Nike’s Fall, Netflix Growth, and What We Learned in Q3

Travis Hoium (0:02)

Nike just didn't. Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and Jason Hall. I do want to get to Nike's numbers, guys, because they were not very impressive after the market closed yesterday. But we've also ended the third quarter, the calendar third quarter. So I want to know what you guys think we learned about investing, about the market, about where we're going from here. Lou, it seems like there's a lot mixing together, interest rates are higher. But when we look at the market overall, what is driving things?

Lou Whiteman (0:40)

Yeah, kind of a state of the union, right? Okay. Well, I mean, look, I think we have to start with AI. AI has been all we're talking about this entire year, and it has been driving the market. I think what we've learned in this last quarter, though, is that maybe, just maybe, the frontier, that's where the hype has been, but that's not where the money is. All of these companies that we're racing to get to, imaginary friends, super intelligence first, all of the billions being spent, in the meanwhile, real companies are putting lesser models to work and driving real efficiencies. I think that's been the gloom and doom talk. I'm convinced that Anthropic and OpenAI are just trying to maybe slow the spending and focus on revenue ahead of a potential IPO, and so maybe that's kind of why they're talking about, well, we can't, we got to just slow down in the frontier. But I think it's pretty clear at this point that maybe one day, frontier will be where the money is. But for now, you don't have to be the best of the best to actually start to drive revenue.

Travis Hoium (1:42)

Jason, it does seem like we're in a strange place with AI because it's not only driving the market, it's also driving the economy. We'll get to some of your consumer thoughts in just a second. But have we learned anything about where the business models are actually working in artificial intelligence because this is one of the things where if you look at these stocks, some of the valuations are up crazy. Then some like Oracle, for example, is down I think over 50 percent since they signed that huge deal with OpenAI. So it seems like it depends on where you are. It's not AI is lifting all boats, it's lifting most boats, but not necessarily everything.

Jason Hall (2:15)

Well, it's lifting the big boats. If you look at the hyperscalers, the massive multi-trillion dollar companies, they're being lifted a ton, the picks and shovels companies, the big tech companies that are making the tech, they're being lifted because the money is flowing to and through those businesses right now. But I think the bigger thing to remember is this is super duper early. Now it's lifting the economy too broadly because money flowing to companies that are building stuff and skilled tradespeople that are earning great money, and then they're spending that money back in the local economies. All that's happening, but again, it's so early as much as the big dollars are flowing into a small group of companies now.

Look at Anthropic, and to a little bit lesser degree, but still pretty impressive, OpenAI, their revenue growth rates are off the charts. And if those growth rates continue, even if they moderate a little bit, they're gonna be generating some gigantic numbers in just a few years.

Lou Whiteman (3:09)

Hopefully, hopefully. Because yeah, I mean, the business model question, I think the interesting part is, I don't think we know. As Jason says, it's way early, so I don't think we have to know. But the business model right now is throw you know what at the wall and see what sticks. And some of it has stuck. I mean, Anthropic has a pretty good enterprise business going. We'll see if and when we ever see like actually their S1 and their full set of numbers. There's been rumors about maybe that momentum hasn't proven sustainable, so I'm curious. But just a couple of quick stats on this, because I think that this is the biggest question we still have. This is just one person's opinion. Apollo Global Management estimates that annual AI end user revenue has to hit between 1.5 and 2 trillion dollars annually by 2030 to justify all of the build out spending. Right now, guys, worldwide, according to the Gardner Group, all spending on software, business and consumer, every dollar we're spending is 1.47 trillion.

So basically, Apollo says, this only works out for these companies if they represent the entire global software spending budget for consumers and businesses, plus a little for inflation, in just four years.