Google Just Declared War On ChatGPT

Welcome back, everyone. Today on the Jose Carlson Show, Google stock is surging. It's up 4 1/2 percent on the day. And this comes, of course, a day after their developer conference. That's right. Yesterday, Google showed off all the many things they're working on and importantly, how they plan on addressing the attacks from ChatGPT. Google laid out a game plan, how they're going to address this

challenge. We're going to be going through it and looking over some of the things that they announced, some of the new developments and why investors are getting back on board this stock. And we have a viral interview to respond to with Elon Musk here giving another update on the robotaxi rollout that's happening in June.

He responds to many questions about the safety concerns, why he's not using Lidar, how he considers Tesla in a competitive position against Waymo. Now, I'm going to be responding to this interview and highlighting a few things that I think Elon Musk is leaving out. We're also going to be looking at FICO, why The stock is down 14% today and it's down a staggering 23% in just the past week. What is going on with this company? In fact, we have another similar company, Equifax, one of my

positions. It's also trading down a little bit today and yesterday it's down 5%. Currently, there's something going on. This one's a bit of a mystery, but we have the answers. I'll be going over why FICO and Equifax are dropping and what investors should think of it. And then finally, we have another fail of the week. This time it is Klarna, which has had huge losses due to people not repaying loans.

We're, of course, seeing the obvious results of people paying back their DoorDash delivered burrito in installment payments. So as always, we have a lot to get into in this episode. If you like like this type of content, consider trying out the Patreon membership. It has a free trial and includes Qualtrim. It's awesome. So try that out. If you haven't, let's go ahead and jump into the main story here.

Google yesterday held their Developer IO conference, which is basically where they show off all the many things they're working on. And this one was highly anticipated, probably more than most, because Google's in a transitional period. Investors are intently trying to figure out whether or not this company is a value trap.

There's people like Gene Muster that have referred to Google as the new eBay, a company that's a has been. It's no longer at the forefront of technology, it's no longer leading the way. It's simply going to slowly decay into a relevancy. And that is, of course, because of the concern of artificial intelligence, LLMS and ChatGPT. So investors are looking at this developer conference with the viewpoint of trying to figure out if Google can remain

relevant. Now, Google did answer that question, but not by just saying that they'll stick around and remain relevant amongst many competitors. No, Google made it quite clear that they want to lead the way that they are at the forefront of many verticals and many different efforts. Let's go ahead and just take a look and walk through some of the things that they're now doing that is ground breaking, truly incredible things. The first here is the Gemini app.

This has come a long ways. It used to be way behind Chachi PT, but now Google announced that they're rolling out free features like live video, which you can simply look at the camera, point it at things, and it will give you AI commentary, answer questions based on what you're looking at live. Should I be nervous about this? It looks like your SRS. Airbag light is on. That means there's an. Issue with your airbag system. It's best to get that.

Checked out by a mechanic as soon as possible to make sure your airbags will work. Properly if you need them. Glad I asked. Thanks Gemini. Now this is particularly impressive for a few reasons. First of all, there are other applications that can do things similar, like ChatGPT, but so far those are gated towards paid accounts. So only the people paying the $20.00 a month have this advanced functionality.

But here Google is not only adding this functionality of live video feedback, but also making it free for all of their users. They're going to be rolling this out globally to every user in the Gemini app, and they're not only matching what the competitors are doing, but they're now lowering the price down to free.

In investing terms, what Google's doing by matching the functionality of their competitors but making the price lower is giving their current user base, which is still massive, less incentives to turn over to different applications, less reason to move. Initially, Google was way behind Chachi BT there is significant incentive for people to leave the Google ecosystem and enter into the competitors.

But now that incentive is becoming less and less to the point now where it's completely diminishing. We have another example here of Google pushing the limits, this time not just matching competitors but creating entirely new features. For example, live video language translation. Let me turn on speech translation. It's nice to finally talk. To you is bueno ablarte finalmente. You're going to have a lot. Of fun and I think. You're going to love visiting the city.

The house is in a very nice neighborhood and overlooks the mountains. That sounds wonderful. This is obviously groundbreaking stuff. Being able to communicate with someone else in an entirely different language, have it translate everything you're saying on the fly in your voice, is incredible. This is something that Google and Google alone is doing. They're at the leading edge of this. Of course, the integrations don't stop there.

Google's integrating Gemini and their AI features into every single one of their properties. In fact, the integrations go a lot further than you would initially expect. For example, in this demo here, you can aim the camera the the live video camera at a specific thing like a postcard or an event, maybe a wedding invitation and literally just say add this to my Google Calendar and it will create a calendar event with that physical thing.

Now it shows another example here of a shopping lifts that that you jotted down and then you say add it to my Google Keep and it will do that as well. So we have the live video camera being integrated into the rest of their product suite. This is the type of integration that other companies simply don't have. They don't have the billions of touch points with different users, but Google's able to leverage this and they are now getting to another aspect of

this demo. Quite possibly the most impressive thing that we saw yesterday was Google's ability to create AI videos. We know that they've been good at this for a long period of time. In fact, Gemini has probably been the best by far in image generation and video generation. You can think they're huge library of YouTube content to train that data on, but regardless, they've introduced Flow, a new AI film studio that ties together all their various products to work in concert to

create films. It uses VO, Imogen, and Gemini all together and strings different pieces of content together. One of the issues with AI video is there's a lot of discrepancies, inconsistencies. There's no continuity between clip after clip. And this hopes to solve that. So we have some insane examples of this tool being used. Like all of these AI tools, it starts off with with a prompt. So you simply have a text based prompt. More specific you are the

better. But then you can actually start to edit it. You can revise things, you can import it into different tools, you can clip things, you can actually work on the content. It's not just a stand alone clip. You can actually start to create longer and longer pieces of content. And we see this natural gravitation of just these silly AI clips now starting to make more meaningful content. Google showed off the quality of this new video generation with VO3. It looks completely stunning.

This ocean, it's a force, a wild, untamed might, and she commands your awe with every breaking light. There's some different clips that Google made that are incredibly impressive, but then there's ones that users are quickly making after this new demo after this product was released. Here's another test of Google's new video generation. This is entirely AI generated. Do a non existent car show. Let's see some opinions. I mean man, the acceleration is crazy.

You look far, step on the pedal and you are there. I feel safe with him in an SUV and it seems to be like the right type. Of car for him I think the range is only. Be honest, would you be able to tell if you were just watching this? Would you know I'm not? I'm not sure. I don't think I would be able to. It's getting to that point where it's crossing the line of I can't obviously see that it's AI. If I'm being honest. It just looks so real.

Only going to get better, sorry. We don't want to drive gas cars anymore. Yeah, no more gas cars. You can see I'm kind of a. Kind of a misfit here, but. Don't tell anyone. I've just bought an electric car. There's a few things that give it away, like Hell's Angels being spelled HELS, misspellings on things, different lanyards, and signs that seem a little bit off, but overall it's very confusing.

Even people in the comments are still confused of whether or not this is real or actually it's a real video disguised as AI. Here's another one. This is entirely created by Google's Flow, their AI generation. All of this is AI video. It's different segments and clips cropped together to form a narrative, and this is possibly one of the most impressive examples of this new technology. When we get in there I want no I just stay on my 6 at all. Times stay sharp.

They're nasty and dangerous. Stay alert. What the hell happened here? Where are the bodies? It doesn't look perfect. Some of the barrel flash is a little bit misaligned with the guns, but overall this looks pretty good. Now, all of this technology and initiatives from Google are incredibly impressive. It shows that the company's still at the leading forefront of AI development. But it doesn't answer that central question that Google investors are still concerned

about, which is search. But Google did address this and they do have a plan to maintain their search dominance. This was the main focus from Sundar Pichai and he addressed this subject specifically of how they're improving search. For those who want an end to end AI search experience, we are introducing an all new AI mode and I'm excited. To share that. AI mode is coming to everyone in the US. Starting today. Today you'll see how you can ask anything.

You'll find it as a new tab directly in search, or right from your search bar. First, with AI mode, you can ask whatever's on your mind. And as you can see here, search gets to work. It generates your response, putting everything together for you, including links to content and creators you might not have otherwise discovered, and merchants and businesses with useful information like ratings.

Search uses AI to dynamically adapt the entire UI, the combination of text, images, links, even this map. Just for your question. AI mode combines all the best parts of Google search with artificial intelligence. And the way that this works as they describe is it basically creates search into an Omni search where you can still have the very simple searches of I just want to find this address and navigate to it, or is this restaurant still open?

Those type of simple searches will have very simple outputs designed around those searches that just give you that information. But if you have a more deep search, one that requires more context and understanding, then you're sent through the AI flow dynamically. It'll give you an in depth AI response with all of this information around it. Google search is now an Omni search that dynamically adapts to whatever the user is asking. So no longer is it a dumb search with just blue links.

No longer is it just a little AI overview snippet. Now it is an Omni intelligent search and they're pushing this out to everyone. Another thing that Google's going to leverage is your personal contacts. This is another thing that they have that no other company has. Google has so much information about you because of your YouTube viewing habits, your Gmail, your Google Docs, all your calendars, everything that's integrated with Google.

They have all of that information, and with your permission, they can use that to supply better context to your searches. Soon, AI mode will be able to make your responses even more helpful with personalized suggestions based on your past searches. So now, based on your recent restaurant bookings and searches, it gets that you prefer outdoor seating. And since you subscribe to those gallery newsletters, it suggests some cool art exhibits to check out while you're in town.

This means that Google can do things like look at the type of restaurants that you frequent and then suggest different restaurants based on the ones that you've been going to and navigating to in your Google Maps. Again, this is data that Google exclusively has. Now, they mentioned that this feature is not one that you have to have on. Of course, you can turn it off, but this has the potential to create a much more intuitive

experience than competitors. Google's leveraging yet another advantage they have now with AI mode. It looks very similar to like the ChatGPT homepage or the Grok homepage. It's right in Google's search and it says Meet AI mode with a big text box. You now have the ability to do deep research on it. So now all the billions of users that haven't tried out ChatGPT or aren't aware of deep research are going to have this baked into Google. And this is using their latest

greatest models. Deep Search uses the same query find out technique you just heard about, but multiplied. It can issue dozens or even hundreds of searches on your behalf. It reasons across all those disparate pieces of information, create an expert level, fully cited report in just minutes. Google's not just sitting around idly waiting for things to happen, they're creating the most powerful Omni contextual search in existence.

Google also demoed different tools that weren't even on people's radar, just new things that people weren't expecting. For example, this tool allows you to try on clothing digitally. I have many pictures here. I'm going to pick one that is full length and a clearview of me and off it goes. You can see it here how it really gives me a feel for how this dress might look on me. And I am going to click this thing to track price. I pick my size then I have to set a target price.

I am going to set it to about $50.00 and tracking is happening. There's two new pieces of functionality there. The first one, of course, is this new tool that allows you to superimpose new items of clothing on you so you can virtually try them on. You can purchase them online with greater confidence. But then the next thing she does here, I think is even more

important. She looks at the item and then sets the price that she wants to pay for the item and then sets it to automatically buy the the clothing item as soon as it reaches underneath that price. This is a limit buy. This is like if you're setting a limit buy on a stock, but now Google's implementing this type of purchasing directly into the Google app, directly into Google itself.

You can now set limit purchases on random websites to trigger the purchase when the item falls below that price. Now, these weren't the only features that Google shared in that demo. There's many other things they're working on, but these are some of the most significant highlights and it shows that this company is not waiting around to be disrupted. They are leaning into new

technology. Sundar Pichai was being honest when he said that the innovator's dilemma is only a dilemma if you choose it to be. If you make it 1, he's always going to lean into the new developments, the new technology. He's going to disrupt itself to create new experiences. But in this case, the damage that investors are concerned about. The reason that the stock trades at such a significant discount,

a 19 Ford PE ratio. This is cheaper than the S&P 500. The S&P 500 trades currently at a 23 Ford PE ratio and Google's at a 19. This company is trading at a significant discount to the S&P 500 while growing twice as fast. When we look at the revenue growth of Google, the continued strength of this company growing

13%. I continue to believe that it's highly likely the concerns that investors have about this company are being overstated, that the disruption risk is being overpriced into the stock, and that investors today continue to have an asymmetric risk with high upside and limited downside. Google's trading up a little bit today. It's currently up 3% in a down market that's down 1%. So it has a lot of alpha on the day, and I think we're going to see a lot more of this in the

future. Now, Google still remains a highly divisive stock amongst investors, with analysts like Gene Munster continuing to insist that Google's the new eBay. But we also have analysts like Mark Mahaney saying that the death of Google has been overstated. What it tells you is yeah, that it's a, it's a more powerful search product. It's more, it's it just, it's more, I think they use the term it's more personalized, it's more intelligent and it's more agentic. Whatever.

It just makes it a better search product. You create you to improve the search product, people are going to use it more. And I think that's one of the reasons why I think the the death of search at Google is been greatly exaggerated, overstated. I think they're improving the product. People are going to continue to search with Google.

I don't think you're going to see a dramatic share shift away from Google if they continue to innovate the way that they have the last year and what they're showing today. Search was up 13% in the first quarter. Operating margins were to 34%, which was their highest, as you pointed out, in 12 years. I mean, this is just extraordinary. So if they add more AI functionality to the main page, is that going to push the ads down? It could, it'll also make the

ads more relevant. Look, the name of the game isn't to show the most ads. The name of the game is to show the most effective ads from a user's perspective. Like I get the information that I want, but also from an advertiser's perspective, which is I want the, I want that lead that I'm paying to click for. I want that to convert really well. And what Google is using AI to do, it's not too dissimilar from what Meta is doing, is using AI

to better capture intent. So the better qualify the lead and it's an auction market. If the lead is more qualified, if it's converts, better marketers will bid up for it. So my guess is we've had, I think it's 11 to 15% revenue growth out of search for Google for the last seven quarters. I think there's a decent shot they do it again for the next 7 quarters. I think the, the growth in search revenue is much more sustainable than market thinks.

If I'm right about that and they keep showing us for the next three or four quarters, I think the stock re rates. And by the way, then there's the rest of Google, which is YouTube Cloud and Waymo. And I think these, if you put all those together, are just dramatically worth more than where the stock is now. That's why it's our number one pick. He points out that this product that's under so much question is still growing by 15% per quarter done so for the past seven quarters in a row.

He believes it's going to happen for the next seven in a row. If that happens, Google will re rate to a 25 PE, a 29 PE. It'll go back up to that sub premium category away from being discounted below the market. If that happens, it'll show that Google is dramatically undervalued at this point. He also points out that the other properties making up half of Google, which is YouTube, Android, Cloud and Waymo are all great properties that have strong growth.

These are very valuable properties. This company generates $70 billion per year and is trading

below $2 trillion. So I believe, like Mark Mahaney, that Google is undervalued right now. We'll see what happens with the search query growth with Google search. We'll see if the revenue continues to grow. If it does, we're going to see the stock higher. Now moving on, we get to the other big news, which was Elon Musk sat down for an interview and he answered a lot of tough questions directly. And one of the first things he talks about in this interview is

the subject of timelines. We know that this is a difficult subject for Tesla because in so many cases, Elon Musk has thrown out timelines that have been pushed back again and again and again, specifically with a robot taxi. This one feels like Elon Musk is no longer going to push it back or delay. He is set on releasing Robotaxi in June. Are you going to have full autonomous on the roads of Austin at the end by the end of June? Yes, you are.

What gives you that confidence? We we have cars driving 24/7 with drivers in the cars and we see essentially no interventions. So he's saying quite definitively that they're sticking to this timeline. They will have cars on the road without drivers in Austin by the end of next month. And then he gives a timeline of how it's going to ramp up. At what scale will Tesla start? And then how many vehicles will they add over time? Well, we'll have to see how, how well it it does.

But you know, I think it's prudent for us to start with a small number, confirm that things going well, and then scale it up proportionate to how well we see it's doing. Right. And what's going to be a judge of how well it's doing? Wait, are there any incidents? Are there any, any interventions? And but we, we want to be, we wanted to deliberately take it slow and we could start with 1000 or 10,000 on day one, but we, I don't think that would be prudent.

So we'll start with probably 10 for a for a week, then increase it to 203040 and I think by say yeah would probably be at 1000 within a few months. So he says that they might have 1000 in just a few months as operating robo taxis. Now, that doesn't sound like a lot, just 1000, because when you look at Ubers, 1000 isn't a lot. But as a robo taxi, that is a ton. Robo taxis work 16 hours a day.

They can go out all the time. Even Waymo that's operating in multiple cities that just completed 10 million paid rides only has a bit over 1000 operational robo taxis. The fact that they're working around the clock is why they're so effective. In fact, in Los Angeles, robo taxis from Waymo are doing more business than all of Lyft. So they are highly efficient when you have them operational.

But Elon Musk is suggesting that in only a couple months Tesla could pass Waymo in the amount of operational robo taxis. No. Next he's asked an important question. He's asked to compare what Tesla's doing with their technology perspective against Waymo. As we know, Tesla is vision only

camera only. They're not using any type of sensors that you have on the fenders of the vehicle and they're not using the Lidar, which are the lasers that create awareness of the distance of different objects relative to the vehicle. Now Waymo's doing the strategy of all three of these. They have LIDAR, they have many cameras and they they have sensors. They combine all of these inputs together to make it a very safe

vehicle. And that's what's been tested with Waymo's. Waymo credits this combination of different safety factors to the reason that they have almost no incidents and they've had no deaths with their vehicles. When you compare that again to Tesla, they're going down the route and they're sticking with it with vision only. 28 cameras that got Lidar and radar. You've had a different approach, 6, I think 8 to 9 cameras and the neural network.

Why do you feel that that is going to be the equivalent in terms of safety profile? Oh, I think it'll be better. Why? Because the the way that the road system is designed is for AI. It's basically, I should say it's for intelligence, biological neural net and eyes. That's how the whole Rd. system is designed. So that what will actually work best for the road system is artificial intelligence, digital

neural Nets and cameras. And that we we'll also have the microphones, the car can hear emergency vehicles, that kind of thing, right? Yeah, you need to 'cause that was a question, right? You need to hear a fire engine or a police car. Yes, exactly. Right. So, but that's, that's how the whole Rd. system's designed. It's not designed for shooting lasers out of your eyes. Elon Musk has stated over and over again he's made this point many times.

In fact, he said it ad nauseam that roads are designed for humans and that's the reason that Tesla is pursuing the path of vision only. They're just like humans. You see what's outside. That's how roads were designed. So it makes sense to create the car exactly like it was designed for humans. Now he says that point and it kind of makes sense at first. You hear that and you go, oh, that, that makes sense. Roads are designed for vision only. That's what humans have.

Maybe hearing as well. They have a mic as well, but those are the two inputs. You just have the vision. After all, as he mentions, humans aren't shooting lasers out of their eyes. In fact, that seems silly. Why would they do that when human drivers aren't doing that? But then Elon Musk always makes It's a different point that seems to conflict with this point. Here's another point that he brings up in the same interview

just seconds earlier. In order for that to be the case, we we want the autonomous car to be much safer than a car driven by a person. Right. We want the robo taxi car to be much safer than a car driven by a person. In Tesla's most recent earnings call, Elon Musk said that the robo taxi has to be orders of magnitude safer than the average human driver. So in one point, Elon Musk is saying that the reason we're designing our vehicles to only have vision is because that's

how humans drive. It just makes sense to drive just like humans drive. But then in the next he says that the the bar, the standard for robo taxis is to be orders of magnitude safer than humans. Well, I would argue that these two points conflict with each other. Why does it make sense to design a vehicle exactly like humans drive if the goal is to make them drive much safer than

humans? In fact, a way that you could possibly make human drivers safer orders of magnitude safer is if they had some special ability to shoot lasers out of their eyes and immediately measure the distance of different objects relative to themselves. Especially in very difficult conditions like cloud or rain or dark conditions where cameras or our eyes can be deceptive. Our eyes can struggle with low light conditions or sun glare,

or fog or extreme rain. There's lots of scenarios where the human eye is inferior to LIDAR. So while Elon Musk makes these two points that seem contradictory, we're designing Teslas to fit the road of humans, but we need Teslas to be orders of magnitude safer than humans. You have Waymo that is making them orders of magnitude safer than humans by having better technology than humans. Now, Tesla investors continually mock Waymo for their LIDAR because it looks a little goofy.

And in some cases, Waymos can even do silly things. They can block traffic, they can get stuck, they can go in circles or do funny things. But so far there's been no serious video of a Waymo being in a near death collision. There's been no truly frightening video of a Waymo. When we look at examples like this, like there's a video here that this was going viral amongst Tesla investor circles. And this is of a Waymo driving through this, this deep puddle.

Obviously the the LIDAR and the the cameras themselves can't look at how deep this puddle is, so it goes through it. It bounces a bit. It's a rocky ride. I think this is probably more of a fault of the roads in LA than the Waymo itself. But either way, these are the type of mistakes that Waymo's are making. They're driving through deep puddles. Sometimes they get stuck in traffic.

That's what we see when we compare that with some of the footage we've seen from full self driving, especially in edge cases, again, like cloudy conditions like we're seeing in this one, they can be truly frightening. Here's one example of a terrifying edge case of full self driving. The person that posted this video said they've owned their Tesla for less than a year and within the last six months alone it's tried twice to drive

straight into a train. Now I'm not bringing this up to bash Tesla, that's not my goal, But it's to illustrate that these Lidar sensors come in with those edge cases. The difficult part with full self driving, a robo taxi is not to do a normal drive in great conditions with no edge cases. There's most full self driving systems or any similar system that can accomplish that. It's the unique cases, the edge cases that define whether this technology works.

So far, Waymo has proven that out. Tesla hasn't, and there's still a question of whether or not Tesla can truly rule out these type of edge cases without the use of Lidar. Now moving on, we get to another news story that's being ignored by the media, which is the dramatic fall in stock price of FICO. The company is down 14% today, so huge fall and share price today. And then on the week it's been down even more. In fact, if we go out just to

the past week, it's down 23%. Now, Fico's not the only one. We also have the credit bureaus. Equifax in particular is down 7% today. So it's giving up some of its gains. If we look over the past week, it's not down quite as much as FICO, only 4%, but it has given up a lot of its gains, going down from 280 now to 260. What is going on with these companies?

Why is FICO down so much today? Well, this has everything to do with the new Federal Housing Finance Agency director, Bill Poulton. He is addressing the obese Fannie Mae and Freddie Mac, and he's putting them on a treadmill. Bill Poulte was at a conference and he made remarks that were aggressively directed at expenses in mortgage assessment costs, specifically with FICO.

In particular, Bill Poulte was asked about the Trimerge credit scoring and converting that to buy Merge credit scoring. Now, right now, you currently get your credit score from all three credit bureaus. That's how you get mortgages. And he wants to change that to where you only get it from 2. And Pulte said that they're actively looking at getting it done. Quote. I think FICO should make sure that they're being as economic as possible. We're actively looking at

getting it done. I don't like some of the things I've heard in terms of cost. It's only a couple sentences, but it was enough to drop Fico's stock by 20%. Now, why are FICO investors so concerned about this? After all, it can't be that concerning to switch from three credit bureaus to two, right? Well, there's more to it. If you understand the way that FICO makes money. Everybody knows that this company has the FICO score, the score that you get when you're applying for a mortgage or any

big purchase. It's to assess your credibility and allow the lender a better look at what type of interest rate you get. That way they can price their loans in the interest rate more appropriately. So that's the basis of Fico's business. But more specifically, the way that they sell these loans is they have licenses with all three credit bureaus. You have Experian, you have TransUnion, and you have Equifax. FICO licenses their score and their algorithm to all three of these companies.

When a customer wants to buy a home and they have to get a mortgage, they get their credit pulled, which is a trimerge, meaning that they pull their credit from all three credit bureaus. Every credit Bureau has their own unique FICO score, so there is a FICO Equifax score, FICO TransUnion score, and so on. When you look at these scores, sometimes they differ because they have different data sets and different algorithms behind them.

And so you can have a situation, for example, like the TransUnion score being a 5, the Equifax being a four, and the Experian being a six. In that case, what happens is the lender will use a combination of all three scores, usually the mean of them, and that's what you get with your credit rating. You take all three data inputs, you combine it together and that's what dictates your credit

score and your interest rate. Now, if Bill Polt a successful here in turning this from a Trimerge into a by merge poll, that means that you're not pulling from all three credits, you're just pulling from two of the three. You'd presumably pick two different ones every time that they pull credit, and either way you would only have two of those

data points. So the credit score in and of itself may not be quite as accurate because you're missing out on one credit Bureau, but it would be cheaper because again, FICO licenses with all three. Every time you have a Trimerge score, all three credit bureaus are paying FICO. So if you change that to two, that essentially wipes away around 33% of Fico's score revenue every single poll.

So in very simple terms, this is as if Fico's losing 33% of their customer base with their high margin credit business. Now of course, that's a big simplification, but you can see the concern here. If this goes through, it could impact materially Fico's free cash flow and their earnings. Now when we look at Equifax, this company is also trading down a bit with the rest of the credit bureaus, but albeit not

as much as FICO. The reason that Equifax is a bit less exposed to this is first of all, out of the three credit bureaus, if we move to a by merge credit pulling system where we could only pick 2, Equifax and TransUnion are the most likely to be picked on the most common basis. They have the most data, they're at the cheapest prices. Experian would be the one that would likely suffer the most.

So even though simple math would dictate Equifax's picked only 66% of the time, the odds are that they would be picked more like 80% of the time. But I'll also mention that Equifax is simply more diversified when we look at what they're doing. The reason that I'm investing in this company primarily is because of their workforce solution, the work number, their verification of previous employment, that is the product that's growing the most, that

has the highest margins. The credit scoring is nice. It's a a nice business. It gives them a lot of data to work with, but it's not the most important part of the investment thesis. So Equifax will certainly be

impacted by this if it goes through, but it's not going to be to the same detriment as FICO. Now moving on, we get to the fail of the week, which this time we're going to highlight the company Klarna. This company is reportedly seeing widening losses, lots of losses, as people are not repaying their loans.

Now, if we look at the business model of Klarna, the way that this company makes money is by exploiting one of the worst parts of American consumerism, which is overspending, getting into debt, not being able to pay back your loans, destroying your credit. Now, credit card companies do this to some degree, but Klarna here took it to a whole new level, extending enormous amounts of credit to people that have no business having this credit.

And Klarna is now seeing the obvious outcomes of that. Klarna SOTS losses jump in the first quarter as a popular buy now, pay later firm applies the brakes on a hotly anticipated US initial public offering. Swedish payment startup said it's net losses for the first three months of 2025 totaled 99 million, significantly worse than the 47 million loss it reported a year ago. Klarna said that it was due to several one off costs related to depreciation, share based

payment and restructuring. Now, even though Klarna wants to blame a lot of one time items like depreciation and so on, they do have to mention that credit losses with their product are up 17% year over year. So as they continue to loan more and more people, they're finding that these people don't want to pay it back. And that brings up an

interesting point here. If we really simplify what Klarna is doing here, they're taking investor capital, diluting investors, taking their money and providing it to customers, customers that want to pay for their Crunchwrap Supreme in four easy installment payments. That's the demo that they're targeting. And now we're starting to see the first early cracks in this investment plan. So we'll see how this one works

out over time. But as of now, because of the rise in the credit losses, they're delaying their IPO and they are the fail of the week. That's all for this episode. See you in the next one.