starting to decelerate. And I think if you consider those two things together with like 43% revenue uh growth in the most recent quarter and starting to slow, it's I don't think that's a big deal yet because the numbers went from you know a year ago they were really impressive but they weren't really huge >> to holy cow like really really quickly. Um most you know bullish estimates are more than hundred billion dollars in revenue over the next like 12-month period. Yep. >> And that's that's awesome. And what that means for the company is that the raw dollars coming in, they're going to be big enough to cover a lot of expenses and of course those gigantic capital costs. And those capital costs, Travis, that's there's there's risk and opportunity. Like the numbers like between five and 575 billion are kind of the round number estimates. Probably 100 billion of that is commitments the company can get out of with little to no penalty. >> Most of that with SpaceX. Yeah. >> Yeah. Right. Right. Right. But we're still talking like what 400 $450 billion in committed locked in takeray future cash flows. Now the big three cloud providers, they're getting a chunk of that. But then there's Broadcom and Google. Uh I think it's like $122 billion deal. That about half of that was backstopped by those two companies. Uh that's for hardware, right? But despite the recent speed bumps, I think the evidence is still really strong. They're going to need that compute. They're going to need the hardware to do it. I say when you think about these these numbers are just astronomically large and Jason mentioned a couple of them but this is a lot of these contracts are with the companies that we have already talked about today Alphabet Amazon Microsoft you can go down the curve then who are they buying equipment from whether that's memory or chips or you know cooling equipment uh there is huge pieces of the market that are tied to sort of the tip of the the iceberg the peak of the pyramid is anthropic or it's open AI. Is that something that we should be worried about? Because it seems like the market when this S1 came out, there was a little bit of worry there going, "Oh man, if if that growth rate is slowing and you have five $600 billion worth of commitments, Dario Amade said in an interview earlier this year, you know, if if I project a trillion dollars in revenue and we only hit $800 billion in revenue, we're going to go bankrupt." The numbers are getting so big that it's it's a huge impact on the market. We have to be skeptical every quarter as investors. And now I think we have to look case by case as you go down the supply chain, see how fiscally solid each company you're investing in is. And we should be wary of just how high stakes this whole trade is. But the flip side is it's also the future. It's also something in a weird way to celebrate that we have so many capable companies of different stripes from the big hyperscalers to the photonix providers to the optical ne uh cable fiber optic cable uh providers and so on and so on. I think that if we recognize how special this whole ecosystem is that's been developed across the globe, primarily we see it here in the US and that is driving the rest of the spend worldwide but across the globe I think that's something for investors to recognize there's going to be opportunity even if we have these periodic retracements or you know many puncturings of what probably at at the edges has to be a bubble right we can all agree there there's some bubbliness some frothiness to this >> being able as investor to keep some cash on the sidelines to buy the companies you believe in and you understand are solid as those retracements come and participate in this coming together of so many different pieces of technology that have been developed since the 1950s postwar it's it's pretty incredible in that sense but yeah start with skepticism especially on the individual company level >> Jason how do you think about that opportunity versus skepticism >> the biggest risk is commoditization for these frontier AI companies Yeah, experts are saying the token prices are going to keep rising. Name a single technology ever that hasn't been deflationary. It's eventually going to be the same time. The supply side has been the key. Eventually, supply is going to outstrip demand. These companies, they need [music] commoditization to happen slower than scale coming online. When we come back, we're going to talk about some potential acquisitions. You're listening [music] to Mley Poolool Hidden Gems Investing. Welcome back to Mly Fool Hidden Gems Investing. In this segment, we like to have a little bit of fun with investing in stocks. So, I want to know who says no. I'm going to give you a company and a possess potential acquisition for them. Jason and Aset, I want to know who says no to this deal. Aset, let's start with this. Disney has invested in Epic Games at least once, maybe a couple of times. They own about 9% of the company, but gaming has always been kind of one of those things that they want to get into if they actually want to make a big deal. They offer, let's say, a a good price, $20 billion. Sounds like the company's going on secondary markets for 12 to 14 billion. Let's say they offer $20 billion for Epic. Who says no? >> I think shareholders of both companies say no. And Epic Games being private, that's a few people probably can sit around a a coffee table. just a small small table where they're making that decision. >> I'd say no, it doesn't make sense for either company. Although it's fun to contemplate from Epic Games side, I think just focusing on licensing for their Unreal Engine, working on the Fortnite franchise is a day job in and of itself. And I think the same for Disney. Shareholders of Disney want to see them come decisively down on what they're going to be when they grow up. Personally, I feel that there is, you know, some missed opportunity for long-term investment, further capex into the experiences side of the business. The streaming business is difficult. It's not easy. And maybe the glory days are behind Netflix, but Disney isn't necessarily in a position to capitalize. Everyone is suffering from folks pulling back on subscriptions and just having fatigue. I'm not sure that live events for any of the streaming companies is quite the answer either or even sports licensing. So, I think both companies have their work cut out for them. But who which group would probably be more upset? I think Epic like Epic fans and employees would just be incredulous to hear of such a proposed merger. And I think Disney shareholders as well would be like, look, don't give us I mean, you have succession. >> Yeah. >> Is is another topic. Don't give us one more topic that we have to ring our hands over. Jason, I I want to I want to make the argument for this from the from the Epic side because I think if you look at like when the Activision Blizzard acquisition happened from Microsoft, these companies were extremely valuable, right? Who doesn't want to own a a video game platform? You look at today, what EA is worth, what Activision Blizzard is probably worth under Microsoft, which is definitely not the $69 billion they paid for it, >> right? >> The valuation of Epic is nowhere near what it was. Gaming has only gotten more difficult. I don't know if you ever want to exit. You're right. That's right. If you if you never want to sell this business, then even an offer from Disney isn't going to change anything. But if you if you do ever want to sell the business, >> Disney seems like a good buyer. >> Well, I mean, it's Tim Sweeney and Mark Ryan's the CFO. He owns between the two of them, they own close to half of the business. And that means all you've got to do is go to the folks at Tencent and make sure that there's something that Disney agrees to do that is going to be amendable to Tencent that owns close to 30% of the business. And this is a done deal. You you've got well enough, you know, even even without getting Tensent on board between Disney and Sweeney and and Ryan, you've got well over half of the voting control of the business >> that you can do it. But it's just going to come down to Sweeney reaching the decision that he's ready to move on or ready to let this company be part of something bigger. It >> It's fun to talk about because the video game business has always been something that Disney has not been able to get right. This could be a way to do that, but it would probably be pretty expensive, too. Okay, let's talk about a deal that maybe is a little bit more realistic. McDonald's buying Chipotle. Jason, who says no, >> man, you're going back in time here cuz that >> you got to tell the history if people don't know. was one of the seed investors in Chipotle before it became a public company and then after it went public it very quickly exited its position which was a massive financial mistake in the long term with Chipotle being b such a a huge winner so who says no I think it has to be Chipotle's uh shareholders you don't have any like writ large you don't have any concentrated large investors anymore more in the business. Even when the two co-founders were still involved in running the business, they had very small financial stakes in the business. So you you would have to have some sort of an activist investor get involved. And honestly, they'd be more likely to push for something like this than to pull away from it. >> Yeah. Asset McDonald's once owned about 90% of Chipotle. It's just just crazy to think. I I always think these these companies that own a big stake in another company that's smaller and more disruptive, just don't ever sell it. It it almost never works out well for shareholders. >> Yeah. And then too, I wonder like what would have happened though if Chipotle hadn't broken away because sometimes when you report to that parent, you have crucial decisions and they come down on the corporate side of things which stunts your growth. So that one's they probably get their Coca-Cola for a little bit cheaper. >> Exactly. And this is where I actually was going. I think who says no to this one is both the chief operating officers of these respective companies. The reason is >> they're very different. >> They're so different. The supply chains have become so different. I mean Chipotle went its own way focused on sustainability working with smaller suppliers. Now they've grown to where that's some window dressing there in in this day and age. But still it's a totally different supply chain except for the the fountain drinks than McDonald's has had for decades and decades which is a lot about like mass agriculture leaning on your suppliers. I need a few more cents out of those potatoes and they control like the destinies of so many potato farms by the way. It doesn't have a clear way to wreak good operating margin out of a combination except for Chipotle. Look at how deep McDonald's pockets are. Uh there are some scale and distribution uh synergies they can get out of it. But it's more of a headache and the business models have just become so different. Ironically, you know, this is where Jason was also going like when Chipotle started, they learned all their processes from McDonald's. I mean, what we see in Chipotles is is McDonald's. That's exactly what you see when you when you walk in there. It's just that it's closer to you. There's glass that separates uh you from the ingredients. Yeah. The I think the biggest reason why this wouldn't work is that we talk about the operating model. Chipotle is entirely corporate owned. There are no franchises. >> McDonald's has optimized its business for other people >> to own and operate the franchise, pay those fees. And in a lot of case, McDonald's actually owns the real estate, too. So they get paid two different two of the most steady reliable ways to get paid >> and you're letting like all of the capital risk and the operating risk fall on the shoulders of the local owners. Chipotle is completely flipped. >> If Chipotle could become as consistent as McDonald's is with what I actually get versus what I order. I that would be that would be worth it for me as a customer. >> Go back to the roots. >> Yeah, exactly. Okay. As it Nvidia buys Coreeave. I I think you could argue that this maybe kind of is going to happen anyways, but I if it doesn't, who says no? >> You know, I went with chief operating officers. I'm going to go with Colette Crest, the CFO of Nvidia to tap Jensen Wong on the shoulder and say, "Come on, what are we doing here, man?" [laughter] >> Yeah. >> We seeded core. We We own a chunk. >> Yeah. >> Uh so that companies could use our technology and it's a way for us to spread the Nvidia gospel for people to have access to Nvidia GPUs. We don't want to own this puppy necessarily. Now looking at the market caps of these respective companies, if Nvidia represents $100, then Coreweave represents one penny and slice 30% off of that. Maybe just, you know, cut it from the core. >> Do you even need to take that to the CFO? >> I don't know. [laughter] I don't know. You could, but but look at the cash flow, too. Nvidia could, you know, pay for this out of less than a fifth of its cash flow next year. Free cash flow. This is a $35 billion market cap company. That's what Cor is today. So, it's not so tiny anymore. But I think in this instance, you want to spread your gospel. You don't want to own the gospel cuz your own business engine is so capital light and it's so effective. Don't bog it down. But I could be wrong, Jason. I think your biggest customers probably also tell you don't do it because even though it is a tiny deal, you're starting to signal to >> your biggest customers are making their own chips though and we're talking about Alphabet and and Microsoft and Amazon and all these compan they're trying to break away from Nvidia. >> But you're giving them more reason to accelerate that breakaway by deciding that you're willing to compete against them. And I think that that's the risk you take. This would be like Taiwan semiconductor making the decision. You know what? We're just gonna start making smartphones. Just it's just this one. You know, it's kind of a specialized thing, but just this one. And Apple's going to be like, "Bro, you really think that's the smart thing to do?" >> I mean, the flip side would be Google making the Pixel phone. It, you know, they make the operating system. Samsung is still happy to use it. All right. Uh, let's let's go to a product that I know we've debated off the air with producer Dan Boyd. Adobe buys Canva. Jason, which one of these do you use? And who says no in this deal? >> So, I I use I use both. Um, Canva, here's the here's the interesting thing about it. Canva is the one that I've used by far the most for the past several years as a creator, >> as a YouTube, you know, I have a YouTube channel and use it for thumbnails and a lot of things like that. >> Yep. Same. Honestly, it's been disrupted by Gemini um from from that perspective because of like single use like quick use tools. >> So in this case, I think this is a deal that Adobe wants to do, you know, every day of the week and twice on Sunday, but Canva is still privately held. The two co-founders who are married, running the company, this is their life. I think that they say no unless it is a gigantic check and they also get a blank check to do a lot of things inside Adobe that would be disruptive but based on the vision they see for the future of creative arts. All right, maybe we they get a big check and has has Adobe named a new CEO maybe they become the co-CEOs of Adobe. There you go. Win for everybody. >> Yeah, maybe I I'll be brief here. I think the government may say no because look at the trouble they gave Adobe over Figma and >> well that was a different administration or at least part of it was a different administration. So maybe the government Yeah, >> that's a great point. The regulatory environment was a bit more strict uh under the Biden administration. Uh a little bit more loosey goosey under the Trump administration. So yeah, maybe the government looks a scance and and lets this go through. I would think Canva employees and also Canva users would not want this to happen because it'll squatchch Canva's ability to innovate and as Jason points out they already have stiff competition. All this stuff is merging together though. So while we mention Figma in the same breath as Adobe and Canva, I think the growing usage of third party AI tools, while yes, you can't get the whole extensive range and shy of Adobe's creative suite out of one-off tools, you can do a lot these days. My personal go-to is my wife. She's a Power Canva user. Yeah, >> I can't use that thing to save my life. So, I'm exposing a little bit about my one area of my technology usage which is very very subpar, but I I think if my wife were here, I'll ask her tonight over dinner like, "Would you want Adobe to buy Canva?" I'm pretty sure what the answer would be. Uh-uh. Uh-uh. By the way, Figma still worth about half of what Adobe was going to buy them for. So, always interesting how these valuations turn out. Okay. Quickly, Austin, I'm going to start with you. Bergkshire buys Costco. Who says no? >> Yeah. So, this is going to be um Charlie Munger's heirs, his descendants, all just making a PR firestorm. Wait a minute. Dad spent so much of his life trying to persuade Warren Buffett to buy Costco, buy more of Costco, and famously Warren Buffett passed and missed out on what would have been probably one of his most sterling investments. So, I think his uh Charlie Mer's heirs are going to have an issue with that. Other than that, I think it's not a bad deal to make. It's a scale deal. Birkshart has such trouble moving the needle these days, and we've heard about some really interesting purchases they've made under the new regime, but I question like whether any of that can really produce the returns. On the other hand, Birkshire is sort of exciting again like share price is up. It looks like an active company. So maybe deal making is something that will keep pulling investors in. There is some sense that like Warren had become a little bit stale in his desire to make deals. So I I sort of like this idea. Jason, what do you think? >> Absolutely not. Tony Tony James is not letting this happen. Chairman of uh Costco has been chair chairman for almost 10 years. Has been uh on the board for 30 like since the 80s. If there's any one thing that uh Costco is that is so magical is it's their operating bill. They're just such an exceptional exceptional operator, right? They know their business. They know their customers. And the problem is if you look at Bergkshire after they buy businesses, they become bad operators. The margins get worse. >> Great cash flow. But yeah, >> and all of that cash flow ends up sitting on the Bergkshire balance sheet. >> Yeah. And like I would love it if if Greg Ael took that 370 billion in cash and took a hundred billion of it and sent it back to the operating companies and said, "Guys, you can modernize, improve, fix things. Let's get let's get our profile." >> I know Queen has an AI uh AI person you talk to when you go through the drive-thru now. They only make mistakes, you know, 30% of the time. [laughter] >> Yeah, this it's it's an improvement. Costco would be destro I I know this is heresy but Costco would be ruined if Bergkshire owns it. It'd be like Dairy Queen. >> I think this would be a fascinating merger. But I think you're right. None of these deals are probably going to happen. Uh Adobe buying Canva I think maybe is the most likely out of the ones that we talk about. But there's also a lot of synergy between these companies and if deal making does come back this year, next year, the year after uh I think we're going to be some see some surprising deals. >> I'm going to paraphrase Charlie one more thing. Hey, Berkshire, just buy the damn stock. >> Probably a good move, too. >> One last thing on Berkshire, though. I mean, the flip side of it is they let operators be operators. Maybe they don't invest as much as they should or give more of a clear line on on how they should allocate their capital, but I sort of like that they they leave businesses [music] to a large extent alone once they buy them, but they don't leave them enough money. Yeah. When we come back, we're going to get to the stocks on our radar. You're listening to Mly Fool Hidden Gems Investing. [music] As always, people on the program may have interest in the stocks they talk about, and the Montly Fool may have formal recommendations for or against. So, don't buy or sell stocks based solely on what you hear. All personal finance content follows the MLY Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided forformational purposes only. To see our full advertising disclosure, please check out our show notes. All right, we like to end the show with Stocks on Radar and thoughts from Dan from Behind the Glass. As what do you got for us this week? >> Yeah, so I'm looking at a company called Sienna Travis. Symbol is CN. This is a business that is an optical networking specialist. That means that they make stuff for data centers. They use light to sling information around data centers. It's got this portfolio of network routers and switchers. Sort of boring stuff, but it also has a family of products that blast information via light across extreme distances. So think transferring data from one data center to another or one country to another or one continent to another. This is going to play well in future where quantum networking also becomes important. So I think this company has a long runway. It's both up 54% year-to date and it's 65% off its all-time highs. It's had a very volatile year trading now at a reasonable 36 times Ford earnings. What I love about this company, it's got a solid operating margin and earnings are expected to triple over the next three years. Sienna, an optical networking specialist. Dan, what do you think about optical networking? >> You know, when are we going to change picks and shovels to servers and racks at this point? You know what I mean? >> Also, just a as a interesting thing, uh, listeners, go check out the stock chart for Sienna. It is one of the strangest looking stock charts I've ever seen with a huge peak in the year 2000 and coming back up in recent years. >> All right, Jason, what do you got for us on your radar? >> So, Marvel Valicker, MRVL. Directionally, it's kind of rhymes with uh what was just talking about there with Sienna. The difference is that this is more of a semiconductor company, but they're they they do AS6, so a lot of custom silicon and the big uh hyperscalers pretty much only work with Marll and Broadcom to like design this and use this custom silicon. But the key is that their business is focused on that moving of data and connectivity. They're absolutely a top dog and first mover in this space. They threw us a huge curveball uh with the announcement or announced it's this rumored acquisition of Lummenum which is would be a gigantic bite but it would f further like vertically integrate and integrate some core technologies for what is like the de facto way that data centers are going to be connected just really aligning the core technology that is really what's going to drive the future of AI removing the bottlenecks driving down energy costs that momentum deal the market hates it it's down by like low teens percent today on this deal. I think it's a smart deal. As much as the stock has run higher over the long term, trades for roughly 60 times >> [music] >> uh earnings and like $10 billion in in and trailing revenue for the core business, there [music] is a ton of room to continue growing this business. >> All right, Dan. Optical networking or the stuff that goes into making [music] chips, do you think? >> Yeah, I you know, every time I hear about this company, I think it's about, you know, superheroes and [laughter] big movies. Probably not, right? >> Uh I don't know. I like both of them, but I think we're going to go to the more local uh Hanover, Maryland company in Sienna this time [music] around. All right, congratulations to Aset. That's all the time we have for today. We'll see you here tomorrow.