Daniel Creech 00:00

Hey everybody, welcome to the Wall Street Unplugged podcast for a fantastic Thursday, October 29th. I’m Daniel Creech, and I am solo as the one and only Mr. Frank Curzio. He remains out of the office today—have no fear, he’s not lost or anything like that; he will be back—but recovering from an excellent Curzio Wealth Forum conference. Now, you know the drill: when I’m in charge, we’re talking about whatever the flying Florida I want to talk about, within reason, of course. I’ll give my thoughts on the Fed announcement and Mr. Warsh’s Q&A yesterday, talk a little bit about the inflation data and how it’s going to force the Fed’s hand. Big earnings—okay, I’ll go a little bit on Microsoft and Google. After-hours went the opposite ways today; Microsoft is selling off just a little bit. And then I’ll take a couple of questions, because it is Thursday, Q&A day. Let’s get right to it. Mr. Warsh, yesterday, in a compact, short statement, said very little, and even more, uh, to take away.

Daniel Creech 01:09

This guy is a very good politician, as I joked yesterday. The Fed didn’t make any changes yesterday, as it shouldn’t have been a surprise. We explained there was only a 10% chance of a move. Not going to surprise anybody for political reasons—although you can’t say that, don’t say that. What stood out to me yesterday? Well, the very first question was pretty good and pointed. I like those direct. Basically, the question was, hey, inflation is rising, and in the past, the dot plot—which Warsh doesn’t care about or contribute to, participate in—why didn’t you just raise rates this time? And Warsh did a good job tiptoeing and dancing around, well, you don’t want to get too caught up in recent data, and we got a lot of data coming up, and we’re going to be data-dependent, and you can’t just run this on a short term. You can’t drive by looking at the hood ornament, is basically what he was saying. It’s dangerous. I understand that. I heard a new term from him that I hadn’t picked up on recently.

Daniel Creech 02:08

If I did, let me know about it. Interrogate reality. Look out the window and interrogate reality. Kind of take stock in what’s going on around you. I appreciated that. Of course, we had a lot of task force. We did get one little update on this task force, and that is on November 16th. He’s going to be commenting on some findings and such. He still has a deadline for the end of the year on the five task force that we have talked about, and we’ll see how that goes. Now, let me just dive into the political realm here, just for a moment, in anticipation to have fun and maybe make one or two of you mad, but not on purpose. The 12 members voted 10 to 2 to keep rates changed. Two of them wanted a political—excuse me—a rate hike. And one was appointed by a Biden official, Cook, and the other was elected by the board. So when you break down the 12, 7 are appointed by a president, 5 are elected by the Reserve Board.

Daniel Creech 03:12

And the only reason I’m saying this and having fun is because you could go down a rabbit trail and Cook and Trump going back and forth and all that kind of thing. However, what I appreciate this, and the reason I’m teasing this, is because Warsh was asked two different times, at least that I remember, about politics playing a role in this. And he did a great political job of denying and kind of dodging that question, saying, listen, if you were sitting next to me in these meetings the last couple days, you didn’t hear politics or midterms or elections at all. I don’t know if I believe that completely, but I’ll take the gentleman at his word. As we talked about, the odds of a rate hike before a midterm, going back to the ’90s, has not happened. And is it political? Do I believe it’s political? Absolutely yes, I do. Well, there, that settles that. I don’t know why people get upset with that, but hey, I get it. When you’re on—when you’re playing sports, when you’re on certain color teams, red, blue, independent, whatever, you can hardly ever admit anything if it doesn’t go your way or it doesn’t boost you.

Daniel Creech 04:15

That’s not what we do here. I think it’s political. I don’t know why you can’t say it’s political, but evidently you can’t. But they held steady yesterday at the Fed. But make no mistake, we talked—I mentioned yesterday how the odds of a rate hike come December were in between 70 and 90%, rounding. There’s no way those are tanking today. There will be more rate hikes in the future. And Secretary Scott Bessent yesterday was talking with CNBC in the Treasury Building, and I thought it got a little taken out of context on some headlines I read. But essentially, one of the questions was, would it be a mistake if the Fed continues to raise rates or if we have higher interest rates? And Bessent kind of dodged that, and I just think he was really massaging the fact that, hey, everybody knows and expects we’re going to get another interest rate or two, A, because the dot plot is hinting at that, and two, because inflation continues to go in the wrong direction, and that would be higher. Now, last thing here on Mr.

Daniel Creech 05:13

Fed Warsh—or Fed Chair Warsh. He did say, hey, we’re keeping rates on hold for now. Inflation is still a problem. Five, six years above target. He’s digging in his heels about this 2% goal and trying to convince the market and sentiment that they’re serious about that. I don’t think he’s done it yet, but he’s trying to in his defense. And he did talk about how GDP is growing at a very solid pace. Over 3%, according to the last reading. That will probably go down in future, as it usually does. However, it’s still growing at a big pace. And remember, that is part of this 3-3-3 of Treasury Scott Bessent’s plan, which is to get the deficit to GDP back to 3% or lower. It’s at 6 right now, people. Florida 6 should be peak deficits. He’s also trying to get the 3%—3 million barrels of oil production a day. And then you want 3 million barrels of oil production per day.

Daniel Creech 06:16

That’s a massive increase. And then he wants to get to 3% or more GDP growth. So that’s the 3-3-3. Well, the GDP growing at a steady pace, obviously because of a lot of capital expenditures and a lot of infrastructure spending. But Warsh did make a comment that stood out to me, and he is not letting his true colors be known. I’m not saying he’s being misleading, but he’s playing it close to the vest on saying, hey, he’s okay with GDP growth being positive and possibly running the economy hot. Because yes, that could lead to some inflationary pressures as demand continues to increase and you have all this capital. We’ll see how that plays out. But that’s a big difference between just saying, hey, the economy’s picking up and we’re running hot. We got to squash that. You know President Trump’s in his ear. He doesn’t believe that’s the case. We’ll see how he manages that. But that did jump out to me, and I wanted to explain that. And I do think that Bessent’s comments were—he hadn’t seen, as of yesterday, the GDP numbers, or at least he said that.

Daniel Creech 07:24

Take all that with a grain of salt. Now, why are the Fed’s hands tied? Well, it simply comes down to inflation is going to force them to hike rates at least a couple more times. Again, if nothing else, then to get the investor sentiment and this Willy Wonka and Wizard of Oz environment that we must participate in or compete in, for lack of a better word, is going to force their hands. So personal consumption expenditures came in today. This is one of the—actually, it’s the Fed go-to for inflation. Let me throw some numbers out here, people. PCE came in at 0.5%. That was in line with expectations. The big issue here is that’s up from 0.3% in August. So earlier this year, we could see kind of a little bit of a drawdown in these inflationary readings, and now it is ticking back up higher. Not only was the 0.5% higher than August, the September 0.5% higher than the 0.3% in August, August actually got revised higher from 0.2 to 0.3.

Daniel Creech 08:26

I’m not going to make a big deal about that. I’m just simply saying the direction is very clear. You usually have revisions higher, and then it is increasingly still. You take core PCE—that’s one of the favorites. We love to strip out energy and food. That grew at 0.3%. Also in line with 0.3 expectations. That’s fine. It was 0.3 in August. So September and August, you could argue, hey, that’s not bad. It’s flatlining. However, that also core was revised up from 0.2 to 0.3 in August when the September numbers came out. Year over year, PCE is 3.6% year over year. That’s higher than the 3.4% in August. Bear with me. I’m about done boring you with numbers here. And core was 3.1% year over year, and that’s a tick higher than the 3.0% in August. The big takeaway there: rates have got to go higher, if nothing else, then to convince people that, by goodness, we’re serious about this six-year over-target.

Daniel Creech 09:28

And just to bring this back to common sense and reality for a moment, you guys, whether you’re in a position of leadership or ownership of a business or simply an employee—not praising or knocking any one of those—if you sucked at your job for over five, going on six years, how do you think your performance review would go? And do you think you would still have that same job? I’m going to take a quick coffee break and let you ponder that one. All right, glad we came to the same conclusion there. You got to have fun with this, people, because if you—you can stay in the crazy lane, you can’t go to the insane lane. That ruins everything, okay? So be cautious there. All right, so Fed, much ado about nothing. Rates are going to go higher in the future, and then we’re going to try to figure out really what’s going on. The task force is going to play a big role in that. I’m still in the camp of a hike or two, and then, boy, we’re going to have—we’re going to have reasons and possibly some economic and geopolitical reasons to cut well if the Iran war doesn’t turn into another forever war.

Daniel Creech 10:41

That is also up in the air. Turning to some earnings. Now, yesterday, two big dogs reported: Microsoft and the mighty Alphabet, also known as Google. Microsoft first, popped about 4% after hours. Let’s see what it is doing at the moment. It’s down about 1.5%, but still holding in there given the volatility in some other names. The big takeaway here is, my goodness, Azure, its cloud services, growing like crazy, and management expects that to continue, picking up the growth pace. Looking forward to next quarter. Now, they just reported Q1, so they’re guiding for their Q2. Important to remember. They expect Azure to grow 49 to 50%. Put that in a little bit of context. That’s above the 45-ish analyst consensus we’re expecting.

Daniel Creech 11:43

Obviously, that’s positive. The real takeaway here for me is Google is absolutely crushing it on cloud, like all the hyperscalers are and need to continue to help keep this AI momentum up. However, they still produced incredible cash flow, okay? They were still cash flow positive during the quarter, and they came in at about 18.6 billion. Now, for context, that is significantly lower on the free cash flow side year over year because their capital expenditures are going through the roof. They are not slowing down. They are managing it well because the free cash flow numbers are there. But the real takeaway here is, hey, they are going to continue to just have this 49 to 50% growth. The street loves that. The only thing that I want to point out here is they’re—and again, I don’t want to beat this horse to death, however, I just think it needs to be on top of mind here with this whole AI momentum and concerns. Anthropic, about to go public, needs to go well for the overall market because when you look at Microsoft—and I’m going to talk about Google in just a moment—but essentially, when you ask AI and you look into some, try to read between the lines and such, Anthropic is essentially, or OpenAI is essentially 40-some percent, 45, can maybe even be 50% of the entire backlog of over 600 billion for Microsoft.

Daniel Creech 13:15

Now, Google and AI have a good partnership, or Microsoft and AI have a big partnership. Google and Anthropic have a bigger partnership. Again, you can point out the criticism that a lot of this AI, the majority of this AI momentum promises productivity and future value is hanging on these two companies. And that is okay to be concerned about, and you want to manage that. But hats off to Microsoft because they continue to tell the street, hey, we are going to continue to invest, but we are being able to monetize this. And what they really need to show in the coming quarters is this productivity, okay? They need to show productivity and margins hanging in there. Margins for Microsoft did hang in there and are continuing to be pretty good. And guidance was in line with everything. Even revenue was up a little higher going into the next quarter. Now, let’s switch gears to the mighty Google, Alphabet. These guys heard the street saying, hey, we’re concerned about CapEx.

Daniel Creech 14:19

We think you guys have to show this productivity coming through. We want to make sure there’s a return on investment, return on capital, and all that kind of stuff. And Google said, hold my Florida beer. And the stock is reacting. It was down over 10%. It’s down about 11%. Now, one thing I want to ask you guys is, do not get caught up in this—I was listening to some financial media earlier today, and I understand, hey, we have to report about something. I’m in the same game. I want to keep your attention. I want to entertain you, but I want to provide value as well. Keep your eyeballs, keep your ears tuned in. I was listening to some financial media, and they were like, oh, this is one of the largest market cap losses in Google history. It could be 400, 500 billion dollars. It’s down over 10%. It’s weighing 50 points on the S&P 500. This, that, and the other. Yes, that’s true. Is it a big deal? No. Why? Because this is a—gosh, what is this market cap?

Daniel Creech 15:23

I mean, you’re—this is one of those situations where you have this trillion-dollar, multi-trillion-dollar market cap. Of course, if you have a big down day, it’s going to be a significant amount. That’s like saying, oh, Elon Musk is no longer a trillionaire when the SpaceX pulled way back after its IPO. Oh, he’s no longer—yeah, that’s a good headline. Oh, yeah, he’s losing a lot of money on paper. Do not get caught up in that. Don’t let that influence a decision that you’re making. It’s just Phil. And that’s okay. It’s like the—email me, daniel@curzioresearch.com. You guys have all heard this, I’m sure. And if you haven’t, then I’m setting you up so you can ignore it whenever you unfortunately will hear it. And people say, do you know that the majority of accidents that people are involved in happen within five or six miles of their house? And I’m probably butchering this stat. I don’t care because it’s worthless. And people go, oh, yeah, wow, that’s incredible.

Daniel Creech 16:25

Why is that incredible? You spend the majority of your time in that area. Of course, the odds or the when something does happen is more than likely going to happen in the place you spend the majority of your area. I mean, if I go to Colorado once every 25 years, the odds of me getting an accident are not near as good as me driving around in Jacksonville, people. All right, see, I got off on a little rant. I’m back. I’m back. I hear you. I can hear you yelling at me. Thank you. Let’s stay on pace. So Google, back to Google for a moment. Google is selling off over 10%. Why? Well, it’s not because of a lack of growth in cloud. It is doing absolutely fantastic. It is because of two major components. One is the core business. So think of search, think of YouTube, think of advertising is slowing down. And that trend is clear. I’m going to throw some numbers at you here for a moment. But Frank has timed this perfectly in the past because Google has gone through this—let’s pull up a longer chart here.

Daniel Creech 17:28

So if we just skip over here real quick to Finviz, we’ll look at a Google chart. This is on a weekly basis. So each bar you’re looking at is a week. This is going back to late 2022 on the chart. These ebbs and flows and the big pullbacks here are related to AI, especially going on from about the middle of my screen here. And the point I’m trying to make here is you have this AI frenzy and momentum, and hey, that’s going to boost all the big tech. And then it’s like, well, maybe it’s going to eat into Google because of search, and if AI is going to steal some of their market share because you can now search for what you would normally Google for or search through Google, can be done through OpenAI, can be done through Anthropic, can be done through Grok. And there is more competition there. However, Google managed that, put its weight and resources behind it, and it has incorporated AI in its search. And so there’s still more competition, in my opinion, but they really figured it out and they controlled margins.

Daniel Creech 18:28

And you can see this stock rebounded. Now we’re getting those same type fears. And I guess the way I would want to characterize it in a different manner is I talked about Vertiv yesterday and how that was kind of a shot in the AI trade arm and it was needed. They needed to show, hey, we were improving from last quarter. We’re improving supply chains. Whatever the street was worried about to sell off your stock, you need to address that like Musk does during conference calls. With Google, now we’re back into the fear side. It’s like, okay, hey, AI was scary at first for Google. Then they kind of managed it, massaged it, integrated it, and they were benefiting from it. Now we’re back in the camp of maybe it’s because of Halloween coming up. We’re a little scared about AI hurting its core business. And there is some good reason here because when you look at Google from the past 12 months, six months into yesterday’s report. So you look at Google Search and Other. I’m going to break it down between Google Search and Other and then the YouTube advertising.

Daniel Creech 19:25

Google Search and Other, 12 months ago, okay, 12 months ago, was growing at about 19%. Six months ago, it was growing at 17%. Yesterday’s report came in at 12. Well, in context, that was actually lower than analyst estimates. Now, when you have that situation, when you see a trend, okay, inflation is going higher, that’s a negative trend. This trend is going lower, but it’s also a negative trend because we’re talking about growth. YouTube advertising was growing at about 15% 12 months ago, dropped to 13%. And these vary. I’m not saying this is set in motion and they’re going to go down to zero. They can ebb and flow through different quarters for a number of reasons. I’m just helping put into context the move today. 15% growth 12 months ago, 13% six months ago. Yesterday’s report came in at 9, also lower than expectations. That is the big driver behind this 10% pullback. In addition to that, last year, last quarter, excuse me, Google reported for a negative free cash flow number.

Daniel Creech 20:29

Well, now it is a streak. Two in a row, Google. Tip your hat to them. I mentioned Microsoft came in at a positive 18.6 billion. Google lit $9 billion on fire in the free cash flow category. That’s negative $9 billion. Goff clap to them guys. Of course, they have a lot of flexibility. They have—and they said that CapEx for its next fiscal year is going to be significantly higher. They kept the range for this year’s CapEx, but they said next year is going to be significantly higher. So you’re burning through free cash flow. Two negative quarters in a row. You’re actually slowing on your growth in your core businesses, still generating massive amounts of profit. You’re slow growing because now people are worried back in the camp of AI, and you’re signaling to the street, forget higher interest rates. Yeah, we’ve already done an equity raise. We are going to spend more CapEx next year. That’s a lot of negativity, excuse me, to digest in a day, and that is also why the stock is getting hit.

Daniel Creech 21:34

Now, would I buy Google here on this pullback? No, I’m not trying to catch a falling life unless your time frame is further out in the future and you are okay emotionally to stomach a lot of volatility within the next six months. And also, you better be prepared to hold this over a year and almost not look at it if you’re willing to just initiate a position right now. We’ve timed this pretty well. I’d like to see how this performs on the charts. Again, if you’re a trader, there’s opportunities all the time. What I will say from a longer-term perspective, if you don’t want to go bottom fishing, again, I hate to be a broken record. I don’t say this because it’s easy. I say it, it’s because I do believe it’s a good thing, just like buying Bitcoin. If you’re going to buy this here, I would not buy it unless you’re willing to buy it both in the future at a higher or lower position or price to add to that. Longer term, remember, Google has a very good partner in its back pocket or on its lifeline.

Daniel Creech 22:33

Think of a Batphone or a Redphone for the president. Google has a Berkshire Hathaway line, okay? They can call Greg Abel up. He’s already been buying stock hand over fist in Google, which Buffett, to his credit, started the position. And then they already participated in the recent equity raise that they did there. There’s just a lot of—I don’t want to say Berkshire is all in on Google. I simply want to say I think that Berkshire showing the backing in Google is significant. And I would put that on the positive side of the T chart, looking anywhere near long-term or past a trading mindset with Google. And so yes, it hurts if you bought this in the most recent days or if you’re a trader. This pullback really hurts you. However, I wouldn’t get too crazy. And as Tom Petty, the late great Tom Petty sang about, waiting is the hardest part. You have to see how, just like with Vertiv, hey, they showed you they can turn around things within one quarter on the supply chain.

Daniel Creech 23:37

Google needs to—I’m not saying it’s going to happen next quarter. They’re definitely aware of what’s going on in their core business and slowing. So they want to massage that, manage that, and then also really put the foot pedal to the metal on the cloud services. One thing that both of Microsoft and Google said, we will hear from Amazon tonight. I expect the same thing. And this is the nucleus of this bull market and/or secular bull build-out, if you will. And that is supply continues to outpace demand. And Google even is going to take a little bit of hit on near-term margins because they got to use third-party capacity because there’s just no more power capacity, no more compute capacity, etc. There’s only so much they can deliver. And now they’re going to third parties, meaning their costs go up just a little bit. Margins are going to take a hit. However, I’m not trying to ignore all this. I’m not saying to be blind and put your head in the sand. I’m saying you want to monitor these things over the longer term.

Daniel Creech 24:36

And yes, that’s hard when the stock’s going against you. However, the macro picture is what I’m trying to reiterate and point out the positives and negatives there. Hopefully, that kind of helps you guys a little bit. All right, Q&A Thursday wouldn’t be Q&A Thursday without a couple of questions. So let’s go there. Let’s see if I can help you guys here. From Steve gets the first question, one of two. He says, “Howdy, guys.” He says, “Something I am not seeing much in the media or anywhere, except I see it everywhere.” All right, Steve, riddle me this. Let me explain. He says, “I travel quite a bit, national and international, through the US and internationally. One thing I continue to see everywhere,” all caps, well done, Steve, “are massive infrastructure projects. Roads, bridges, not just repairing, but expanding new lanes, new roads to new destinations. It doesn’t matter if he’s in a big town or small town. Construction seems to be everywhere.” He says, “It’s not slowing. Even with the price, price is soaring.” So he’s talking about diesel.

Daniel Creech 25:41

He’s talking about transportation costs, construction inputs, think materials. And he says, “But projects just keep on going. Is this a carryover from the 2021 infrastructure bill, which was over a trillion dollars? And to what extent, if any, is this an economic indicator that things might not be as bad as headlines are telling us?” All right, Steve, well, that was a good question and description. I’ll say this, to answer your question. Yes, the spillover from the 2021 infrastructure bill over a trillion dollars during the Biden administration has a lot to do with this. And because when it’s passed in 2021, not all the projects start in 2021. A lot of them didn’t even start till 2022, ’23. These are a multi-year. In fact, looking through that bill or just kind of Googling and scanning through it, a lot of those dollars are allocated for different years. And some of those are still going through ’25 and ’26. The Trump administration, who knows what’s hidden in a lot of the bills they already passed.

Daniel Creech 26:40

No doubt they’re going to print money and send it towards construction and all kinds of roads and bridges. Plus, you had the fact that the state and federal up their spending allocations through this bill. And they’re just like a lot of sectors. There has been a lot of delayed maintenance. And we saw that. And I’m not trying to pick on them, but just to pick a local example, there was a huge issue with a pretty busy intersection downtown in the small town I live in. And it didn’t take long for word to spread that, hey, we’ve known about issues like this downtown. They keep kicking the can down the road, blah, blah, blah. And then you have a big problem. And then the roads tore up for a long time, yada, yada, yada. Just magnify that across many places and even larger projects, which is very aggravating. So where we live in. Now, yes, so a lot of it is from the infrastructure bill.

Daniel Creech 27:42

Not saying good or bad. That’s just the way legislation works. The other thing is, to your question on, does it show that the economy is better than maybe headlines are telling you? I wouldn’t go that far because we do have this K-shaped economy. And I know some people take issue with the K-shaped economy, whatever. We have a divided economy. We have those that have assets and are wealthy, are doing very well because they are protected or the rise in prices that the average person sees and feels don’t affect the wealthy. That’s not rocket science, okay? In the bottom half, if you don’t own a lot of assets or you don’t have a high income or a high net worth, then you are really hurting. And the idea there, so when headlines are showing, and some of the headlines are political right now, the affordability issue is real. Costs have been skyrocketing for several years.

Daniel Creech 28:42

The inflation rate is still stubbornly high, meaning not only have prices risen on a cumulative basis, but they are still rising. We want that rate to go down. But again, as I pointed out yesterday, our Fed only wants to take away our purchasing power by 2% a year. That’s the Florida Gold people. So remember that. So I don’t think that this is kind of the economic indicator, the GDP is massively influenced by infrastructure projects and spending. So GDP is growing at this over 3% right now, in part because of massive infrastructure projects. Now, a lot of that’s data centers, infrastructure, roads, bridges, blah, blah, blah. That doesn’t mean that the overall economy is doing well. And it sure as heck doesn’t mean that the average person feels like the overall economy is doing well right now. And again, you’re going to argue from your own perspective.

Daniel Creech 29:45

If you and your family are doing well right now and business is booming and your job is safe, hey, life is good. If you’re on the flip side of that, of course, life isn’t good. And hopefully, that makes some sense there. Now, I know he didn’t ask, but just to try to provide some value here, and I want to show you this. If you look at who would benefit from some of these stocks. So we have Vulcan Materials. Let’s look at VMC. And I’m not telling everybody to go out here and buy these firsthand. You do your own research and homework. I’m just going to give you a couple of highlights because we’ll go to the old Finviz and show you that these guys are engaged in production and construction aggregates. They’ll think asphalt, concrete, etc. And you would think, man, this thing has got to be booming because you have over a trillion dollars into this bill. It’s a multi-year project. And this is on a weekly basis.

Daniel Creech 30:47

If you switch over to a daily chart, a yearly chart, the stock is actually, it was having a great day today. Maybe it came out with earnings. But it’s not near its 52-week high. In fact, before today, what is that? That’s 8%. So that’s positive. If you want to look at Martin Marietta Materials, MLM, I’m just giving you guys some infrastructure stocks in place. They’re all getting a pop today. But again, this has sold off over the last several months, which would kind of go against your natural thought of just thinking, well, hey, if it’s going to be just the idea of, hey, we’re going to throw money at this. We’re going to build all these new roads or repair these new, repair old roads and bridges and such. What I would look for in digging into these, if I wanted exposure to this specific sector or space, is see if there’s fixed, what can they increase on the fixed terms of the contract? And I’m sure they have price hikes built in, kind of like fuel surcharges that FedEx put in there.

Daniel Creech 31:54

But I would look into that. Another one is an old favorite. We had this for a little bit, then Frank got a little bit nervous on just the lumpiness of spending and how this can handle, but Tudor Perini, TPC, not the golf course, but TPC, the ticker. And then Granite Construction is also another one. And there’s several more, but I just wanted to highlight that GVA there. And then Construction Partners Road is the ticker. And most of those stocks kind of look the same. They’ve been beaten up more than you would think. But overall, yes, this is from a lot of this is from the previous administration coupled with the current administration. These take years to play out. It will impact GDP, but that doesn’t mean that, hey, things are more rosy than what some of the negative headlines are talking about. All right, next question is from Stefan. So we got Steve, Steven, and then Stefan.

Daniel Creech 32:54

And he says, “Gents, with all the AI gone wild FUD out there, how far, if at all, have you guys gone into cybersecurity sector?” He says, “One of my favorite YouTube carnival barkers, love that term, threw out a bunch of tickers.” He talks about CrowdStrike, Snow, Zscaler. Let me pull up CrowdStrike here. And also Palo Alto Networks. Stefan, here’s Palo Alto Networks. I got to say that slow. That doesn’t look good to me when I read it. This is a daily chart. These are all, I’m going to show you this trick I reiterated several times. Go down here to peers. I always put them in order by market cap and then click the charts. And you’ll notice these essentially look the same. And what I mean by that is the stocks are going from the lower left to the upper right in a bullish trend. Yes, some are closer to their highs than others, but there’s really none out of this handful.

Daniel Creech 33:59

And again, take the handful with a grain of salt. But there’s really none that are tanking here, okay? And you want to pay attention to market caps and such like that. I will say this, CrowdStrike, to have fun here. I remember politicians buying CrowdStrike quite a bit when those disclosures came out. I believe, well, I’m not even going to name them. I just remember seeing, and I’m not talking one side of the aisle. I’m just talking when you see the insiders, for lack of a better word, buying and selling stocks, might want to put that one on your short list. If you want exposure to this, I would look at maybe buying an ETF. And I know sometimes we get bad about ETFs, but hey, personally, you ought to have exposure to a market ETF. Don’t take my word for it. Take Buffett and everybody, every other brilliant hedge fund guy that says you have a portion of your money in a low-cost ETF, costs are important, play the market. That’s very good. And then you want to get selective and individual stocks.

Daniel Creech 34:56

You can use an ETF for certain sectors. I think there’s several of them out there that are positive, depending on what sector you want. To answer your question, Stefan, I haven’t done a deep dive into these names. And I’ll be honest, and daniel@curzioresearch.com, I have broad shoulders. I don’t really understand these businesses. I understand the idea that cybersecurity is important. I understand that it should be. I think it’ll be more beneficial from AI than a headwind, but it can be both. Both things can be true. So is AI going to increase the need or the risk to make sure you have protection and some cybersecurity and systems in place and guardrails? Absolutely. Can at the same time, AI make your competition go higher so it can eat at your market share? It can make it easier in a sense, and I use that term loosely because I’m out of my league here.

Daniel Creech 36:00

But if we get such amazing AI agents, systems, if it’s easier to build those to compete or maybe be your own security, then that could also be kind of a headwind there. I would like to think that, I guess if I had a gun to my head, I would think, well, AI is going to create synergies, either collaboration, partnerships, or takeovers, consolidation within the sector. Because if it is shrinking that market, then maybe they need to get together. I say all that because, as you can tell from me kind of blabbering on a little bit, I would trade these or I would follow the politicians into them. I would look at if I was going to go down this. And again, just because I’m not interested doesn’t mean that I ignore them completely or you should follow my lead.

Daniel Creech 37:01

I’m just trying to be transparent for you guys and say, listen, I don’t understand every sector. I’m not interested in every sector. That doesn’t mean you can’t make money or I’m not missing something here. Do I wish I would have had any number of these stocks that have over the last year that are up tremendously? Of course. And I want that for you guys more than anything else. If I were going to do a deeper dive into this sector, I would look at how they’re trading now on their enterprise value or forward PEs, probably not the best to look at these guys. Some of these are going to be pretty high on a normal basis. I would look at their enterprise value. I would look at how they’ve traded over the last, what metrics or valuations have they traded at over the last three years, and then compare that to today. And also, I would focus on free cash flow. The problem I have when I remember looking into this is that these guys, earnings are so lumpy. The street doesn’t seem to really care about that in some instances.

Daniel Creech 37:57

You got a lot of shares. The share float seems to go higher in a lot of these instances. I’m not saying that’s all negative. I’m just saying it’s hard to wrap your head around that when you’re kind of completely out of your norm. So if you want to take some shots at me, absolutely, daniel@curzioresearch.com. But if you have an interest and you really feel passionately about this and you want more exposure to this, hey, go through your ETFs. Again, I’d tell you another quick tip. You can go to Seeking Alpha, type in a ticker of an ETF, click on the holdings tab. That breaks it down pretty easily. You can kind of decipher from there. But I still think, clearly, these charts are showing that it’s benefiting right now in this need for AI. But these software stocks are clearly benefiting better than the software as a service stocks like your ServiceNow and stuff because everybody’s still fearing AI is eating their lunch. And margins did get hurt with ServiceNow, the coolest guy, CEO on Wall Street with Bill McDermott.

Daniel Creech 38:59

That stock was getting hammered too. So clearly, AI fears are still driving the benefit to the stock price of cybersecurity stocks. And I would trade these from here. So a couple of these are just off their previous highs or even have a double top. If they break through that, I think it’s a great opportunity to let price discovery happen in your favor and ride those names higher. But again, I wouldn’t buy and hold these forever, but I wouldn’t be opposed to you guys trading them. Let me know how you do. I’m in your corner. I’m just telling you what I would look for as this isn’t really my bag, baby, as Austin Powers would say. All right, everybody. Love me, hate me, don’t ignore me, daniel@curzioresearch.com. I will see you Alpha members mañana for a fantastic Florida Friday update. Have at least three earnings reports to go through, and I’ll give some macro ideas there. Questions, comments, we look forward to it. Send your questions to askcurzio.com or Frank or myself email, and we will see you guys back here next week.

Daniel Creech 40:00

Have a wonderful, safe weekend. Cheers. 

Announcer 40:02

Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money, and your responsibility.