The latest episode of Motley Fool Hidden Gems Investing tackles the concerning job losses in July, the resilience shown during earnings season despite AI hype, and the controversial “doughnut-shaped” AI device rumored from OpenAI. The Trade Desk faces significant investor backlash following its earnings report, raising questions about its execution and future viability. Hosts also debate whether several tech and auto stocks represent true value or potential traps.
In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Travis Hoium, Lou Whiteman, and Jon Quast dive into the latest economic indicators, a mixed earnings season, and the potential of new AI hardware.
The discussion kicks off with an analysis of the July jobs report, which surprisingly showed a loss of 23,000 jobs, contrary to expectations of gains. Despite this, the unemployment rate dropped to 4.1%, leading to a market rally driven by hopes of the Federal Reserve holding off on further interest rate hikes.
Lou Whiteman notes that the participation rate is at a post-COVID low, suggesting the employment market is neither red-hot nor in steep decline, likely leading to Fed inaction. Jon Quast adds that while this might ease pressure on interest rates, the long-term impact on earnings remains a concern if job growth falters.
The conversation then shifts to the broader earnings season. Whiteman highlights the resilience of many companies, particularly outside the tech sector, with banks and airlines showing strong performance. He points out that S&P 500 earnings estimates have increased, suggesting a generally stable economic picture despite the focus on AI.
Quast observes that while many companies are beating expectations, the market reaction is often muted, especially for AI-related stocks. He contrasts this with companies outside the AI trade that are seeing significant stock price drops even with positive results and raised guidance, suggesting a complex market dynamic driven by future disruption fears.
A prime example of this complexity is The Trade Desk. After reporting earnings, its shares plummeted, down around 20% in after-hours trading. Quast attributes this to execution issues, citing slowing growth rates and a forecasted revenue decline, which contradicts the company's usual narrative against walled-garden platforms like Meta and Alphabet. Whiteman agrees, suggesting that the "walled gardens" are winning and that The Trade Desk's leadership, particularly CEO Jeff Green, needs a shake-up to regain Wall Street's confidence.
The podcast then ventures into the speculative realm of new AI hardware, specifically the rumored "doughnut-shaped" AI device being developed by OpenAI, reportedly with talent poached from Apple. Whiteman expresses skepticism, questioning the need for such a device when smartphones already serve as effective AI interfaces. Quast echoes this sentiment, drawing parallels to the Amazon Fire Phone and questioning OpenAI's ability to command premium pricing without Apple's established hardware reputation.
The hosts engage in a "Value or Value Trap" segment, dissecting several companies:
- The Trade Desk: Labeled a "Value Trap" by both Whiteman and Quast due to its declining growth and uncertain future.
- Zeta Global: Mentioned as an attractive option with strong growth.
- Shift4: Considered a "Value all day long" by Quast, despite market skepticism, due to its profitable growth in the fin-tech space. Whiteman is more lukewarm.
- Micron: A debated topic. Quast sees it as a "value stock" expecting continued strong memory demand due to AI, while Whiteman views it as a "value trap" due to the cyclical nature of the commodity memory market.
- Salesforce: Deemed a "value trap" by Quast due to business model risks and balance sheet concerns. Whiteman is more neutral.
- Adobe: Split decision. Quast calls it a "value trap" citing growth and margin concerns. Whiteman takes a flyer, calling it "value" based on user stickiness and ongoing AI development.
- General Motors: Viewed as "not good value" by Whiteman and unattractive as a business by Quast, despite its stock price.
The discussion also touches on Google's apparent "brain drain" as key researchers depart. While some see it as a trend, Whiteman dismisses it as "parlor gossip," noting Google's strong infrastructure and potential investment in departing researchers' new ventures.
Finally, the hosts share stocks on their radar:
- ServiceNow (NOW): Highlighted by Jon Quast for its embedded position in businesses and potential for AI agent disruption.
- Symbotic (SYM): Recommended by Lou Whiteman for its warehouse automation technology and strong growth potential, despite a cautious market reaction to its guidance.
The episode concludes with a reminder that the individuals featured may have positions in the stocks discussed and that the Motley Fool may have formal recommendations.
