The Fed’s Inflation Conundrum & an AI Billionaire Battle Royale

19:01And I think it's going to be a little bit tougher days ahead for them to really maintain that dominant position.

19:06Travis Hoium:That will be the thing to watch. And to the advertising point, it's interesting that the market is very concerned about Google's 10 blue links and artificial intelligence disrupting that, but not as concerned about Amazon's ad business. As always, people on the program may have interest in the stocks they talk about and The Motley 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 Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only.

19:37Travis Hoium:To see our full advertising disclosure, please check out our show notes. Next up, we're going to have a battle of the AI billionaires. You're listening to Motley Fool Money. Trading at Schwab is now powered by Ameritrade, unlocking the power of Thinkorswim,

19:50Lou Whiteman:the award-winning trading platforms loaded with features that let you dive deeper into the market. Visualize your trades in a new light on Thinkorswim Desktop with robust charting and analysis tools, All while you uncover new opportunities with up-to-the-minute market news and insights. Thinkorswim is available on desktop, web, and mobile to meet you where you are. It's built by the trading obsessed to help you trade brilliantly. Learn more at schwab.com slash trading.

20:15Travis Hoium:We already knew that big tech was going to go all in on artificial intelligence, but the stakes have gotten even higher over the past week or two. Alphabet upped their CapEx budget from$75 billion to$85 billion this year. Promise even increased that next year. Amazon and Microsoft are spending about$30 billion a quarter. And Meta's CapEx is going to be right around$69 billion for the year. There are still a few VC companies involved here like OpenAI, Anthropic, and Perplexity, but a lot of the small players are kind of falling by the wayside. So I thought it would be fun to look at artificial intelligence and put these companies and their leaders in a battle.

20:55Travis Hoium:I'm going to call this the AI billionaire battle royale. I'm going to give you guys the opportunity to pit some of these leaders against each other and give us a score like a boxing scorecard. So 10-9, 10-8 if it's really a landslide. And if there's a draw between both of you, I'm going to decide the winner here. So let's choose wisely. And the four players that we have here, I'm not going to put Elon Musk in this, but we have Sundar Pichai of Alphabet, Mark Zuckerberg of Meta, Satya Nadella at Microsoft, and Sam Altman of OpenAI. I think those are the really big names in artificial intelligence really guiding the industry right now.

21:31Travis Hoium:So our first battle has real beef today. Mark Zuckerberg versus Sam Altman. Zuck has been buying up OpenAI's talent, reportedly$100 million offers for AI engineers. And he's spending that kind of money because he's trying to go from laggard to hopefully leader in AI. Lou, give me some blow by blow on who wins this battle.

21:53Lou Whiteman:So, my mental picture here is, Sam Altman comes out, dressed to the nines, perfect, just looks the part. Zuckerberg almost comes out like a street fighter, right? But when the actual fight starts, it's not even close the other way. Yeah. So, Zuckerberg is playing catch-up, but Zuckerberg's got this massive, massive ad business generating capital at his back as he's throwing punches. Altman has to beg for money and has done a lot of deals because of the nature of OpenAI. He's actually in the background while he's fighting his opponent. He's also fighting Microsoft and things like that as he runs off to the side.

22:33Travis Hoium:He's doing a dual battle here.

22:35Lou Whiteman:Yeah. This ends up flashy coming in, looking really great. Sam Altman, he gets a few punches in. I don't want to be too dismissive of open AI, but that advertising business, the muscle to play the game that goes with that, this ends up 10-8. Zuckerberg running away. This could even

22:56Travis Hoium:be a technical knockout here. Lou thinks the balance sheet is going to be more important than the mindshare that ChatGPT already has. What do you think, Jason? Yeah. Well, one of these things is not like the other, right? We've got But Meta, which is a publicly traded company, has many more levers to pull in regard to raising capital. Just many more avenues towards raising that capital. Whereas, as Lou noted there with Sam Altman, he has to sell the sizzle. He has to get out there and keep that mindshare going and figure out ways to raise that money. Now, will we see OpenAI go public eventually?

23:34Who knows? If they do, then obviously that opens up some avenues for them. I tell you, you look at what Mark Zuckerberg has done with Meta to date. I mean, the IPO back in, I think, what, May of 2012, the stock has up better than 1 ,900 % since then. I mean, he's doing something right. And I think he's doing something right in the face of making some questionable decisions along the way, right? I mean, we were talking earlier about the evolution of Meta from social media company to Metaverse company. And I mean, that Metaverse thing just hasn't really worked out, right?

24:15Travis Hoium:Yeah, he was able to burn$15 billion or so a year, and it just didn't really matter. It didn't matter at all. And I mean, they're doing some cool stuff, but it's not having any kind of a material impact on the business, really. It's still at the end of the day. This is an advertising business. And I'm not saying that as an insult. It is a very powerful advertising business. And he's finding ways to utilize AI technology to make that advertising engine more powerful, more efficient. In April, Zuckerberg said that Meta is focused on developing an AI model that can, in turn, build as much as half of other AI models within the next year, which I think is just kind of amazing to think about.

24:56Altman, he's a unique guy. He's got all sorts of interests. I think it's fascinating. He's got his pilot's license. He's expressed his dreams of starting his own airline one day. So, you do have to kind of wonder where his head's at sometime and if this is really what he wants to be doing for the long haul. So, I'm in agreement with Lou there. I'm not going to go with a 10-8 blowout. I would probably just go 10-9 in favor of Zuckerberg in this case, just because I think Meta has so many more ways to really raise that capital and continue building out these AI aspirations.

25:30Lou Whiteman:Let's remember here, guys, one of these two is actually a trained kickboxer, too.

25:35Travis Hoium:I know we're not talking about physically fighting, but that has to come in somewhere, right? And there was that planned actual fight with Elon Musk at one point that never actually happened. It's amazing, too, to think about these two guys that dropped out of college, right? Mark Zuckerberg drops out of Harvard. Altman drops out of Stanford. I mean, these guys are living the life. It's just fascinating to see. It's interesting that you both had it pretty decidedly for Zuckerberg. I don't know that I would have guessed that going in because Chachi Petit, everybody kind of thinks that they're the leader in the clubhouse.

26:06Travis Hoium:All right. To the second one, this is the non-founder battle. We have Sundar Pichai from Alphabet, Satya Nadella from Microsoft, also Sam Altman's partner, sometimes on again, off again. Jason, you're up first here. These companies have more money in infrastructure than anyone else we're talking about, but who wins the battle? Yeah, two really amazing businesses, two very impressive leaders there. You look at Satya Nadella, he took over the CEO role in February 2014. The stock is up better than 1 ,300%. It was close to 1 ,350%, I think, since he took over. If you remember, during the Balmer years, it was like 10 years where the stock did nothing at all.

26:44So, shareholders have got to really be loving him. And he's a thoughtful guy. This guy, he reads poetry, Indian American poetry. He loves Russian novels. I mean, he's a thoughtful guy. And he clearly has the background, master's degree in computer science, master's degree in business administration. And he said back in April that as much as 30 % of the company's code is now actually written by artificial intelligence. So, they certainly are using AI to their benefit. And I think when you look at Sundar Pichai, I think he's been a very effective leader as well, right? I mean, Google Share, Alphabet shareholders have won, right?

27:23They've done well. Stock is up, I think, 200 % since he took over in December of 2019. But I think he's dealing with a little bit of a different situation here at Alphabet, particularly in regard to the regulatory issues, right? There are a lot of unknowns in regard to the remedies that might be suggested as far as what regulators want Alphabet to ultimately do if they want them to split off part of the business, whether it's YouTube or search or sell off Android or whatnot. So, I think there's a little bit more uncertainty there right now. And I think that with Nadella's position being with the company a little bit longer than Pachai has been with Alphabet, I'm going to give Satya Nadella the lead here.

28:06I'm going to go 10-8 in this case, actually. I really have been so impressed with what Satya Nadella has done with Microsoft during his tenure. And it seems like he really is enthusiastic and looking to keep it going.

28:19Travis Hoium:Interesting. So the fact that Sam Allman and OpenAI have been sort of an ungrateful partner after really Microsoft funded the company, gave them$10 billion. I think that was almost immediately after ChatGPT was released. That doesn't take too much away. Lou, who do you have in this battle?

28:39Lou Whiteman:This is the heavyweight battle. So not to switch sports, but if this was the final four, we'd all be complaining that the two best teams were meeting in the semifinal. That's my take on here. Jason's right. Two great businesses, two heavyweights, the two will come out swinging. I'm going to end up with Nadella here, in part what Jason said. They can both throw a punch, but we have to see about how I can take a punch. There are questions about the advertising business. I think it works out fine, but there are those questions. The other thing I'd say that I think gives Microsoft and Nadella the leg up here is when they go on the offensive.

29:20Lou Whiteman:Of all of these big companies, Microsoft, with the nature of their business and all of the conduits they have into corporate customers, with Office, with 365, with so many products, they, to me, have the clearest path to actually monetize all of this AI stuff outside of internal use, outside of just building their business. It just seems like their existing connections work so well when you go on the offensive. So, yeah, they both come out swinging. They both land some blows. But Nadella is just a little bit stronger on the punch. And Pesha, between the advertising business, the regulatory, maybe can't take the blows the same way, or it has to take a few more blows.

30:07Lou Whiteman:I'll go 10-9 here. but I get it. I don't see this as a knockout, but I think Nadella wins for me.

30:14Travis Hoium:All right. So our championship is Zuckerberg versus Nadella. Lou, I'm going to go to you first. Between those two, so we've got basically founder-led company in meta platforms. Changed its name, so gone from social media to metaverse, now to artificial intelligence, but it is a founder. And I think it's pretty clear that he's been a good leader, especially over the past few years, and Nadella running one of the biggest, most established tech companies in the world. Who do you have?

30:46Lou Whiteman:So, this could really be fun to watch, and no disrespect here, but if this was wrestling and not boxing, you can see Zuck playing a little dirty here, can't you? And I mean that with respect. So, I think this would be a fun one to watch. I do think, though, again, I said I thought the second bout with two heavyweights. Microsoft, not just what they're investing, but Nadella, his plan to monetize it and actually get it out. I'll be honest with you. I'm annoyed with some of the prompts I'm getting in Excel right now. Microsoft, I will let you know if I need open AI. You don't have to ask me every time if I want to use it.

31:24Lou Whiteman:But I do think that as annoying as it is, just like Clippy, it works. I think that they are the grand champion here. Zuck will get some blows in. Zuck will definitely go on the offensive all over the place. I think it's probably a closer fight than I thought when I sat down. So, I'll say 10-9, but I am going to crown a champion of Microsoft and Nadella here.

31:46Travis Hoium:What about you, Jason? Travis, I'm going to have to agree with Lou here, okay? I'm going to go ahead and give you the answer first. I would have to give the nod to Nadella here. And I think part of it, I think the market is kind of telling us something along the way here, right? I mean, We're looking at Microsoft. It just crossed over that$4 trillion market cap this week. Joining NVIDIA is one of only two companies to ever do that. Now, Microsoft, yes, generates a little bit more on the revenue side than Meta does today. But I think what we've seen with Satya Nadella during his tenure at Microsoft is very clear vision.

32:24We've seen him lay out the strategy. he knew that the puck was going towards the cloud, right? So, he started skating there immediately. I mean, he laid out that strategy from the very beginning, and it was just very clear. We could see what he was doing. And we talk about Amazon before being a company with a number of different ways to win, right? They do a few things. They do it very well. I mean, Microsoft's a similar business, right? They have a number of different ways that they can win. And just the scale that the company has in the operating platform and the cloud services that provides.

32:55I think it just does a lot of things very well. And it's not to take anything away from Meta and Mark Zuckerberg here. I think that the one concern I have, and I'm not a shareholder of Ether Company, but the one concern I have with Meta is Mark Zuckerberg can be all over the place. We talked about that before, social media to metaverse to AI to what's going to be next. He does say a lot of things, and then it doesn't materialize. He pushes it by the wayside and then goes towards something else. What we ultimately have here is just a massive social networking company with a tremendous advertising business behind it.

33:34I think that's something that's going to continue. But as we've seen with Facebook, Facebook is starting to go on the decline, but more interest is on the Instagram side. right? It's so social networks aren't forever. I think they live their life and then people go elsewhere. And so I would be a little bit concerned just in regard to the lifespan of things like Facebook and ultimately Instagram at some point. Now they have WhatsApp, obviously, which is, is a, got a lot of potential there as well. So I think we probably could expect to see Meta make, you know, more acquisitions down the road to try to expand that portfolio of platforms it has.

34:16But for me, if I'm looking at it from a confidence level, I just feel more confident with Satya Nadella and the clarity of his vision in what he's done with the company to date. I'm going to give it 10 to 9 in favor of Satya Nadella.

34:31Travis Hoium:Interesting that there's regulatory concerns for Alphabet, but Meta could make acquisitions. I don't know if the government would let any of these companies make any real acquisitions, although that's not what they're doing anymore. They're just buying talent. So maybe that's the way around that. Yeah. Definitely be under the microscope for sure going forward. Well, interesting that you guys were basically in agreement and I completely disagreed on every one of your choices. I would have had Sundar Pichai in the lead here for sure. But this is going to be fascinating to watch because there's literally hundreds of billions of dollars at stake for these big tech companies.

35:05Travis Hoium:And even for them, that's a lot of money. Next up, we're going to get to the stocks on our radar. You're listening to Motley Fool Money.

35:13Lou Whiteman:They say leadership isn't just about where you're going. It's about the conviction it takes to get there. For those who demand the world and possess the drive to claim it, there's a vehicle of equal distinction. Dynamic by design and engineered for pure impact, the Range Rover Sport rises to meet you the moment you take the lead. This is the most advanced Range Rover Sport yet, a master class in uncompromised performance and unbridled agility. Inside, the innovation is seamless. You'll find an elegant 13.1-inch touchscreen that puts total control of the vehicle's systems right at your fingertips, but it's the refinement that sets it apart.

35:49Lou Whiteman:Sculpted 22-way heated seating with built-in massage function ensures every journey is defined by peerless comfort. Whether it's through unique interior finishes or custom wheel options, the ways to personalize your Range Rover Sport are nearly unlimited. Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com.

36:12Travis Hoium:We have time for one quick earnings take and Cloudflare is one of those interesting companies in technology. Jason, what did we learn this quarter? Yeah, interesting reaction right after the release stock was up like 6%. We saw this morning down like 6%. Now it seems like it's about flat, but I think it was a very encouraging quarter from a number of perspectives. For one, we did not hear mention of elongated sales cycles in the call anywhere, Travis. That may mean that their enterprise customers are feeling a little bit better about the money that they're spending. That is definitely showing up in the numbers.

36:44Revenue is up 28%. They crossed over the$2 billion annual run rate. It is a company that continues to sign on to develop relationships with large customers now. 3 ,712 large customers spending at least$100 ,000 annually. That was up 22 % from a year ago. And those customers now account for 71 % of total revenue. That's up from 67 % a year ago. And encouragingly, dollar-based net retention rate, which is a metric we pay attention to that tells us how they're expanding those relationships, that rose to 114 % for the quarter. That was up from 112 % a year ago. Again, that's just a sign that they continue to keep those customers and develop new relationships, expand those relationships.

37:25So, not a lot to see here. I think this was just another solid quarter from Cloudflare, and CEO Matthew Prince seems really, really amped about the company's future.

37:37Travis Hoium:Does the fact that the stock is trading for 40x sales make you nervous? Yes. I think valuation is going to be the biggest risk for a company like this. Until they can get to actual profitability and cash flow, valuation is just going to be one of the biggest risks with holding a company like this. We like to end the show with stocks on our radar. Jason, you're first up. What are you looking at this week? Yeah, PayPal reported earnings, and it was a good quarter. Nothing crazy one way or the other. We saw they exceeded guidance that leadership said a quarter ago. They raised guidance for the full year.

38:13We saw revenue up 5%, with earnings per share up 18 % from a year ago. They saw transaction margin dollars grow 7%. Total payment volume grew 6%. And encouragingly, Venmo continues to gain traction. Revenue there was up 20%, with total payment volume in the Venmo network up 12%. It's growing beyond peer-to-peer, right? They're developing more commerce relationships, and users are using it more for things like shopping and transactions, as opposed to just peer-to-peer money transfer. So, that's all very encouraging. It was a good quarter. Shares have had a tough year so far, down something like 18 % year-to-date, certainly underperforming the market, while all the key performance indicators continue to trend in the right direction.

38:58With shares at around 14X full-year earnings projections today, it just seems like the market's taken a glass-half-empty view on this one. What about you, Lou?

39:08Lou Whiteman:I'm going to look at Halmet Aerospace, ticker HWM. It's boring, but they make fasteners, other small parts, mostly for aircraft engines. They reported the classic beat and raise this week. Really, really strong demand. Travel is holding up. And as we all know, Boeing has had some drama. So that's causing airlines to lean on their existing fleet more. That's creating huge demand for spare parts. Halmet is riding that wave, investing in its future, building out its manufacturing capacity. It's also aggressively reducing its share count. Guys, stock is up 84 % over the past year. Some of that was low-hanging fruit.

39:44Lou Whiteman:Some of that is just they went from being poorly managed to well-managed. I don't think they can do another double in the next year, but this is a very well-run company. And I think it's setting up to be a long-term market beater.

39:56Travis Hoium:As I look at both of these, I can't get past the fact that PayPal is so cheap. This seems like one of these companies that just continues to perform well a quarter after quarter. I don't love the products. I don't really use many of them, but they just, they seem to have a really, really sticky business. So I got to pick out of those two. Sorry, Lou. I'm going to go with PayPal. For Lou Whiteman and Jason Moser and our production leader today, Bart Shannon and the entire Motley Fool team, I'm Travis Hoyam. Thank you for listening to Motley Fool Money. We'll see you here tomorrow.