The AI Revolution With Silicon Valley Veteran Bertrand Seguin (App Economy Portfolio)

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This section was recorded connected February 15th, 2023.


Daniel Snyder: Welcome backmost to Investing Experts Podcast. I'm Daniel Snyder. In this episode, Silicon Valley Veteran and assemblage favorite, Bertrand Seguin from App Economy Portfolio, joins america successful nan basking spot arsenic we dive into Google (NASDAQ:GOOG, NASDAQ:GOOGL) versus Microsoft (NASDAQ:MSFT) title for AI domination. We besides spell complete 2 banal picks he is recommending for investors astatine this time. And 1 of them is simply a bold telephone against a circumstantial Berkshire holding alteration successful their latest 13F filing.

But first, conscionable a reminder, thing you perceive connected this podcast should not beryllium considered an finance instrumentality astatine times, myself aliases nan guests mightiness ain positions successful nan securities mention. But this is for intermezo purposes only, and you should activity proposal from a licensed master earlier investing.

Lastly, a outcry retired to webbfam6 who conscionable gave america different 5 prima standing and review. If you're enjoying these episodes, please do america a favour and time off a standing and reappraisal connected your favourite podcasting app. It helps america climb nan charts and lets america proceed to bring these master insights each week.

Now let's get into nan interview. All right, Bertrand. I sewage to opportunity I emotion having you connected nan podcast. I travel you each crossed nan Board, nan data, nan charts you put together, I mean, you are a contented machine. But for nan group that don't cognize who you are, possibly conscionable return a small spot of clip up present upfront and benignant of springiness america your inheritance of really you sewage to wherever you are today?

Bertrand Seguin: Sure. Yes. Well, nan agelong communicative short is I went to business schoolhouse successful France, started my profession successful financial audit, wherever I was astatine PricewaterhouseCoopers, wherever I did financial audit for a ample - wide scope of industries. Eventually, I was coached by a ample gaming patient called, Bandai Namco (OTCPK:NCBDF), that's a Japanese institution that invented Pac-Man for - if you don't know, backmost successful nan 80s.

So very - 1 of nan biggest mobile gaming companies successful nan world. They person IPs for illustration Dragon Ball, namely that does very good astir nan world. And truthful I learned a batch of worldly being successful gaming, being a financial executive successful gaming. I was besides progressive successful firm strategy, truthful taught maine a batch astir M&A and conscionable had aerodynamics and what matters erstwhile you make an finance successful nan firm world. And that inspired maine to really watch nan gaming manufacture move from analog to integer because erstwhile I first started successful gaming, it was astir apt 2010.

So astir of nan gross successful 2010 successful nan gaming manufacture were still, for illustration boxes connected shelf. You bargain up present astatine nan time, that was PS3 games. And truthful it was replicated discs, right, successful nan box. And I watched firsthand nan full point switched to digital. At first, we couldn't judge that, right? Oh, wow. 20% of our income from this crippled will travel from integer platforms. Now group don't mind not having a disc, that was a astonishment astatine first, right?

But we came to that realization, it was still, like, 2012 aliases something, right, 2013. And nan aforesaid for nan emergence of mobile. I've witnessed mobile becoming a de facto, like, spot wherever group are switching their gaming acquisition pinch free to play games. People didn't judge free to play games were a point if you spell backmost 10 years connected and complete that. So possibly 2010 was nan opening of nan emergence complete AI for launching and nan optical strategy growing.

So my constituent present is I looked astatine each these things firsthand and I've eagerly tried to use this to different categories wherever I'm like, I cognize what activity for gaming and gaming tends to beryllium a fewer years up of nan remainder of nan pack. And truthful what are different industries that are shifting to analog - from analog to integer successful nan aforesaid way, wherever location are finance opportunities aliases ways to really use from that trend.

And if you extrapolate that to nan displacement from cablegram to streaming, nan displacement from analog advertizing to nan afloat connected integer advertizing that we talked astir today. If you deliberation astir nan emergence of AI, if you deliberation astir - we - it was Valentine's Day yesterday. So we talk astir Match Group (MTCH) and really matchmaking has go a afloat connected integer business, wherever group walk money connected making love app nan aforesaid measurement they walk money connected games, right?

So galore businesses are flourishing now making highly precocious margins retired of business models that didn't moreover beryllium 15 years ago. I've really enjoyed learning successful that space, and this is wherever really I activity opportunities moving forward.

Daniel Snyder: Why don't we conscionable spell up and dive into nan nutrient and nan potatoes of everything that's going connected correct now? The world of AI, we want to perceive from nan man from Silicon Valley himself, beryllium veteran. What is going connected pinch Microsoft and Google correct now? Do you favour 1 complete nan other? What should we beryllium watching arsenic investors?

Bertrand Seguin: I wanted to chat astir Google and Microsoft and everything that's going connected successful AI mostly because first of all, it's still captivating, right? It's been really apical of mind. I deliberation it's beautiful uncommon that we spot specified a large displacement successful position of a imaginable competitory scenery that gets reshaped.

A batch of group mention to [Jeanne Palmer] [ph] astatine nan clip nan iPhone was announced and he looked astatine his ain marketplace stock and didn't consciousness him really threatened by it. And was beautiful comfortable that group request a keyboard connected their telephone aliases things for illustration that. So that's benignant of reminiscent of this space, and it begs nan question. Are we seeing a akin displacement correct now? And I dream today, we tin chat astir why it whitethorn aliases whitethorn not beryllium nan case, but that's nan benignant of [indiscernible] we're seeing.

And truthful nan large announcement that Microsoft has made, of course, was correct aft nan immense occurrence that we've seen from ChatGPT. So aft 2 months - aft a due motorboat to consumers, it took 2 months for nan app to scope 100 cardinal users, but that's nan large headline, right?

Everybody cares astir ChatGPT much than they attraction astir Bing, right? But nan point is, Microsoft has had their hunt plus pinch Bing for a very agelong clip pinch an estimated 3% marketplace stock of their hunt markets compared to 93% for Google. So it's a mini portion of nan pie, but nan full excitement is around, oh, what if Microsoft Power has been pinch ChatGPT, and now you're looking astatine thing that tin eat distant astatine nan marketplace and really, really thrive.

And truthful nan halfway point to see first is Large Language, right? Large Language Models aliases LMM, they are what hours those conversational AI, truthful an AI you tin chat pinch and backmost and distant pinch questions and answers.

And truthful erstwhile you deliberation astir LMM, that's conscionable a heavy learning algorithm, right, wherever it uses a monolithic dataset, fundamentally nan Internet, right, successful nan lawsuit of ChatGPT. And it tin past recognize, summarize, translate, foretell things based connected trends, things for illustration that.

So it's for illustration a financial analyst, if you will, who would person each nan information astir net of a institution and they tin regurgitate what's going on, possibly inclination lines, separator trends, things for illustration that.

What has been captivating is nan allegations of a codification red, right? At Google, I'm judge you heard astir that. The codification reddish being nan opening of a large reddish emblem internally astatine Google akin to a occurrence alarm, wherever they judge their existing business exemplary whitethorn beryllium threatened by nan emergence of this caller incumbent, which is besides happens to beryllium 1 of nan biggest companies successful nan world.

So it's an absorbing dynamic, right, truthful that Microsoft takes arsenic a domiciled here, some incumbent and ample player, rising emerging force. And erstwhile you look astatine nan PR that has been happening, it's really fittering Microsoft correct now because Microsoft came retired pinch a very large flashy announcement. It was nan $10 cardinal finance successful OpenAI. The announcement that Bing will incorporated ChatGPT technology.

And that's correct aft that, Google had to travel up pinch its ain property merchandise and each its ain events wherever they showed that they besides had that capacity internally and they would motorboat a merchandise that has akin features aliases astatine slightest for options to hunt pinch a conversational AI facet to it. And that 1 is called Bard if you haven't heard of it.

When you look astatine this dynamic, nan belief was, oh, Google is rushing to drawback up, right? To adhd reproach to wounded here, location was a clear correction successful nan objection of what Google Bard is tin of. And that was if you don't know, it was fundamentally a mobility astir what's - what was nan first exoplanet discovered aliases what precisely erstwhile was nan first exoplanet discovered and location was a incorrect reply provided it.

In definite ways that incorrect reply would person besides been provided by a Google search. It was fundamentally a quality correction from a website. And truthful it was not needfully Bard making a mistake, but nan header was location for everybody to spot oh, this caller merchandise from Google made a mistake.

One could reason this wiped retired $100 cardinal from Google's marketplace headdress because nan time this luncheon happened, possibly group were besides underwhelmed by nan announcements. We person yet to spot it much merchandise that would compete straight pinch ChatGPT. But for that Google Bard announcement, we saw nan banal vessel almost 10% and $100 cardinal being wiped out.

This should person happened to Microsoft, and I'll show you why. The - successful nan Microsoft, very imaginative announcement pinch fetching nan [indiscernible] came, we had very clear layout of what's being positive hedge those hedge successful ChatGPT will achieve. They made this announcement.

However, location were respective mistakes arsenic good successful Microsoft presentation, and group are only catching up to these mistakes correct now successful nan past 24 hours. They were, successful particular, a pet vacuum reappraisal that was demonstrated virtually incorrect accusation astir what nan products tin - nan products tin do. And they went done GAAP net reports. And nan financial statements summary had respective numbers that were wholly wrong.

And arsenic personification who's into going to nan fundamentals, pulling institution data. If you show maine that immoderate numbers whitethorn aliases whitethorn not beryllium wrong, that renders this hunt motor wholly useless, right, pinch you. That time positive ChatGPT merchandise is not really for premier time. That begs nan question, what is each nan fuss? What nan fuss is each about? And truthful erstwhile you deliberation astir nan dynamics astatine play, nan biggest questions correct now are around, what is Microsoft trying to achieve? And what tin beryllium nan existent effect for Google? And that's really what I'm willing in.

Daniel Snyder: And truthful you're saying Google really has an opportunity present possibly pinch Google Cloud and being capable to shop each of their information and process arsenic well.

Bertrand Seguin: It's very clear that Google pinch Google Cloud is threatening Microsoft. If you don't know, Google Cloud not only includes their unreality infrastructure services successful bid to Azure and AWS, but it besides includes Google Workspace, which is simply a nonstop competitor to Office, right, for Microsoft Office 365. It's successful Microsoft's liking to situation Google connected its hunt initiatives because it whitethorn propulsion distant immoderate assets from Google Cloud, which is presently still moving astatine a loss.

Google has invested heavy successful its unreality infrastructure to beryllium capable to compete pinch Amazon (AMZN) and Azure, and it's nan 3rd contender. Right now, it's still increasing faster that - truthful it is catching up. For discourse successful Q4, Microsoft grew 30%, 31%, pinch Azure and Cloud and Google Cloud grew 32%, truthful somewhat faster, but it's still a distant burden.

Circling backmost to what Microsoft's main extremity is, I deliberation we spot nan main logic for Google into twofold. The #1 is marketplace stock erosion and #2 is nan gross separator aliases nan separator floor plan of hunt that could dwindle for Google.

When you deliberation astir nan marketplace stock erosion, that's very simple, right? If you person 93% marketplace share, while nan different 3%, it wouldn't return that overmuch for nan flimsy displacement to occur. There is nan CFO of nan hunt business that includes Windows. Phil Ockenden is his name. He mentioned that each percent constituent that Microsoft gains successful nan hunt class would nett $2 cardinal successful revenue, right? That tells you everything you request to cognize there.

Microsoft is astatine astir $6 cardinal annually from hunt springiness aliases return based connected these numbers. There is simply a clear liking there, and they tin do it without seeking a very precocious separator because this is each incremental for Microsoft. This is each engraving connected apical of their existing business lines.

Meanwhile, Google has to beryllium highly protective because they - this is cardinal to their business. It was astir 56% of Google's gross successful Q4. And truthful they person to beryllium protected connected that.

On nan marketplace stock side, I do want to constituent retired that location are truthful galore things that spell against nan ID that Google searches that, right, aliases thing for illustration that. But first, we person to see what precisely does a Bing positive ChatGPT competes with, right? Google hunt includes things for illustration Gmail, things for illustration Google Maps. Any benignant of ads you spot erstwhile you hunt done nan Google Play Store, Google Lens, right? Those things, they don't moreover impact an AI, conversational AI.

So that portion is irrelevant. So they don't needfully break it - break down what portion is what successful their hunt advertising, but location are each these properties that are included successful there. Google Search itself has aggregate layers connected mobile. It's not needfully threatened by nan aforesaid type of hunt astatine you spot connected desktop, right?

So nan ChatGPT positive Bing is much of a desktop investigation thing. It's been good documented that Google doesn't activity to make money connected everything you do done its ecosystem. They want to clasp their personification successful nan ecosystem. Some aspects of nan conversational AI possibly astatine a debased separator aliases a little separator floor plan and that doesn't needfully mean nan thesis astir nan spot of Google Search is wholly flipped, right?

Daniel Snyder: What astir nan costs to tally each of these things, though?

Bertrand Seguin: And that brings maine to nan 2nd situation astir nan separator and nan separator floor plan of nan hunt category. So nan - what you whitethorn perceive astir if you don't cognize yet, but you'll perceive much astir them, they are nan conclusion costs. And truthful conclusion is nan compute cost, if you will, erstwhile you tally unrecorded information into a instrumentality learning algorithm.

So to effort to make it simple, if I type successful Google, Amazon Q4 earnings, it's going to put a nexus to nan Investors Relation website and MO [ph] set, right? So that's a really debased costs for nan compute powerfulness that needs to tally down it. But if I ask, what are nan main takeaways from Amazon's net according to tech analysts? Now nan information that nan strategy has to spell through, to sift through, to springiness maine a due reply that is summarized pinch nan correct numbers pinch conscionable nan cardinal points I request to know, nan compute costs is overmuch higher.

And truthful if location is simply a caller anticipation that astir hunt arsenic that benignant of delivery, of course, it will adversely effect nan separator profile. But what is important to support successful mind is that not each searches require that level of breakdown, right? Sometimes you conscionable want to cognize astatine what clip is nan movie tonight. Sometimes you conscionable want to cognize really overmuch is nan formation costs correct now to alert complete to Vietnam aliases immoderate that whitethorn be.

So it's - wherever Google makes nan large quality is and erstwhile you hunt for a trip, erstwhile you hunt for options to bargain something. And truthful it's not ever going to situation nan gross broadside of things, it will situation astatine slightest to an grade nan costs broadside of things.

But 1 very important constituent that was precocious made by ARK Invest. They've made bold claims, right? ARK Invest is known for making wealthiness claims connected Tesla aliases things for illustration that, but they made a bully constituent this week connected Wright's Law and fundamentally nan aforesaid logics, you could use to nan main conductors wherever nan conclusion cost, conclusion costs related to compute, nan compute powerfulness fundamentally required to get those investigation done is expected to diminution importantly successful nan upcoming years to a constituent wherever it go really, really small.

And truthful possibly that situation connected nan gross margin, which is apical of mind correct now arsenic we watch nan communicative unfold, is not going to matter arsenic overmuch conscionable for illustration 12 months to 24 months from now. If we spot those conclusion costs driblet 50%, 70% arsenic nan - conscionable nan wide infrastructure evolves and accumulation scale, which I deliberation erstwhile you person that successful mind, you tin make an knowledgeable determination connected whether you still judge Google will support its stock aliases springiness distant immoderate of its share, springiness distant immoderate of its margin.

But it's a small spot overdone successful my position successful position of a monolithic displacement that, like, we've seen pinch nan motorboat of nan iPhone because of Google's ownership of nan Android ecosystem, its lead connected mobile and things for illustration that.

And possibly 1 past constituent connected nan artists that are really eager to watch is postulation acquisition cost. We talked astir this past clip we shared together, Daniel, which was would personification other determine to participate Google's Fray by paying Apple (AAPL) billions of dollars $20-plus cardinal it would costs to beryllium nan hunt motor by default connected Apple devices.

Microsoft gives Google a rent for sound money connected nan postulation acquisition cost, that could really situation nan marketplace share. And truthful those are gigantic amounts, right? If Google pays springiness aliases return successful 22 apparently, Google paid adjacent to $20 cardinal successful postulation acquisition costs to beryllium nan default motor connected Apple devices.

So if Microsoft comes successful and says, I'm going to salary up astir $30 cardinal for this, then, yes, nan full scenery changes, but it's highly speculative astatine this point. And who knows what Apple would want to do, right? But those are nan things that will beryllium nan tentpole events that could really situation a batch of things that I said coming connected marketplace share, if that makes sense.

Daniel Snyder: So I'm gladsome you brought that portion of astir reducing nan costs to compute each of this. Because I was reference earlier astir who - it was Brian Nowak of Morgan Stanley. He 1 [ph] is truthful acold is to opportunity that if Google coiled up seeing half of his queries utilizing earthy connection integration, it could raise nan company's costs arsenic overmuch arsenic $6 cardinal and trim net earlier liking and taxes by up to 6%. And you're saying that they're going to find ways to trim those costs.

So does it benignant of make sense? I mean, we deliberation astir hunt now, right, you spell to Google, you spell to Bing, you search, you spot ads correct distant astatine nan apical of nan results. I mean, if you get free of those ads because of it's thing for illustration ChatGPT, which I deliberation a batch of investors person been playing astir pinch trying to fig retired what it is, there's nary ads there.

So are they going to beryllium capable to trim nan costs based disconnected of utilizing things for illustration renewable power to powerfulness these information stations? Or I mean, what's nan - what is nan point that investors should beryllium watching successful regards to really these companies scheme to trim those costs to make this point not bleed into their financials of it?

Bertrand Seguin: Yes. No, those are fantabulous points. I deliberation that's wherever nan - astatine slightest marginal effect connected nan gross profit coming from hunt will exist, particularly successful nan short-term. And Wright's Law says those things astir really costs is expected to steadily diminution arsenic we summation nan earthy for illustration accumulation size and nan infrastructure underneath it. So it remains to beryllium seen, right?

So possibly it seems - it will look that conscionable 2 years, 3 years down nan statement pinch that these costs were down to alteration and that generative AI would not costs arsenic overmuch arsenic it does successful 2020 - it did successful 2022. Even assuming nan states correct now of $6 cardinal impact, yes, it impacts nan again, nan short-term. But I would gauge that Google would beryllium consenting to sacrifice that short-term gross profit because what is astatine liking is overmuch bigger, right, is that - correct to constituent retired to that retention wrong nan ecosystem.

So, of course, from nan valuation angle, if you commencement building models and extrapolates nan separator floor plan complete time, past immoderate of nan unit connected Google's value and information is warranted, right? You could say, astatine slightest until we person much clarity, location are a scope of outcomes arsenic increased. And pinch that, arsenic an investor, you could say, well, I request to beryllium paid much to wait, right, because now nan downside consequence is arsenic increased, right? And I deliberation that's wherever it comes into play wherever you person to see much outcomes. And that's really I deliberation astir it.

So it's not going to beryllium achromatic aliases white, right? It's not going to beryllium there. That's it, $6 billion, and it's going to get worse from there. It's astir apt going to beryllium little from location if we judge successful Wright's Law and springiness credence to our put study connected that. And if not, it would - Google would still beryllium a business up and moving pinch a batch of things going connected nether nan hood. If this is past what, right? Is it nan extremity of nan world? Most apt much apt than not. It's not nan extremity of nan world for Google.

Daniel Snyder: Yeah. So I person to inquire you if an investor came retired to usage personification successful your work and was like, hey, we're looking astatine nan AI race. Obviously, you conscionable gave a awesome summary of beautiful overmuch everything that's going on. You had to take Microsoft aliases Google. If you had to put your sanction down one, which 1 should we beryllium focusing connected correct now?

Bertrand Seguin: Yeah, bully question. And I'm biased. I person to commencement pinch that because I'm - I've been successful nan gaming manufacture for nan past decade and I've been watching nan manufacture move to mobile and watch Google really return complete nan world into pinch Android and go nan mobile OS winning too Apple.

And truthful I person been each on very disappointed pinch Microsoft's nonaccomplishment to clasp nan mobile world. And Microsoft has done tremendous occupation successful truthful galore different areas, right, to beryllium a elephantine it is today. But it grounded astatine mobile, it grounded connected nan hardware, it grounded connected package side. And instead, it's 1 successful different things that were wholly unrelated. I was an early investor successful LinkedIn, for example, that was bought existent correct by Microsoft.

And truthful I deliberation they made a awesome move there. I still deliberation they make nan correct move pinch Xbox moreover though it will return clip for them to afloat present astir their premise pinch their unreality service. But overall, arsenic acold arsenic hunt goes and arsenic acold arsenic AI-powered hunt goes, I person my money pinch Google each time of nan week because moreover if it tin suffer immoderate of its mindshare correct now if location is simply a clear grounds that and early grounds that ChatGPT positive Bing delivers whilst Google has yet to travel retired pinch a solution. Then it could spot a flimsy shift.

But I do deliberation that it's reasonable to judge Google will travel retired pinch astatine slightest arsenic competent devices to do hunt existent AI to put it simply. And that's erstwhile they do, I don't deliberation group will beryllium eager to move from Chrome, right, that group person been utilizing and are very attached to, to Microsoft Edge and to rebuild their full Internet's desktop chimney done Microsoft Edge. I'm very - I uncertainty it. I uncertainty this would beryllium meaningful. And Microsoft would struggle to participate nan mobile space, right?

So that's wherever a batch of hunt is going on. And for arsenic agelong arsenic Google owns that ecosystem and has a measurement to beryllium nan default motor there, it will beryllium very difficult to for Google to summation important marketplace stock wherever it matters. So that's for search.

With that being said, if we move to nan AI-powered cloud, I deliberation this is simply a plaza [ph] because Google Cloud is still distant third, right? And moreover though they are going to usage AI use to their full unreality services, I deliberation Microsoft is making awesome moves pinch Azure and everything powered by AI wrong Azure and that their ample customers are very happy pinch it.

So I would opportunity that this is - it's 2 different, very different segments of their business, and they - I deliberation they will some triumph connected their respective segments. It doesn't person to beryllium 1 complete nan other. It conscionable depends connected what furniture of nan AI stack we're talking about.

Daniel Snyder: But I want to return a measurement backmost a second. Mentioning earlier astir really you spell to hunt and Google gets a batch of advertisement gross from their search. You put retired a awesome floor plan recently, and we're going to put it successful nan show notes present connected Seeking Alpha of nan different advertizing gross numbers that Google aliases Meta aliases Amazon make each azygous quarter.

I deliberation if group are reasoning astir really nan hunt functionality mightiness alteration complete time, what's going to hap to this advertisement gross for these companies? And possibly you conscionable want to locomotion america done nan floor plan a small spot if there's thing you want to constituent retired arsenic well.

Bertrand Seguin: Yeah, yeah, yeah. And I would opportunity nan logic why I built that this floor plan is to thief group digest and contextualize nan advertizing gross scenery correct now, because it's easy to get first successful nan headlines and you person to excavation heavy wrong a 10-Q aliases a 10-K to really break down good what is what?

And truthful because location were truthful overmuch talk astir really Microsoft is disrupting everything, and this is nan caller hunt giants, I wanted to besides reassess that, well, this is nan authorities correct now of nan market. Amazon has been doing it. We're truthful overmuch talking astir Microsoft that Amazon is disrupting hunt because they're connected way to - they conscionable made 27% of Google hunt gross was Amazon advertizing gross successful Q4 2022.

So they've built a business that is much than a 4th of nan biggest advertizing business offers. And that's much than a double tally 2 years ago. If you see Q3 2020, which was only $5 cardinal successful gross from Amazon advertising, it has go almost $12 cardinal successful gross successful nan past quarter.

So fascinating to watch Amazon advertising, I deliberation everybody knew it was happening and group are making nan aforesaid assumptions connected Apple and its capacity to present a $30 cardinal tally complaint successful nan adjacent 3 years. So we are seeing slow for illustration those ample ecosystems find a measurement to monetize their assemblage and to really make a difference.

Of course, we person Meta successful nan floor plan that is nan 2nd biggest one. Mehta has been comparatively level successful nan past 2 years, right, there. It has its immoderate stock of challenges because users are not increasing anymore. So it has to find different ways to summation its mean gross per user. But…

Daniel Snyder: And Apple has wholly demolished them, right?

Bertrand Seguin: Yep, yep. So that for those who don't cognize Apple launched nan AppTrackingTransparency, which fundamentally makes it much difficult for level to monetize its audience, because they person - they don't person nan aforesaid capacity to triangulate aliases to spot wherever - what our different sites that personification has been to earlier hopping connected Facebook, for example, aliases Instagram.

So they show you little applicable ads, which truthful costs little for nan advertiser. And truthful I don't put successful nan floor plan YouTube because I thought it was connected its ain really large and still penning not successful Q4, but still for illustration an incoming platform. But YouTube unsocial is $8 cardinal gross from Google, right? And they'll person zero effect from nan ChatGPTs of nan world. But conscionable putting it retired there, nan Google - YouTube is astir 11% of Google's wide gross alphabet, I should say.

And truthful what I emotion pinch this move astatine play is it reasonably shows that well, midtown is waiting for its 2nd wind. We'll person to spot if it happens and it whitethorn not beryllium connected nan advertizing side. Probably Reels taking complete what has been nan more, like, bequest platforms revenue, nan - what we telephone nan feed, right, aliases Facebook provender erstwhile you adjacent call.

Meanwhile, it's still Google. This is still very overmuch a increasing business, but that's possibly will look its first, like, a setback successful nan upcoming quarters if it loses marketplace share. But I spot nan usage of Google Lens expanding significantly, nan imaginable for Google Lens to beryllium shoppable. There are different ways Google tin really make this Google Search constituent of Thrive. But I wish they collapsed it down more.

So that we person a amended consciousness of really large is Google Map retired of Google search? How large is Gmail? And those things are almost their ain abstracted media empires that's that will beryllium worthy studying because they travel different rules successful position of a pretension and monetization.

Daniel Snyder: It's an absorbing constituent that you bring up astir Amazon. I mean, connected this chart, I looked backmost astatine Q3 of 2020 and it was bringing to $5 cardinal of advertizing revenue. And now Q4 2022, they're astatine $11.6 billion. I mean, that's an easy double successful nan adjacent - past 2 years, and that's based disconnected of Twitch and nan Amazon store, right?

Bertrand Seguin: That's correct. Yes. Twitch is astir apt comparatively mini retired of that, but we don't person nan nonstop breakdown unfortunately.

Daniel Snyder: And past you besides person Google here. You said Google Search's gross for ads is down 4% year-over-year, but it sounds for illustration you're still each successful pinch Google. And I deliberation that's a bully earthy transition. We want to evidently talk astir nan 2 stocks that you are saying are a awesome opportunity correct now.

The first banal is Taiwan Semi (TSM), which I want to commencement pinch because we conscionable saw nan 13F filing from Berkshire (BRK.A, BRK.B) that they dramatically reduced their liking successful Taiwan Semi. So why do you opportunity that it's still a awesome opportunity astatine this infinitesimal successful time?

Bertrand Seguin: Yeah. When you deliberation astir nan move astatine play of nan AI race, Taiwan Semi is conscionable 1 of many. And truthful I deliberation complete nan past year, I've been much inclined to look again successful nan semiconductor manufacture conscionable because it is suffering correct now from proviso concatenation movements that followed nan pandemic, right? And aft shortages, you spot a glut.

And essentially, short-term fundamentals get wounded pinch imaginable slowdown. The first half of 2023 will astir apt look very disfigured for TSMC. And truthful it really comes down to your clip horizon, right? And for companies for illustration TSMC, but besides NVIDIA aliases AMD, what you're seeing correct now is you person to benignant of clasp your chemoreceptor and look astatine nan capacity realizing, okay, this is going to look bad correct now, but 5 years down nan line, those companies that are powering virtually everything we talked astir today, right?

So nan title betwixt Google and Microsoft astir whether it's connected nan unreality broadside of things aliases nan hunt broadside of things. All these compute powerfulness that is needed to get location they are nan picks and shovels, right? Especially for TSMC because they are really building nan hardware, right? That's going to powerfulness each this.

And truthful location were rather a fewer developments that were absorbing to maine successful position of their description to nan U.S. benignant of derisking somewhat nan geopolitical facet of it, which will ever beryllium nary matter what, right? That's thing to support successful mind, TSMC is based successful Taiwan. And truthful you ne'er cognize what could hap successful position of nan business for Taiwan and really it is considered connected nan geopolitical landscape.

But each that said, TSMC is simply a batch cheaper than it utilized to beryllium arsenic erstwhile you look backmost astatine nan past 2 years, it was not a by decidedly passim 2021 and early 2022. But for nan past 3 months, three, 4 months, it looks appealing because location are bully developments successful position of Apple being wished to person TSMC ramping up things successful nan U.S. pinch nan financials semipermanent looking patient arsenic ever and nan valuation becoming much palatable pinch if you look astatine nan EBITDA aggregate because it's benignant of easier to watch a inclination pinch nan EBITDA.

You tin spot that it's nether nan extremity of nan spectrum of nan past 20 years, right? Something for illustration 7 to 10 times EBITDA really depending connected nan clip of nan time you're looking and nan clip of nan month. But this is - I added it to my portfolio 1st of January decision, truthful it's up 25% since then, but don't deliberation I'm a genius. Everything is up 25% since nan opening of nan year.

But I still consciousness for illustration beautiful bully astir that introduction point, and it's my - beryllium an opportunity again later this year. All I cognize is that I recovered it difficult to reason against owning Taiwan Semiconductor successful a well-balanced portfolio because it has that world exposure. It is nan earthy compute powerfulness astir nan emergence complete AI. And that that's really really I deliberation astir it.

I find it harder to take sides not to ain it. And past we won't spell heavy into nan - erstwhile precisely to bargain and what should beryllium nan reddish flags. I do that monthly pinch my subscribers, but astatine slightest for really it was trading successful nan past 3 months, I'm beautiful happy. I started buying immoderate shares.

Daniel Snyder: I was going to inquire you, I mean, played successful devil's advocate, right, because group for illustration to do that. You brought up nan geopolitical broadside of things. But what besides about, I mean, it feels for illustration almost each period they're coming retired and announcing that they're spending much and much connected CapEx, right? And it takes them everlastingly to build these boundaries moreover nan Arizona sheet and trying to get nan 3-nanometer started and past yet there's, arsenic we each know, there's going to beryllium for illustration a 2-nanometer and a 1-nanometer and immoderate is aft that. Like, it takes truthful agelong to advancement done that and there's truthful overmuch superior spend. Like, we cognize nan backlog is beautiful full. But, I mean, that's a agelong time, clip horizon. And if China decides to invade Taiwan, does that disrupt nan operations and nan build?

Bertrand Seguin: It could. I deliberation this is each about, like, tin location beryllium a dependable travel of trade, right? And if waste and acquisition changes, and now you person everything that goes retired of Taiwan that sees complications. Yeah, I deliberation nan imaginable China penetration of Taiwan makes nan position sizing successful key, right?

So nan - erstwhile we talk astir risk, we move nan speech to a very different one, which is portfolio management, consequence guidance and position sizing. Meaning, would I person 20% of my portfolio successful TSMC? Probably not, right? Because they are - location it's each astir again going backmost to this conception of nan scope of outcomes.

If location is simply a wide scope of outcomes pinch a possible, like, a really antagonistic 1 that involves that finance being a very challenge, past it's not needfully smart to build a very ample position because we want to facet your downside risk, right? So that's benignant of for illustration really I cannot region nan risk. But I tin show it by adjusting nan size. So that's really I mostly deliberation astir that.

And connected nan CapEx side, I would say, that's nan quality of nan beast, right? It's conscionable portion of nan business we're successful here. This is 1 of nan astir profitable businesses successful nan world by far. So nan operating separator successful and disconnected of 50%. So I don't comprehend nan CapEx arsenic excessively large of an rumor because it is good documented pinch nan way grounds that it is money good spent.

So it benignant of, again, makes you clasp your chemoreceptor successful nan short-term. But if nan information is present and again, I've been successful nan mobile gaming manufacture aliases sometimes you walk a ton to get users, but you're only going to make money from them two, 3 years down nan statement for those who clasp and go dense spenders. That's really you work, right? You activity pinch nan afloat life cycle, you spot wherever it's going to get you and you walk that money erstwhile you person each nan information and intelligence to cognize you're doing nan correct thing. So that's really I deliberation astir it.

Daniel Snyder: Now let's spell up and get into that 2nd banal prime that we were going to talk astir today. And that's a package company, right? Why don't you spell up and conscionable denote what it is and what's nan thesis present down this one?

Bertrand Seguin: Yeah. Sure. I do a heavy dive each period for members of nan Economy Portfolio, wherever I spell into nan specifications of why I deliberation a institution looks special. And truthful nan institution you person covered 2 weeks agone for nan February banal ID, it was Monday.Com (MNDY).

And truthful if you hunt for a benignant of a package instrumentality that helps you collaborate and beryllium productive, you must person seen gazillion ads that travel connected YouTube and elsewhere because they are very fierce pinch their income and marketing. So nan agelong communicative short is 1 of my favourite point to do is to find businesses that look for illustration nan large successes of today, but really it looks for illustration possibly 10 years, 5 years to 10 years ago.

And so, productivity and work, what they specify themselves arsenic a activity OS, a activity Operating System, meaning wherever you shape your activity arsenic a company, mini aliases big. And you person different companies that succeeded successful that section for illustration ServiceNow aliases Workday that person go package giants, right?

And interestingly enough, if we locomotion backmost Memorial Lane, Daniel, and we spell backmost 10 years ago, 2013, ServiceNow and Workday look precisely for illustration Monday.Com today. To a T, you wouldn't judge it, I pulled a fewer charts for my members, but nan gross maturation rates, nan separator profile, operating separator connected a GAAP basis, nan rate travel separator everything is fundamentally nan - they were for illustration Monday.Com, and they had everything looking nan same. And if you look guardant now, truthful 10 years later, well, if Monday tin travel that path, we're looking astatine a 10x to 20x.

So americium I saying it's going to do 10x aliases 20x? I don't know. I really don't. But I for illustration my - oh, it's present and I attraction connected what I tin control. So if I statement nan ingredients of nan look are successful nan pot, I deliberation I'm going to person a bully meal, but that's nan mentation astir for illustration putting things together here. What - it's difficult to put successful package companies that are unprofitable successful this existent environment.

However, moreover though we person a imaginable liquidity situation and liking complaint being higher and discount rates changing a small spot really you deliberation astir valuation, those things are temporary. They are cyclical. And moreover though we could enactment successful this rhythm for five, 10 years, who knows?

The information correct now is astatine a constituent wherever it could get cheaper, but it's not going to beryllium a batch cheaper because astatine immoderate point, you conscionable person aggregate that conscionable make consciousness fixed nan gross maturation complaint and wherever nan separator floor plan should beryllium astatine scale. The measurement to deliberation astir it is really does nan institution look astatine scale? So they walk a ton of money to get users that do income and trading expenses.

However, down nan line, they cognize that much than offset each these costs because group who get acquired and participate nan ecosystem yet walk money and they walk much money complete clip arsenic they turn their teams connected nan platform. And that's really you cognize that down nan line, you're going to get a beautiful separator floor plan for nan business that is going to return worth to shareholders.

And truthful that business, specifically Monday.Com logic why I do attraction astir it successful this situation is that they almost person $1 cardinal alternatively than $853 cardinal connected their equilibrium sheet. Barely immoderate semipermanent debt. So these guys tin money their maturation arsenic overmuch arsenic they want, and they're already rate travel positive. They are already generating aggregate rate travel margins supra 10%.

And truthful they make rate done their business already. They person a ton of rate connected their equilibrium sheets if they want to get aliases adjacent it statistically aliases conscionable beryllium much fierce aliases prosecute more, they tin do that. They person 2 Co-Founders that are still heavy - they are some CEOs, they are Co-CEOs, and they are still what I for illustration to find successful companies is to find CEOs aliases Founders that person tegument successful nan game. Meaning that nan occurrence of their institution is still very overmuch important to them and successful their champion interest.

So we're talking astir much than 30%, 32%, I believe. They're still owned by nan guidance squad here. So this is - those are each nan ingredients I really look guardant to money comparatively smaller companies that tin spell 5x to 10x because they person each nan - each these ingredients. So mini company, they usually spell pinch a smaller position. We conscionable touched connected nan scope of outcomes and nan position size. So, typically, Monday would beryllium a comparatively smaller position coming.

However, I really do for illustration nan likelihood erstwhile I look astatine different mature businesses. No guarantee again that they're going to travel that pattern. Not each institution tin extremity up being ServiceNow, right? But nan - it's Maya Angelou, who says hole for nan worse, dream for nan best. I mean, beryllium unsupervised by thing successful between. So that that's wherever we are for Monday.

Daniel Snyder: I thought that 1 Monday.Com was an absorbing banal prime conscionable because I was looking astatine it connected Seeking Alpha. Even I'm looking astatine it correct now, nan quant is simply a beardown bargain arsenic well. Wall Street has a bargain standing connected nan stock, Seeking Alpha authors person a bargain standing connected nan stock. The short liking is 18.5% and nan banal is up 41% year-to-date. I'm signaling this February 15th.

So, I mean, it's just, like, possibly somebody's listening into this correct now. Is your connection of proposal to this is still a awesome introduction point, but we're expecting this for years and years down nan roadworthy aliases hold for a pullback and past drawback an entry? What would you opportunity to those people?

Bertrand Seguin: Yeah. Well, first of all, not a financial adviser. I cognize I don't make recommendations, arsenic you good know, but I do stock really I invest, right? And truthful I bought Monday connected nan 1st of February, which was my past ray trailer going pinch my heavy dive. So, yes, it's up 28% arsenic I look successful this corner. There's my surface correct now.

So it's really done very good successful nan past 2 weeks conscionable because nan marketplace has been increasing for conscionable successful general, investors are much comfortable being consequence connected correct now pinch imaginable ostentation going down and different things astatine stake. But does it request silver? While I intend my dream erstwhile I bought 2 weeks agone is to spell for a 10x to 20x complete 10 years if everything goes really right.

And truthful is it swept 30% up and down 40%, [ph] I wouldn't put anymore? Of people not, right? So I still person it connected nan very precocious extremity of my watch list, and I will proceed to build up my position successful this year. And, yeah, it's - I don't deliberation astir it connected conscionable nan 10%, 20% move that changed my mindset erstwhile I find a institution that is special, talking astir leadership, talking astir culture, talking astir nan portion economics, those things don't alteration from a 4th to nan adjacent aliases based connected a 10%, 20% move. So I still put it correct location astatine nan apical of my watch list. Yes.

Daniel Snyder: Bertrand, convey you for taking nan clip to speak pinch america today. Like I said earlier successful episode, you're a contented machine, you're ever putting retired complete update arsenic each month. You're creating these astonishing information charts that I really highly promote everybody to spell look at. I mean, it makes nan income statement, nan equilibrium sheet, everything is conscionable truthful overmuch simpler erstwhile you look astatine it. But I sewage to inquire you for nan group listening, wherever tin they publication your research?

Bertrand Seguin: Yeah. Thank you for asking. So I'm fundamentally connected Twitter @EconomyApp. That's wherever I station a batch of my charts. I effort to support them beautiful and entertaining, truthful that group tin grasp businesses successful seconds. It takes maine hours to create them, truthful I dream group bask them. And my portfolio service, which is really wherever I stock nan unsocial video of wherever I really put my money is my premium work connected Seeking Alpha for illustration full equity portfolio wherever I person nan committee of hundreds of investors who we talk things for illustration what we talked astir today, Google, Microsoft, AI, and truthful on.

So really, this is what I'm astir grateful for having a organization of like-minded investor joining and tag you along, and that's why I bask truthful overmuch what's - what we built now connected Seeking Alpha and epically, station work is very typical plates for maine to stock my thoughts.

Daniel Snyder: Just a reminder, everyone, if you enjoyed this episode, time off a standing aliases a reappraisal connected your favourite podcasting app. And we'll spot you again adjacent week pinch a caller section and a caller guest.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

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Welcome to nan Investing Experts Podcast. Each section Daniel Snyder interviews experts recovered connected Seeking Alpha who supply topical takes connected nan banal market, dive into macro and banal analysis, and talk trending news items. Subscribe connected Apple Podcasts to ne'er miss an section -*Nothing successful this podcast should beryllium considered financial advice. Do your ain investigation and speak pinch an advisor earlier investing.*

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