Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
From Tariff Terror to Market Magic: The Overnight Rally Explained
May 12, 2025 | Season 7 | Episode 18
A game-changing announcement between the US and China has jolted financial markets into a dramatic rally. The two economic superpowers have agreed to a 90-day pause on tariffs, establishing new benchmarks of 30% on Chinese imports (down from the threatened 145%) and 10% on American goods entering China. This unexpected development has sent futures soaring, with the Dow up over 1,100 points and tech stocks leading the charge.
Diving into President Trump's negotiation playbook provides fascinating context for understanding these developments. His 1987 book "The Art of the Deal" reveals tactics that remain strikingly relevant today. Trump wrote about wearing down opponents through persistence and leveraging preconceived notions - strategies clearly visible in his approach to international trade. The current 90-day pause represents not an endpoint but rather the opening phase of continued negotiations, with Treasury Secretary Bessent already planning follow-up meetings with Chinese officials.
The market reaction has been nothing short of electric. Companies with significant China exposure are experiencing the biggest gains - Tesla jumping 8%, Amazon 7.5%, and consumer goods retailers like Wayfair surging 12%. The only sector swimming against this bullish tide is pharmaceuticals, as Trump simultaneously advances plans to cut drug prices through executive action.
Beyond immediate market movements, we explore America's rapidly aging demographic landscape and what it means for investors. With 20% of the population projected to be over 65 within five years, companies that successfully cater to seniors are positioned for substantial growth. From Apple's intuitive interfaces to Nike's easy-wear footwear designs, smart businesses are finding that products created for older consumers often appeal across generations. The "longevity economy" is creating opportunities in healthcare, technology, transportation, and leisure sectors.
We also examine Google parent Alphabet's position amid intensifying AI competition. Despite concerns about search disruption from chatbots, Alphabet trades at just 16.8 times forward earnings - far below the 28 times average of its big tech peers. With YouTube reaching 270 million subscribers and Waymo's self-driving service expanding rapidly, Alphabet's diverse business lines may offer significant upside potential despite competitive pressures.
What sectors will benefit most from improved US-China relations? How should investors position for America's demographic transformation? Join the conversation and share your thoughts on today's market-moving developments.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
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And now introducing Mr Keith Lanton.
Keith Lanton:Good morning. Today is Monday, may 12th, almost halfway through the second quarter of 2025. As the year motors forward, I want to start out by wishing all the moms, either listening or not listening this morning, a very happy Mother's Day. Hope everybody had a fantastic day, beautiful day here in New York, and we woke up this beautiful Monday morning to news about a US and China agreement on a pause on trade, and we'll talk a lot about that. We'll talk about what was said before going into the weekend and, of course, we'll talk about the agreement and certainly sending markets equity markets that is significantly higher as risk on trade comes back to life, even to a greater extent than we saw the last few weeks. We've been on the heels of 11 of the last 14 sessions, the S&P 500 moving higher, so we will certainly spend a lot of time talking about that. We will take a look at what Barron's had to say this weekend. They talked about Google, one of the magnificent seven that's been under fire, and they had some positive views on Google going forward from both a performance and evaluation standpoint. So some interesting thoughts to incorporate into our portfolios.
Keith Lanton:So let's start out with a quote this was a quote here from President Donald Trump said what's unfortunate is that for decades now they have become wealthier in large measure. The Art of the Deal. So going back almost 40 years, 38 years ago, to when Donald Trump was 40 years old and he had similar insights and similar opinions back then. So you can see how very similar and unchanged that viewpoint is. With respect to tariffs, now the ire of the country has shifted. For those of us who remember, in the late 80s, early 1990s, japan was the threat to the United States, or the perceived threat, in terms of taking American jobs. Japanese cars were pouring into this country and we were concerned about the Japanese becoming the competing or perhaps even a dominant economic force. Similar. Obviously, there are some differences to China today, and that was the viewpoint of Donald Trump in Art of the Deal 1987. So I do think reading Art of the Deal gives you some good insight into President Trump, because as much as things have changed, they have remained the same. So I'm going to talk about a few of his other views in Art of the Deal so that we can further get greater understanding into the president and how he goes about and thinks about things, especially on the heels of this morning with this announcement of a 90-day pause on tariffs of this morning, with this announcement of a 90-day pause on tariffs, with a setting of a benchmark of 30% on tariffs of Chinese goods coming into this country. That's down from 145% and the reduction in Chinese tariffs for US goods coming into China at 10%. And we did have Secretary Bessent this morning say he's likely to meet with China again in the next few weeks to work on a bigger agreement because, again, this is a 90-day pause. This is not a formal agreement. So while it's certainly something to be optimistic about, it is not a done deal. All right.
Keith Lanton:So let's talk about President Trump and let's talk about his views on negotiation. From Art of the Deal, again, we're going all the way back to 1987. But what's old is new. He said my leverage came from confirming an impression they were already predisposed to believe, affirming an impression they were already predisposed to believe. So if someone thinks something about the way someone's thinking or President Trump's thinking, he can use that potentially as leverage, give him more to worry about, and that's something I think we see him focused on today when he's dealing with the negotiations, whether domestically or internationally. He said I am the first to admit that I am very competitive and that I'll do nearly anything within legal bounds to win. Sometimes part of making a deal is denigrating your competition, he says. I discovered for the first time, but not the last time, that politicians don't care too much about what things cost. It's not their money. And perhaps that's something he's using here in negotiation both with Republicans and Democrats, as he seeks to get his taxes approved, his tariffs approved, his budget approved.
Keith Lanton:And he goes on to talk about how he gets things done. Again, this is what he wrote in Art of the Deal. In the end, we won by wearing everyone else down. We never gave up and the opposition slowly began to melt away. And this is from a candidate who has certainly overcome all sorts of obstacles, all sorts of pundits who said this president cannot get reelected for so many reasons. And whatever you want to say about President Trump, you can't say that he is not persistent, and he says much more often than you think sheer persistence is the difference between success and failure. Finally, he goes on to say and we've seen this recently my attitude is that you can't get hurt asking All right, let's talk about the press. We know President Trump certainly has an interesting relationship with the press and he formed a lot that those views that he had then are reflected today, perhaps honed and changed based on 40 years of experience, but very similar.
Keith Lanton:And what's interesting is his kind of respect for the New York Times, with whom he has was more powerful because there were just less news organizations as opposed to today where we have the internet and social media. So he said, if I take a full page in New York Times to publicize a project, it might cost $40,000. And in any case, people tend to be skeptical about advertising. But if the New York Times writes even a moderately positive one column story about one of my deals, it doesn't cost me anything and it's worth a lot more than $40,000. He says the power of the New York Times is just awesome, interesting. It is certainly one of the most influential newspapers in the world. He said bad publicity is sometimes better than no publicity at all. Controversy, in short, sells. So it turned out, does glamour.
Keith Lanton:And we talked a couple of weeks ago about the polls and consultants and President Trump's skepticism about consultants and the fees that they charge and his skepticism about the experts in polls and some other thoughts with respect to that and certainly polls back in 2016 showed that he was not likely to be the success successor in that election, and the polls in 2024 showed a very close election. So interesting his views and why he was able to forge forward, despite the fact that perhaps some of the polls may have not been as optimistic as he would have liked. And he said, when it comes to making a smart decision, the most distinguished planning committee working with the highest-priced consultants doesn't hold a candle to a group of guys with a reasonable amount of common sense and their own money on the line. And when he was talking about a business venture he had back in the 80s and those old enough to remember may remember the USFL, the US Football League, which was challenging the NFL at the time. He says that there was a poll that said that the majority of fans wanted the USFL moving that schedule to the fall, which he was ultimately successful in encouraging the rest of the owners to do so. Taking a look at the art of the deal perhaps can give you some insights into what makes President Trump tick and perhaps give you some insights into how that may affect the financial markets and your portfolio. So let's talk about the financial markets and your portfolio.
Keith Lanton:This morning we are seeing futures rocket higher after this announcement between the US and China. Dow futures are up 1,115 points. S&p futures are up 180. Nasdaq futures up about 800 points as well. Oil moving higher on optimism that there will be a stronger global economy of $2.36. And the optimism about the stronger global economy is hitting the 10-year treasury. The yield is up almost nine basis points to a 4.46, as the expectations are that the Federal Reserve may not have to cut interest rates as much as feared or as hoped for, depending on your perspective and we're seeing that most of the move in the two-year Treasury, which is moving significantly higher. We're seeing the two-year Treasury yield from a 384 to almost a 4% as less interest rate cuts getting priced in, at least at this moment this morning.
Keith Lanton:So this embrace of risk is thanks to the truce in the trade war between the US and China. A gauge of dollar strength is up as much as 1% as the two nations agreed to temporarily lower tariffs for 90 days. It's a pivot for the markets, which have been certainly on a rollercoaster ride. As President Trump has attempted to rewire global trade. He targeted China with particularly punitive tariffs, sparking a trade war and fears of a recession. Traditional haven assets such as gold, which is down over $100 an ounce, the Japanese yen and the Swiss franc are all down meaningfully this morning, as are German and European government bonds. Two-year German government bond yields rose 11 basis points to 1.9%.
Keith Lanton:You may be wondering what's moving this morning. It's pretty much across the board, but to pin it down more specifically, tesla leading the Magnificent Seven higher, with a move to the upside of about 8%. Amazon, which sources a lot of goods from China, is up about 7.5%. Apple big manufacturer in China We'll talk a little bit more about Apple up about 6%. Meta's up about seven. Nvidia's up about five. Alphabet, which we'll talk more about, the parent of Google, is up a little over three and Microsoft is up about 2%.
Keith Lanton:Chip stocks rallying as well this morning. Consumer goods companies with China exposure moving higher Nike, starbucks, wayfair up 12 percent. Restoration Hardware, rh up 11 percent. Estee Lauder moving higher Under Armour as well. Global shipping and transportation stocks are also higher. The one group being excluded from this rally is drug makers. They are getting hit by Trump's plans to cut drug prices in the United States, seeing Eli Lilly, merck and Pfizer down anywhere between 1% and 3% this morning. Pros who fled risky assets are now debating if and when to jump back in.
Keith Lanton:Some skeptics on US markets and stocks internationally in general holding fast. Morgan Stanley strategist, who was cautious coming into today, said sentiment toward the US market is improving, but he said it's too early for investors to sound. The all clear is improving, but he said it's too early for investors to sell the all clear. The pain from wrong-footed bets is showing up across asset classes as we see some short covering, as we mentioned, in treasuries, in foreign currencies and in foreign bond markets. All right, let's take a look at some other individual stories.
Keith Lanton:This morning. Microsoft is up about 10 points on the news of this trade pause, but also because they are in discussions with OpenAI to unlock new funding. Apple is mulling iPhone prices without blaming price increases on tariffs. Perhaps it's also because they are susceptible to having their app store opened up and bypassing their 30% service charge if you purchase things through the app and that's a threat to their services. Business perhaps seeking to recapture some of that revenue. British Petroleum BP up a little bit today. That's despite being downgraded to underweight from equal weight at Morgan Stanley. They set a 26.50 price target. The stock's at about 30.5. This morning Also a similar story. Target is up about five points this morning to a little over 101, yet it was downgraded at Bernstein to market perform and they set a target of 82.
Keith Lanton:Some other news this morning outside of the tariffs President Trump says he will sign an executive order today at 9 am Eastern time, so just in about 15 minutes. That will require the government to adopt a most favored nation pricing model for prescription drugs. Talk that the prescription drug prices here in the US might get tied to where prescription drug pricing is overseas. So we'll have some more clarity on that perhaps a little later in the day. President Trump saying that the 10% baseline tariffs will remain in place unless an exceptional offer is made by a trading partner. Bloomberg reporting that. Washington Post saying President Trump will visit Saudi Arabia, qatar and the United Arab Emirates this week. Trump is expected to focus heavily on business deals and new investments from the region. Bloomberg reporting that Japan doesn't want a US trade deal that excludes auto tariffs. Reports over the weekend, after some further analysis, that Toyota is the auto company most susceptible to the tariffs put in place here by the US.
Keith Lanton:Treasury Secretary Besson urges Congress to raise the debt ceiling by mid-July to avoid exhaustion of government cash. By mid-July, to avoid exhaustion of government cash. Wall Street Journal saying that a reconciliation bill will include some Medicaid work requirements but will not reduce the minimum share the government contributes to the program. Ukrainian President Zelensky will hold talks with Russia after intervention by President Trump. Wall Street Journal reporting that. Reuters reporting that India ceasefire with Pakistan is holding A House committee will begin the markup process on the large reconciliation bill that will begin on Tuesday. The Hill is reporting that the initial bill does not increase taxes on high income earners, something President Trump has said he is in favor of. Wall Street Journal reporting that the Office of Management and Budget Director is looking at military spending, which is currently projected to rise 13 percent to about a trillion dollars in this budget. And Bloomberg reporting that US aviation airline officials are going to meet as they consider further reductions at Newark Airport following breakdowns in the radar system. Further reductions at Newark Airport following breakdowns in the radar system. For those of us here in the tri-state area, talk is that there will be fewer flights out of Newark, something that could impact travel in the New York metro area.
Keith Lanton:Speaking of drug prices, president Trump, with those cuts in drug prices said that he would cut prescription drug prices by 59%, but he did give no further details about how his plan to lower medicines would work. Perhaps he'll give some further information at that 9 am press conference. Some news on Eli Lilly's. Recent study over the weekend showed that Eli Lilly's ZepBound was superior to Novo Nordisk's Wegovy across five weight loss targets. This study showed that Lilly reduced the waist circumference by two inches more than Wegovy in a head-to-head trial trial comparing the popular medicines and could give Eli Lilly a leg up in terms of approvals from different insurance plans as opposed to Agobi.
Keith Lanton:If these companies are choosing one versus the other, all right, let's talk about Apple for a moment. We talked about Apple potentially increasing their prices on iPhones and Bloomberg reporting that the iPhone maker, apple, is finally being forced to operate its app store without necessarily collecting a hefty commission from app developers. This is significant. One of the big sources of Apple's growth has been those commissions and with these barriers gone, developers have rushed to take advantage of the new freedom. Epic's chief executive, tim Sweeney, said he'd bring back its flagship Fortnite game back to the App Store after a five-year hiatus. Those of you who follow Apple and some of the litigation may remember that it was Epic's lawsuit against Apple regarding Fortnite that ultimately led to Apple losing that court decision and having to open up their app store, and they are only starting to do that now after a recent judge admonished them for not doing it sooner. Spotify is rolling out a link in its iPhone app so users can subscribe to the service directly on their website. These are things that they couldn't do before, so you may see some changes when you use apps on the App Store. Keep in mind, if Apple is not able to capture that 30% revenue from some of these sources, that would be something that would meaningfully affect their revenues going forward.
Keith Lanton:All right, so we know what today's shaping up, at least at the outset strong, open, positive, positive developments over the weekend with respect to US and China and and trade. Lots of optimism, lots of hope. Again, nothing set in stone. We've got 90 days. Hopefully. Hopefully, we'll have a good resolution over those 90 days, but certainly in a better place we were this morning than we were on Friday morning.
Keith Lanton:Now, if we look back at last week, well, markets last week were weaker, perhaps, than the news flow would have suggested. Last week, the news flow was that Secretary Besant was going to meet with Chinese officials. We also had a trade deal with the United Kingdom. What's more, the Federal Reserve, while keeping interest rates unchanged, did nothing to suggest it wouldn't cut interest rates later in the year. Perhaps if you knew those headlines going into the week, you would have thought hey, us is meeting with China. We got a trade deal with the UK. Interest rates still look like they're on a path to declining nothing really upsetting Apple cart. But we had an underwhelming reaction. Now keep in mind we had rallied significantly going into last week. Last week Dow was down three-tenths of a percent and the Nasdaq was down a half of one percent Last week. The S&P 500 last week stalled at resistance at about 5700. At the moment we are exploding through that resistance and if we hold above 5700, perhaps that would be a new floor for the markets.
Keith Lanton:Even before the events of the weekend, barron's was talking about the fact that tariffs, while they have hurt sentiment, haven't hurt the economy, with the big word yet there, talking about the fact that the soft data meaning the data that has to do with talking about investors and consumers, the soft data talking about inflation expectations coming forward all that data was very concerning weakening, meaning that consumers were feeling less optimistic, investors feeling less optimistic, consumers expecting higher inflation, soft data indicating that the economy may get a lot weaker going forward, but the hard data was showing that the markets remain resilient, that the economy remains strong. We talked about the weak GDP report, but that report was because imports were inflated, which created GDP to look negative when in fact, consumers were still spending and we still had about three-tenths of one percent report to the negative side on GDP, but we had three percent plus increase in consumer spending. So hard data good, soft data weak, and we will see if the soft data leads to any weakness in the hard data. We'll see what trade deals and negotiation bring us going forward in terms of the positioning in the United States and our economy, in terms of if markets perceive the United States to be in a better place post the Trump administration, tariffs and renegotiation on trade, or whether or not all of this uncertainty and this wrangling will create harm to the economy, and whether or not the United States will wind up in a better place at the end of this negotiation. And, in effect, when you're looking at the financial markets and the marketplace and the averages, you're seeing how investors are expecting that outcome to play out in real time.
Keith Lanton:All right, so this week we do get some further earnings. We have 450 of the 500 companies in the S&P 500 already reporting earnings. Those earnings have been very good. So, looking at first quarter earnings better than expected. Revenue is better than expected in general. Earnings better than expected in general. Again, that's the hard data. We will see, obviously, how the future earnings play out as some of this uncertainty starts rolling through the markets and the earnings and some of these tariffs that have been in place and continue in place.
Keith Lanton:Keep in mind we still have tariffs on China at 30%. This is still significantly higher than before President Trump was elected. We still have tariffs on other countries at 10%, significantly higher than where it was before. Uncertain on whether that's a plus or minus, what that means for the economy. These are the things that we will certainly monitor and keep an eye on and report back as we follow. But keep in mind, despite the positive news this morning on the US and China at least dialing things back from an extreme high, just because we had things at an extreme high, we basically had an embargo. In effect, when you get a tariffs of 145%. It doesn't necessarily mean, when you roll it back to 30%, that you're going to get back to where you were before. Doesn't mean you're going to be in a worse place. Doesn't mean you're going to be in a better place. I think you can say we'll be in a different place. All right, what else do we have going on? We have CPI coming out tomorrow. It's expected to be unchanged from March. That is certainly something that will get lots of attention Again. It's a backward-looking indicator on inflation, but nevertheless markets hyper-focused on inflation, especially the Federal Reserve. And then we get retail sales on Wednesday, critically important to see how the consumer is holding up with all of the stresses that they are encountering.
Keith Lanton:All right, let's move on and talk about a long-term trend or theme that is taking place here in the United States. We've touched on this theme before, and it's not just a US theme. It's really a worldwide theme, but certainly a theme that is very relevant here in the United States, and that is that America is getting older. And what does that mean for us as investors? About 20% of America's population will be over 65 in five years. The economic ramifications of this so-called age wave potentially include tighter labor conditions, increased health care needs and high costs for social programs. For these and other reasons, an aging population could make economic expansion more difficult in the decades ahead.
Keith Lanton:Barron's talked to Joseph Coughlin, the head of the Age Lab at MIT, and he sees opportunities for growth and innovation as the senior population swells. This is something to think about when you think about investing in companies, and what are they doing to target this huge demographic and how is the country going to change and what does this mean to you and your investment portfolio? He goes on to suggest that retirement is going to include more work for the next cohort of retirees than any previous generation. So this isn't because of income uncertainty, but uncertainty in general and unplanned and hidden expenses for such things as health, home maintenance and the need and this is critically important to think about for home health care to substitute for the support once provided by family. Up until very recently, as we aged, typically the rest of the family lived in a pretty tight-knit, close community in the same farm, the same neighborhood and, as people aged in place, the family took care of the elderly, and that is something that is significantly changing as we spread out across the country and the expectations of children taking care of parents certainly continues, but it's changing and there's also obviously the other factor, which is that people are, in general, living longer, so we now have an unprecedented number of older people reaching retirement age.
Keith Lanton:Mr Coughlin says he sees two sides of the longevity economy. First is what he calls the push side new businesses and services that support an aging society and what he says is the real opportunity which gets him excited is the pull side, where older consumers are demanding innovation to match their ambition, and we'll talk about that and talk about different companies that are targeting this senior cohort. So one company he talks about and it's a privately held company, so it's not public is Dyson, which is a home appliance company, and they make products keeping seniors very much in mind. Their products are easy to use, they are lightweight, they come in a variety of colors, which is something that attracts them not only to older buyers but younger buyers as well, and they keep in mind this senior demographic when they create and design new products. We've got shoe companies like Nike and Skechers making convenient products so that seniors can more easily slip on their shoes, and what they're finding is that some of the younger cohort likes the convenience of being able to slip into their shoes as well. So design a product for the older folks and what you find is perhaps some of the younger folks like it as well, he says. You know, apple has really helped out seniors, certainly helped out younger people as well, but they've made their products clean and intuitive and they win market share from the older folks who want a simple, easy-to-use interface.
Keith Lanton:Seniors and older Americans are able to remain in the workforce longer. Now this isn't for those who are doing physical labor. Retirement was made for people who do physical work. But people who do physical work, when they do retire, they're very often just transitioning. So, like folks who are not doing physical work, those folks who are doing physical work are taking a look at second and third careers and looking at makinging and education, so that older Americans and folks just resetting their careers can get that knowledge to be able to continue their lifestyle. So again, when you think about investing, think about these factors. Also, think about robotics. Robotics not just for efficiency in factories, but robotics are going to be able to help older Americans have a more enjoyable lifestyle as they are able to utilize more and more technology to get things done, especially as they are living alone, or perhaps with their spouse but not with their children.
Keith Lanton:Another example of companies really changing things, especially for older Americans a lot of them used to congregate in cities. Those in the suburbs were kind of stranded, especially as they couldn't drive anymore. Perhaps the kids saying, hey, mom, dad, you can't keep driving, the car's all banged up. But Uber and Lyft making it a lot more accessible for senior Americans to live in the suburbs, making the suburbs a real viable place for the older folks. It's also as people live longer. It's changing the mindsets of younger people. So younger people are changing their mindset about home buying, finding a partner and accumulating wealth.
Keith Lanton:When you think about it, people who are 15, 20 years old today are thinking to themselves what does a 100-year lifespan look like? And they are delaying fertility. They are even delaying wealth accumulation to enjoy their lives and experience experiences. One knock-on effect of this is that the birth rate here in America, particularly among younger women, is dropping. Those over 35, the birth rate is actually increasing but in general the birth rate here is declining. Birth rate in the United States is 1.62 per woman. We need 2.1 just to keep the population growing.
Keith Lanton:So thinking about that obviously big issue here in the United States is, if we don't have immigration and or we don't get our birth rate up, we are going to have a declining population. And what does that mean for your investments and companies that you invest in and different products and services that are going to be available in the workplace? And immigration? When you think about it, you need those folks to work. When you're counting bodies here in the United States, as more and more folks get older, you may need more and more immigrants for certain types of jobs, like jobs that require manual labor, because you've got fewer people here and those old folks, even though that they're capable of working, may not be able to do those jobs. So those manual labor jobs could start getting a lot more expensive here if we don't have folks who are willing to do those jobs here in the United States. So when you're thinking about investing and you're thinking about the longevity economy, think of things that make life more convenient, that promote wellness, that promote performance. And he says let's not think about the F word, which is fun 60 plus, but younger people as well, playing pickleball and enjoying themselves with having fun, traveling as well. As we see more and more wealth accumulation. We will see more and more travel and experiences as well for those seniors. Again, as you think about your investments as well, for those seniors, again as you think about your investments.
Keith Lanton:And this is one of the magnificent seven stocks that Barron's wrote positively about, and that is Alphabet. Think of it as Google, the previous name to Alphabet, and Google last week had a bad week, with Barron saying that they are sticking with their alphabet pick. Company shares last week fell about 6%. That was after a senior vice president, eddie Q at Apple said that Google search volumes on its Safari browsers declined in April. For the first time in court testimony Wednesday. First time in court testimony Wednesday he cited the rise of artificial intelligence, chatbots, including Perplexity, anthropic, and, of course, chatgbt for the slowdown. In fact, he said, in 10 years people may not even need an iPhone. So for skeptics, his testimony might confirm the main crux of the argument that Google's dominance of search has seen its best days and the stock's best days may be behind it.
Keith Lanton:The burden of proof now rests on Alphabet, and the company immediately took issue with the testimony. It said the number of search queries was still growing, that users are accessing it for new things and in new ways. Some evidence suggests that they have a point. Have a point. An Evercore analyst in this article, mark Mahaney, knows that while search growth has slowed, search revenue has grown between 11% to 15% the past seven quarters.
Keith Lanton:Still, there's little doubt that Google Search is being disrupted. The question is extent and timing. Now Google has even disrupted its own business with AI Overview, which is an AI-generated summary that now has more than a billion and a half users a month, and Gemini, which is Google's artificial intelligence app, which has 350 million users. That in and of itself might be causing you some concern. Users see ads on their AI Overview just 5% of the time, versus 20% for traditional search. But Google is not staying still. They are exploring new ways of generating revenue from AI. On Tuesday of last week they announced AI Max, a service that uses artificial intelligence to get messages right in front of customers at the right time. Ai Max does not change the user behavior. Time AI Max does not change the user behavior, but it has implications for how Google can monetize the queries it captures, and Alphabet is far more than search.
Keith Lanton:Youtube combined with Google One has 270 million subscribers. If that was a standalone company, that stock might be doing very well, considering Netflix is up 29% year-to-date somewhat similar business model. What's more, waymo, which is Alphabet's self-driving car company. They went from completing 150,000 paid driverless cabs a week last year to 250,000 rides through April. So 150 last year, they're on track for over a million this year, over a million this year. Anyone who's traveled to San Francisco or the city downtown in the last year or two years has seen these Waymos all over the city there, and they are expanding to other markets. So both YouTube and Waymo have potential to provide revenue boosts for years to come.
Keith Lanton:Now the valuation Apple shares. This is before today, when equities are moving higher, including Alphabet trading at about 16.8 times 12-month forward earnings. And that's behind their big tech competitors like Amazon, apple, meta, Microsoft and NVIDIA, which trade for an average of 28 times earnings. Now you can say well, we think that Alphabet is perhaps a value trap. Barron says that they don't think so. The threat of a value trap developing can be mitigated somewhat, they say, by capital returns.
Keith Lanton:Alphabet's management announced a $70 billion share buyback on April 24th and they reiterated their desire to innovate with new products. And if you think about the universe of Apple products, whether it's YouTube, onedrive, gmail, the Android operating system, chrome, of course, gemini and, of course, the Google product and the Google advertising. And you think about 16.8 times earnings. And you think about the companies in this marketplace that are growing very slowly and stodgy companies that are perhaps in the consumer goods business or the retailing business, trading at multiples like 15, 16, 17 times earnings. The argument could be made that Google, at least on a risk-reward basis, is a lot more exciting, has a lot more potential than a lot of those companies, especially when you look at the individual pieces, despite the antitrust arguments that the government is making and despite the fact that their business is under some competition or meaningful competition from artificial intelligence and upstart players. Nevertheless, it is undoubtedly an expanding pie. They will have to probably share more of this pie, but the potential for future growth still remains bright. That's everything I've got.
Alan Eppers:Thank you for listening to Mr Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at www. heraldlantern. com.
Sophie Cohen:Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money..