☕ Musk’s next move will create an entirely new generation of millionaires

Good morning! 👋

I rolled off the plane from Japan a few hours ago and am rarin’ to go, albeit a bit later than usual and, fortunately, with just a skosh of jet lag. 

There's definitely a trick to travel now that I’ve reached – ahem – a certain vintage. 

Exercise. 

I learned a long time ago that the fastest way through time zones was to hit the gym hard upon arrival... or maybe the coffee is just that good this morning. ☕️🤦 

Anyway and as always, there's a ton of money on the move which means that profits aren’t far behind. 

Here’s my playbook. 

1 – China’s AI: Microsoft’s Smith puts it on the table 

Microsoft’s Brad Smith said on Tuesday at the Web Summit tech conference in Lisbon that China is “in many ways, close to or is even catching up on [AI] technology.” (Read) 

Yep. 

This is a very important line of thinking. 

AI is the highest stakes game in human history and, when you think about it, one that will keep the world and the US, in particular, moving forward. 

There’s always the “yeah but” and “what if” crowd – many of whom are quick to spew pessimism about how China-US tensions could derail this company or that company and how tariffs might shut everything down.  

I’ll pass. 

I’ve been doing this a long time and if there’s one thing I’ve learned in nearly 45 years in global markets it’s that there are always more profits to be gained by investing in optimism than from cowering in pessimism. 

Microsoft led the charge into AI and will continue to do so. 

History, however, also shows very clearly that there are 10-15 new AI challengers who are already warming up in the bullpen.  

How do you find ‘em? 

By learning to read stories like this for what they really are... opportunity. (Read) 

You know what to do. 

And if you don’t, you know where to find me.  

2 – Dish deal fades to static 

At the end of September, we learnt that DirecTV had agreed to buy EchoStar’s TV business, including Dish TV. (Read)   

For $1... in return for $9.8B debt.  

I told you at the time that this was a move “dumber than a bag of rocks” and it would seem I was on to something. 

The company’s bond holders have rejected a revised offer. (Read) 

I don’t blame ‘em.  

Funny how that works.  

Satellite TV lost its allure a long time ago and unless your name is Musk, won’t be back. 

The spotlight is on streaming platforms like Netflix and Prime. 

For now. 

MyPOV: Netflix has returned 180.64% over the past five years and many investors have fallen completely in love with it as a result. That’s risky... and I say that because Netflix is going the way of cable (by carpet bombing users with advertising) which is exactly where cable TV went off the rails. The ONLY reason we still have Netflix in our house, for example, is that we get it for free as a Verizon customer. And I know we’re not the only ones thinking this way. Pass. 🤔 

3 – Palantir's NDR proves Team Karp knows exactly what it’s doing 

Most investors look at a company like Palantir and focus only on the revenue and EPS. Then, default to increasingly outdated metrics like the PE ratio, price-to-sales and so on. 

It's not surprising they miss the bigger picture. 

When it comes to IT and to big data in particular, you’ve got to look at something called the “net dollar retention rate.” 

If you’ve never heard the term before, the “net dollar retention rate” - the NDR – shows you how much money a company keeps for each contract it writes. In other words, how “sticky” are the customers. 

It's common for companies to see a drop in NDR as initial contracts fade, particularly in early days with new tech... and here comes the important bit... to reaccelerate as customers figure out just what they’ve gained from usin’ it. 

In other words, customers go from buyers to those who can’t imagine not using whatever products and services they’ve purchased. 

Take Palantir’s deal with Rio Tinto, for example. 

Rio Tinto recently renewed a multi-year contract with Palantir having recognized improved workflows. Now management wants to up the stakes by using AIP to solve problems “previously deemed as too complex.” (Read) 

This boosts revenue, margins, and the bottom line... all of which is visible via the NDR. 

Nice! 

4 – Musk is watching WeChat carefully, you should too 

Tencent, parent company of WeChat, reported earnings. (Read) 

• Revenue growth of 8% YoY, with gaming revenue up 14% YoY 
• Global monthly average users up 3% YoY
• Quarterly profits +47% YoY 

The company highlighted tangible – and this is key - profitable benefits from deploying AI. 

I’ve mentioned this several times over the years. 

Musk is watching Tencent and WeChat very, very carefully because – I believe – he intends to create a WeChat-like “SuperApp” to house what I’ve termed the “Muskconomy.” 

His next move will create an entirely new generation of millionaires. 

5 – Klarna to IPO, should you buy it? 

Buy now, pay later provider Klarna has filed to go public. 

Should you buy it when the time comes? 

I’m not for three reasons: 

1. IPOs are as rigged as it gets which means Wall Street has the upper hand 
2. The fact that the IPO is so “hot” tells me that consumers are still hurting 
3. There’s no “moat” to borrow a term from Unka Warren 

Keith’s Investing Tip: Today’s markets are as much about hype as they are about real profits but you’ve got to know which is which if you’re going to be successful. The fact that consumers are so stretched that “buy now pay later” is being viewed as an investment worthy of your attention is a lot like saying an ‘iPad on a bike’ is a viable business model which, of course, is exactly what the lead up to Peloton was. GoPro, too. If anything, give Klarna a few quarters to prove itself as a public company, then make a decision. 

Bottom Line 

 “The minute you begin to do what you really want to do, it’s really a different kind of life.” - Buckminster Fuller 

As always, MAKE it a great day - you got this! 

I promise. 

Keith 😃