The latest episode of Motley Fool and Gems Investing, hosted by Travis Hoy with Lou Whiteman and John Quast, delved into significant developments across the tech, pharma, and energy sectors as earnings season begins.
**Alphabet's Gemini 3.6 Flash: A Mixed Reception**
The discussion kicked off with Alphabet's recent release of Gemini 3.6 Flash, an AI model that received lukewarm reviews from "AI pundit class." The primary disappointment stemmed from the delay of the highly anticipated "super duper" or frontier model (Gemini 3.5 Pro), which high-spending users had expected.
Lou Whiteman offered a "normie town" perspective, arguing that while cutting-edge frontier models dominate social media discourse, they are expensive and used by a minority (less than 10%) of global AI users. He suggested that the bulk of future revenue would likely come from more affordable and rational AI solutions, making Flash's efficiency (17% fewer tokens, lower cost) potentially appealing to "actual decision-makers." He acknowledged, however, that the delay of Pro indicates Google faced challenges getting it to work as intended, marking a setback for the company.
John Quast echoed concerns about angering high-spend users who paid for Pro subscriptions expecting the new model in June. He highlighted the irony that the Flash version can, in some instances, outperform the current top-tier Pro model, indicating a potential strategic misstep. Travis Hoy pondered if this signifies a maturation phase for companies like Google, focusing on faster, cheaper, and broadly applicable models like Flash for general users and AI overviews, rather than just the bleeding edge. Despite the immediate disappointment, the panel agreed it's still early days in AI, making long-term predictions from single announcements difficult.
**GLP-1 Battle: Novo Nordisk Sues Eli Lilly**
The conversation then shifted to the pharmaceutical world, specifically the growing rivalry in the GLP-1 weight-loss drug market. Novo Nordisk, makers of Ozempic and Wegovy, has filed a lawsuit against Eli Lilly, producers of Mounjaro and Zepbound, over their marketing practices.
John Quast viewed the lawsuit as a sign of Novo Nordisk's "desperation." He pointed out that while Novo Nordisk might have better brand recognition, Eli Lilly holds a larger estimated market share (60%) and projects increased sales this year, while Novo Nordisk anticipates a decline. With pricing pressures squeezing profit margins, sales volume and market share are crucial, and Eli Lilly appears to be gaining ground.
Lou Whiteman suggested both companies have valid points: Lilly accurately cites comparison trials but omits that the data is dated and newer Novo Nordisk products perform better. He characterized it as Novo Nordisk fighting for a "huge gold mine," asserting that the "latest model is the best model" dynamic applies here too. Travis Hoy observed that the GLP-1 market is rapidly transforming from high-cost specialty treatments to a more consumer-driven space where results and price are paramount, a shift that pharma companies are unaccustomed to. This lawsuit, following Novo Nordisk's quick resolution of a suit against Hims & Hers, underscores this new, highly competitive phase.
A look at valuations showed Novo Nordisk trading at 3.7 times sales and 16 times forward earnings, reflecting market expectations of slower growth. Eli Lilly, conversely, trades at nearly 15 times sales and 32 times forward estimates, indicating market confidence in its growth trajectory, which has allowed it to pursue strategic acquisitions.
**GE Vernova: Data Centers Fueling Turbine Demand**
Finally, the panel discussed GE Vernova's earnings report, a company recently spun off from GE. Despite reservations about the company's name, its results were strong, with free cash flow guidance almost doubling. The surprising driver? Not green energy (which Vernova is ostensibly about), but natural gas turbines, primarily due to soaring demand from data centers.
Lou Whiteman noted the paradox of a strong quarter leading to a stock dip, raising questions about the sustainability of data center demand. While growth has been immense, investors are debating if it will continue or plateau. Vernova is responding by dramatically increasing its capital expenditure (an $11 billion investment over four years, compared to $1 billion previously) to boost capacity, particularly for turbines.
John Quast highlighted the impressive backlog: $176 billion currently, projected to reach $200 billion next year, against annual revenues of only $40 billion. This indicates strong future demand, but also a risk if demand normalizes, as the increased operating base could become a liability.
Travis Hoy noted the stock's remarkable performance, up 665% since March 2024. Lou Whiteman, however, cautioned against the "picks and shovels" investment thesis in the current market. Historically, investing in suppliers (like Vernova for data center energy) was a way to gain exposure to a hot trend cheaply. But with Vernova trading at 65 times expected earnings (significantly higher than "hyperscalers" like Alphabet or Microsoft), these "picks and shovels" are currently overpriced. He concluded that the core companies driving the trends often present a more appealing value than their highly-valued suppliers.