1 Chip Stock Making Bold Plans

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Jon Quast discuss:

• ARM Holdings’ and Advanced Micro Devices’ blowout earnings.
• ARM’s ambitious new goal to build its own chips.
• The bottlenecks to bringing on new chip capacity.
• DoorDash’s earnings missing guidance.
• Mailbag: Why do Starbucks and Domino’s have negative shareholder equity?
• Mailbag: How will the SaaSpocalypse affect Salesforce and Wix?

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on May 7, 2026.

Tyler Crowe: We've got earnings galore on Motley Fool Hidden Gems Investing. Welcome to the Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime contributors Jon Quast and Matt Frankel. We're going to do a whole bunch of earnings reactions today because it's been a busy week related to earnings, and, of course, we're going to hit our mailbag at the end of the show.

First, as we're going to start, we're going to talk about basically semiconductor earnings because it has been one of the big talking points of the week. Arm Holdings and Advanced Micro Devices, AMD, both reported within the past couple of days, and after both earnings, we saw shares explode as they blasted past earnings expectations, 15, 20% moves in the day. We're going to start Arm Holdings today because shares are quickly retreating after the company mentioned on its call after hours that mobile growth was, well, not really growth, and that rising costs were going to impact commodity mobile device sales. Jon, Matt, you two played rock-paper-scissors to cover the two. Jon, you happened to pick Arm Holdings as a result. What did you see in the earnings release and the conference call and was today's reaction to this, hey, maybe mobile growth isn't great? Was that an appropriate response, do you think, to what you saw?

Jon Quast: Tyler, I think the market reaction is appropriate, but not for the reason that you mentioned here, and so I just want to frame this. It is important that you mention the mobile aspect of the business because, if we zoom way out, I don't want to take for granted that all of our listeners know what Arm Holdings is. This is a company that really rose in prominence due to mobile devices. Its chips are more energy-efficient than other chips on the market, and that's a really big deal when you're looking at battery life in a mobile device, so it was able to rise. It does not make its own chips. Historically, it licenses these products to the manufacturers of the mobile devices, but if you look at what we have right now in AI, we have a bottleneck.

You've heard about many bottlenecks. The big one is electricity. Power is scarce, and this is driving AI companies to try to find more energy-efficient solutions, and so ARM makes CPUs, and it claims they're two times more efficient than conventional X86 architecture, and that's the kind that Intel makes, for example. Arm is claiming that they can save AI companies 10 billion per gigawatts in capital expenditures in a data center, so that's a really big deal. I think the big news here lately with Arm has been it's not going to just license the technology anymore. It's going to make its own chips. It's going to actually be a chipmaker, and it's a no-brainer. According to the company, it can make 10 times the gross profit per chip than just licensing it. That's a huge thing, and if you look, management says here in the most recent quarter, it already has $2 billion worth of demand over the next two years for its in-house chips. That's a really big adoption curve.

That's really good, but what is the hang-up here? The hang-up here is that, if you look out to Fiscal 2031, which mostly overlaps with calendar 2030, so just four years away from now, it's saying that, look, by then, we'll have 25 billion maybe in trailing 12-month revenue. Maybe we'll have $9 in adjusted earnings per share. You look at where the market cap was before earnings, and it's gone up a lot, mostly due to competitors' earnings results already. It was trading at over $250 billion market cap. Projecting maybe 25 billion in annual revenue in four years. That's over 10 times its four-year forward sales. You look at earnings. It's trading at somewhere in the ballpark of 23 times earnings on an adjusted basis four years out into the future. That's a really pricey valuation for a company that a lot of exciting things are happening, and I do believe that its products are going to be more and more needed for AI data centers, but it just got way out in front of its skates here.

Tyler Crowe: To say that high valuations, that seems to be part of the course for just about anything that's tangentially related to AI infrastructure or semiconductors, whatever. In that vein, we have another relatively highly valued company here with AMD, whose shares jumped as much as 20% yesterday after earnings release. Now, Matt, I didn't get a chance as much to look over the details, but I bet it had to do with AI spend. Prove me wrong.

Matt Frankel: Yeah, and it's not just the 20% gain yesterday. AMD has tripled over the past year, and yes, it has to do with AI spend. That's really the lazy explanation for it, though, so I'm going to go a little bit into depth with that. Revenue, of course, grew significantly faster than analysts thought, and the big driver was, as you say, the 57% growth in that data center segment, which is AI spend, but the guidance was a big part of the reaction to the stock. Second-quarter revenue guidance came in much higher than expected and implied a surprising acceleration in growth. Lisa Su, the AMD CEO, said AMD expects server growth to accelerate and that the company should deliver tens of billions of dollars in just data center AI revenue next year alone.

But really, the X factor here, this is what I meant by that AI spend just doesn't tell the full story, is the strong CPU business that AMD has. That's a big differentiator from Nvidia. AMD is a distant second to Nvidia on the GPU side of the business, which to this point has been generally synonymous with data center chips. AMD is a CPU leader, and this is becoming an increasingly important part of AI compute power, especially in the agentic age that we're approaching. Although the data center segment is the main story here, it's also important to note that the client segment, which includes the chips that AMD puts in PCs and laptops and things like that, that grew rapidly and indicated that the AMD rise in processors continue to take market share from Intel. That just underscores the strength of their CPU business and why the market might be so optimistic on them right now.

There's a lot to look forward to with AMD later this year. They're going to start shipping their Helios full rack system for AI data centers. That's a direct competitor with products Nvidia offers and charges about $3 million apiece for. OpenAI and Meta have already placed large orders. Meta, in particular, is an especially interesting deal because it's literally one of the single largest AI infrastructure deals that has ever been announced so far. There's a lot to like. It's tripled over the past year, but it's for a reason.

Tyler Crowe: I want to expand on what Jon was talking about with ARM getting into building their own chips now, because we're seeing more and more companies wanting to do this. Alphabet said they want to do it. I think Meta has even mentioned it. Tesla has floated the idea of the Terafab. It all sounds ambitious, and I understand why, but one of the things I think about with the semiconductor industry is that, yes, building fabs is nice and new. It definitely increased production, but also there are bottlenecks behind the bottlenecks. You have companies like ASML, Lam Research, as well as KLA Corporation. These companies that we think of, the bottleneck, it's Taiwan Semi or Intel. They're the only game in town in terms of chip manufacturing. ASML is the only game in town when it is the equipment to make the chip factories. I'm very curious when I hear these companies saying, we're going to do this, that they're all going to have to put in orders with these chip manufacturing equipment companies, and I do wonder to Arm's ambitious goals. How long are they going to have to wait in line for this equipment? How long is it going to take to build out?

We've been talking about cost inflation and things like that, and I bring this up specifically because I've been thinking about this a lot lately as much as this is an explosive growth, and we have AI infrastructure, basically, finding any chip that they can find, whether it's reused crypto mining or whatever, it seems like whatever spare parts or compute power they can get their hands on, they're going to use it, but it is still a cyclical industry. As ambitious as all this growth is, how much capacity expansion can we have in chip manufacturing before something really starts to shift because, even if we have this five-year growth period, and we bring all this new capacity online, we could be looking at it 6-7 years from now, and all of a sudden, we're way over capacity. I feel like that's a major risk for, especially, somebody like Arm Holdings who doesn't have this yet and wants to get into it. Are you guys seeing something similar, or is it I think you're just shaking at the wrong problem here?

Matt Frankel: I do see that as a problem. I don't see it as a problem yet, I'll put it that way. Like you said, Arm Holdings is a different animal because they're building this chip business from scratch, essentially. AMD already has enough capacity for what it's doing now. It has somewhat of a backlog, but it's very managed. The big question is, how long can we see this exponential growth go for, and how much are they going to invest in infrastructure and production capacity and things like that before things turn? Right now, supply and demand are clearly not in equilibrium. There's far more demand than there is supply in the chipmaking industry that's why we're seeing companies, like Micron, the memory companies, they literally can't build their products fast enough. Same with Nvidia and AMD. Nvidia used the word "sold out" in its latest earnings report several times to talk about products. For now, yes, there's a backlog on ASML, the equipment that the chipmakers are using to make their products, but right now it's working out in favor of AMD and Nvidia. With Arm, and I'm curious to get Jon's thoughts here, it's a little bit of a different animal. Can they scale quickly enough while the demand is still on the rise, while they still have the ability to turn this into a significant revenue stream? I don't know the answer to that.

Jon Quast: I think that's the key, Matt. If these companies could snap their fingers today and increase the production to meet the current demand, then I think that it would be a higher risk of overcapacity, but because these things do take multiple years and because there are bottlenecks even to them increasing their production capabilities, and you mentioned ASML, I think that's a good point right there, that is going to mitigate some of that risk because they can't increase the capacity as much as they would like to right now. It's multiple years out into the future to bring the supply up, and I guess it really depends on where you fall personally on the growth curve of the ongoing AI revolution. Does the demand continue to increase from here for these products and services? If so, then the supply is still going to tend to lag behind for multiple years, but if demand is plateauing already while supply is ramping, yes, that is the higher risk right there. I'm personally in the camp that I think that the demand for the products are going to continue to rise, at least, with the supply, so I don't see the big risk, as much cyclicality risk, as I've seen in the past.

Tyler Crowe: Just wrapping it up here, I think I'm more or less in line with you, guys, but I reserve the right on some curveball of algorithmic efficiency, where power and compute use goes way down relative to what we're seeing out of Anthropic, OpenAI, and the big power users today. Maybe they'll start seeing some DeepSeek-esque drop in compute power per token or however we want to measure it. I think it's there, but I think we should all be ready for those curves that could happen. We've seen it in numerous other industries before. After the break, Matt and Jon are going to walk me through what I don't understand in DoorDash's earnings.

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Tyler Crowe: Like I said, before the break here, I had a really hard time understanding what's going on with DoorDash's earnings and the response that we're seeing in the stock based on what they released. You're going to have to help me here. DoorDash order volume, its gross order value, its revenue, they were all up a nice quick clip, like 25-30%, but operating profit, net income, operating cash flow were all down year-over-year on rising operating costs. Now the market seemed to like this. Shares are roughly up, I think, 2% as we are taping. I'm a little perplexed by this because, in theory, this is supposed to be one of capital-light economic scale businesses where growth is supposed to outpace overhead costs and lead to expanding margins. I think, where we're at right now, was it 4 billion over the past 12 months in terms of revenue? That's a pretty good scale for online delivery company, but we're still headed in the other direction with operating costs. As you, guys, looked at, again, conference calls, earnings, maybe some press releases that you've seen over the past quarter, what's been going on with DoorDash, is this just a one-time blip? Is there something else going on here where costs are expanding because who they're delivering to or something like that? What am I missing when I see this and the market reaction?

Matt Frankel: First of all, everything you said was right. It's also rare for a company to miss revenue expectations on top of everything you just mentioned and then rise the next day. That's pretty rare. In addition, the Q2 guidance was a little stronger than expected. That's usually not enough to completely offset revenue miss and rising costs, but there are three specific things I see from reading between the lines and listening to the conference call.

No. 1, the DashPass, the membership program, the growth rate of that accelerated. That was the one part of the business that accelerated during the quarter, and that's a good indicator that the company is creating a more engaged customer base, and it should help drive future growth. Membership growth is a lagging indicator when it comes to revenue growth, so that's one thing. Second, the company, they reported an all-time high when it comes to engagement with its members using its services for things other than restaurant delivery, say, groceries or drug store deliveries. That's a crucial part of the future thesis, and it's still a relatively small part of the business. Restaurant delivery is the cash cow, so that doesn't show up as much in the numbers as enough to really move the needle yet.

Finally, recall, in late 2025, the reason DoorDash's stock originally took a dive was because management was planning to spend "hundreds of millions more than expected" on technology initiatives, marketing, things like that, the rising costs that you mentioned. In this report, we saw the first clear indicator from management that they're getting a decent ROI on these investments, particularly when it comes to the international business, which is also a very big part of the thesis. That was a really long way of saying that, yes, everything you mentioned is correct, but they're giving us a lot to like when it comes to looking to Q2 and beyond, not just the guidance numbers.

Jon Quast: It's correct on a technicality, but there is a lot of one-time blip here that I think is worth highlighting. When I say one-time, I don't mean quarter. I mean, on an annual basis, there's a blip here, and that is due to an acquisition that DoorDash made in Deliveroo late in 2025. Because of the acquisition, we have a huge jump in expected depreciation and amortization expenses this year. In fact, it's expecting a greater than 50% jump from last year. When you look at it, about 40% of what it's amortizing this year, 450 million of that, that's from acquired intangible assets. Outside of this, you look at the operating expenses, and things actually look pretty good: sales and marketing, only up 27%, R&D, up 30, G&A, up 30. That is behind revenue growth of 33%. Deliveroo, it brought some inorganic growth there to contribute to that 33% top line number, but DoorDash itself grew over 20%. I think, at this stage of the business, to still see 20% growth on its own, that's huge, so yes, you have to back out this one-time blip from the acquisition. Overall, the acquisition is a net positive so far, and you look at all the other operating expenses, you're seeing that operational leverage that you referenced in the outset of this conversation, Tyler.

Tyler Crowe: We have a big acquisition coming in Deliveroo. Also, it looks like the mix of deliveries might be headed towards ever so slightly compressing margins. With these, how do we call them, shorter-term headwinds or elevated costs or whatever you want to call it, do you feel like the company is on track with what they want to do as an investment today? If you were to look at this company and if I wanted to buy shares today, would you say all green lights ahead? What are some of the things that actually may have concerned you that would make you either think twice or make you want to think a little bit harder before you actually make the acquisition yourself?

Matt Frankel: On one hand, I want to see their Q2 numbers. I want to see what they're talking about is actually translating into reality in terms of the engagement with non-restaurants; they're getting a better ROI on all these hundreds of millions they're spending, but at the same time, it looks like everything's progressing as they want. I don't own shares of DoorDash yet, but it is definitely on my watch list, and I think it's moving in the right direction.

Jon Quast: From a business perspective, I don't see any big red flags here, Tyler. In fact, DoorDash continues to surpass my expectations. What concerns me from a investment perspective is the valuation trading at 40 times free cash flow. I don't necessarily mind that. I just question, how big is this market? I don't really know personally, and when something is trading at 40 times free cash flow, and I don't know what the growth trajectory looks like over the long term, that concerns me, but from a business perspective, it continues to just blow me away.

Tyler Crowe: After the break, we're going to do a dip into the mailbag. Hey, as always, quick reminder, if you have a question for us and you want to have it read on air, we'll do our best to answer as many as we can. We're getting a lot. We're trying to find ways that we can answer them all, so we're actually going to do a little bit of an expanded version of this today, but if you want to get your own questions in, send them to podcast@fool.com. That's podcast@fool.com. My three requests, the list keeps getting longer, is keep it Foolish, keep it short, and we cannot give personalized advice. That's a lawyer thing, and we don't want to get in trouble with any regulators on giving personalized advice when we are not registered people to do so. Just keep those things in mind when you're asking questions.

Now our biggest question is about the SaaSpocalypse, and we had a couple people write in, specifically, about a couple of companies, but I wanted to hit this one first because this one just absolutely tugged at my heartstrings because it's an esoteric balance sheet question, and it comes from Shannon. The question is, "Starbucks and Domino's Pizza currently have negative stockholder equity. Would you please address how an investor might interpret negative stockholder equity in a company and whether it's a sign of poor capital allocation?"

Guys, I think I'm in love, but just give me a minute for here, and I'm going to explain this because this is like wonky balance sheet stuff that I love to get into. You can, basically, have negative equity for two reasons. You can lose money over time and have negative retained earnings, you have unprofitable companies for a long time, but you can also have negative equity if, for example, a company buys back a lot of its stock, or it pays a generous dividend. Dividends are not retained earnings, and bought back stock is called treasury stock, and it goes against the earnings of a company, so if you buy back more stock than you earn and retain in earnings, you can actually dwindle down the equity in the company to the point of zero.

As you mentioned, Domino's is a version of this, and Starbucks is a version of this, and there's several other companies too. I think it's either Moody's or MSCI, both companies that have negative shareholder equity because they've done so much to reward shareholders with buybacks and dividends that they don't have shareholder equity anymore. When you see this, you have to look at it as whether or not the company is doing it because they're unprofitable or because they're throwing a bunch of cash back to its investors. In this case, I would say, at least in Domino's and Starbucks' case, over time, it's been good capital allocation because they have been able to enhance shareholder returns through buybacks and dividends to knock down the equity. I hope that answers your question. I saw this question, and I was, I have to answer this one by myself. I'm sorry that I made you guys sit through that, but this was absolutely what I want to hit. This was basically an aggregation of about four or five different questions about SaaSpocalypse hitting software companies, and we had Daniel S. ask specifically about Salesforce, and Laura M. asked specifically about Wix. I'm going to let you, guys, pick which one you want to discuss in relation to the SaaSpocalypse. Jon, you go first.

Jon Quast: I picked Wix here, Tyler, and this is a online website building company, ecommerce, if you wanted to build your own platform. I do believe that there is trouble coming for many software companies because of the capabilities of AI and just how fast they are accelerating, I wouldn't necessarily lump Wix in with that crowd, personally, and here's why. If you're a software customer, you're asking, why am I paying for this when there is AI tooling out there? Why do I need this? In the case of Wix, yes, it does offer software, and some of that could, theoretically, be replaced with AI, but there are other things that Wix offers, and I would lump GoDaddy in with this crowd as well. When you look at web domain hosting, and you look at memory, these are things that you may need if you're building a website or building an e-commerce business, and Wix offers those things. I don't think that you're going to abandon Wix for an AI tool because of the things that you get from Wix that you really do need, and that AI doesn't necessarily replace today. In fact, I believe that AI can be additive for a business such as Wix because they can provide now AI enhancements to what they already offer, especially with website design. You can just bolt on some AI, and we can potentially get easier to develop websites and flashier and more like what you want, so I think that's a net positive in the end.

Now there are other concerns I have with Wix, in particular, free cash flow. I don't like how they backed out some corporate headquarter build-out to their calculation of free cash flow. I don't like that they tout that they're repurchasing shares, and the share account is still going up. I have other issues. I own this, and I may consider selling it at some point in the future for those reasons, but I'm not concerned about the AI taking over this business component of what a lot of people are scared of here with Wix.

Matt Frankel: I chose Salesforce, and it's a stock that I'm a little bit more on the fence about when it comes to AI disruption than Jon is with Wix. It's certainly a stock that investors seem to be concerned about, for Salesforce to move down 35% from its 52-week high. As far as tech stocks go, it's generally a low volatility name, so that's a really big move. There are solid bull and bear cases to be made when it comes to AI disrupting Salesforce's business. On one hand, the company is still growing the top line by double digits, not by much, but 10% is still double-digit growth, and generating really strong cash flow, plus the AI-related metrics have all been moving in the right direction. Annual recurring revenue from the Agentforce platform is now $800 million, not a giant part of its revenue yet, but up 170% year-over-year. Plus, and this is probably the most interesting statistic, over 60% of Agentforce and Data 360 bookings in the most recent quarter came from Salesforce's existing customers, not from outside of the ecosystem, so that indicates that it's using AI to expand its customer relationships. It's not losing customers and churning them.

On the other hand, the CRM business is growing at a pretty slow, just a single digit rate, and it remains to be seen if the headwinds are going to be more powerful than the AI tailwinds. Like I mentioned, the AI part of the business is growing nice, but it's still a small part. Management seems confident with an accelerated $25 billion buyback, but I'm going to channel my inner Tyler Crowe here and say that that also says that they can't find anything better to do with $25 billion than just buy back their own stock, which for a tech company, that's supposed to be fast-growing, and leaning into AI is also a little bit of a concern. This is a long way to say that I think Salesforce will be relatively unscathed by the AI headwinds over the next few years, but beyond that, there are legitimate questions.

Tyler Crowe: It seems like, with a lot of software companies, it's like AI is killing us when, sometimes, it might actually be something that's not AI-related. That's the actual problem here. Potentially, that's what's going on with Wix and Salesforce today, and that's why we see their stocks go down.

As always, people on the program may have interest in the stocks we talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements for sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for producer Dan Boyd and the rest of the Motley Fool team. For Jon, Matt, and myself, thanks for listening, and we'll chat again soon.

The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Alphabet, Domino's Pizza, DoorDash, Intel, Lam Research, MSCI, Meta Platforms, Micron Technology, Moody's, Nvidia, Salesforce, Starbucks, Taiwan Semiconductor Manufacturing, Tesla, and Wix.com. The Motley Fool recommends GoDaddy. The Motley Fool has a disclosure policy.