Amazon's Growth Is About To Explode

Welcome back, everyone. Today on the Joseph Carlson Show. We've recently been talking a lot about Google and the decision from the judge to not break up the company and the huge success overall this investment has been, it's been incredible. Google's now up 20% year to date. It's up 40% from the recent lows. And the Sky's the limits for this one. But as Google has turned out great, there's another investment that I believe is going to get its turn.

And this one hasn't been bad. But there's reason to believe that Amazon is next on the list to have its day. Amazon may have an AI resurgence with AWS and Anthropic. This is a new write up from Semi analysis. They do in depth research on this whole ecosystem, on this entire industry. And in this extensive write up, they argue their reasoning for Amazon now being in a better

position to win the cloud wars. We know that Microsoft Azure has speed ahead, gaining more cloud dollars than Amazon last quarter, and they believe that that's going to turn around, that Amazon will now be the one speeding ahead. This caused the stock to move up 3% yesterday, which was a big move for Amazon, but there's reason to believe it could go higher. We're going to be looking over this semi analysis, taking a look at how it may impact Amazon and how this fits into my thesis.

Now, of course, we also have a lot of other news. For example, Salesforce just reported earnings. The stock was down around 7% after earnings. It's up a little bit today, but overall the earnings were disappointing towards investors and I think Salesforce is worth looking at. The stock has not had any positive sentiment for months now.

It's one of the few losers in My Portfolio, a company that I'm currently in the red on, and I want to take a look at the holding as well as its most recent report and see what to think about it because I don't think that Salesforce's report was quite as bad as investors are making it out to be. Now. Another company on the list that had a very bad day is Lululemon. That one's down 18%.

The CEO went on to CNBC to try to turn things around, but Lululemon is facing a lot of different challenges. We'll be going over that one and then another one that's in My Portfolio. My latest position, Duolingo has been trading down every single day.

There has been a systematic sell off in Duolingo over the past month or so and we're going to talk about it. We'll be looking at my position in Duolingo, the damage that this has caused to the portfolio, as well as why the company's selling off and what I plan on doing about it now. And then finally, we have some other news to get to. Elon Musk wants to get a trillion dollar pay package over

the next decade. Now, of course, that's a really big number, but this isn't quite as crazy as it sounds. And then we have the phenomenon K pop demon hunters. We have Novak doing the soda pop dance on the tennis stage. We'll be looking at why he's doing that and how big this show actually is for Netflix at the end of this episode. So we have a ton to get to in this episode.

Now starting off, I just want to mention the last couple videos that I've made have been mostly about Google and frankly, I'm just excited about it. I'm. Happy when the companies that I invest in do well, when the thesis work out, when things go as planned. And in most cases, that's exactly what happens if you're an investor that has a good philosophy, if you stick to your process. You should have the majority

case be a win. You should have most of your holdings work out, although not every one of them is going in most cases, this is how it should turn out. And Google has been a resounding win for investors. And part of the reason that I'm so excited about Google in particular is, first of all, it's lifting both of my portfolios to all time highs. So that's exciting. But the other reason why is because I get to enjoy this victory with a lot of other people.

I know that Google is a company that many investors own, especially retail investors. I can determine that by the analytics on Qualtrim. I can see in all the I can see in all the analytics overall and the feedback that I get that Google is a widely owned retail stock. Lots of people are bought into this company. So the victory is shared amongst a lot of people and that makes it fun as. Well, when I'm winning with Google, I'm winning with a lot of my followers.

A lot of people invested in the company. And it's really fun and rewarding to share that victory with a lot of other people. If I compare and contrast that with Netflix, for example, Netflix is a company that was an amazing winner in My Portfolio. It was just truly outstanding how much this company turned around, how well it performed. You know, the story of it was incredible, but it was also a lonely journey. Netflix is not a widely owned company by retail investors or my followers.

I know that again by the analytics. And frankly, when I was talking about this company bullish on it for for years making content on it, my Netflix videos never did that well. They never got a lot of viewership. They never got a lot of engagement. I knew that the the amount of people that were following me with Netflix was very few.

So even though Netflix has done incredibly well and I'm very happy about how it turned out, it was a far lonelier journey, one that I wasn't able to celebrate with as many people. So that's part of the reason that I'm really. Excited specifically about Google doing well is just the amount of people that own this stock. Another one that I believe on the list here that is well owned by by investors. Lots of my followers are in this stock and I think for good reason is Amazon.

Now this is 1 again that I'm fully invested in. In fact I put an enormous amount of capital into Amazon. It's a $141,000 position with only $48,000 of that being gains. Now, that's a decent amount of gains, but the majority of this position is still contributions me building it up. I put so much capital into Amazon because I feel so positive about this company. Now with Amazon, there's multiple parts of this thesis

that I've highlighted. First of all, it's a widely diversified business with a lot of optionality, meaning they have all different assets from Zoox to Project Kiper, which is satellite Internet. So they have robotaxis that they're making, they have satellite Internet that they're

making. It's a little bit like SpaceX combined with the rest of Amazon, but then you also have the retail business, you have the third party seller business, you have their subscriptions, You have Amazon Prime Video, which is like Netflix built into Amazon. It just goes on and on. You have Audible, you have a podcast business with Amazon. You of course have the big ones, which is AWS, the cloud business. Now, I like a lot of the businesses that Amazon's in.

In fact, I like everything that they're doing right now. But there is one business that is a stand out and it's far more important to the story of Amazon than any other part of this company and that's cloud, it's AWS. When we filter out the rest of this, we can take a look at AWS here. AWS alone grew at a compounded annual growth rate of 17.7% last quarter. Now, in isolation, in a vacuum, is 18% growth good? Yeah, it's good, especially at the scale that AWS is at.

It's at enormous scale, $116 billion in revenue. So this wasn't bad. In fact, they beat their expectations. But investors were still underwhelmed by this result. Don't you hate it when you have something good going on in your life and someone has to steal your Thunder? Well, that's exactly what Microsoft did. Amazon has this great cloud. Business. It's growing quickly, it's highly profitable, it's super scaled. You know, it's a fantastic business.

And then Microsoft came in and they said, no, we're the ones growing faster. We're the ones with the more special business. Satya Nadella reports with Microsoft's earnings that the cloud surpassed 75 billion in revenue, up 34% in the quarter. Now all of a sudden, Amazon's 17 or 18% doesn't feel so special. In fact, it seems like it's falling behind. Even though it's growing fast, it's falling behind. And that's what Microsoft did.

This grew so fast that it grew even faster than Google, which is the smaller of the three clouds. And Google's growing fast. In fact, Microsoft Azure grew so fast in that quarter that in just total revenue, it gained more revenue than Amazon's AWS. So Satya Nadella completely stole the Thunder from Andy Jassi. He made the quarter that Amazon had looked like it wasn't so great by contrast. And that was the problem of

Amazon this most recent quarter. It's part of the reason why the stock has done OK, but not great. And Microsoft by contrast, is doing great. Amazon stock is up 5.8% year to date, lagging the S&P 500 in the QQQ. We plug in Microsoft, you can see the dramatic outperformance this company has had. It's up 18 / 18%. Year to date. Beating out both the major indices. And that's where we are now. Investors are most bullish on the best part of each company, which is the cloud.

And right now it looks like Microsoft is the big winner. But like we've seen in recent quarters, things can change quickly. And there's reason to believe that this may change quickly in the future. Let's take a look at some of the reasons why with this write up from Semi Analysis. They say that 2 1/2 years ago we flagged A looming cloud crisis at AWS.

Today, the evidence has mounted. AWS is the crown jewel of Amazon's empire, generating 60% of the group profits and dominating the lucrative cloud computing market. But it struggles to translate this strength into a new GPU and XPU cloud era. Microsoft Azure now leads the market on quarterly new cloud revenue, and the gap between Google Cloud and AWS has materially narrowed, specifically or especially with Google's big moves on TPU that we've been posting about for over a month.

So if you're not aware, Google has their own chips, their Tpus, and these things are really good. They're leveraging them to build up their cloud at a very fast pace. They've also, it also makes it so that they're less reliant on NVIDIA.

But with Amazon, it says the markets have noticed year to date, Amazon is a clear laggard among the four tech and AI Titans as investors mark down the company's most the most for losing momentum and AI. So if we look at the chart here, AWS, Microsoft Azure and the cloud computing platform, so Microsoft is gaining by far the most incremental market share. They're actually gaining more market share than Amazon, which is bigger, which by the numbers probably shouldn't be happening.

Amazon should have incrementally added more revenue than Microsoft Azure because it's at a bigger scale. That's typically how it works. We see the opposite happening here today. Semi Analysis is back with another out of consensus call. While the market overplays the cloud crisis theme, we call for an AWSAI resurgence. We laid out our thesis a month ago to our core research subscribers forecasting an upcoming acceleration beyond 20% year over year growth by the end of 2025.

So now they're making this call that AW is actually going to start speeding back up from the 17 to 18% it's at now quarter after quarter. Next quarter is going to be 18.5%, then 21 percent, 23% all the way up to 25%. Now obviously that's massive. If Amazon can speed back their revenue growth up to 25%, a lot of investors right now are pricing in more revenue deceleration.

So this is a massive out of consensus call, and their thesis is based primarily on what they call Amazon savior Anthropic. The startup has been a clear outperformer in the Gen. AI market in 2025, multiplying revenue fivefold year to date to reach 5 billion annualized. So you can see Anthropics and Open AI annualized revenue. Open AI is much bigger, but Anthropics growing much faster. To keep that trajectory, Anthropic is betting hard on scaling laws.

While Dario's startup draws fewer headlines than Open AIXAI and Meta Super Intelligence, it isn't shy about investments. AWS has well over a GW of data center capacity in the final stages of construction for its anchor customers, AWS is building data centers faster than it has ever done in its entire history. And there's much more on the horizon. So we see these, these, they look like Google Map photos of the massive data center capacity

that AWS is building out. And this makes sense because you look at Amazon's CapEx and no one else is close. They spend. Far more on CapEx and R&D than anyone else. And this is where it's going towards brand new data center capacity. Now they mention here that while Amazon's AI data centers are impressive in scale and speed, the design of the individual buildings is unremarkable. They're hyper optimized for air

cooling. This blueprint is identical to five year old traditional AWS cloud data centers. What makes these facilities unique is on the inside they'll host the world's largest cluster of non NVIDIA AI chips with just under 1,000,000 Tranium 2 and the largest campus. Most of you aren't familiar with the differences in these. Chips, but this is where we get a little bit technical here, and this is what's important to Amazon's growth.

Tranium 2 lags NVIDIA systems in many ways, but it was pivotal to the multi GW AWS Anthropic deal. It's memory bandwidth per TCO advantage perfectly fits into Anthropics aggressive reinforcement learning road map. Dario Modius startup was heavily involved in the design process and its influence on the Tranium road map only grows from hair. Put plainly, Training 2 is converging towards an Anthropic custom silicon program.

This will enable Anthropic to be alongside Google Deepmine, the only AI lab benefiting from tight hardware and software Co designed in the near term. So we have a a chip here, Tranium 2, which overall, if you're just to look at the stats, it's not as good as Nvidia's. But what they're doing to make up for it not being as good generally is making it hyper customized to the specific AI

that they're using. They're using Anthropic, and the people behind Anthropic are involved in the design of this chip so they can make it be perfect for what they want. And so now they're having tighter hardware and software Co. Design Now the reason that this is important is it's not just to save a few bucks for Amazon, it's to win over more usage and more customers. This has been a bottleneck for their sales process, they say.

To understand the causes of Amazon's underperformance in the Gen. AI era, we can analyse the drivers of success of the GPU and XPU cloud market in the most simplistic way. We see two primary customer groups for this market. There's the wholesale people like Open AI, Anthropic, Byte Dance, and then there's the, the managed smaller customers such as start-ups, research institutions, enterprise pilot projects. So they're trying to, to gain both of these type of customers.

They're both really important. It says in the second category, this is where Amazon has been strong. They're winning over these smaller customers. In fact, they're, they have more pricing power. They have the ability to win them over and keep them. And they say that it has high performance with their advanced software layers. It's when you're looking for the big anchor tenants, the big firms to use the Amazon has

fallen behind. More important than AWS is XPU business growth is the ability to secure anchor customers. The market makers in this first wave of Gen. AI demand scale, time to market, deep partnerships and pricing are key to winning these accounts more so than advanced software layers. No firm better illustrates this than Microsoft Azure's AI outperformance over appears is entirely driven by its open AI partnership.

Even though Amazon's winning over like thousands, you know, millions of these smaller customers and, and people that are relying on them, Microsoft's just winning the ones that matter. They're winning the bigger ones.

As of Q22025, all of open AIS, over $10 billion cloud spending is booked by Azure. Amazon understood early the need for an anchor customer, and that's where they expanded their partnership with Anthropic. The partnership expanded in March of 2024 and then expanded even further and further. Amazon's like, we need to have our own open AI. We're going to go with Anthropic.

So even though Amazon is great at serving the smaller customers with their cloud needs, they're not winning over the anchor tenant. Business because they don't have the chips, they don't have the Tpus and they need more capacity and that's what they believe is going to change with these data centers being completed, the training, 2 chip volumes picking up with over a million of them. They believe that they're going to handle a lot more of the demand from Anthropic in the

future. Their forecasts again here are that every single quarter Aws's growth is going to pick up quarter after quarter. So obviously if this did happen, if Amazon did reaccelerate AWS back up to 25% over the next three or four quarters. That would be huge for the stock. We'd see the stock climb dramatically. It'd go up to 2425260. Amazon today would be dramatically undervalued if that

happens. Now, there's no guarantees of any of this, but I'm bullish on Amazon for a number of reasons, not just the reaccelerating cloud growth, but also because like Google, they have a lot of diversification throughout their business, a lot of optionality. Zoox is now testing robo taxis. They're driving around in Vegas already with no paid employee. Nobody's sitting in the passenger's seat. They're just going on by themselves. And of course, there's the whole theme of automation.

If I look at a company, there's none other than Amazon that can benefit more greatly from automation with all their warehouses, all their delivery drivers. Making any more efficiency creates enormous operating leverage, which translates into huge profits for this company. So right now, Amazon's a company that I still feel good about. It's a stock that I still think right now is a buy. I see it going a lot higher in the future, especially if this

AWS growth continues on. Now moving on, we turn our attention to Salesforce. This is another company in My Portfolio. It's one of the two companies in My Portfolio that I consider losers so far. Let's go ahead and take a look at them. In my combined portfolios, I have 15 holders buildings. Two of them are currently in the red. One of them is Duolingo, one of them is Salesforce. Let's go ahead and just take a look at Salesforce here.

We have it here. It doesn't have the right logo there, but we have Salesforce here. It's a $62,000 position, currently $5000 in the red. Now this translates to being down 8% on this position. So when I look at assessing my my wins and losses in My Portfolio, I like to look at it from how bad are my losers and how good are the winners in most cases.

What I'm hoping for is that if I, if I lose money on any company, which I don't want to do, I want to make money on every single company that I invest in. That's the goal and that's what I aim for with every single investment. But in the case that you do have a loser, and that will happen if you pick stocks, if you have a portfolio of hand picked stocks, you will have losers. Warren Buffett has had them, Charlie Munger has had them, Peter Lynch has had them. You name it.

Pick your favorite investor. Dev Cantosari has had them. Bill Ackman has had plenty of them. Every investor experiences losers. It's just a a matter of time until you do. And in Salesforce right now, we have a company that's currently in the red and it's been in the red for a while, like it's, it's been a shaky company to begin with. This one traded up at one point to above $300 per share, quickly went back down and the sentiment is incredibly low for it.

So when I look at Salesforce today, I am down $5000 on this position, less than 10%. And that's OK. When I look at my gains in many of these companies with Google, which I just invested in recently in this portfolio, it's already up 18,000. And that's the magic of investing. Naturally, when you buy companies, especially compounding machines, they have dramatically more upside than downside. You can only lose what you invest, but you can have

companies go up 100, two, 100%. There's many companies that I've invested in that are up well over 100% since my initial investment. I can look at Texas Roadhouse as an example. The most money that I've ever put in the Texas Roadhouse is $35,000 and it has $40,000 in gains. These are companies like Netflix where I've made out far more than I put in. But in any case, we have Salesforce sitting here.

It's a company that this stock is not performing well, not going the way that I want it to go. But when I look at the most recent earnings report of this company, which they just reported, it just didn't look that bad when I do analysis on it. And I'm trying to be critical and trying to be fair with this company. I didn't see anything that was a major red flag. And I think you can do a thought experiment here. Just erase the name Salesforce, get rid of all the bad sentiment.

Get rid of Marc Benioff and your personal opinion of him. And just try to imagine that this is a generic company that you're reading an earnings report out. We have the company posting Q2 results with revenue of 10.25 billion, up 10 percent, 9% on constant currency. That's not the fastest growth in the world, but that's also not the slowest. Companies like S&P Global, Ms. CI. You have companies like Moodys, you have companies like Equifax, lots of high quality companies

that grow in the range of 10%. Gap margins also expanded. This marks the 10th consecutive quarter of margin expansion. So the margins keep going up and it's not a one time thing. The 10th consecutive quarter of margin expansion, operating cash flow guidance was raised significantly with expectations of nearly $15 billion for the year. So operating cash flow is going up a lot and this company also doesn't pay a lot in CapEx. So this translates into a lot of

free cash flow. Then you have the remaining performance obligations. These are the CRP OS, which are up 29.4 billion eleven percent. So you have more revenue down the line being added to this company. These are contracts that they have to fulfill on in the future. So we have revenue visibility in the future. The company's increasing its low end financial year 2026 annual revenue guidance from 41.4 to 41.3 billion. That's up around 8 1/2 and 9%.

Now this is a part that investors had a problem with and the reason that the stock was down. It's growing just a bit slower than investors would like, but they also raised their margin and cash flow outlook as well. Again, if you just try to disconnect that this is Salesforce, which you're told is a bad company and you shouldn't like it, these results don't look that bad.

And even when we look at Salesforce in the different projects they're working on, a huge push has been with Agentforce. Agentforce is their new agentic approach and it's tied to everything. So this isn't just a customer service spot.

That's not what Agentforce is. It's literally part of every aspect of Salesforce. Salesforce is focused on transforming into an enabling agentic enterprises where AI agents work alongside humans to automate, orchestrate and augment workflows across all products. This transformation extends across sales, service, marketing, commerce, Tableau that's like their charting tool, Slack and the new IT service service segment, ITSM, which

they're competing. It looks like they're competing directly with teams and maybe a little bit of work day, but they're moving into that category as well. Agentforce, Salesforce's AI, Agent platform and Data Cloud are key pillars in this transformation. Adoption is accelerating. There has been 60% quarter over quarter increase in customers moving from pilot to production into Agent force. And over 40% of bookings are from our new bookings are from Agent Force, come from upsells

of existing customers. Agentic use cases are highlighted including DIRECTV, Under Armour, Reddit, Telepass, Pandora, williams-sonoma demonstrating rapid development, cost saving and improved KPIs. So Agent Force is their new direction and you can see that this is actually getting customers. In fact, when we look at one of the KPIs we have here in Qualtrim, this is a new one. It tracks the total customers of Agent Force as well as the paid

customers over time. So you have right here total customers and this isn't year over year, this is quarter by quarter. So just Q4 of 2024, they had 200. Now they have 12,500 customers using Agent Force. Now the reason that some of the customers aren't paid is because this is simply part of their sales process. They give free trials, they they give you opportunities to integrate it into your services, try it out and then they funnel you down to the paid version.

It's kind of like a, a freemium way of selling it. They want to get you used to it and using it and integrate it into your business. And then they have little upgrades and different things to sell you. So you can see that they have the total customers growing rapidly now to 12,500, but they also have paid customers growing rapidly from Q2 of 2025, it went from 4000 to 6000 customers. A lot of customers now switching to agent force.

Now as Salesforce trades down, the valuation becomes a bit more attractive. Right now it's at five year low valuations. Doesn't mean it can't go lower, but it's also just a bit more safe now than it has been. And if Salesforce continues to grow even at the moderate pace that it is, 10% revenue growth, maybe a little bit faster. Earnings per share growth 1213%. The stock should become

attractive over time. So even though it's not a company that I'm I'm hyper excited about, I haven't loved the developments of Salesforce. I wish it was growing faster. Right now, it's just not in a situation where I want to sell it. I feel like there is upside for this company. I feel like the shares are attractive here. So I'm fine putting this one on hold, just having it in the portfolio and waiting a bit longer. I don't see any urgent need to

sell out of this one. Now moving on, we get to another

loser in My Portfolio. And this is something that I just want to emphasize a lot of investors online, they'll show you all the stocks that are doing well and I have many that are doing well. Again, we have Google, Amazon, Netflix, S&P Global, MasterCard, you name it. Most of them are doing well and those are fun to show off, but I do show the ones that don't go well. Salesforce and Duolingo are two of the stocks that are in the red of My Portfolio. Duolingo is 1 in particular.

It's a $20,000 position and it's now down $5000. Now I added 1000 more to the position, so I put in $21,000 total and this one has been selling down every single day like clockwork. Every day it's down another 2 or 3%. Now if you followed me for years, you'll see that I've had some situations where I buy stocks and they rock it up afterwards, almost immediately afterwards. Texas Roadhouse is one of those. I I bought the stock at a decent time and it was just off to the

races. That one was in the green so fast. Another one was Booking Holdings. I bought that one. I think it dipped a little bit because of an earnings report. And then after that it was immediately in the green into. It's another company that almost immediately after I bought it, it was in the green by a lot. In fact, I made a lot of money quickly on Intuit. Chipotle's another one bought it, it was in the green incredibly fast. Then there's been a number of stocks I've bought and they

immediately went into the. Red ASML was one of them, Equifax was another one of them. Both of those companies have recovered back into the green, but right when I bought them they were headed downwards. And Duolingo has been a unique stock and that I bought it and it went dramatically in the green and now it's dramatically in the red, all in a very short amount of time, in about a month. I have not owned this stock for long and it is one volatile

stock. Now. I just want to highlight a couple things here. First of all, with Duolingo in particular, I want everyone to just just take a step back and and just relax a little bit. It's OK. It's OK to have a stock trade up and down a lot. A lot of people freak out every single day, Like every single day that the stock goes up or down 3%. It's going to change my mind if

I see the stock going down 1.8%. That doesn't make me rethink my whole thesis that that really doesn't inform you of anything. The the trading patterns of a highly volatile small cap stock. Doesn't really inform me. It's not information that I find useful. What I look at as an investor is real fundamental information on the company. I look at the revenue growth, the subscriptions, the profitability, what I think is happening in the future.

I also look at different things like their social media presence, how many subscribers or social media followers are gaining, how many likes they have, right. I look at real data. The trading pattern of the company is not important data. It doesn't inform me on my opinion of the company and that's the difference between a technical analyst or a trader and a long term fundamental

investor. I've always been on the side of being a long term fundamental investor, so I make decisions based off the fundamentals, not based off of what direction the stock is trading. Now when I try to look at the reasons why Duolingo went up so much and then down, we can only guess at this. But there's a couple reasons why I believe this is happening. First of all, Duolingo is facing a lot of uncertainties. This is not a consensus pick. A consensus pick is a stock like Amazon or Google.

Most people agree those are great investments, right? A lot of people agree like 90%. So those are basically a consensus that everybody loves these companies. They agree they're goodbyes. That's not the case with Duolingo. It's 5050. It's it's 6040. It might even be 70% think it's not a great investment, 30% think it think it is. So it's a highly. Divisive non consensus pick and that's because there's a lot of questions about this company and

its future. When you have headlines like this, it brings in more questions. New AI powered live translation and language learning tools in Google Translate. So Google released a new update to their translate tool. The Translate tool has been around for like a decade, but they released a new update where you can kind of practice language learning like you can and Duolingo, and a lot of people look at this and they go,

wow, that that's not good. Google Translate's going to crush Duolingo. I look at it a bit differently. I'm bullish on Google. I think they own a lot of great properties, but they don't crush every company that they compete with. In fact, that's never been their

history. Google also has YouTube Premium, which includes YouTube Music. It has virtually all the same music that Spotify has, and Spotify is up around 500% since Google released YouTube Premium. Despite the growth in YouTube Premium, Spotify just keeps growing. And that's the difference between a company that's hyper focused on a product, the user experience, and one that's a big company like Google creating 1 little part of their company that competes somewhat with that product.

Even myself, I have. Experience in this realm. Google has a tool called Google Finance. Has Google Finance crushed Qualtrim? To the contrary, Qualtrim is growing substantially. We had 70% growth year over year, and despite the new implementations and new features they come out with, we continue to see growth because we're hyper focused on this one thing. I can tailor the experience exactly to what my audience wants in a way that Google simply can't do.

So even though I hear news of these big companies that are getting into this type of AI learning, and we're certainly going to see a lot more of them, this is something that's already baked into the thesis that I have for Duolingo. It's not new information. If you see another tool coming out with an AI powered learning tool, that's going to be one of the many that Duolingo competes with. What Duolingo has accomplished is making their app very fun to use. Try it out.

It is incredibly, incredibly smooth and fun to use. It keeps you coming back every single day in a way that Google Translate is not going to be able to do. People use this for a few days and unless they're incredibly dedicated, they're going to turn off of it. So personally, I don't consider this a game changer in my thesis. But it is affecting the stock price and it's causing shares to trade down.

Another thing that I think is actually a more important piece of news, I think that this is more meaningful than Google's translation tool. We have the analyst DA Davidson down grading Duolingo to neutral from the buy side and slashed its price target to $300.00 from 500. So this huge price target slash, the brokerage said that Duolingo's active users slipping about .4% from mid-july to late August, a period when growth has historically accelerated ahead

of back to school season. Over the past five years, Duolingo has averaged sequential gains of 8% in monthly active users and 7.2% in daily active users in the third quarter. So basically what this analyst is seeing here is a deceleration in user growth. And that's why they they slash their price target because part of the, the thesis for Duolingo is fast growth, fast user growth. That's what leads to the revenue growth and the paid users. And they're saying that that's slowing down.

In February of 2025 S early this year, they gained one and a half million followers on TikTok. So massive growth, which led into their user growth, their followers on TikTok. Get exposed to the app that translates to a lot of conversions. Then after the social media backlash, the TikTok following went down. Not only did they stop gaining followers, which they were for a long period of time, they started losing followers. And that's what we had before the most recent quarter.

And now we see that that's starting to recover, but it doesn't look like it's recovering fully. In fact, right now it's basically neutral. So they're losing some followers, gaining others, and they're netting out 0. And Duolingo has forecasted this. They said that it's going to be a little bit slower until they regain the momentum on this social media presence. Now, in terms of sentiment, this is specifically on TikTok. On Instagram, you can already

see the sentiment improve. There's not many negative comments and they're even starting to fade away on TikTok. In the most recent videos they've posted. There's very few people still having backlash. Or or making rude comments. Most of it seems overall positive. So I see this moving in the right direction, but I also think it could be correct that this next quarter for. Duolingo maybe a slow one.

I think it could be 1/4 where they gain fewer users than they typically do, and that's what's being priced into the stock. If we get another one of those, it'll be bad for the stock because a lot of investors will price in the end of Duolingo that it's not growing anymore, the total addressable market has been met, or the new AI competitors are eating away at its mode. And there is some risk here. There's some uncertainty. I can't see the future.

But in my opinion, I don't think this is quite as bad as it seems. I think that Duolingo is doing just fine. They're recovering their social media presence. They still have an incredibly positive app that has widespread adoption through word of mouth. It's very addicting and the amount of users they have on a daily active basis is incredible. It's surpassing many social media companies. So my opinion overall really hasn't changed on the company.

What has changed? Is the stock price, so that's an. Overview of where I stand on the company. Now, there's another thing I want to point out which I think is very important here. You can see that Duolingo's at the very bottom here, and that is because we're ranking this by their total. Size. Duolingo is the smallest position in My Portfolio in both portfolios by far. In fact, while Netflix and S&P Global are around 12 to 13% positions overall, Duolingo is around 1.7.

Percent. It's far less than 2%, and that was intentional. I intentionally sized this position much smaller because it's a far more volatile company. Volatile, meaning that the stock price can rise dramatically in a short amount of time, and it can fall dramatically in a short amount of time. The trading is incredibly erratic. It goes in One Direction. It it's just hard to predict in the short term. And that was taken into account

when I sized my position. Even if Duolingo completely fails as a holding, even if the company went completely bankrupt, which I do not think is going to happen, but if that did happen. It wouldn't kill My Portfolio, in fact it would be a minor dent in the portfolio which the entire portfolio is now in excess of $1.3 million. Even with these losses in Duolingo, the passive income portfolio is up around 8% year to date.

It's coming along nicely. This portfolio that includes the total losses of Duolingo that's factored into this performance year to date is up 20% year to date, outperforming the S&P 500 and the QQQ by a huge margin. Duolingo, despite the massive sell off in the stock, is a very small position relative to my other holdings. In fact, just the gains that I had yesterday in Amazon alone made-up more than the losses in Duolingo. In total. That's one day of trading in Amazon.

So overall, even despite the fact that this one isn't going the way that I want it to in the short term, the performance of this portfolio has been incredible. And if this one does turn around in the future, which I believe there's a good chance of, this one will be a contributor to the portfolio, not a detriment overall.

The biggest point of emphasis I would give here is that I've owned Duolingo for about a month, one month, and I have people daily, every single day when this stock trades asking me what my opinion is now that it's moved. Up or down 2%? That's just not how value investing works. It's not how long term investing works. Warren Buffett didn't say buy a highly volatile small cap stock and then when it trades around 10 or 20% freak out and post online asking what to do.

I don't believe that was ever his advice. We should be judging companies by their long term fundamental performance and Duolingo can be viewed as a pass fail in the long term. In the next two or three years, Duolingo will either continue growing. They'll gain market share, they'll gain users, they'll gain

in subscription revenue like they have in the past. They're already growing this very quickly, but it will continue to go up and the company will become incredibly profitable. They're a high margin, low cost company with great cost structure. That'll either happen in the future. Or it won't. The other option is that their social media declines, the company grows a lot slower, they get out boxed by AI competitors, and they don't make much money. In that case, I'll lose money on the stock.

So that's how I'm going to judge it over the next two to three years. I'm not going to be judging this one based on the daily trading of the stock price. So if you're you're looking for my opinion, if it goes down another 3% or if it goes up another 3%. You can rest assured that my opinion hasn't changed. Now moving on, we get to some stocks that are not My Portfolio. One of them here that's having a tough day is Lululemon. And this is not just a tough day. This is a tough year.

The stock's down now 54% year to date. We have the CEO trying to give context to what's going on with Lululemon, explaining that the tariffs and the de minimis tax law changes affected the company dramatically. But he also tries to paint the positive picture that they're innovating and winning. We have a brand that is uniquely positioned, a guess that's incredibly loyal. We just know what we need to do and do it better, in particular

in a couple of key categories. He says that we have a guest that's incredibly loyal, but that's something that I would challenge the CEO on. What I've seen is dramatic growth from their competitors, Aloe Yoga and Viori that are direct competitors growing rapidly, taking market share from Lululemon. And then there's the bigger companies like Nike and Adidas already established that are making products very similar and competitive to Lululemon.

'S. So they're now in a much more competitive landscape, and I believe that's eating into their margins and growth. And even though the stock is down big, this is a company that I still couldn't hold in the portfolio. There's just so much competition in this realm. When you have a fashion brand. Out of all the different moats, I believe that brand, especially in fashion, is one of the most difficult to maintain. In my opinion, it's of the weakest of all the moats that

exist. So this is not one I'm going to be jumping into now. We also have a couple other headlines. One of them is that Tesla board is proposing Musk Pay package worth as much as one trillion over a decade. The maximum payout would represent a 12% stake in the company, contingent on milestones including Tesla reaching a market capitalization of 8.5 trillion. At that market value, such a stake would be worth slightly more than one trillion.

Now, you may not expect my response here, but I think that's fine if Elon Musk is. Able to grow Tesla to almost $9 trillion. Then he should be compensated. I think I'm owning. 12% is fine and the shareholders in Tesla would not be complaining if their stock goes up 8.5 X. They're not going to complain that Elon Musk owns a portion of the company. They would want them to have more capital to build more stuff that they can invest in. Now moving on, we get to continued success from Netflix.

They have this new movie. If you haven't seen it, you probably don't have kids because if you have kids, you've likely seen a bit of this movie whether or not you like it or not. It's called K Pop Demon Hunters that has exploded. K Pop Demon Hunters has now overtaken Squid Game to become Netflix's most. Watched title ever. Previously, the first season of Squid Game held onto the top

spot for four years. This means that the two most popular titles in Netflix's history are both works that are grounded in Korean culture. Squid Game is a South Korean production. K Pop Demon Hunters, although produced by American studio Sony Pictures, which that's a whole other story. Sony created this and then they sold everything to Netflix, but it was It's created with Korean culture. It features elements of Korean art, architecture, mythology, shamanism, food, and pop culture

embedded throughout the film. Now, if you weren't convinced by the numbers how viral this is, we also have evidence here as some of the best tennis players in the. World are also. Getting in on the K pop dance. This is Novak. He he did this dance, he says, specifically because his daughter's obsessed with the movie and it was her her birthday, so he wanted to do the dance to make her happy. Netflix is now a company that has intellectual property that Disney would be envious of.

Now I want to say that again, Netflix is winning in the intellectual property game with products like Squid Game, Stranger Things, and now K Pop Demons. This is a company that's building out a library of massive hits. When you look at K Pop Demon Hunters, this is another product that Netflix is already in talks to make a sequel with the same people that made the first one. So Sony's on board. They know that they're not going to get any of the upside, but Netflix is going to pay them to

make the sequel. And of course, Netflix is going to merchandise this. They're going to advertise it. It's another thing that they can promote for years to gain more and more subscribers. So this is a situation. Where for a long. Period of time, Disney was talked about as a company having all the IP. Disney has struggled with these properties since then. They've rehashed a lot of the same ideas over and over again, making live adaptations of the same movies that we've seen a

dozen times. And Netflix is a company that has the newer. Fresher IP. Which has shown that this entire time it hasn't been the intellectual property that's the Moat. It's been the channel of distribution. And Netflix again proves that that's been their Moat the entire time. It's the reason that they continue to win. It's the reason they'll win in the future. That's going to be for this episode. Hope you enjoyed it. See you in the next one.