Artificial Intelligence (AI) Investors Get Ready for a New IPO

In this podcast, Motley Fool host Dylan Lewis and analysts Asit Sharma and Jason Moser discuss:

• The dockworkers strike, its daily cost, and the industries it could impact most. (Editor’s note: This podcast was recorded before the strike was called off.)
• Upcoming AI chip IPO Cerebras, and how the company is approaching high-performance chips differently than the competition.
• Fresh earnings from: Nike, Paychex, and McCormick.
• Two stocks worth watching: PepsiCo and Joby Aviation.

October 2024 marks 20 years of Rule Breakers at The Motley Fool. To celebrate, we’re airing a portion of a conversation with Motley Fool co-founder David Gardner and former Rule Breakers analyst Matt Argersinger from our premium Epic Opportunities podcast. David fielded questions from our investing team about his own investing process and reflected on his six traits of a Rule Breaker and the companies that the framework led him to follow.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 04, 2024.

Dylan Lewis: NVIDIA competitor is coming soon. Are they a legit threat? Motley Fool Money starts now.

Jason Moser: Everybody needs money. That’s why they call it money. From Fool Global headquarters, this is Motley Fool Money.

Dylan Lewis: It’s the Motley Fool Money radio show. I’m Dylan Lewis. Joining me over the air wave is Motley Fool senior analysts Jason Moser and Asit Sharma. Fools, great to have you both here.

Asit Sharma: Good to be here.

Dylan Lewis: This week, we’ve got an AI fueled IPO, coming to the market soon, some fresh numbers from Nike, and of course, stocks on our radar. Gent, sometimes we kick off the big macro. This week, we are getting started with a look at the big supply chain. We have 45,000 union dock workers on strike this week affecting ports along the East Coast and the Gulf of Mexico. We’re recording this a little bit earlier in the week than our usual radio show just due to schedules. So we are hoping for a quick resolution, but bracing for one that might take a little bit longer. Jason, this strike affects 36 ports, estimates are pegging around four billion in economic losses per day, suffice it to say this is going to be a bit disruptive.

Jason Moser: Yes, I think that is probably correct. I mean, we’ve been talking about inflation and interest rates, you name how many years Dylan, it feels like we’ve been talking about it for the last decade, granted, it’s probably been only a couple of years. But I mean, this is something that I think extends that conversation, certainly. I think an interesting part of this and a lot of people may not really even think about this. But based on the language from the Union, this really seems to actually be a fight against automation. Technology is behind this. I was reading about this. The Union had the message on the side of a truck, at some point here reading that it said automation hurts families. ILA, the Union, stands for job protection. They really are concerned about the fact that automation could come in to impact their jobs and ultimately their livelihoods. I guess that makes sense. I mean, you look at the scale of this. I mean, we’re talking about the East and the Gulf Coast ports here. This affects 36 ports. This is the first strike affecting those 36 ports since 1977. So it’s been a while. Ultimately, we think about the inflation and interest rate conversations that we’ve been having over the last several quarters over the last couple of years. I mean, this really does bring this stuff back into play because the longer this goes on, the bigger of an impact this ultimately has, and is looking at some data there. JP Morgan, for example, they estimate that a strike that shuts down these ports could cost the economy $3.8-$4.5 billion per day. Ultimately, you have to recover that over time. You look at the American Farm Bureau Federation, they’re talking about a 3-5 days strike. That’ll ultimately take two weeks to clear. In other words, these shortages, it takes two weeks to get things back into order here. I mean, if you’re talking about a three week or longer strike year, we’re talking about early January 2025 or even longer before this stuff gets cleared out. So it’s definitely something that they could have a big impact not only on the American consumer but clearly all of the businesses that are getting us our stuff.

Dylan Lewis: As we’re processing some of the different business impacts, we saw some of the international ocean carriers sell off a little bit on this news, Asit. I think there’s some expectation there’s going to be lost revenue, probably some extended processing times. Are there any other places your head goes to as worth watching or stories you’re paying attention to with the story?

Asit Sharma: Well, Dylan, I would think any consumer facing companies are ones to watch if this thing goes on. As Jason pointed out, the near term effects are large, 4-5 billion dollars a day. Actually is a small fraction of some $27 trillion in US GDP, but those numbers start to build and we will all feel them. So we’re looking at a holiday season coming up. We’re looking at a time when people are used to spending and getting what they want. This may be just an unpleasant memory resurfacing when supply chains get snarled. We can’t get the goods, inflation shoots up, and it’s just a double whammy at this time of year. So I’m looking at lots of consumer goods companies that wouldn’t come to mind initially but are going to feel the follow on effects.

Dylan Lewis: I think around this time last year, it’s interesting to be here again because we had the UAW auto workers strike and part of the push there was for better pay. The UAW is a much larger union than the International Longshoremen’s Association. But Jason, it seems we are seeing labor organization and unions continue to gain momentum, anything you’re watching when it comes to how that affects companies?

Jason Moser: Well, I mean, it’s very understandable. Folks want to be paid and the cost of living is it continues to go up and so this is something that’s top of mind for any. All I can say, Dylan, mean, thank goodness, we’re already passed National Banana Split Day because the ports here. They handle 3.8 million metric tons of bananas each year. That’s basically 75% of the nation’s supply, according to the American Farm Bureau Federation. So that’s just one good example, I think of how this can really play out over time. Bananas, it sounds silly, but frankly, let’s just extend that beyond just bananas and think about all of the different things that this can play out in impact. One of the companies that stands out top of mine here that might actually be OK from this. Look at companies that have already gotten through those labor negotiations. You think of a company like UPS, for example. We’re talking about this earlier in the year where UPS got through those labor negotiations. I mean, I think most would agree that workers there got a nice little bump and salary there and got a little bit more certainty as to how the next several years look in regard to their jobs and the salaries that are coming in. So the companies where there is that certainty already locked in. I think that’s terrific. I think companies where that certainty is a little bit less uncertain for lack of a better word. That’s where it becomes a little bit more nebulous. I mean, only time is going to tell how this ultimately shakes out. But it just goes to show you that this is always a very delicate balance and it’s something that is never fully solved.

Dylan Lewis: We’ve got our first look at a company that will be coming public soon that sits at the intersection of two of the topics of 2024, AI and chips, and that’s Cerebras. Asit, the company’s S1 out public this week. Financial media immediately jumping on it and talking about it as an NVIDIA competitor. How are you looking at it?

Asit Sharma: Well, Dylan, I’m looking at it the same way. NVIDIA is the pioneer of using GPU, graphic processing units to do very intensive computations, the kinds that power large language models like ChatGPT. Those are really resource-intensive on a computational level. When you ask a question out of ChatGPT, the GPU, chip unit has to access a memory module. It’s got a computational layer. There’s a lot of work going on here. What Cerebras does. Then I should point out actually. When you have these large language models, you cluster a lot of GPUs together. Cerebras is bringing something novel to the market, which is it’s taking what’s essentially the standard wafer. This is something the size of it’s about 12 inches in diameter picture an oval circle. It’s taking that and cutting out a six inch square piece and it’s performing all the computation and memory on that single layer. It says that it has inference capabilities that is answering our questions to GPT that are 20 times faster than NVIDIA’s GPUs at one-fifth the cost.

Dylan Lewis: There’s plenty of social proof that what they are doing is interesting and worth tracking. I think Cerebras cracks the list of times 100 most influential companies for 2024, also on the list of Forbes AI 50. So people paying attention to that novel approach that you mentioned. What I think is interesting is seeing a company like this come public and having it have a very different financial profile than a lot of the companies we tend to focus on in the world of chips, Jason. NVIDIA is nearly a $3 trillion business. Taiwan Semi 800 billion, Micron, well over 100 billion. Cerebras early days, we don’t know the full valuation, but it is not going to be in that ballpark of Mega CAP, tech companies. Anything that jumps out to you as you look at the books and a business that operates in this space at this scale.

Jason Moser: I mean, this is very early days for a company like this. I’d like to look at this as that six million dollars man thesis. It’s better, faster, stronger. That’s what they’re claiming they can do. To Asit’s point there, it’s these bigger wafers that ultimately are giving them more capability. When you look at the numbers, so in 2021, they were valued about $4 billion based on a recent $250 million funding round. It’s not yet profitable. It’s still working to that point there. But when you look at the total market opportunity and obviously, we know through following NVIDIA, that it is a large one. But when you look through the company’s S1, I mean, they’re looking at their TAM, their total available market at around $131 billion ultimately growing to $453 billion in 2027. When you compare that to a company that’s bringing in several billion dollars in revenue. I mean, rapid revenue growth, they had $78.7 million in 2023. So not even yet $100 million. I mean, clearly, this is a company where the market is very enthusiastic. I certainly understand it, particularly when they claim that they’re bigger, better, faster, stronger. But hey, listen, you mean it’s AI. It seems whether you’re a chip company or whether you’re a restaurant. All you got to do is throw AI in there and all of a sudden, you’ve got the markets attention. So it’s going to be fun to watch this one play out.

Dylan Lewis: We never know exact timelines for when companies are going to come public. My hunch is that we won’t have to wait too long for this one, given the cross-section that it exists in and where the winds are with AI, I think we are probably going to see this company come public fairly soon, guys till then.

Coming up after the break. We’ve got to look at the state of Nike, what Paychex are saying about the labor market, and a little spice. Stay right here. This Motley Fool Money. Welcome back to Motley Fool Money. I’m Dylan Lewis, here on air with Jason Moser and Asit Sharma. We’ve got a few big-time earnings to sort through for the week starting with Nike. Jason, we have been talking Nike a good deal on the show recently. Performance issues, CEO shake-up. We now have fresh earnings to look at. Where do you want to start?

Jason Moser: Well, I mean, I think the obvious place to start clearly is with new leadership, Mr. Elliott, getting ready to step into the CEO role after Mr. Donahoe has left the business. I mean, this was not surprising, I think, in regard to the fact that they basically threw out guidance for the coming year, delayed the analyst day. I mean, there’s just a lot of stuff going on with this business right now. We don’t really have a firm grasp on what new leadership wants to ultimately do. So getting everything out there right now, sort of, I don’t want to say it’s a kitchen sink quarter that hopefully that does come later, but maybe this is the quarter where we get the bad news out. Ultimately, we give new leadership, an opportunity in the coming quarters to lay out the vision. But it’s funny to look at Nike as a turnaround story. But really, frankly, that’s what it is. When you look at the quarter, I mean, it wasn’t a bad quarter. I mean, it wasn’t a great quarter. Revenues down 9%. We expected that. We knew that Nike Direct revenue was going to be challenged. That was down 12%. Nike Digital down 20%. When you look at the geographical segments, I think something to really take note of there, North America was down 11%. I think that’s really significant for a business like this. China down 3% and we obviously know that’s a very big part of the business.

They delivered lower unit sales than were expected. At the same time, they were able to realize some higher average selling prices, which was good. But traffic declines across Nike Direct really did impact the business. That’s something that they’re trying to pivot away from. That was a conscious decision they made several years ago to try to go more toward the Nike Direct, the digital. It’s just not really worked out so well. Then ultimately, when we think about Nike, it’s like Apple being an iPhone company. Nike is still a footwear company that accounts for about 70% of sales. We saw Air Force 1, Air Jordan 1, and Dunk, major franchises. Those are all franchises that have slowed down as well, so stuff to keep an eye on.

Dylan Lewis: We also got some fresh quarterly numbers out from payroll and benefits company paychecks. Asit, this is one that you follow and one that a lot of folks look to as a bellwether for what’s going on with the economy. What do you see in the numbers?

Asit Sharma: Very much so. I think that Paychex is a company that gives us an indication of reading on US economic health. These numbers didn’t look spectacular. Dylan, on the surface, total revenue increased about 3%, and very similar increases for operating income that was up 2%.

The company had about $546 million of operating income in the quarter. But what’s interesting is between the two major components of revenue, the professional employer organization or PEO segment, that increases this revenue to 319 million, a 7% increase on the back of the growth in the number of average PEO worksite employees. That’s just a little indication or reading that we have that the labor market is healthy. Across this report, we saw that payrolls are increasing because small businesses are doing well, mid-sized businesses are doing well. We get to feel that progress in the economy is being reflected in this company. They announced that they are introducing new products that are very customer-friendly, including one called Paychex Recruiting Co-pilot. There you go your obligatory AI shout-out. But I wanted to say that Paychex has actually been working with neural networks and their customer service for a long time. That’s why they’re so sticky as a business. In the payroll world, you not only have to be accurate and easy to use, but you have to have great customer service for those hard-working accountants who are trying to get their payrolls. Paychex has been doing this for a long time. It’s very steady eddy business, which has returned a good amount to shareholders, and over the last five years is averaging just about a double when you include the dividends.

Dylan Lewis: As we check in on it, today, stock is at all-time highs, and it has come up to about this level over the last couple of years. Not coincidentally, it has moderated a bit over the last couple of years, as I think we’ve seen some hiring trends moderate a little bit, too, and companies resize a bit. We’ve talked about some of these coiled spring businesses, companies that might pick up again as economic activity picks up. Would you put Paychex in that bucket?

Asit Sharma: I think so. It tends to be very accordion-like. Just to choose a very similar metaphor. When the economy contracts we see its numbers go down because it’s based on the number of people that are working. That’s how the payroll costs increase for employers. When we’ve got a little bit more economic engine that’s turning, we see this company do well, but over time that accordion plays some nice music. It grows with an economy that is on the whole growing in 5-10 year periods.

Dylan Lewis: I liked Doss its metaphor better. I thought that was a better one. Bringing us home on earnings coverage. We got McCormack and Jason. This is one we previewed on the daily podcast last week because we had a listener wanting your take. Back then, you had said you’d really appreciated the way that management had been setting reasonable expectations for the company and then delivering in what has been a tough environment. Still feeling that way after the report?

Jason Moser: I really do, no big surprises here. It’s not a business that typically surprises you much unless they make some big acquisition like Chula, for example, or French’s mustard, whatever it may be. But all things consider, this was another good quarter. Nothing terribly surprising. Narrative in the call the consumer is still hurting and the focus on pricing, I think is impacting the business. They saw some volume increases there, but they’re trying to sort of be a little bit thoughtful about pricing. Revenue was ultimately flat, but they did see gross margin expand by 170 basis points in the third quarter versus a year ago and earnings per share of $0.83 were up from $0.65 from a year ago. They did mention food service traffic, which is part of the their flavor solution side of the business is still a bit soft across the world really especially in quick service restaurants, and particularly in Europe, and Middle East, and Asia. But all in all this is a company they continue to return. Tons of cash and shareholders, $338 million return to shareholders through dividends over this past quarter. With shares around 29 times full your estimates right now. It’s one to watch. I wouldn’t be buying it at this point, but keep an eye on it. When this thing starts screaming down at that 25 range, then maybe start getting interested.

Dylan Lewis: Jason, Asit we’re going catch up with you guys a little bit later in the show. Up next, we’ve got some cause for celebration and some thoughts on what to look for rule-breaking companies. Stay right here. You’re listening to Motley Fool Money.

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Dylan Lewis: Welcome back to Motley Fool Money. I’m Dan Lewis. The beginning of October marks a massive milestone at the Motley Fool this year, 20 years of rule breakers. Yes, back in 2004, this very week, David Gardner started the rule breakers service and solidified an investing style that our team and countless listeners follow today inside Epic and around the Moley Fool. To celebrate, we’re airing a portion of a conversation with David and former rule breakers analyst, Matt Argersinger, from our premium Epic opportunities podcast. David fielded questions from our investing team about his own investing process, reflected on his six traits of rule breaker, and the companies that the framework led him to follow.

Matthew Argersinger: David welcome.

David Gardner: Hey Matt. Hey everybody.

Matthew Argersinger: We’ve gone to the investing team and asked each of our analysts for the one burning question. They’d like to ask you, David, about investing.

David Gardner: Love it.

Matthew Argersinger: I want to get to those in a minute. For the benefit of someone who may not be that familiar with our rule breaker service, let’s define our terms. What is a rule breaker? Since we have several questions about it, could we also lay out for listeners the six signs of a rule breaker?

David Gardner: Thanks, Matt. I’ll be quick about this. First of all, rule breaker to me, is a company that looks at how the world is working and is disrupting that. It is breaking the rules. If you are competitive which is what capitalism is and you just try to play the game the way Goliath wants you to play the game, you’re probably going to lose every time. But if you take a different approach and break the rules, rethink semiconductors, rethink corporate culture, rethink the Internet, and bring something new and special. That’s a rule breaker. These to me are the stocks that you want to own because they end up being the generational stocks that we all look back on and say, sure wish I’d owned Amazon. I sure wish I’d owned NVIDIA and we have. We have through the rule breaker service also through Stock Advisor. I know there are a lot of newer members to rule breakers and I’ll give the six traits in just a second. But I hope everybody will take time to learn about them beyond just this podcast. You do have access to the service, and I hope it’ll be very helpful. Matt, you asked about the six traits of the rule breaker. Here they are. The first one is that a company be Top Dog and first mover in an important emerging industry. Every one of those words is loaded from important industry that’s emerging right through to who is the Top Dog. Number 2, sustainable competitive advantage, because after all, we’re going to be buying stocks to own them at least three years, preferably three decades.

Having a sustainable competitive advantage is so important. Number 3 is outstanding past price appreciation of the six traits of rule breaker stocks. This is one of the two that is about the stock, not about the company. The first two I shared with you, Top Dog and First Mover, sustainable advantage. That’s about the company. That’s look as business-focused investors, Matt, you know this very well. This is what we do so well at the Motley Fool. But Number 3 is actually just looking at the stock, and here’s a contrary notion. We want that stock going up before we buy it. Well, of course, we want it going up after even more, but you’d be surprised how many people are looking to buy low and only looking for dips, and we’ve done much better by buying high and finding great companies that just keep winning. That’s trait Number 3. Traits Number 4 and 5 both about the company again, trait Number 4 good management and smart backing. It’s all about the people, and who’s actually running this thing? Those are the most important assets. Worn Buffett often said he didn’t like to invest in companies where the most important assets walk out the door every day at 5:00 P.M. I do like to invest in those companies.

I think having Elon Musk on your team, having Reed Hastings at Netflix on your team makes such a difference winning over the long term so good management Smart backing, and Number 5 is strong consumer appeal. Number of the companies that I’ve just lightly referenced are some of the better-known brands of our time. That’s very important to find in rule breakers, and then the final one is just that the stock be broadly perceived as being overvalued. We can talk more about that. I’m sure we will in our time together, but I’ll leave it right there for now. Those are the six traits of Rule Breaker stocks, and I first wrote about those in our book Rule Breakers Rule Makers published in 1998. I’m just so delighted to let everybody know that they’re the exact same six, 25-plus years later. I’m not somebody who looks to create something that’s constantly changing. I realize the world is changing, but I think there’s some real solace, maybe even confidence that we can take in these traits because they’re the exact same ones I wrote about more than 25 years ago. But now Matt we have numbers to show. We have stories to tell. Back then I was a kid in my 20s, surmising what might work on the markets.

Matthew Argersinger: Let’s go to the questions from our analyst. We’re going to start with Kirsten Gara, who works on our stock advisor, and I believe, a couple of our trend services. Kirsten writes Einstein taught us “to make everything as simple as possible, but no simpler.” It’s a great quote. You taught us that Wall Street overcomplicates everything, and you really only need to identify six traits in a company to beat the market. How long did it take you and what was the process like to whittle down your approach from the many questions you could ask about a company into only these six time-tested traits?

David Gardner: Well, first of all thank you to Kirsten. I’ve so enjoyed her work at the Motley Fool, watching her grow and to be becoming such a fantastic analyst over the years. I would say that well I don’t know if you’ve ever taken any personality test Matt but I took Strength Finder which probably some of us would recognize or know, Clifton Strengths Finder. It turns out my number one strength is strategic. I was that’s good to hear. I’m not quite sure what they’re identifying. Then when I read more about it, it’s that faced with any given scenario, I can quickly spot the relevant patterns and issues. I would say, in this case, Kirsten and everybody, I’m good at pattern recognition. When you’re forced, because you’ve chosen to be forced to pick stocks for the public, for our members, when you’re on tap for doing that over years and decades, I think that you need to be able to develop pattern recognition. I fairly early on, started to realize what is really winning out there in the markets. It’s there in the six traits. To keep the answer short, I’ll just say the top dog and first mover in an important emerging industry, trait number one is number one for a reason. I think that’s the most important thing that you should look for as an investor. That is the stocked pond. If you only fish in the pond of top dogs and first movers in an important emerging industry I think you will beat the market. I think you will have a fantastic investing career. I recognize early on the importance. I didn’t start that way by the way. I thought it was all about finding the third or fourth player in Niche industries before Wall Street discovered them. I was investing in small and micro-cap stocks as a young person starting at the age of 18. But eventually, I started asking myself, why am I missing the great stocks of the last ten years? I said somewhere in my mid-20s, and I realized it’s because I’m not finding the real winners, and what do winners win, as I’ve often asked? I know you know the answer Matt.

Matthew Argersinger: They keep winning.

David Gardner: They keep winning. Not every time, but that’s such an important lesson. To me it’s looking for that pattern recognition, and one other might just be that these comedies Starbucks was always considered overvalued. People thought Tesla. Tesla has always been overvalued. There is such an important thread that runs through that. I would say that’s my special sauce. That’s maybe my favourite of the traits because I don’t think anybody else has ever really articulated it. It’s so contrary to do that in a world where everyone’s looking for undervalued things that specifically picking stocks that are broadly perceived to be overvalued. Is the magic, actually, Number 6 is the trait that makes all the others make sense.

Matthew Argersinger: We’ll get into it later, it’s so difficult for a lot of investors to get their head around that, too comfortable with that with that trait.

David Gardner: I agree.

Matthew Argersinger: The next investor, you know very well and that is Tim Buyers who you worked with on rule breakers, who worked with you on rule breakers for I guess almost since the beginning of the service and he’s still on rule breakers today. Tim Asit, looking back over the 20 years, I think we can agree that the six signs of a rule breaker have proven durable. But I wonder if you see any pattern that shows one or two of the signs that are objectively more important than the others.

David Gardner: I think that maybe I already answered that question because I think the top dog and first mover in an important emerging industry is the most important sign of all. To answer Tim’s question, I won’t repeat myself. I’ll just say that is the most important. He did say one to two signs, and I did just mention that in a way, the book ends, the Number 1 trait, which I just mentioned, and then Number 6 that the stock be considered overvalued.

[inaudible] And we can unpack that a little bit more right now, Matt. I think that the reason overvalued works is because most companies that are great. When you have Elon Musk running your company, when you have Jeff Bezos running your company, that is a great company, and yet Elon Musk and Jeff Bezos are not line items on any of the financial statements. There is no line to express the value or lack of value of CEOs today. When you think about, we have Jeff Bezos, you don’t, let’s play ball. When you think about that, you see how broadly we’re misunderstanding how really to value companies. I guess the key line here is that there are no numbers for the things that matter most, and one of those things is the CEO. Of course, what you’re going to find is that every company with a great CEO will be perceived as overvalued because it’s trading at a high multiple. The market is smarter than that. The market’s smarter than people who look for 25 or lower price to earnings ratios. The market recognizes they’ve got Jeff Bezos, and yet most of the people who use backwards looking valuation metrics or say, I’m looking for bargains just don’t buy Amazon. They don’t buy Tesla, and one reason is because they look overvalued, and the key there is that the things that matter most don’t have numbers attached to them. I think that’s an important right brained approach that we take in Rule Breakers.

Matthew Argersinger: Wonderful. The next one, a very similar question, but perhaps taken to a different direction, which is from Andy Cross, our Chief Investment Officer, Andy writes of the six signs of a Rule Breaker, which one is most underappreciated or misunderstood?

David Gardner: Well, let me just talk briefly about number 3 then, because excellent past price appreciation, strong past price appreciation is something I very specifically look for. Again, most people want to feel like they’re buying on a dip. But I’ve said many times on my podcast, and in writing over the years, dips, wait for dips, and I’m having some fun with that because I realize a lot of people love to buy on their dip, and they’re waiting for the dip, but for most of these great companies, they don’t really dip meaningfully, or they dip very briefly. They are volatile stocks. Let’s be clear. If you’ve held Netflix as I have since early 2000s, you’ve seen the stock lose more than half of its value multiple times, and we can talk about that later. But specifically, most of the great stocks, I’ve picked now seven 100 baggers for Motley Fool members over the course of the 20 plus years where I picked stocks. Some of them when I retired weren’t 100 baggers yet, like Nvidia, but now it’s well more than 100 baggers. So when you actually think about, what are some of the traits that run through those? Seven 100 baggers. One of the best ones is that each of them in the 3-9 months leading up to our picking it, rose 30-90%. Every single one of those rose 30-90% in the 3-9 months leading up to me going, OK great. Let’s now buy it. Again, I feel as if most of us are conditioned to think I missed it. It’s up 50% over the last six months. I’m not going to buy it. I’m going to wait for the dip, but then we never do buy Netflix.

We never do buy Intuitive Surgical. We never do buy Booking.com, which has been a phenomenal holding over the years because it goes up again after that. It went up 50%. It goes up 50% again, and then we’re like, well, I obviously missed it. I guess I’ll just highlight that one for Andy. I think that outstanding past price appreciation, which completely goes against our instincts, again, is why Rule Breaker investing in part works.

Matthew Argersinger: Let’s take the conversation in a little bit of a different direction. This is an interesting question from Sanmeet Deo. He works on a couple of our trend services. He asked, can artificial intelligence, can AI learn to invest like a Rule Breaker? Why or why not?

David Gardner: I think the answer is yes, AI can and will learn to invest like a Rule Breaker. Of course, part of Rule Breaking is subjectivity, because I just said, I thought Elon Musk is great. Now, a lot of people don’t think Elon Musk is great at all. [laughs] Or a lot of people think that corporate culture, they view it differently. Some people think you want to work at a place where you’ve got somebody who’s a great leader and makes all the calls from the top, and you get stuff done. Let’s go take that hill. Other people think, actually, the way to work these days is to bottoms up, make everybody a leader at the company and have people innovate organically. Neither one of those is purely right, and yet they’re very different from each other. So I think what we’re doing is we’re making subjective reads. We’re using some of our own horse sense, and we learn more over time, our wisdom to try to recognize again the patterns that will lead to winning. So I deeply respect AI. I am grateful for it.

I do want to maybe close this answer and Sanmeet, what a delight he is to have at the Fool as well. He and I have had some great conversations in recent months. But I would say for a lot of us, we hear about AI, and will it make stock picking work anymore or not? What does it all mean for the future of investing in my portfolio and yours? My answer is that we have been competing against AI for more than two decades. If you’re an investor, you’ve been competing out there against AI. The vast majority of money moving in the markets this minute. It was true 10 years ago, its true 20 years ago, as being driven by computers, algorithmic trading. Believe me, the people who are using those computers have been trying to program them in such a way that they can maximize their gains generally as fast as possible. The reason that we’ve done, I think, very successfully is because we have not played the very short term game. I don’t mean we, as in me or the Rule Breaker service. I’m talking about we, you and me, fellow listener, Matt, you, all of us, as members. If you’re playing the long game, you’re just playing a completely different game from most algorithmic trading and most AI. Even AI needs to be trained on the past, and it takes a long time, 10, 25 years to see patterns emerge to really trust that AI would be making the right decisions over the longer term. Yet I think that we’ve demonstrated that we can do that very well. It’s just that very few are playing that game. It’s also worth mentioning, and then let’s go to the next that, there’s AI on both sides of every trade these days. If there was only AI buying and no AI selling, I would be all about AI. But the truth is, there’s artificial intelligence and computers and human beings on both sides of every trade, and that’s why you don’t necessarily see a huge shift in what works and what doesn’t.

Dylan Lewis: Listeners, if you have a question of your own for David, you can shoot it to him at [email protected], and you can catch him on his podcast, Rule Breaker Investing every week. If you’re a member of the Motley Fools premium epic service, you’ll have access to the full conversation in the podcast section of the TMF app and also on Spotify. We’ll be sure to drop a link to those destinations in the podcast show notes for today’s radio show. We’re going to head to a quick break, but stick around. Up next, we’ve got stocks on our radar, including one that is literally on a radar. Don’t go anywhere. You’re listening to Motley Fool Money.

As always, people in the program may have interests in the stocks they talk about, and Motley Fool may have four more recommendations for or against, so don’t buy or sell anything based solely on what you hear. I’m Dylan Lewis joined again by Asit Sharma and Jason Moser. Gents, we are going to jump right into radar stocks this week. Get our man behind the glass, Rick Engdahl, who will be hitting you with a question. Jason, you’re at first. What are you looking at this week?

Jason Moser: Yeah, taking a look at PepsiCo, Tickers PEP. Dylan, the older I get, the more I enjoy learning about dividend, stocks. Pepsi is certainly one of those that yield 3.2%. It’s a dividend aristocrat. News this week, Pepsi is acquiring Siete for $1.2 billion that’s expected to close in the first half of 2025. This really just plays into their ability to diversify away from beverages and into the salty snacks and other things like that. Siete is a Mexican-American brand with chips and sauces and blends and spices and whatnot. I’m not sure if this is an all cash deal or not. It could be. They have over $6 billion in cash on the balance sheet. But it’s worth noting that Siete has poised to hit $500 million in revenue this year, so it is something that could become meaningful to the business over time.

Dylan Lewis: Rick, can we really be surprised the man that always talks McCormack is talking food again? You got a question on PepsiCo, Ticker PEP?

Rick Engdahl: Yeah, well, speaking of McCormack, [laughs] any collaborations between PepsiCo and Old Bay coming up because they knocked it out of the park with the goldfish, so I want to see where else the Old Bay is showing up.

Jason Moser: Well, that seems like a no brainer there, but let’s remember, the radar stock here is PepsiCo, not McCormack, so just getting that out there.

Dylan Lewis: Asit, what’s on your watch list this week?

Asit Sharma: I am looking at a company called Joby, symbol J-O-B-Y. This is a company that specializes in electric vertical takeoff and landing aircraft. The company is about two years away from rolling out its commercial operations. They are in phase 4 of five phases of FAA certification, and today they got a big endorsement from current investor Toyota, which invested another $500 million in the company bringing the total investment to a billion. Joby is going to be one of the leaders and something we’ll be seeing a lot of in the future, Dylan, and that is air taxis taking you from where you live right to the airport.

Dylan Lewis: Rick, I don’t know if I have time for a question for you here. Which one are you going with? Joby or Pepsi this week?

Rick Engdahl: Well, until Joby starts clearing up the congestion on the beltway around here, I’m feeling snack. [laughs]

Jason Moser: Rick’s feeling hungry.

Dylan Lewis: I love it. Asit, JMo Appreciate you bringing your stocks. Rick appreciates you weighing in and mixing the show. That’s going to do it for this week’s Money Radio show. I’m Dylan Lewis. Thanks for listening. We’ll see you next time.