This Motley Fool Hidden Gems Investing podcast episode, hosted by Travis Hoyam with guests Lou Whiteman and Andy Cross, explores historical market lessons, current market unknowns, and "Hidden Gems" opportunities, particularly in the context of the artificial intelligence (AI) boom.
**Historical Lessons: PC, Internet, Mobile, and AI**
The discussion begins by drawing parallels between the current AI-driven market and past technological shifts like the Personal Computer (PC), the internet, and mobile. Andy Cross notes that early PC adoption was slow; in 1984, only 8% of US households owned a PC, growing to 33% by 1997. This highlights that technological evolution is often gradual rather than revolutionary, with major breakthroughs like the iPhone taking time to build out an ecosystem (e.g., the App Store).
A key takeaway from the PC era was the need for a "virtuous cycle" – not just technology, but useful applications (like Windows and Office) and affordability. The PC revolution was largely enterprise-driven, with "Wintel" (Windows and Intel) and IBM pushing productivity tools for businesses. In contrast, the mobile era saw consumers adopting technology (like iPhones) first, eventually forcing enterprises to follow suit. Today, AI's initial revenue drivers are largely enterprises, paying for tokens and services from companies like Anthropic and OpenAI. However, there's also a significant effort to engage consumers, though the measurable ROI for consumers is less clear than for businesses.
The 2000s and 2010s saw the internet mature, leading to the rise of giants like Alphabet and Meta. This era fundamentally changed distribution, moving from local monopolies to global reach, enabling new business models (e.g., Shopify). While these periods included significant market crashes, they also yielded massive success stories built upon foundational technologies. The hosts ponder if the current "hyperscalers" (cloud providers and large AI model developers) might eventually become utilities, with new companies emerging to create value by building on these AI "rails."
**Unknowns in Today's Market**
The conversation then shifts to "unknowns" – factors not yet priced into stock valuations.
* **NVIDIA:** Lou Whiteman suggests that while competition in AI chips is growing, the "known unknown" for NVIDIA is the immense potential of **robotics**. Andy Cross agrees, emphasizing NVIDIA's leadership in the brainpower needed for robots, suggesting their best days are not over, especially as robotics is an "exceptionally ill-defined" market. They note that robotics customers are less likely to develop their own custom chips, unlike the major AI cloud providers.
* **Apple:** Andy questions what the "next big thing" will be for Apple beyond the iPhone, especially a new form factor. Lou, however, argues that the "known unknown" is that there might *not* be a revolutionary new product for consumers soon. He believes Apple's strength lies in continually improving its existing products and services, citing the company's robust profitability and franchise value, despite the absence of a "next big narrative" like the Apple car.
* **TSMC:** The biggest unknown for the semiconductor giant is customer retention. Andy speculates that customers might try to find alternatives or build their own fabs, although this is a "big ask." Lou adds the geopolitical risk, specifically relating to China and Taiwan, and the growing trend of governments (US, Europe) investing capital to build domestic chip manufacturing, potentially competing with TSMC.
* **Intuit:** Andy raises concerns about Intuit's acquisition strategy, suggesting they might be stretching beyond their core market, leading to goodwill on the balance sheet without commensurate returns. Lou points to two existential threats: AI's ability to automate financial tasks (payroll, accounting) directly challenging Intuit's core business-to-business offerings, and the possibility of government (IRS) simplifying tax filing, rendering consumer tax software less necessary.
**Hidden Gems Opportunities**
Finally, the hosts share their philosophies and current "Hidden Gem" stock ideas:
* **Andy Cross's Philosophy:** He looks for "underappreciated or undervalued assets," strong leadership, financial power, and growth opportunities. His picks include:
* **Aritzia (retailer):** A Canadian women's fashion retailer expanding profitably into the US market.
* **Vertex Pharmaceuticals or Krystal Biotech (biopharma):** Companies doing innovative work in biopharma, particularly Krystal Biotech's proprietary platform for treating "butterfly skin disease."
* **Lou Whiteman's Philosophy:** Believes there are always good companies overlooked by the market. His areas of interest include:
* **Financials:** With dividend yields north of 4% and long-term growth potential.
* **Physical Goods:** Citing **Transdigm (TDG)** as a market winner with a long track record, currently near a 52-week low.
* **Andy's Radar Stock:** **Primo Brands (PRMB)**, an $8.5 billion market cap company providing bottled water and hydration solutions (Poland Spring, Deer Park, etc.). He likes its "water as a service" subscription model, extensive distribution network, ownership of natural spring sources, and attractive valuation after a recent merger, expecting 10-12% annualized returns.
* **Lou's Radar Stock:** **Delta Airlines (DAL)**, which recently posted a strong earnings beat. Lou highlights Delta's diverse revenue streams (premium upgrades, corporate travel, cargo, maintenance services), suggesting it's a well-run company and a good barometer for the economy's health, particularly for those with spending power.