Strong Earnings Reports, Supply Chain Woes, and Big Tech News

Costco (COST 0.17%) ends the fiscal year on a strong note. Nike (NKE 0.66%) struggles with global supply chain issues. Adobe (ADBE 0.89%) posts record revenue. FedEx (FDX -2.09%) cuts full-year guidance. Stitch Fix (SFIX 3.69%) surprises with a quarterly profit. Salesforce (CRM -0.18%) and Darden Restaurants (DRI 0.46%) hit new all-time highs, and Toast (TOST -0.52%) pops 50% on its first day of trading. In this episode of Motley Fool Money, Motley Fool analysts Emily Flippen and Jason Moser analyze those stories and share two stocks on their radar.

Plus, CNBC host Jon Fortt discusses the latest revelations about Facebook (META -0.52%), what investors should know about Amazon (AMZN -1.64%) CEO Andy Jassy, and WeWork's upcoming debut in the public markets.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on September 24, 2021.

Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill. Joining me this week, senior analysts Emily Flippen and Jason Moser. Good to see you both.

Jason Moser: Hey.

Emily Flippen: Hey, Chris.

Hill: We've got the latest headlines from Wall Street. We've got the latest in big tech with CNBC's John Fort. As always, we've got a couple of stocks on our radar, but we begin with earnings; Costco ended the fiscal year with a bang. Fourth quarter revenue rose 17%, same-store sales were up more than 9%, and shares of Costco up this weekend close to a new all-time high, Jason.

Moser: Yeah. This is a business that continues to do what we've really come to expect. It's just resilient, it's customer-centric and that continues to deliver a loyal and repeat customer base. Net sales $61.4 billion, up 17.5% from a year-ago, earnings-per-share up 20%. That was on strong traffic numbers. Traffic was up 9.2% worldwide, 8.8% of the U.S. transactions. The basket, that was up as well, 5.8% worldwide, 5.6% in the U.S. The renewal rates continue, as I said, just to remain very strong, 91.3% for the U.S. and Canada up just slightly from a quarter ago. Total paid households now stand at 61.7 million, that's up 1.1 million from just a quarter ago. Margins holding the line and what we see is a little bit more of an inflationary environment, which is really encouraging, but all-in-all, like I said, this is just a business that continues to do what we've come to expect.

Hill: I couldn't help but notice they said they're going to start limiting purchases of paper goods and bottled water. Isn't that why people go to Costco in the first place, so that they can load up on toilet paper and bottled water and cleaning supplies?

Moser: Perhaps they're just trying to employ some lessons learned from the recent past. 2020 I think taught us all a lot about a lot of things and I think maybe they're trying to see around that corner a little bit because there are still some supply chain issues from a global perspective. It's not just a chip shortage, everything is essentially on backorder fields. It feels like at least they're just trying to see around that corner a little bit. It makes sense, actually.

Hill: Mixed first quarter results from Nike. Profits were higher than expected, revenue was lower than expected, and Nike lowered its guidance for 2022, saying that the global supply chain is hurting their business more than they originally thought it would. Shares of Nike down 6% on Friday. Emily, I have a hunch we're going to be sharing the phrase global supply chain a lot this earning season.

Flippen: Well, that's certainly the story for Nike as it has been for so many businesses this year. Shutdowns in its production facilities, especially in Vietnam, lead to longer transition times, labor shortages, but what I think is really interesting and what we're seeing the market react too, is the fact that they had to pull back guidance so greatly as a result of these changes. They pulled back quarterly and full-year guidance from the low double digits to the mid single digits. That's a really notable slowdown. What's even more interesting is that unlike some of the other businesses that have been impacted by the supply chain challenges, there weren't a lot of hints from Nike in its most recent quarter, pre this quarter, about how big of a problem this would be. In fact, management said last quarter that they were optimistic and handling any challenges well. So that's a big change, just from June to where we are, in late September, between what management saw last quarter and what they're expecting for the near future.

Hill: How concerning is that? Nike is an experienced, mature company. They have been in the global game for a long time.

Flippen: I'm not super concerned because this inventory issue again is likely to persist until Vietnam takes a less aggressive approach to curb the spread of COVID and really that's anybody's guess. I'm less willing to punish management here for not being more forward-looking with their guidance. I do think what investors should be focused on, that the market is overlooking right now is a slower growth in China. Last quarter was also a weak quarter for China. This quarter was a weak quarter for their Chinese sales. There really wasn't much of an explanation and that's concerning because historically Chinese demand has been really strong, a key growth driver for Nike. This is definitely something to watch over the next few quarters.

Hill: Adobe's third quarter profits were higher than expected, and revenue was a record for the software giant, but shares of Adobe are down 5% this week. Jason, is this valuation? Because it's hard to look at Adobe's results and see any serious cause for concern.

Moser: I don't know that it's valuation as much as it's just a little bit of language in the call. I'll get into that here. There was another strong quarter, like it is a strong business, a strong quarter. But as we've seen with a lot of digital themes here over the past couple of years, management created at least a seed of just hesitation maybe. They mention the word seasonality several times. They're talking about how with the economy reopening, we're seeing activity picking back up, people willing to travel a little bit more, there's lower web traffic as folks travel and get out of the house. That's something that has impacted Adobe's business modestly. They're calling for the future here over the course of the coming year as a potential headwind. When you have a business like Adobe that's valued at around 45 times free cash flow, it's not what you would call cheap, now, it is a dominant business, so it's always been awarded that premium multiple. I don't expect that to change. I think it was a relatively cut and dry week for them here, but the numbers were very impressive. Revenue up 22%, earnings per share up 21%, thanks to their digital media segment. The investments in Document Cloud revenue continue to pay off. That Document Cloud, revenue of $493 million was up 31% from a year ago with their Adobe Sign transactions now up 10 times over the last three years. We're seeing a big opportunity that they're capitalizing on beyond just their digital media business. All things considered as a shareholder, and it is one who has recommended the stock before, I feel very good about where they are and where they're headed.

Hill: Shares of FedEx down more than 10% this week. After the first quarter profits came in lower than expected, FedEx also cut their earnings guidance for the full fiscal year. Emily, I know there is not one single stock that is a bellwether for the economy, but FedEx is probably on the shortlist of bellwethers stocks. This isn't that encouraging.

Flippen: I will say there are some aspects that are impacting this quarter that are outside of FedEx's control, especially related to the labor shortages that we're experiencing. In fact, we covered FedEx last quarter, at least I did here on Motley Fool Money, and I noticed that they had a great quarter last quarter. Record levels of both revenue and profit, but we're still tepid because it was very clear that FedEx be faced with things like higher labor costs, again, that are very much outside of the business' control. Even though they've been largely able to pass these increased costs along to the end consumer, it was clear last quarter that the issues they've had around hiring, the constraints on their logistics networks during one of our busiest years ever, would likely end up hitting margins. That's exactly what we saw this quarter. Sales were up 14% year-over-year to just under $22 billion, profits though, actually fell 10% to $4.37 a share, so the core reason again, is that their labor pool is just more expensive and shortages cost less efficiency within its networks. I think the question investors should be asking themselves is, are these issues short-term? While management thinks so, I think it's important to remember that changes are likely to happen gradually. They're headed into peak season, so don't expect these costs to suddenly go away.

Hill: I was going to say they also talked about how they're looking to hire 90,000 seasonal workers. If labor is part of the challenge here, I know there are some investors who might look at a mature business like FedEx and say, the stock is down 10%, maybe it's time to pick up some shares for a little bit cheaper, but it seems like they've also got some headwinds going into the holidays.

Flippen: I don't mean to be overly bearish because as you mentioned, FedEx is a bellwether stock. They've been a pretty consistent performer over the past decade, they pay a dividend. All these things are great, but they are certainly paying up for these peak season workers. There is a belief among some experts that people are going to go back to shopping in person for the holiday season, especially when they're being told that the lead times on their deliveries may be weeks longer than expected. They're paying up for tons of workers, there may be less demand heading into the peak holiday season, so all those things, I'm not super favorable, I suppose, for FedEx's prospects over the short-term.

Hill: Another week, another hot IPO. Details next, so stay right here. You're listening to Motley Fool Money.

[...]

Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Emily Flippen. On Thursday, Salesforce held its Annual Investor Day presentation and raised its revenue guidance for 2022 and Wall Street like the sound of that. Shares of Salesforce up nearly 10% this week and hitting a new all-time high on Friday, Emily.

Flippen: I'll tell you what, if someone told me that Salesforce is up 10% on raised guidance, I would've assumed that the jump we saw in guidance was much bigger than what we saw in reality. In fact, they did raise guidance in their most recent quarterly report, but they've raised it again during their Investor Day. Previously, they were expecting $26.2-26.3 billion in terms of revenue, they raised a whole 0.5% raising it to $26.25-26.35 billion. I think if you're just looking at these numbers, a lot of people will say, well, that's ridiculous, 10% as a result of a 0.5% increase in terms of guidance. But I don't think it was just because of this earnings guidance. I actually think it was a result of its Investor Day. They remind investors about the underlying economics and just these huge tailwinds that Salesforce is experiencing that are not expected to go away over the short-term. One of the things that stood out to me with a slide they had updated around six months ago for investors. Six months ago it had Salesforce's total addressable market at $204 billion. Only six months later today, it is at $248 billion. The digital transformation that is happening, it's happening at a rate higher than many investors expect, and I think that's why we're seeing the growth.

Hill: Do you expect them, and I don't know, maybe they address this in the Investor Day presentation -- did they talk at all about acquisitions? Marc Benioff is someone who likes to buy other businesses.

Flippen: Of course, they did. I think you can't have a Salesforce Investor Day where they don't show off their acquisition prowess and that's definitely what we're seeing here as well. They finalized the acquisition of Slack on August 1st, which adds a single product to their existing six businesses that are billion-dollar-plus yearly businesses. Unlike most accompanies that fuel growth through acquisitions, Salesforce, I think, has done a great job of ensuring they make good on their purchase price. MuleSoft, Tableau, ExactTarget, these are all acquisitions that at the time recorded very expensive acquisitions by Salesforce that have actually been accretive for Salesforce shareholders. With that, alongside all of their core products growing at double-digit rates, I think Salesforce is definitely taking a little bit of a victory lap year.

Hill: On Wednesday, Toast went public at $40 a share. Toast is a software company that provides point-of-sale systems for restaurants. The stock ended its first day up more than 50%. Jason, can I interest you in an unprofitable company that's now worth nearly $30 billion?

Moser: Well, maybe they have to reconvene now. I think this is an interesting business, but it's not one where I feel like you pay any price for it. Toast serves as the restaurant operating system ultimately, is the way they view their business. They have a number of different revenue streams, some hardware, a lot of software, and services. But their general goal is just to connect the restaurants across the entire spectrum of operations, dine-in, take-out delivery, addressing the fact that I think the restaurant industry has evolved so much, there are more points of distribution. It's more omnichannel now. I think more moving parts means it's more difficult to manage, so a seamless, consistent operating experience, absolutely has its merit and there's something to the business because customers continue to sign up. As of June this year, they had 47,942 locations on their platform. That's up from 19,891 from just a couple of years ago. When you look at the market opportunity, it is a large and growing one. Restaurants in the United States spent an estimated $25 billion on technology in 2019, and ultimately less than 3% of total sales. Toast management sees that growing to $55 billion by 2024. Even just a little bit of that market opportunity can certainly go a long way. But we need to really see if this business has traction, if the tech is as good as they say it is, and that will take a little bit of time.

Hill: Shares of Stitch Fix up nearly 20% this week after the online styling service reported a surprise profit in the fourth quarter. Emily, encouraging results, but I can't help but feel like Stitch Fix is going to be a stronger business when profits are no longer a surprise.

Flippen: Needless to say, I think the question around Stitch Fix has been, how big can this business be and what can their margin profile look like? Stitch Fix has had periods where they have posted somewhat decent margins. I'll use that term loosely, 2-3% net income margins, and 3-4% free cash flow margins, but that was within their best quarter. The new CEO, Elizabeth Spaulding, has really taken Stitch Fix's business in a completely new direction. Their founder, Katrina Lake, after she departed, Spaulding came in and said, "Hey, I know that we're known for being a clothing delivery box service, but I want to change that. In fact, I want to rename something I should say, known as Freestyle." It's their direct buy system that's being opened up to the public. It used to be that you couldn't buy things on Stitch Fix's website unless you were a customer and even then limited inventory. But Spaulding has taken and said, hey, we want shoppers to come directly to Stitch Fix without having to get fixes in the mail and be able to make purchases, no longer limiting themselves such as being a retail box business, but being a key destination for what they call personalized styling and shopping. This is a big deviation and I will say it puts them in the cross-hairs of some really competitive online retailers that have decades of experience in this space.

Hill: We were talking before the show though. There is still room for improvement, but it feels like it is at least a mature enough business that it's not going away. There was a point in time where you could look at Stitch Fix and say, I don't know if they're going to make it. Now I look at it and I think more in terms of, OK, they're going to make it, but just how big can they get?

Flippen: The way you put it before we started recording was that this business certainly has a floor, and I completely agree with that. But you also mentioned this business probably has a ceiling, and I personally don't like to buy businesses that have a ceiling even if there is a floor. I agree, Stitch Fix has a floor and the terms that are not going to go away permanently, but I do still wonder how they're going to compete in the world of online retail. I will say, I appreciate the fact they are shifting focus away from stylists and onto algorithms, not that the stylists were bad at their jobs by any means, but there was a deviation in terms of strategy. Stitch Fix didn't know what it was, was the secret sauce the stylists or was the secret sauce the algorithms? Now we know, they are going all-in on the algorithms. If those pay off, then maybe that ceiling is higher than what I imagine it to be.

Hill: Darden Restaurants is the parent company of Olive Garden, LongHorn Steakhouse, and other restaurant chains. Strong first quarter profits and increased guidance for the full fiscal year drove the stock to a new all-time high this week. Jason, we love to talk about Olive Garden, but Darden's fine dining division, led by the Capital Grille. That deserves the MVP Award for this quarter.

Moser: Really, I think you're hitting on the beauty of the businesses, the number of brands that have under that umbrella that covers all different price points. That just resulted in another strong performance, sales up 51% from a year ago for obvious reasons. But if you compare it to 2019, sales were still up 10%, which I find depressive. To me, it indicates the strategy that management has been employing over these past couple of years and taking share in markets where other restaurants, unfortunately, had to shut down. It's working. It's giving them a greater footprint and that plays into the competitive advantage in this business and scale. A big theme of the call was inflation stronger unit performance, coupled with some supply chain constraints resulted in a lot more spot purchasing and that ultimately resulted in some higher than expected inflation. But management is being very sensitive as to how they approach prices. They're going to continue to price below inflation, and more importantly, or more notably, at least below their competition. Again, they see their scale, their data, and their analytics as an advantage that allows them to do this. I like it. To me, it's just the quintessential long-term thinking that's playing out pretty well for me.

Hill: Jason Moser, Emily Flippen, we will see you a little bit later in the show. Coming up after the break, CNBC's Jon Fortt weighs in on the latest from Facebook, Amazon, and WeWork's upcoming debut in the public markets. Stay right here. You're listening to Motley Fool Money.

[...]

Welcome back to Motley Fool Money. I'm Chris Hill. For more than 20 years, John Ford has covered Silicon Valley from start-ups to the biggest companies in the tech industry. He is the co-host of CNBC's daily show TechCheck, and he joins me now. John, thanks so much for being here.

John Ford: Thanks for having me, Chris.

Hill: There are a bunch of things I want to get to, but I want to start with Facebook. The Wall Street Journal recently published a series of stories based on internal documents at Facebook, and among the headlines for those that didn't see it, that high-profile users were being exempted from the rules, the toll that Instagram is taking on teenagers in mental health, and that Facebook executives were fully aware of the negative effects of its platform. One of my reactions when I was reading these stories was I feel like I've seen this movie before, the movie where seemingly damaging information comes out about Facebook's business. You know that for most of its public life as a company, people have bet against Facebook and they've largely lost. I guess my first question for you is when you look at these stories and these revelations, how legitimately damaging do you think this is for Facebook?

Ford: Damaging in the sense that it's more damaging than Cambridge Analytica or more damaging than the stuff that's happened before, or what are we talking about?

Hill: Damaging to the point that it takes a material effect on the stock that activist investors start to raise hell, or that legitimate changes happen at the business as a result of this.

Ford: I'm not so sure because a lot of what is coming out about Facebook and Instagram, even WhatsApp, there were some stories not related to this in particular, but about the privacy within WhatsApp, perhaps not being as private as many would like to believe. So much of what's happening within Facebook is happening within society, these issues of body image among teens and what do you do about that bullying, etc. It's a Facebook thing certainly. It's also an Internet thing, it's also a societal thing, these issues of people in power or people with celebrities getting away with stuff that everybody else can't get away with. Well, yes, that happens on Facebook, but it also seems to happen everywhere else.

We hold Facebook more accountable because of its power, because of its wealth, because it's a controlled company where Mark Zuckerberg gets to call the shots and it was sold to us by Mark Zuckerberg and others says, "Well here, you can be saved and here you can be around real people, and here it's curated." Yet they seem to wrestle with the same problems that broader society does. In many cases, they are more acute on Facebook's properties. Some of the journals reporting shows that some of their fixes, like when they tried to orient people toward interacting more friends and family ended up creating an even bigger problem, which reminds you when you try to fix an ecosystem by getting rid of what you think is an invasive species or something that shouldn't be there and you end up tipping the whole thing into chaos. It's like we're dealing with a living thing here on Facebook. Is it a cautionary tale? Do things need to be done? Yes, but is Facebook going to get taken down as a result of it? I've got my doubts.

Hill: Are you surprised that just in this calendar year, we've seen Tim Cook be pretty pointed in his comments about Facebook and most recently, Marc Benioff from Salesforce? I think we're used to seeing CEOs go to one another a little bit more when they're in the same industry. The fact that the CEOs of Apple and Salesforce have gone out of their way to make these comments, that's not the norm.

Ford: It's not. Apple does have a fundamental, I think, philosophical difference from Facebook. That has to do with advertising and private information. They just have different approaches to how they think about technology and how it intersects with society. Benioff, yes, while Salesforce is an enterprise software company, which seems to play very separately from what Facebook does, he also bought Time Magazine which is in broad consumer communications. He was interested in buying Twitter, remember, which is a more direct competitor of Facebook. He might think of himself and his efforts more broadly than we do when we think about just Salesforce. But I do think his comment from years ago when he compared Facebook, in particular, to cigarettes rings a bit different now that we hear about this research, see it into the psychological effects, the social effects on people of, say, Instagram and how teens, they want to use it less, but they don't want to go cold turkey, etc. I think we're not a society that's used to creating laws, regulations necessarily around behavioral stuff, as much as around medical stuff and physical stuff. This is brand new territory at a time when there is a lot of disagreement around how much people's freedom to do dumb things should be limited. Don't wear a mask, wear a mask, don't get vaccinated, get vaccinated. If we can't agree on that stuff, how are we going to tell people to get off Instagram?

Hill: Let's move on to Amazon because when the new CEO, Andy Jassy, did his first podcast television interview, he did it with you. You sat down with Jassy recently. It's not the first time you've interviewed him. I know you've talked with him a number of times over the years. Let me start with this, what is something Amazon shareholders should know about the new CEO?

Ford: I think people should know that he clearly has Jeff Bezos's confidence. I don't mean that in the sort of pleasure of the president's manner that it's often used. When I talk to CEOs, I very often know how to pronounce the difference between a founder and what a founder is willing to say and what a hired CEO is willing to say. Very often, founders will just say whatever the heck they want either because it's a controlled company or because they've got the board that is full of people who they put in. The board is not going to get rid of them. They can say what they want. Elon Musk is a great example of that. He clearly doesn't care what anybody thinks about what he says. Whereas a hired CEO is going to be more circumspect and blah, blah, blah. What struck me about interviewing Andy Jassy, and I think I first talked to him back in 2015 or 2016, I'm not sure what year it was, back when his title was SVP over Amazon Web Services, he spoke with authority not just about AWS, the Cloud business, but about Amazon in general. He wasn't looking over his shoulder metaphorically as he did it. I thought, well that's interesting.

He's a guy who served as effectively Bezos's chief of staff for a couple of years during the time when he also worked on what became Amazon Web Services. The bond between the two seems so firm that Jassy is confident in leading the huge part of Amazon that he led for a long time and all of Amazon now without having to do a double-take. So that is significant for those who wonder how much he understands the organization? Is Amazon going to miss a step? Is Amazon going to continue to be bold? Of course, Bezos is still around as Executive Chairman. It's not like he's left entirely. But I think the mine meld between these two guys is significant.

Hill: That's interesting, and I'm glad you mentioned Bezos is still around, because I think for a lot of people who look at businesses, look at the public markets, you don't have to go too far back in history to see examples of CEOs handing off the keys to the corner office, moving to the chairman role, and pretty soon whether it's Bob Iger at Disney or Howard Schultz at Starbucks, they are back in the mix.

Ford: That's true, and I think it's also really difficult to measure CEO performance. For example, one of the most cited recent examples of a not so great CEO transition, or maybe even a not so great CEO tenure on Wall Street is Steve Ballmer of Microsoft. People say, "Look what Ballmer did. Look what the stock did during Ballmer." Well, I also looked at the convenient moment when Bill Gates handed over the reins to Steve Ballmer right before the market imploded. That's a convenient time to stop the clock on your own tenure and to start on someone else's. Then Gates didn't really leave. He was Chief Software Architect and chairman during many of those years. It's not like he left and then came back years later and turned the lights on and the kids trashed the place. He was sitting in on those meetings where they designed the ZOON, so come on. Also, even though the stock didn't do much during that period, citing a dollar was working. They're building servers and tools on what became the cloud business, Microsoft built-in enterprise business. Their revenue and profit went up significantly during the time. It's not as if today's Microsoft just emerged from nothing. So I think judging CEO tenure is tough. That's got to be in my mind too. When you look at these transitions, don't just look at the stock price. Also look at some of the less tangibles and look at the businesses that are being built and the research that's being done.

Hill: It was about this time two years ago that we all got to watch in real time the implosion of WeWork as it was preparing to go public. The IPO did not happen but next month, WeWork is going public via SPAC. Is there a reason for optimism that WeWork is going to have a happy life as a public company?

Ford: I'm going to say there is to tell. A big part of the problem with WeWork and WeWork IPO, was that it was overhyped and highly valued. It was based on this optimistic scenario that people were going to keep working in a particular way, in offices forever into the future. Also, there were some cultural issues, certainly, Adam Neumann, his leadership, etc. can't overlook that.

Hill: What is a polite way of putting that?

Ford: I'm being polite today. Look at what's changed, Newman got a big payout, but he's gone. Look at who is running the SPAC, that is how WeWork is coming public. It's Vivek Ranadive. He is no crazy pot smoking in a private jet, tequila shots kind of guy. This is a name we know. Also, some of the companies backing this are commercial real estate names. I think the valuation ballpark was around $9 billion, which is way lower than it was being talked about before. This is a company idea that was being hyped along with Uber when Uber was being talked about as a $100 billion market cap, it has fallen short of that. WeWork is being valued way less. They have the opportunity now after having dealt with some of the debt issues and some of the reality checks in a post-pandemic world, provide a service for flexible office space, things like that, that people actually need. There probably is a price at which WeWork makes sense. I don't know what price that is but the way it's going public now, it's going to be a lot closer to that price than it would have been a couple of years ago when they were initially talking about an IPO.

Hill: Last thing, and then I'll let you go. The big technology companies tick up a lot of the oxygen for all the obvious reasons. But you're someone who's been in this industry for more than 20 years, what is currently on your radar right now? Somewhere in the technology business spectrum that maybe isn't getting a lot of attention, but it's a part of the industry that you're interested in. You're curious about both where it is and where it's going over the next few years.

Ford: I think vertical integration in the Cloud and data centers, and just how these business models are playing out. That's a lot of buzzwords, let me try to make some sense of that. The mega-scale, as I call them Cloud providers, the likes of Amazon, Microsoft, and Google Cloud are architecting, in essence these massive computers that they are allowing other people to use for computing cycles as platforms, etc. They've got artificial intelligence applications and platforms and resources that they're letting other companies use. Part of what they are doing at the same time is saying, we don't want off-the-shelf servers, don't want off-the-shelf server chips for running our Clouds. Since we have this whole architected system that we're running, we want to be able to make tweaks based on what we want our system to do down to the way server chips are designed.

You see Amazon going out and doing stuff with ARM chips in servers for a lot of their datacenter work in AWS.That's part of that customization and what I would say is a vertical model that's happening. That's interesting because it requires semiconductor companies to do a whole different thing than they used to do. In the old days, Intel would say, you can have any chip you want as long as it's X86 on this list. Here's what you can have. But now a lot of these customers are saying, "Well, that's nice that you have a list, but here's what I want a chip to do" Who's got the skills, who's got the capability in the semiconductor universe to be able to make those customizations and to do that for large providers? That's one line of it.

Another thing that's happening between these Cloud giants is, as they try to grow from here and catch up with AWS. As AWS tries to stay in the lead, they're focusing on industries and how they source specific industries, particularly with artificial intelligence applications and use cases. To me this is similar to what we've seen happen in other stages in enterprise technology, like when Oracle did a hostile takeover of PeopleSoft. That was industry-specific HR application and Oracle saw early on, we're going into a period of consolidation, let's figure out how we can take the most important either industry-specific or function-specific applications and own those and grow through that. That's starting to happen in the Cloud right now, and I think we'll begin to see whether Google or Microsoft can do that in a way that's better or more effective than Amazon has. If they catch-up to Amazon on the top line when it comes to Cloud or if they can't catch-up on the top-line and if they can provide services and software that are so high value that they're more profitable, then they could end up winning in different sorts of ways. There are these strategic dynamics playing out both on the hardware and semiconductor side, and on the software and strategy and go-to-market side. There are a lot of companies in the mid-market and smaller who are going to be affected by how they position themselves.

Hill: You want to know what's going on in the world of technology, checkout TechCheck on CNBC every weekday at 11 AM Eastern. John Ford, thank you so much for your time.

Ford: Thanks, Chris.

Hill: Radar stocks after the break. Stay right here. This is Motley Fool Money.

[...]

Welcome back to Motley Fool Money. Chris Hill here once again with Emily Flippen and Jason Moser. We got two minutes for radar stocks. Dan Boyd is going to hit you with a question. Emily, you're up first, what are you looking at?

Flippen: I'm looking at Coupang (CPNG 0.35%), the ticker is CPNG. There are Korean e-commerce giant that has been hammered since going public as a result of their increasing bottom line losses. But I'm convinced investors are looking at the wrong metric. I think there's early signs of free cash flow scalability in Coupang's business model, that's being undervalued right now.

Hill: Dan, question about Coupang?

Dan Boyd: Emily, how much is your stance on Coupang just contrarianism?

Flippen: Is that really contrary? I didn't even realize that. Although I am contrarian at heart, so I happily take that stance if that's what it is.

Hill: Jason Moser, what are you looking at?

Moser: Yeah, digging more into Compass, ticker COMP. There's a founder-led business in the real estate technology space, providing the tools to help agents do their jobs better. Co-founder and CEO Robert Reffkin owns about 6% of the company, still a big stake held by Softbank as well. But management sees an addressable market in the U.S. of $180 billion. This thing has more than doubled revenue from 2019 to $5.5 billion in sales over the last 12 months. It feels like one more to keep an eye on.

Hill: Dan, question about Compass?

Boyd: Yes, certainly real estate's very hot right now, Jason, if it starts to cool off, is this going to affect Compass' bottom-line?

Moser: Typically, I think they're going to be pretty immune to this because real estate is fairly strong, and those are tools that they're going to need in the ebbs and flows of the real estate market.

Hill: What do you want to add to your watch list, Dan?

Boyd: I have to say I'm curious, Chris. I'm going to go with Coupang.

Hill: The contrarianism didn't throw you off.

Boyd: Not this time.

Hill: Emily Flippen, Jason Moser. Thanks so much for being here.

Flippen: Thanks, Chris.

Hill: That's going to do it for this week's show. The show's mixed by Dan Boyd, our producer's Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.