Hyperscalers Are Going Into Hyperdrive

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Travis Hoium, Lou Whiteman, and Jon Quast discuss:

• Big tech’s AI growth.
• Is the economy healthy or hanging on by a thread?
• Market predictions.
• Stocks on our radar.

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 1, 2026.

Travis Hoium: If you thought the AI boom was ending soon, I have bad news for you. Welcome to Motley Fool Hidden Gems Investing. Welcome in, everybody. My name is Travis Hoium. I'm joined today by Lou Whiteman and Jon Quast. As much as I would like to move on from the artificial intelligence story, guys, we have to talk about one of the crazier weeks that I can remember during earnings season, on one day, we had Alphabet, Microsoft, Amazon, and Meta report earnings, not even just today, within about a 20-minute span. Jon, the numbers were absolutely crazy. Alphabet was the one that stuck out to me, 63% growth in their cloud business. All of the other companies are growing at astronomical rates, as well. We've talked about the AI spend, which is getting close to one trillion dollars per year in capex. The growth is phenomenal, but are we at this point where it has to be that good to justify these ever larger numbers of capex spend?

Jon Quast: Well, perhaps the most surprising development over the past week is that I am now the most bullish AI person in this room right now. But the growth is absolutely superb, and it is this good, Travis. We can talk about the money that is actually recorded as generated revenue. But that doesn't tell the whole story. If you look at the remaining performance obligations, much of which are tied to their cloud businesses, and much of that is related to AI spend, you look at Alphabet, Amazon, and Microsoft. The RPO is at 460 billion, 364 billion, and 625 billion respectively.

Travis Hoium: Somewhere around $1.3 trillion, and just to be clear, RPO, remaining performance obligations, is like, Anthropic signs a big contract for compute that would go into RPO, is that right?

Jon Quast: It could be Anthropic, it could be anybody who's going to spend money on the cloud over a certain period of time. The money that you use today, that's generating revenue, but you're going to spend more tomorrow at a locked in contractual price or whatever. But these three companies over just the last three months have added $567 billion to the RPO. In just the last three months, we're talking about nearly 200 billion a month in spending commitments for the cloud for the three largest cloud companies in the world. We can't comprehend a number such as that.

Travis Hoium: Lou, I generally agree with Jon. Let's talk top line first. We'll get to some of the ROI things in just a second. But it is incredible to see these companies that are the biggest companies in the world report growth numbers that you would normally associate with much smaller companies operating from much smaller revenue basis.

Lou Whiteman: It's insane, and look, part of this RPO is not revenue. We all know that. Part of this is a land grab. I better reserve my place now because everybody wants it. A lot of it is wiggly. If things change, you can adjust and maybe not spend that RPO, so it's really hard. It's one of those counter chickens before you hatch thing. You need to make that distinction. That said, I don't see any reason to believe that a good chunk of this, over time, isn't going to come to fruition. This is it, all of the numbers are just crazy down.

Travis Hoium: Lou, I want to move a little bit closer to the bottom line here because the revenue numbers are crazy, margins are good, if we look at operating margins for a company like Alphabet, Google Cloud, GCP, they've gone from basically 0% operating margin about three years ago to now over 30% operating margins. You look at those results and you see, hey, you know what, they're getting more profitable. This must be a phenomenal investment. How do you think about these numbers that are being put into the ground? Because the remaining performance obligations are huge, but at the same time, these are assets that could, we're buying land, we're building buildings, we're signing energy contracts, maybe even, buying energy assets. These are assets that have long duration life cycles, and we may be know what the next six months to maybe two years looks like, but it's really hard to predict what the next 10 years looks like, and that's where you start to take on debt to build these things, and the calculus gets a little bit different.

Lou Whiteman: Let's be clear. It's in the name, but let's be clear anyway, operating margin is operating expenses. It does not include capex. Yes, operating margins look fine; that's an important metric. It doesn't tell the whole story, though, just so we're clear.

Travis Hoium: It would include depreciation. We're getting into accounting world, but it would include depreciation, yes, but not what you're building for tomorrow's capacity.

Lou Whiteman: I'll be honest, Travis, I feel like I don't get it because I really struggle with the ROI part of this. I get the reason everyone's doing this, I get the magic of AI. I get the potential. But, you said it, hyperscalers going to spend 750 billion this year, Wall Street has them going to 1 trillion in 2027, just based on estimates. Right now, according to Gartner, total global enterprise software spending, so just what businesses spend on all software. It's only about $1.5 trillion. Using their numbers, not mine AI companies, they're going to have to generate seven trillion dollars with a T in AI revenue through 2029 to just get a really, paltry 7% return on invested capital. Seven trillion dollars in combined sales by the end of a decade in a market that's a $1.5 trillion market right now, basically. Seven percent, that's not great. Alphabet, Microsoft, to Amazon, they historically have aimed for 25%. I don't know how we continue to do this. I guess token prices have to go up like way up, swallow a significant portion of GDP up, or we're just not going to get the payoff that we think here. I get the top line, I get the growth, I get the enthusiasm, I'm not sure I get the long-term win here for these companies yet.

Travis Hoium: Jon, give us the bullish case here.

Jon Quast: Well, perhaps the bullish case was best articulated by Microsoft CEO Satya Nadella, who says, "We're at the beginning of one of the most consequential platform shifts that will change the entire tech stack as agents proliferate and become the dominant workload. This will drive total addressable market expansion and change the value creation equation across the entire economy. Really talking about this AI agent move, and one of the big deals with AI agents is right now, most of our interaction with AI is synchronous. In other words, I need to be there at the computer, talking to it, making it do things. What's going to happen with AI agents increasingly is that it's asynchronous, and so it is working in the background, whether or not I'm there telling it what to do. What that does is it does increase the amount of compute that is being used." To Satya Nadella's point, really what we're talking about here is a complete flipping upside down of the tech stack, and also just what software we're interacting with. Open Claw founder Peter Steinberger talks about 80% of the computer applications are going to go away because of agentic AI.

Travis Hoium: Let's dig into that, though, because I think that is it's a fascinating dynamic. Nadella's argument, then is, and I think this would be the case for any of these hyperscalers, we need to build these massive compute businesses so that we can effectively destroy all the other software companies. This is why a lot of the SaaS stocks are down so much is because if Nadella is right, man, you don't want to be in any of these SaaS businesses. Does that fundamentally need to happen for this payoff from AI to actually work out? Is that SaaS that $1.5 trillion that Lou talked about has to shift over to these hyperscalers, and we're, I don't know, making our own custom software constantly.

Jon Quast: I think that definitely is part of it, Travis. I'm not saying that that is the best vision of the future or not. That's irrelevant to this discussion. What we're talking about is, what is in the minds of the CEOs as they spend so much money on AI infrastructure? What are they thinking about? They're thinking about two things. They're thinking about total addressable market expansion. The market gets bigger, and that's a good thing, but they're also, I believe, projecting that there's going to be a lot of value transfer from the world that we have now to the world that's going to be, and they're trying to capture that transfer of the value capture.

Travis Hoium: Presumably, there's got to be the pie gets bigger thing. We saw this with the Internet. It took a long time to get to the point where we were building, the Shopifys of the world and this new ecosystem that didn't exist in the 80s and 90s. Lou, I want to push on one thing that I think is confusing me a little bit with this, and that is the concept of being supply constrained because all of these companies talk about being supply constrained. We don't have enough chips. We don't have enough memory. We don't have enough energy. But supply and demand dynamics, if we go back to Econ 101 is all about what are you charging for that thing that you're producing? The thing that they're producing at the end of the day is tokens.

If you look at a company like Google Cloud, GCP, their revenue or their token production was up 60% quarter over quarter, but their revenue was only up 13%. That tells me that their cost, what they're charging per token is actually going down. You just laid it out, that price probably needs to go up long-term for these investments to pay off. What is this supply-demand dynamic? Are we just getting that much more efficient with the chips that are there? It seems like there is a pressure on token prices. If Jon is right and agents are going to take over everything, we can't be at the price point where we are today if my computer's just going to run 24/7 doing who knows what? It seems like the tokens are deflationary, but if that's the case, that's a whole different economic question.

Lou Whiteman: Look, I don't know the answer, and I don't think any of us know the answer, but I fear the answer might be that C word that has got to keep all of the CFOs for these companies up at night, commoditization. I think the reason why token prices are going down is the intense competition among these companies to get you on their stack. This is a real weird world, Travis, you were talking about it off air that, if anything, a lot of the components, a lot of the inputs for these things are going up now because of scarcity. That's supply and demand one on one. Arguably, they're getting less bang for their buck from the spending they're doing, yet they are having trouble charging for it. Jon's right, the pie could go up. It could become. It could be that it just eats all of software. It could be that we begin to lay off 50, 75% of our employees because we're spending on that, too, so all of this money is freed up. We don't have to get into whether or not that's a good version of the future or not. But the other answer here, maybe it is that, yes, this is right, the SaaS apocalypse is going to happen. But the answer could be that it's like one of those bad movie scenes. Collectively, everybody's just in a race, and it ends with a huge cliff.

Travis Hoium: That's absolutely possible. Jon, I want to end with this because one of the dynamics with the hyperscalars in particular, Lou mentioned it, that they've got the incentive to not be disrupted, and they've got cash flow in the most recent quarter alone, $150 billion in cash flow from the Big 4 tech companies, Alphabet, Microsoft, Amazon, and Meta. They're spending a majority of that now on capex. Likely, by the end of the year, at least sometime in 2027, they as a group are going to be negative free cash flow. They're going to be taking on debt to pay for this capex buildout. At what point would you get concerned that maybe we don't want to use all of our cash and go from this massive cash-generating businesses to now debt-funded businesses?

Jon Quast: It's a really fair question, and to your point, basically, of the Mag 7, only Nvidia and Apple are expected to generate normal free cash flow this year. The other five are expected to be down or even negative, according to Goldman Sachs estimates. It's not supposed to rebound next year. They're expect ongoing.

Travis Hoium: They're getting worse.

Jon Quast: Exactly. Goldman Sachs estimating it's not until 2028 until we start to see positive traction again with the free cash flow on a collective basis. That is really interesting to think about. That is starting to push it out into uncomfortable territory. Quite frankly. Because, normally, you hear these estimates from smaller companies, results are bad right now, but in the back half of the year, they're going to get better. It's just a hand wave. When it's hey, things are going to stink this year, but next year will be better. That's a bigger hand wave, but if we're starting to hand-wave to 2028, that's starting to get into uncomfortable territory, and you start to question: What is the actual economic ROI?

Travis Hoium: This is both incredibly impressive and confusing for investors to follow. We'll keep following this here. When we come back, we're going to talk about the economic impact this may be having on people's jobs and what we're spending money on. You're listening to Motley Fool Hidden Gems Investing.

Welcome back to Motley Fool Hidden Gems Investing. Jon, if we are going to have a big payoff from artificial intelligence, it seems like one of two things has to be true. Either we need to get more GDP growth, we got numbers from the first quarter, 2% growth. That's OK, but I would argue that you would have to be higher than that if we're going to justify one trillion plus dollars in spending on AI. The other option is you have job losses, and that doesn't seem to be happening either. When you look at the economic data, where does your head go?

Jon Quast: My head first goes to, it could be worse. Most of the European economies are growing at half the rate. Canada's growing at about 1%. It could be worse. That said you look at where is the economy being propped up, and it's almost entirely AI infrastructure spend, ad on one hand, I think it's a good thing because for how long did we talk about these tech giants? You talked about $200 billion in net cash earlier in the show. How long did we talk about these companies just dominating and hoarding "their cash"? Now it's being unleashed and leading to real economic growth. On one hand, that's pretty good, but on the other hand, you do start to wonder what all in the economy, the weaknesses? What is it masking? Because it's not going to go on forever. What is going on right now, there are a lot of consumers, that's a big part of the economy, and they are stretched, especially on the lower end. You look at the gas prices. That is going to really hurt the lower-income spending. Honestly, that's a problem that doesn't seem like it's about to get better this year. There are questions.

Lou Whiteman: Let's be fair, it's usually one or two sectors that are leading the way. It's very rare for everything to be up at once. Whether it's masking or normal, it's good. It's economic activity, that's what we need. I would note, though, I'm still cautious, Travis. I agree with you, I might be too early to see the AI effect, so I don't want to be dismissive of AI just because we're not seeing it. But look, a year ago, when Liberation Day happened, a lot of smart people I listened to said it would take a year to 18 months for tariffs to really impact the economy. If so, we're only just getting there. Similarly, a lot of people are now saying, smart people I respect, that the Middle East war or oil shock, that's going to take six months at least to really impact us. As annoying as it is, I think the answer is, it's okay for now. My gut is we are at least headed towards a technical recession, if not worse, that there is going to be a recession this year.

Jon Quast: You say a technical recession, what do you mean by that?

Lou Whiteman: Well, maybe one we don't feel, but in hindsight, we're going to look at it and say, it was a recession. A mild recession. I think that's still possible. I don't want to be Chicken Little here, but all of these pressures are building. All we can say is, so far so good, we'll see how it ends up. The K shape is real. We've been talking about it. People who can spend continue to spend. Everybody makes their decisions on an individual household level, and a lot of people are still fine spending. I do think that it's inevitable that the critical mass of people who are able to do that is going to shrink because of all this pressure. The debate, the uncertainty, the unknown is how much that critical mass shrinks and whether or not it shrinks to a point where it can't hold us up anymore. TBD, I still go back to, it's going to get worse from here, but I think hopefully we can avoid the worst of the worst.

Travis Hoium: It's going to be very interesting to watch what happens outside of the AI boom and the AI, build out because I would argue eventually these companies have got to either flat line spending or even decrease their spending and get some ROI on this investment, and there's a lot of benefits like Jon said, from the economy from all the spending that's going on right now. We'll see what happens in the future. When we come back, we're going to get Lou and Jon's thoughts on where the market goes from here.

Welcome back, everybody. In this segment, we like to have a little bit of fun with investing in the markets. I'm going to give an over or under to Lou and Jon and get an idea of where they think some stocks are going, where some quantity prices are going. Get a general feel for the market. Let's start with Nvidia, guys. This has been the hottest stock in the market for quite a while now, at least since the ChatGPT moment three plus years ago. Lou, the question is, is Nvidia going to be over or under a market cap of $10 trillion, currently, 4.8 trillion, so a little bit more than double on January 1, 2030. You have nearly four years to get there. But is Nvidia going to be able to do it? Is this momentum going to continue, or is something going to disrupt what they have going on?

Lou Whiteman: I don't want to be bearish on Nvidia. I love this company, but I do think their history has been peaks and then falls and then peaks and falls. To be honest, it wouldn't shock me if they hit 10 trillion between now and then, but I do think that, based on our other conversation, AI spending can't continue to go up through 2030. There's just not enough money on the planet. I do think we will be past the peak, and maybe the stock will have settled, and it's going to be under 10 trillion by then. Knowing them, they'll have the next big thing, robotics or something like that, and it'll be even higher than 10 trillion by 2033, but I'll take the under on that.

Travis Hoium: Jon?

Jon Quast: My heart wants to say over; my head wants to say under. I think I'll go with Lou here on under. But I think it's still going to be higher than it is today, just not over 10 trillion by 2030. If we were having a longer time horizon, then I would feel more comfortable saying over 10 trillion. I can't believe that I'm even in a world where anything at any point over 10 trillion, I'm somehow comfortable with mentally. But one of the things that we do need to look at is, yes, there is some constraints when it comes to the electrification of what's going on. I think that's going to come to bear at some point when it comes to the build-out, and how many Nvidia products are being placed, can we power things up fast enough?

Travis Hoium: The other question, Jon is, is the competitive dynamic going to change? If we go back to the ChatGPT moment, everything was built on Nvidia chips and CUDA. You had a little bit of TPU stuff going on inside Google, but a vast majority of the rest of the industry was building on Nvidia chips. Now you have the ecosystem starting to be built out for other chips and other components. You have a deal this week with OpenAI and Amazon. They're going to be building on bedrock, just meaning that Amazon is going to get away what the actual chip is running. Is it a GPU? Is it the tranium chips, which they're investing heavily in? The customer isn't actually going to see that because they're just going to be interacting with AWS. Does that ultimately lead to one of these potential valleys? I also want to give this stat? Nvidia has had negative revenue growth four years and almost six years in the past 20 years. It is a pretty regular occurrence for them to grow a ton and then shrink a little bit for a year or two. Jon, how do you think about those competitive dynamics?

Jon Quast: I see validity on both sides of the argument. I see validity on the side that says, No, Nvidia is going to continue to dominate this market, and there's no real need to worry about the competition. But I also see the validity on the other side of the aisle, as when you look at a company that is commanding 56% net profit margins, there is incentive for these other companies to come in and say, I don't want to give them pure profit for their products. I would like to create my own products to replace some of those. I think that watching the custom Silicon players is a good idea. Your Broadcoms, even your Arm Holdings, I think, is a good one to watch from here. But I don't know. I'm torn, Travis. I can see validity for both arguments.

Travis Hoium: Jon, I'm going to have you go first on this one. Same question. $10 trillion by 2030, will Alphabet be over 10 trillion at that point?

Jon Quast: I'm in the exact same answer here, Travis. My heart wants to say over, my head wants to say under. I think that that's not quite enough time. However, it is impressive how quickly the adoption rate for Google, Alphabet, Gemini, all of its products are really hitting this inflection point, it seems. It's already worth nearly $5 trillion, and it feels like just now, some of these things are coming to fruition, and as we mentioned here at the top, Google Cloud growing 63% in the most recent quarter. That is a real, tangible inflection point. How much momentum does that have between now and 2030? This could be over by that time.

Travis Hoium: Lou?

Lou Whiteman: I feel like they're more of the slow and steady, although I'm not sure it's slow, so I think.

Jon Quast: It was shockingly fast in the first quarter.

Travis Hoium: Search is still growing at 19%.

Lou Whiteman: I don't know. I probably slightly favor Nvidia long term, but I think Alphabet probably has a better chance of being a 10 trillion on January 1, 2030, just because I don't think it's so much of a wave. I can't get there, though. I mean, I'm not going to try and time the market, but we have had an unbelievable run where things have just grown at a rate that isn't normal. I do think regression to the mean at some point is going to happen for all of our sakes. I hope it doesn't happen between now and 2030. I hope they get there next year for all of our sakes. But I think I'd probably have to guess that the next five years aren't going to be as amazing as the last and take the under.

Travis Hoium: Just to be clear, if you are a index investor, you own a pretty big stake in Nvidia and Alphabet, especially in the S&P 500. Let's go to a company that is not yet public, that's OpenAI. They recently raised money at an $852 billion valuation. Lou, let's have that be our over-under. One, are they public by the end of this year, and two, are they over or under that 852 number when they do hit public markets and maybe trade for a couple of weeks?

Lou Whiteman: They better be public. It's funny. I don't honestly know if they're going to be public, but I think the answer is yes, they will be, because they simply just need to open up all of the access to capital that they can, and public markets are part of it. Over-under 800 billion is really tough. I think that they are going to struggle to sustain what they go out at unless things turn around for this business. I will say yes, they'll be public, but they will be, say, a month after the IPO, trading below the IPO price.

Travis Hoium: Jon.

Jon Quast: Let's quote the late great Charlie Munger here, who said, never, ever think about something else when you should be thinking about the power of incentives. This is a once-in-a-lifetime opportunity for investment bankers. I really don't think that they're going to screw this up. I think that OpenAI does IPO this year. I believe that it does IPO at above its latest funding round. I'm with Lou here. I don't know if it's still trading there a month after it goes public, but I think it's definitely going public at a greater than $800 billion market cap.

Travis Hoium: You're right. There's a lot of incentives to keep it up there. I wonder if those investment bankers are going to be tired after somehow getting SpaceX to a $2 trillion valuation when they go public. I don't know how many.

Jon Quast: They'll be energized.

Lou Whiteman: I was going to say, if they get that, they'll be watching their new yachts be built.

Travis Hoium: The bonuses on Wall Street are going to be a little bit wild. Let's move to the world of energy. This is going to be maybe a little bit more economic, and what's going on with Iran. Gasoline, I think, is the thing that we need to watch. We talk a little bit about crude prices and things like that. But gasoline is what people actually pay for. Jon, at the end of this year, 2026, will gasoline be over or under $5 per gallon?

Jon Quast: I believe it'll be over $5 a gallon, Travis. You look at what is causing it right now, and it is the ongoing issue there in the Strait of Hormuz. I think that the only way that that gets resolved quickly is a much greater escalation on the part of the U.S. In my current read on the president, I don't believe that's what he wants. I think that he wants this issue to be resolved with minimal intervention, and yet, I don't think that that is where we're at. I think it's going to take an increase of intervention, and I think that the longer we hope that it goes away without greater effort. I think the longer this goes on, I think that the more the gas prices are going to go up because it just continues to compound. I think that's where we're at.

Travis Hoium: Lou, currently, as we're recording, the average national gas price is $4.30. Interesting, going back to 2023, prices never actually got over $4. I want to know what you think over or under $5, but also, is that going to ultimately hit the economy because that is something people see every day, whereas something like electricity prices going up is that's an auto withdrawal for me. I guess I'll notice it over time, but I notice it would have to pump a lot more.

Lou Whiteman: I mean, look, we already discussed the economic thing. Yes, I think it will. How much it does and what it does to the economy, we'll have to see, but it's definitely going to hit. But look, these things go up slowly, and we are still a long way till five. Jon, I think it's probably what a three or four-month lag from when oil flows normalized when prices get back to normal. We only need to be like by end of summer, I think, to hit your bogey, and I'm going to go under. I'm going to lean into actions speak louder than words. I don't know how this resolves, but I think the lack of fire between the two speaks to both parties would like it to end, even if they're not saying it. Again, the rhetoric is going to be weird. The rhetoric is going to be nasty, but again, wars end when both sides are just tired of fighting. It feels like both sides are tired of fighting, so I'm going to hope we figure it out by August and we do have things normalized by yearend.

Travis Hoium: Let's end on this. I want to know about the future of SaaS stocks. Jon, you made the case that AI is going to replace all other software early in the show. At the end of 2026, if you just take a basket of the SaaS stocks in the S&P 500, so some of the biggest software companies in the world, are they going to be up or down over or under where they are today?

Jon Quast: As a basket, I think they're going to be down. Now, there will be individual companies, for sure, that are going to excel and thrive. I think that there's going to be some very big software companies that are going to quickly lose relevance. I forget who said it. I think it may have been Motley Fool CEO Tom Gardner, who says, remember that AI is as bad as it's ever going to be right now. It's already showing itself so useful, especially with more of the database software kind of an application. It's only going to get better from here, and it's only going to speed up the rate of innovation. I think that we are under today's price as a basket, and I think that there are some companies that are going to do really well because they are prepared, leaning into, and innovating into the future.

Lou Whiteman: This isn't a long-term call. This is just a year-end call. I want to stress that. Back to the top, we have no idea what's going to happen with AI or what it's going to do. But here's what I think. I think if you just look back to Liberation Day and look back to the war and stuff, the market normalizes things that shock it very quickly, surprisingly quick. We have seen the first quarter results. I'm yet to see real signs of a SaaS of just things falling off a cliff. What we're seeing is maybe margin pressure and stuff like that. I'm going to take the under on whether or not we really see in the next few months results just blown away. I think also investors will normalize or less freak out about the SaaS apocalypse, even if it's coming. I think the basket is gonna be higher. I don't know what that means long term, but I do think that this will be old news, and it won't have played out to the point where its thesis settled yet. I think we're just going to adjust and move on.

Travis Hoium: The results have not been terrible in SaaS, and there's got to be some value there. I'm still trying to figure out exactly where that is, but I'm trying to do a little bit of dumpster diving recently. When we come back, we're going to get to the stacks on our radar. You're listening to Motley Fool Hidden Gems Investing.

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Jon, let's get to the other big earnings report from the week, and this is another one of the biggest companies in the world. Apple seems to do nothing wrong at this point. Their growth for the quarter is 16.6%, like we saw with Google Cloud; that seems crazy, given how established they are in the market, but they still are hitting on all cylinders.

Jon Quast: If you like growth, profits, and dominance, I reckon that you would like this report from Apple, just a lot to like. By the way, who says that Apple isn't an AI player? The company essentially sold out of its Mac Minis and Mac Studios, and it's just because consumers are buying them up to deploy their own agentic AI systems, just emerged as the preference for the general community on this whole trend. They're selling out a ton of products. It's great. One interesting thing to watch is on the profitability side of things. Tim Cook said that they're finding ways to mitigate the memory issue. You look at SanDisk, for example, gross margins have gone from basically 20% to 80%, that's higher than Nvidia. Tim Cook says, beyond the joint quarter, we believe memory costs will drive an increasing impact on our business. They have ways to mitigate it now, but they're looking down the road and saying, This could get a little bit hairy for our costs.

Lou Whiteman: Jon has most of the details here. The thing I want to focus on is China, where Apple has struggled, and it's been real questions of this Chinese preferences just moved to domestic. Revenue was up 28% to 20.5 billion in China, well ahead of the $18.9 billion expected. That is really good news if that's sustainable. I think the big question, always the question, lots of promises, but no real details about the future products in the pipeline. We either need to answer that question or convince Wall Street to stop asking that question. But the business is solid, and the business just continues to hum along.

Travis Hoium: I have a feeling we're not going to stop asking that question, especially with Jon Ternus, who supposedly has almost a dozen options for next products coming in as CEO. We like to end the show with stocks on our radar, and we'll bring Dan Boyd in from behind the glass. Lou, you're up first. What's on your radar this week?

Lou Whiteman: Dan, for years, Textron, ticker TXT, has struggled to get the market's attention. Part of it, arguably, was Textron's fault. The company has a vast array of businesses. They make business jets. They make golf carts. They make military helicopters. They make auto parts. It makes it all hard to value. Seemingly every quarter, at least one of those businesses underwhelmed. In fact, I think it was five years ago, I said, if they're not careful, some activists has come along and say, You got to break this up. I was wrong. The activists never came, but Textron is finally moving to simplify its business. They announced they're going to exit all of their industrial portfolio through either spinouts or sales and become a pure-play aerospace company.

For context, they're shedding about 3 billion of 15 billion of total revenue, so it's small parts, but it's the parts that stand out. This will be messy for a while, but right now, Textron is trading at about 10 times expected earnings if you factor in debt. Pure-play peers in the aerospace business trade closer to 14. I think that Textron's remaining businesses are set up to do well. BizJets had a great book to build. Bell Helicopter is going to replace the Black Hawk for the Army, so that's a huge contract. You have both a good set of products and a chance to re-rate the company to be closer to its peers once it makes more sense. Patience has been required here, but I think that patience is about to pay off. I really think Textron is set up well.

Travis Hoium: Dan, aerospace, defense, and a little value? What do you think?

Dan Boyd: I mean, the text in Textron is meant to be textiles, but I guess not anymore.

Travis Hoium: I love the historical context there. Jon, what's on your radar?

Jon Quast: This week, I'm bringing Circle Internet Group to the show, and that is ticker symbol CRCL. This is perhaps the riskiest of the stocks that I've brought here on the radar segment, but I think that it is a company position, right trend, right time. This is a stablecoin company, and so its main stablecoin here is USDC. A stablecoin is something that's pegged to a currency. It doesn't fluctuate in value, unlike a cryptocurrency like Bitcoin. Basically, the way it generates revenue is it has reserve assets that it can bear interest, and it can generate revenue that way. From a circulating supply perspective, Tether is far and away the leader. From a transaction volume perspective, USDC is pulling even, so that's good. But you look at the trends in AIs, particularly agentic. Right now, when we do digital transactions, it's all on the front end where we're interacting. If agents take that over, it's going to be happening on the back end. That really plays into stablecoin infrastructure. This is why companies such as Visa, I think, are partnering with Circle very interesting down over 60% from its high. Trading at 45 times free cash flow, don't love that, but the growth is real. I think the trend is real, and it's here for the radar.

Travis Hoium: Dan, what do you think about stablecoins?

Dan Boyd: He lost me at stablecoin. I'm not going to lie, so we're going to go Textron this week, Travis.

Travis Hoium: I thought it was a good case, Jon. Thanks, everybody, for listening. That's all the time we have. We'll see you here tomorrow.

Jon Quast has no position in any of the stocks mentioned. Lou Whiteman has positions in Shopify. Travis Hoium has positions in Alphabet and Shopify. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bitcoin, Broadcom, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Shopify, and Visa. The Motley Fool recommends Textron. The Motley Fool has a disclosure policy.