Josh’s Worst Call This Year | WAYT

Meta's Muse Ignites AI Rally [00:01:18]

• Meta has launched Muse, an AI product integrated into its platforms like WhatsApp and Instagram.
• The company is heavily advertising Muse, even during NFL games, indicating a significant investment.
• This launch is compared to the introduction of Reels, a strategic move to compete in a new market.

  "And I think it could be the most important company event since they came out with reels where they said, Nope, tech talk is not going to win. We're going to win. Here's our product."

Meta's Market Cap Skyrockets [00:01:43]

• Meta's stock price has surged from $578 to $740-$750 in three weeks, a 28% increase.
• This has added between $400 and $450 billion in market capitalization, a record for the company.
• This market cap increase is comparable to the entire market cap of companies like Costco or Procter & Gamble.

  "So that is $163 per share in all three weeks. Um, it's up 28% month to date. Um, this is basically meta adding between 400 and $450 billion in market cap."

Meta's Dramatic Narrative Shift [00:02:11]

• Meta's stock was in a substantial downtrend for over a year, with concerns about CapEx spending and ROI.
• It was considered one of the worst-performing "Mag Seven" stocks alongside Tesla during the summer.
• The launch of Muse has led to an overnight outperformance, changing the entire narrative around the company.

  "Meta had been locked in this substantial downtrend and it got caught up in this, you know, are they spending too much in, in CapEx?"

Investor Takeaways from Meta's Rally [00:03:04]

• The rapid change in Meta's fortunes highlights the wide range of outcomes in the AI trade.
• Investors had previously thrown in the towel, with the stock trading at low multiples due to concerns about spending and ROI.
• Muse's success, immediately becoming a top-ranked app, shows the potential for massive new revenue streams.

  "To me, the biggest takeaway for a $1.4 trillion stock knocking on the door of 2 trillion in a three week period shows how wide the range of outcomes for this entire AI trade build out."

Meta's Monetization Prowess [00:04:02]

• Analysts are raising earnings estimates for Meta due to its proven ability to monetize products.
• The company's willingness to increase earnings multiples reflects new potential revenue streams from Muse.
• This demonstrates a new, unexpected leg to Meta's business that investors are now factoring in.

  "It's not just that they launch products. It's that they're really good at making money. And so I'm seeing some earnings estimates go up, but the multiples are going up."

Never Bet Against Zuckerberg [00:04:48]

• The narrative questions when investors will learn not to bet against Mark Zuckerberg's ability to innovate and adapt.
• Past instances, like the pivot to mobile and the acquisition of Instagram, are cited as examples of Zuckerberg overcoming skepticism.
• Despite past successes, the market's inherent nature is to focus on current performance and future expectations, not past achievements.

  "Like how many times has the consensus said, well, he's really done it this time. Now he's in trouble."

The AI Land Grab [00:06:47]

• The launch of Muse signifies a "land grab" in the AI agentic assistant space.
• Companies are racing to establish a dominant position in this new market.
• Meta's strategy with Muse is to create a personal assistant that performs tasks, distinct from conversational AI like ChatGPT.

  "So when, when, when you say land grab, people sometimes don't even know what that means or, or there's a great Tom Cruise, Nicole Kidman movie called Far and Away."

Muse's Rapid Adoption [00:08:14]

• Muse quickly became the number one free app on both the Apple iOS and Google Play stores.
• It garnered 902,000 downloads in its first six days, significantly outperforming Meta's own AI app.
• Analysts at Evercore ISI view Muse as a hit, validating Meta's AI investments and signaling new monetization opportunities.

  "Muse became the number one free app on, uh, the Apple iOS app store and the Google play store. As of yesterday, it is available for people 18 years and older."

CPU Stocks Rally on Muse Architecture [00:09:44]

• Muse's technical architecture, utilizing CPUs for specific tasks within a secure virtual machine, has boosted related stocks.
• Advanced Micro Devices (AMD), Arm Holdings, and Qualcomm saw significant gains.
• AMD has now joined the trillion-dollar market cap club, surpassing Intel.

  "Muse has a very unusual technical architecture that reshuffles the way people are thinking about the AI chip trade."

Market Breadth Concerns [00:11:10]

• Despite the S&P 500 near all-time highs, market breadth is weak, with many stocks at lows.
• This divergence is historically concerning, with similar setups in 1973 and 1999.
• However, the percentage of stocks down 30% or more year-to-date is surprisingly low (4%), unlike previous periods.

  "We've never in almost 100 years seen breath this bad. The S&P is knocking on new highs, but there are many more stocks at lows than highs."

Cap Weight vs. Equal Weight [00:13:08]

• The market rally has been heavily dominated by mega-cap stocks (Apple, NVIDIA, Meta), widening the gap between cap-weighted and equal-weighted indices.
• Apple and NVIDIA are near record highs, while Meta's surge has significantly contributed to this trend.
• This concentration suggests the AI trade is primarily benefiting a few large companies.

  "This is Apple, NVIDIA, and Meta all at the same time getting their shit together."

NVIDIA and the AI Trade Valuation [00:14:00]

• NVIDIA, seen as personifying the AI trade, is trading at a discount to the market (16 times forward earnings).
• This valuation reflects disbelief in the sustainability of its earnings.
• The semiconductor sector as a whole is trading at a discount, indicating market skepticism.

  "NVIDIA is the sum of everything AI, right? It is trading at 16 times forward earnings. Yeah. Isn't that nuts?"

Netflix's Troubled Performance [00:14:53]

• Netflix has experienced a significant drawdown, with the stock performing poorly despite earlier rallies.
• A key decision to potentially acquire Warner Brothers is cited as a major misstep, leading to increased debt and operational issues.
• The stock is down 47% from its highs, and investors are struggling with whether to sell or hold.

  "So I've been wrong in every venue I've talked about this stock. I've been wrong writing about it. I've been wrong on TV about it. I've been wrong on this show about it."

Bear Case for Netflix [00:16:28]

• Wells Fargo and HSBC analysts have cut price targets for Netflix, citing compressed valuation multiples and declining engagement.
• Concerns include a lack of major original hit series and increasing competition from YouTube.
• YouTube's strategy to expand into living rooms is seen as a significant, unanswerable threat to Netflix's market share.

  "YouTube strategy is to expand its presence on televisions and in living rooms, intensifying competition for screen time."

Bull Case for Netflix [00:18:18]

• Evercore ISI raised its target for Netflix, citing multi-year highs in US subscriber penetration and improved churn intentions.
• Live event viewership has significantly increased, broadening the platform's appeal.
• Netflix's buyback program and potential for double-digit earnings growth are seen as positive factors.

  "U.S. subscriber penetration actually hit a multi-year high of 63% according to their own survey."

The Difficulty of Buy and Hold [00:20:39]

• Research indicates that the odds of beating the market by holding individual stocks for 10 years are low (23%).
• The cost of holding underperforming stocks is substantial, with losers falling significantly behind the S&P 500.
• Conversely, winners significantly outperform, creating a massive gap between top and bottom performers.

  "The odds of beating the market have fallen sharply. Only 23% of the top 500 stocks, U S stocks held for 10 years, beat the index."

Bonds Offer Attractive Yields [00:23:37]

• The 10-year Treasury yield is around 5%, offering an attractive real rate of return.
• While yields may rise, the cushion provided by the current yield mitigates significant losses.
• Bonds offer a safer alternative to equities, which carry the risk of losing principal.

  "I'm very thrilled with a 5% yield on a 10-year. And guess what? If it goes to 5.8%, I'll be even happier."

Warren Buffett's Compounding Legacy [00:26:07]

• Warren Buffett's Berkshire Hathaway has delivered exceptional annualized returns since 1965.
• Even a hypothetical 99% drop in Berkshire's value would still have outperformed the S&P 500.
• This highlights the power of long-term compounding and disciplined investing.

  "The most face-melting chart. This is one of my favorite investing data points. I think I heard this from MedFaber first."

Cathie Wood's ARK Innovation ETF [00:27:10]

• With market sentiment showing few bulls and rising bears, there's potential for a rapid shift if the market moves higher.
• ARK's top holdings, including Tesla, SpaceX, and Coinbase, are largely off their highs and in downtrends.
• If a "risk-on" environment emerges, ARK could see significant benefits, though its active trading strategy presents risks.

  "So look at this chart. So these are her top six holdings and they're all working pretty well."

Snowflake's U-Shaped Recovery [00:29:04]

• Snowflake, a 2021 IPO, has experienced a significant drawdown and is now showing signs of a U-shaped recovery.
• The stock was bought near its high after a period of consolidation, a strategy that can work but carries risk.
• The setup involves buying after initial performance, with a clear exit strategy in place.

  "I want to show you a technical chart here, too. All right. This is where I think this area, July 29th, is where I bought it."