When Leverage Goes Wrong on Wall Street

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Travis Hoium and Lou Whiteman, along with Motley Fool analyst Jason Moser, discuss:

• Situational Awareness.
• Leverage gone wrong.
• Hyperscaler divergence.
• Would you rather?
• Tesla in China.
• 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 July 31, 2026.

Travis Hoium: No margin calls for the next hour. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and Jason Moser. Guys, we've got to start with the news of the week. Lou, that is Situational Awareness, getting a margin call. The hot investor of 2026 is now out of the equity markets. What in the world happened?

Lou Whiteman: Let's talk about this because this is fun. First of all, Situational Awareness, AI-focused hedge fund founded by, I hope I'm saying this right, Leopold Aschenbrenner, I think it is. Now, Leopold has a heck of a history already. It's almost like the Forrest Gump story here. All right guys, He was at FTX with Sam Bankman-Fried. He was at OpenAI, and then he went off, and he actually just wrote, I think it was a Substack or something, talking about situational awareness, basically that AI was going to eat the world. Got a lot of buzz, and he turned it into a hedge fund. His hedge fund, same name, Situational Awareness, focused on AI bets, and as the tide was rising, so too did his portfolio. The fund borrowed heavily to multiply its returns. We don't know exactly how much, but we know this because the funds return were better than the underlying assets that it was buying in terms of their returns, so there's obviously leverage. At its peak, it soared from a couple hundred million to 20 billion in assets, up 440% in the first half of the year.

Travis Hoium: I want to highlight this. The first half of the year, which ended exactly one month ago today.

Lou Whiteman: Look, we have all seen this movie enough times to know what happened here. The AI infrastructure trade has taken it on the chin of late. Some of the situational positions, you know, these companies Micron, SK Hynix, CoreWeave. They were down big and short positions that they also took on betting against software. They were basically in on the AI is going to eat all software, so short software companies to the ground. Those started turning against it, too. The banks that provide leverage called said "Hey" to avoid liquidation. The firm negotiated a rapid fire sale to Citadel.

Don't cry for Leopold though, he retained the private assets, and this is the last scene of the movie here, including a $5 billion stake in Anthropic. He still has that. But yeah, a heck of a week. Lots to learn here. I don't know if JMo and I are going to be building similar portfolios, but I still think there's a lot we can learn here.

Travis Hoium: I want to start with the margin piece of this because I think this is important for investors to understand. This is why we talk about not using margin, but I want to explain a little bit of math behind it before we get to the Citadel bio because I think that is also really interesting that they've become the villain in a lot of circles, but they actually may have saved the day. But Jason, the math on this just on a basic sense the reporting is that he was about 4X lever so, $20 billion fund, let's just use that simple math, owns $80 billion worth of stocks. If those stocks go down 25%, you have nothing left. All you have is your debt. Your equity is now zero. That's how you get in trouble really quickly. Because it's not, you're leveraged on the upside when things are going well, like Lou said, you can have a 400% six-month run. By the way, I think that 430-something percent number was after fees, so the real return was probably well over 500%. But this is a big move, but these companies aren't going bankrupt, can get you in a lot of trouble.

Jason Moser: Sure. I personally, I don't invest on margin. I don't use debt to invest. It's just not my style. It's not what I do. I think part of that is, at the end of the day, you don't really control what's going on. You don't ultimately call the shots. At some point, if you have any sort of thing that shifts in the market for whatever reason, you're completely out of control. Somebody else is going to call you, like Lou said, the bank call says, "Hi. How are you? We'd like our money back, please." There's nothing you can do. I think it's always worth remembering that it can really amplify returns as things are going well. But when the tide turns, it can be catastrophic to say the least. I think this is just an interesting story. Aschenbrenner himself was not a trader, not an investor, not a dumb guy, clearly very well educated, and obviously had some interesting jobs along the way. It does remind you of that Dunning-Kruger effect, though. You just sometimes, maybe you think you're a little bit better at something than you really are, and I'm sure he was feeling great. I saw it on social media. Apparently, he was [OVERLAPPING].

Travis Hoium: Having interviews.

Jason Moser: Fast forward to today, it's pretty much yesterday's news. But led me to lose 0.2, don't cry for him, he's still doing just fine. The private stakes and companies like Anthropic. He's going to walk away from this doing just fine, but it's certainly made for a lot of headlines this week, for sure.

Travis Hoium: The fund does still exist. I think he sent a letter to investors overnight, actually said they're still up 80% for the year. That Anthropic stake is doing a lot of work there. Lou, I want to talk about a couple of the mechanics here because this is one of the things I think a lot of people have gotten confused about or think there's market manipulation going on. I'm going to try to walk through this and see if you agree with the number of events that happen here. A bunch of these positions, which people, they have to file 13-F, so we know some of these public positions that he held at least as of the end of the second quarter. Actually, those aren't even out yet.

Lou Whiteman: [OVERLAPPING] not first quarter.

Travis Hoium: We would only know through the end of the first quarter. But it's relatively well known, at least some of the positions and that he has a leveraged portfolio. These stocks start to go down. What then ends up happening, and I'm saying that this is not new because Jim Cramer wrote about this in Confessions of a Wall Street Addict, which I think was published in the late '90s. Other hedge funds start to smell blood in the water. They start to go, somebody's in trouble. Guess what? When your stocks are going down, and you have, let's say, that $80 billion number is the number, you can't just go to the market and say, you know what? I'm going to take my bets off the table because if you start selling in bulk, it's going to just exacerbate the problem even worse. You have people betting against you, going short against you. Your evaluations start going down. That's what you're talking about. Eventually, the banks, the brokerage calls and goes, "Hey, you know that $60 billion that you owe us, you got to come up with that money. We got to figure something out." That seems like that's what started to happen as early as last weekend.

Lou Whiteman: I think so. Look, a lot of people like to bag it, but this is a competitive industry. Even if you didn't have the 13-F, Leopold is doing a lot of interviews. He's talking about a couple of trends. We're all smart in this room. We probably could have guessed some of the stocks that he was in. If your favorite football team finds out that the cornerback for the other team has a bad knee, and they start throwing to that side, is that cheating, or is that just smart, or somewhere in between? I don't think Citadel or any of these big investment companies, they weren't even saying, let's target Situational Awareness. They were looking at the market and saying, this is a very, what they call, crowded trade. There's a lot of people using leverage. I bet it was a reasonable thing to say, like, if there's pressure here, it could snowball, and this is where we want exposure. I don't think it's even like a vast conspiracy. Let's put Leo out of business or something like that. It's just this is how market dynamics work. A trade gets crowded and people say, our market is always two people with different opinions coming at a fair price.

The crowded or more crowded one side of a trade gets, the more appealing the other side looks. That's what a high valuation is. You can see Citadel as a villain here because they probably saw this coming, and they probably have now slowly or orderly liquidate a lot of this and get their money back quick, or you can see them as a hero, and I don't want to make them a hero, but one of the things I think as individual investors, we always talk about, do not panic in a downturn because there's a lot going on. If Citadel or someone hadn't have stepped in, the other option here was to liquidate, to sell $80 billion worth of positions.

Travis Hoium: Now you're talking about, yes, some of these stocks are down 50, 60%, but they could go down another 50, 60, 70%, really quickly.

Lou Whiteman: Really quick, and frankly, it should be temporary. It's just an influx of supply, and it puts supply and demand. Always, the real takeaway here from this story, all the way back to long-term capital management and before that is, is the reason we say, "Do your best not to panic in the downturn," is because there is a lot going on that isn't tied to long-term price appreciation and fundamentals. If you're focused on price action and not fundamentals, you can really get bit. There's some times where you just need to sell, but so often in these panics, there's more to it going on than everybody hates this stock and it's going to zero. That's why literally sitting on your hands tends to be the best thing you can do in a panic, even though every fiber of your being says, "Get out, run."

Travis Hoium: Jason, I'm going to give you the last word. What did we learn this week?

Jason Moser: I like the idea of sitting on your hands. I think that Lou said it perfectly. Their emotions are difficult to control in investing, but it is a crucial part of being able to invest successfully over the long haul, and when you see headlines breaking out like this, you see the markets reacting with volatility. It's easy to say, I've got to do something, but for the most part, in most cases, the best action is just inaction. Just keep investing. Every time you get paid, put that money in your index fund. If you own individual stocks and you know why you own them, then feel good about that, but oftentimes the best action is inaction.

Travis Hoium: I think this is where I keep going back to a lot of these long-term, Foolish principles that they work over years and over decades, and that is the most reliable way to not only compound wealth, but also to even beat the market long term. The investors that we're talking about here, whether you're talking about Citadel, or whether you're talking about Situational Awareness, are playing a completely different game. That's another thing to keep in mind is that you, as an individual investor, are not doing the same things that they're doing. Citadel is making markets. This was a great opportunity to make a market and maybe make several billion dollars along the way, but it doesn't necessarily mean that these businesses are broken or anything like that, so focus on that long term.

Jason Moser: Anonymity is a good thing. I don't want to be the guy on social media making headlines and people talking about my fund and what a genius I am. I'm OK flying under the radar and just kind of doing my thing. Anonymity is a good thing.

Travis Hoium: Maybe next week, Lou, we should talk about what a genius Jason is.

Jason Moser: Please don't. Let's not do that.

Travis Hoium: When we come back, we're going to talk about hyperscaler earnings. You’re listening to Motley Fool Hidden Gems investing.

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Travis Hoium: Welcome back to Motley Fool Hidden Gems Investing. We had a huge week of earnings from a lot of the biggest companies in the world, the big tech companies, the hyperscalers, as they are known. Lou, what has been absolutely crazy. If you look at a chart, I have a chart up right now of Microsoft, Meta, Google, Amazon, and Apple, and they go completely opposite directions. For the week, we have Microsoft up 19%, Amazon is up 14%, most of that is today. Meanwhile, Apple down 9.4% and Meta down 9.6%. What did we learn? Why are these stocks diverging so much right now?

Lou Whiteman: I'm going to carve out Apple because they chose not to play in a way here. I think for them, there might be separate things. But I think with the hyperscalers, what's going on is right now the market has one question for these companies, and the answers varied. What we saw was the stocks react based on the answer. The question is, when ROIC? When returns? Now, to be clear, I don't think the market is yet punishing spending. I saw headlines about that, but I don't think we see that spending bad. I think to some extent, especially for some of these toning down spending might be appreciated, but I don't think that right now if you don't lower your capex, your stock is just sent.

Travis Hoium: Because that seemed to be the story last week with Alphabet. [OVERLAPPING] They got a free cashflow, but they have recovered since then. That was what I was keeping an eye on this week too.

Lou Whiteman: I don't think they're punishing capex. I think there needs to be a clear sign that these management teams have just a map to get to the pot of gold at the end of the rainbow. Meta, based on its current business and its history with the Metaverse, I think they have the least credibility on that front. They may get there, but if you look at their history, if you look at what they've said so far, they have not articulated why all of this will end up in a happy ending. Microsoft and Amazon, they've done a little better telling that story, and they also have, I think, the most diversified revenue streams, which that's the best story to tell that everything is going to end up OK. I really think that that explains the divergence. I think it's just where are we going with all of this guys?

Jason Moser: I think Lou's right on the Meta part. That to me, like right now the market it's actually excited to hear these companies raising capex guidance. Microsoft, they're going to send $175 billion this year. Alphabet is going to spend close to $200 billion. Those numbers are going to increase next year. We've already seen Alphabet explicitly state it. Their capex next year is going to be materially higher than it is this year, and the market so far is going along with it. I think when you look at companies like Microsoft and Alphabet and Amazon. You're seeing at least some path toward the returns based on the infrastructure investment in the utility that customers are getting from their AI investments with Meta.

I look at these investments in AI, there are two different ways to view it. Is a company investing in AI, the infrastructure to provide all of these services and bells and whistles for us, the broader consumer, or is it a company that is investing all this money in AI that really is just benefiting their business? I think with Meta right now, clearly, those investments are benefiting its business, its core ad business, because that's really at the end of the day, all it really is still. Granted, they have 3.6 billion users, so I think they're in a pretty good spot. But you do wonder, at least in regard to the money that a company like Meta is spending, where is that return going to be beyond just their core ad business? I think with Amazon, with Alphabet, I think with Microsoft, we're seeing that they're able to monetize this to a degree, which we just haven't seen with Meta yet.

Travis Hoium: Is the idea there, Jason, that they have what you would think of as a platform, a Cloud platform, so they're going to provide compute. Other companies can build on top of them, that if you look at Amazon, or you look at Alphabet, a lot of that is actually coming from Anthropic. A lot of that demand. Whereas Meta is building compute and going, "We'll figure out what to do with this later, and that's a unsatisfactory answer to the market?"

Jason Moser; I would say that's unsatisfactory because it rhymes with what's been going on with Reality Labs. To this point, we've been hearing this for a lot of quarters now is investment in Reality Labs eventually it's going to pay off and the returns will be there. It just quite honestly has not materialized to this point. I think it's fair to assume going forward that you probably aren't going to see a return on that investment. I don't know if it's just we as consumers aren't there yet in regard to immersive technology. Maybe one day it will pay off, but to this point, it certainly has not, and I think those questions only grow a little bit louder when you start looking at all these investments they're making in AI.

Travis Hoium: Lou, it seems like the questions seem to change every quarter about what the market is looking for. As you look at, right now, we're starting to see phenomenal revenue growth. I don't think there's any question that the revenue is coming in. More questions about what's the return on that invested capital? Because if you're putting $200 billion in the ground, you better get some revenue out of it. When are we going to get real answers that are going to show up in the financial statements about if there is ROIC?

Lou Whiteman: Better come soon, and I don't know. In the market's defense, we're still early days, so if the market keeps asking different questions, maybe that's what it's coming. My biggest fear here, guys, is there isn't a lot of ROIC in the frontier models, and that's where all the spending is going, that most of the AI goodness will just come from lesser models. That, I think, is the huge fear hanging out, but look, someone's going to make money off of this, and probably the companies with big cloud businesses that just can do that for whatever's going on, I think that's probably the way I'd lean right now just because you feel like there will be demand there, whatever the future holds.

Travis Hoium: When we come back, we're going to ask Lou and Jason which stocks they would rather buy. You're listening to Motley Fool Hidden Gems Investing.

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Travis Hoium: Welcome back to Motley Fool Hidden Gems Investing. Let's play a little game called “Would You Rather?” I'm going to give Lou and Jason two stocks in the same industry that have very different valuations and see which one they would rather own. Lou, I'm going to start with you. Tesla and GM. Tesla, I'm going to give you a couple of stats here, trades for 11 times sales and a 160 times forward estimated earnings. General Motors trades for one-time sales and six times estimated forward earnings. Which one of these stocks would you rather own?

Lou Whiteman: I'm looking at my Scantron, and it's no fair. I don't see D. I don't see none of the above here, so that's bah humbug. If you're going to force me here, look, I have actually worked with the automakers before. I know the insides of the business a bit. It's a brutal business. Even in the best of times, it is a slog. You have the most complex supply chains in the world. I am not going to buy an automaker, period. I'm sorry, GM. I respect what you're trying to do with subscriptions and services and all that, but I'll believe it when I see. Tesla, I do have concerns about the valuation, but Tesla has a lot more optionality away from that core auto business. I do believe, despite the valuation, that if they execute on their plan, there is a lot of ways to create value there outside of just the moving metal on the car lot. I am going to lean into my valuation fears and choose Tesla.

Travis Hoium: Jason, are you going all in on dancing humanoid robots?

Jason Moser: Well, I'm with Lou in that I don't own any automakers. I look at automakers and airlines, and I'm like, you know what? I'm just not interested. The Scantron reference, wow, holy cow.

Travis Hoium: I wanted to hold on.

Lou Whiteman: I'm old.

Jason Moser: This is great. I really enjoyed that.

Lou Whiteman: You got your number two pencil?

Jason Moser: I thought it was interesting if you look at year to date, look over the last 12 months, look over the last three years, and look over the last five years, GM has outperformed Tesla in every regard. This has been the better investment. I was a little surprised to see that. If I have to choose one, I like Lou's point there about the optionality in regard to Tesla. There is a little bit of a jockey play there. Musk just seems to get what he wants. I don't know how he does it, but just he does it. There's obviously this potential for Tesla and SpaceX to roll up together as well at some point. I don't know. But I think generally speaking, the optionality is why I would say I would go with Tesla in this case. It's not to belittle GM at all, because, again, looking at the track record, the last five years, the company's performed very well, and investors have done OK as well. But it doesn't have the same optionality that Tesla has.

Travis Hoium: We always think that everything is going to repeat with General Motors because Lou is right, they keep making the same mistakes over and over again when you go through some downturn. We would love to buy one of these big GM vehicles as we have a bigger family and a dog and all that stuff. They never go on sale. That's an indicator of their pricing power in the market right now. I don't know if that will hold, but at least through 2026, it looks like you're not going to get any deal on a Tahoe or a Suburban.

Let's go back to the pharmaceutical industry. Jason, I'm going to start with you. Eli Lilly. Everything going right for Eli Lilly right now, but the market is pricing that in. Enterprise value to Sales is 14. PE multiple is 40. Would you rather own that or Novo Nordisk? Enterprise value-to-sales is 3.5, and the PE is 11.

Jason Moser: Another industry that I tend to shy away from because I don't feel like I have any expertise or full understanding as to how these businesses operate. I understand they can be very hit or miss. A lot depends on pipeline, a lot depends on approval. We've seen Lilly and Novo both performing. Well, Lilly more so than Novo, but really benefiting from these weight loss drugs, the GOP 1s. It seems like Lilly with Mounjaro and Zepbound, that is just a one-two punch. This is really working very well for business right now. This is your classic growth versus value. The bet on Novo would be that they are going to return to growth, their pipeline will then help them reignite that growth. I don't know that it will. I think for me, I'm going to look towards the winner and expect that winner to keep on winning. Therefore, I think I would go with Lilly in this case.

Travis Hoium: Lou?

Lou Whiteman: I'm going with Lilly. This is another tough industry. Blockbusters only mean so much because of patent laws. Pfizer might have changed the world with statins, and Pfizer the stock did not behave like Nvidia. I think that that's worth keeping in mind. Lilly, to their credit, is taking advantage of the moment and buying everything in sight. They've done what? Two dozen deals today? What's that doing that's maybe if half of them or if a third of them become drugs, but they are using the cash from this Blockbuster to augment, to improve, to build out the pipeline for the future. I really like that strategy, so they're my choice there, even if they are the less of a value play.

Travis Hoium: Let's look into financials. Lou, would you rather own a big bank? I'm going to put JPMorgan Chase here. Price-to-book multiple is 2.5, if I'm pulling my numbers correctly. That's what I have.

Lou Whiteman: That's high for a bank, so that's [inaudible].

Jason Moser: That's very high.

Travis Hoium: It's very high for a bank. Three-year growth rate is 8%. Decent growth rate. Second stock, SoFi. Price-to-book is 1.9, cheaper on a price-to-book basis, but the three-year growth rate is 27%. Which one would you rather own?

Lou Whiteman: I'd rather own JPMorgan. I'll tell you, you pick price-to-book, I'll go PE ratio. It's rare for a bank to be above 10-15. JPMorgan, I was looking at it. It looks pricey to me at 14X forward earnings. SoFi's double that. SoFi is a great young bank, and yes, their growth rates are better because they are younger, so there's a denominator issue. But look, JMo, I know you used to do the financial show. You know this? I was shocked when I saw SoFi bragging that their average customer has 1.5 relationships. A community bank would laugh at that. I think that the best growth days are behind it, just as the denominator changes, and I think it is going to eventually be valued like a bank because that's what it is. I think there's probably more equity upside for slow and steady JPMorgan right now.

Jason Moser: I think that's right. I'm going with scale here. SoFi $20 billion business obviously done some good stuff. Initially was a student loan business, wasn't it?

Travis Hoium: Student loans and personal loans, all the stuff that big banks don't want to do.

Jason Moser: It's nice to see they've been able to expand and become more things for more people. I do agree Lou what you said 1.5 times.

Lou Whiteman: 1.54 products per customer.

Jason Moser: That doesn't seem that great.

Lou Whiteman: That was their record high.

Jason Moser: That number should be bigger, for sure.

Travis Hoium: We talked about this on Wednesday. I do think it's funny how banks trick you into increasing that number.

Lou Whiteman: But, Travis, here's my honest explanation about it. Sorry, J. Mo, I'm hijacking it. But I think they have been so, so laser-focused on I don't even want to say juicing or spiking, because that sounds like there's no conspiracy here. But they've been going so hard on bringing in new members and not actually monetizing. You could say the bull case is actually slow your role on just getting everybody through the door and actually model more.

Travis Hoium: [inaudible] opportunity.

Lou Whiteman: Be careful because Wells Fargo could tell you a story about how that can go wrong.

Jason Moser: Well, I'm glad you brought up Wells Fargo, because like I said, I'm going to scale here with JPM. But it's not to say that something bad couldn't happen. Now, I think that JPMorgan has done very well under the leadership of Jamie Dimon. We also know that he's not going to be there forever. He's, I think, one foot out the door. They're starting to talk about succession planning there, and so it will depend on future leadership, making sure they can keep things going in the right direction. But the bank it's basically a $1 trillion company today. Just it plays such a pivotal role in our broader economy. I like the dividend yield. I think the dividend should continue to grow. I like the fact that they continue to buy back shares, and I love the fact that they really focus on keeping that war chest balance sheet. They really want to make sure that they keep the company financially in good health. I think, to me, I would just feel a lot more comfortable owning that one, as opposed to SoFi.

Travis Hoium: I'm just going to disagree with you guys on almost everything here today, but that's what makes market. [LAUGHTER] Let's go quickly with this one. I want to touch on this quick. Costco versus Target, give you a couple of numbers here. Costco's price-earnings multiple is 48. Target's price-earnings multiple is 19. Fun fact here, Jason. Target stock is up 43% this year, but which one is your rather own from here?

Jason Moser: Well, I like the membership model. I think membership has its privileges, and I remember early on in my first days here working at The Fool, a number of us were questioning how much further Costco could go with this. Did they really have the ability to raise prices in regard to that membership fee? Because we know they're going to keep prices as low as they can in the store. Fast forward today, we've seen clearly they've been able to raise prices just incrementally here and there while maintaining those 90-plus percent renewals. That, to me, has just been a phenomenal part of this business is just that renewal rate. Every time I drive by Costco here by our house, it's like an airport parking lot.

Travis Hoium: It is the most annoying parking lot in the city.

Jason Moser: It is so full always. We're not members at Costco, so I don't go there to shop, but I'm always just amazed to see how busy it is and just a very loyal customer base that keeps on coming back for more. As long as they adhere to keeping prices low within the stores, gee, I don't see any reason why the business can't continue to grow and succeed.

Lou Whiteman: I don't like investing in retail, but if I do, I want to see what are you special at. What's your reason? What is it that you do that you can't get elsewhere? I think Target's up off the mat here, but we've seen with Kohl’s, we've seen with JCPenney's, we've seen with Kmart. You just don't have a right to exist here. And with Target, I kind of wonder how hard it’s going to be for them to have just a, “I go to Target for blank” versus other things. Costco by default here, as expensive as it is. I know why they exist, and I know why people go there.

Travis Hoium: When we come back, we're going to get to the stock center radar. You're listening to Motley Fool Hidden Gems Investing.

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Travis Hoium: As always, people on the program may have interests in the stocks they 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 The Motley Fool's editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising and disclosure, please check out our show notes.

I did want to get to some news that came in overnight, Lou, that is that the Wall Street Journal is reporting that Tesla is weighing the sale of its China business to pave the way for a merger with SpaceX. What do we need to know about this?

Lou Whiteman: The first thing we need to know is Elon says it's fake news. But if you read the story, basically it sounds like they've been thinking about this for a long time.

Travis Hoium: It makes sense. They would probably not be able to have that business and merge with SpaceX.

Lou Whiteman: Absolutely not. Fools, think about this way. Right now, we're facing that Mercedes‐Benz might not be able to sell cars in the U.S. because they have a Chinese investor that owns 10%. That's how the U.S. views this. What are they going to say if there is a major Chinese presence to a defense contractor, which is in part what SpaceX is? They would have to do something here for a merger, so that is the natural implication. But look, this has been a criticism for a while, because Elon owns both companies, so it's out there. I am really curious how much Tesla cares about automobiles anymore. We've seen refreshes, but we've cut the model lineup in half without a lot of plans for more. This would be a real symbolic move of the future of this business isn't electric vehicles. I think you'd only see it in a merger. But I do think a merger is coming. I guess this is just part of the process.

Travis Hoium: Jason, it's wild that the plant that I think was supposed to be the growth driver for Tesla, I think it's over half of their vehicles could potentially just be they're not going to give it away, but there's probably not going to be a half trillion dollars of value taken out of the Chinese stake.

Jason Moser: No, I think Lou's right. We're talking more and more about Tesla being something other than an auto company, which is just weird to think about. But Musk has said time and time again that it's all about humanoid robots. It's AI and humanoid robots. I think even Musk may say this is fake news or whatever. My suspicion is we will see this merger happen within the next couple of years. I think that he's going to want to make sure to try to get this done during this current administration because I would imagine he wouldn't want to take the chance on a future administration that might not be so embracing to this type of a deal. My bet is we see in the next couple of years SpaceX and Tesla roll up into one.

Travis Hoium: Lou, as you look at Tesla as a stock right now, does the fact that they're potentially getting out of China, it's become a very competitive market there, could that actually be a positive thing for them?

Lou Whiteman: Remember, that what they do in China is make vehicles for the world, so it's a lot more than just competing locally with China. I don't think this happens without the SpaceX merger. I think it's you take the two for one. If they independently of SpaceX just decide we're dumping China, that would be a concern for the business. But I think there's only two paths here, either the status quo or the merger.

Travis Hoium: Well, it'll be very interesting to see what happens because there's obviously a lot going on with both SpaceX and Tesla, must run in both companies. If they are going to merge, something is probably going to have to happen with the stock. We'd like to end the show with stocks on our radar, bring in Dan Boyd with his thoughts. Jason, you're up first. What are you looking at this week?

Jason Moser: Dan, I'm looking at Keysight Technologies. The ticker is KEYS. This world is more tech-driven than ever, and it takes a lot to bring this technology to market, Dan. From design and development to testing and deployment is an arduous process, requires near perfection. Keysight delivers a portfolio of hardware, software, and services that enable its customers to do it all. The company operates ultimately in two different segments. They have the communication solution side of the business, which is electronic design and test, software, instrumentation systems, and related services. Their end markets are commercial communications, aerospace, defense, government end markets, and then they also have the electronical industrial solution side of the business, which consists of also electronic design, testing, and simulation software, computer aided engineering solutions. Those end markets include automotive, energy, semiconductor, general electronics. They make their money by selling their hardware, software, and services to a global base of over 30,000 different customers. I like the fact that software and services now represents approximately 36% of the business as higher-margin recurring revenue. Definitely business to keep an eye on him.

Travis Hoium: Dan, quite the pitch, but also I like the ticker, just KEYS.

Dan Boyd: Good ticker. This is one of those companies that is both boring and completely inscrutable. I'm looking at their Wikipedia page, and I got to tell you all, I don't understand any of this.

Jason Moser: It's boring, but it's crucial, and that's the key. That's the key, Dan.

Travis Hoium: Lou, what are you looking at this week?

Lou Whiteman: Dan, I want to take a look at defense prime L3Harris Technologies. This week, they released earnings. They beat expectations on both revenue and earnings. They also raised full-year guidance, yet the stock traded down more than 10% after earnings. What's going on? Well, earlier in the year, L3Harris teamed with the Pentagon to spin off its missile business in an IPO that would come with billions in government funding to increase missile manufacturing. The market liked that deal because it would allow L3Harris to keep some of the upside to that missile business while saving its capex for higher-margin areas like space. But yesterday, L3Harris said the IPO is going to be delayed until 2027 because of choppy, frothy market conditions. I get why the market is disappointed, but I think the sell-off is an overreaction.

L3Harris finished the quarter with a backlog of 42 billion in future business. They are the go-to contractor for areas like Golden Dome, missile defense, a lot of this defense electronics at this higher margin. They also have a better international business than most of their peers. Because of this, L3Harris normally trades at a premium to those of the defense contractors. Today, you can get it basically the same multiple as General Dynamics. That looks like an opportunity to me, Dan.

Travis Hoium: Dan, another critical company, but a ticker of LHX.

Lou Whiteman: Not as good. Not working.

Dan Boyd: Based on tickers, we got to go Keysight here. But I get why L3Harris seems like a juicy investment these days. But I got to imagine that Keysight is probably selling components to at least some of the [CUTS OFF].

JPMorgan Chase is an advertising partner of Motley Fool Money. Jason Moser has positions in Alphabet and Amazon. Lou Whiteman has positions in General Dynamics and L3Harris Technologies. Travis Hoium has positions in Alphabet and SoFi Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Eli Lilly, JPMorgan Chase, L3Harris Technologies, Meta Platforms, Micron Technology, Microsoft, Novo Nordisk, Nvidia, Pfizer, Target, and Tesla. The Motley Fool recommends General Motors and Keysight Technologies. The Motley Fool has a disclosure policy.