Chapter 1: What are Elon Musk's plans for entering the chip industry?
Do we have a new chip company in town? Welcome to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoem, joined today by Dan Kaplinger and Tim Byers. And guys, I think we've got to start with what I think was one of the wildest news items of the week. TSMC has been this break on this AI CapEx spending for years at this point.
But now Elon Musk is saying, hey, we need more chips. We need more capacity. I am willing to put up to $119 billion into becoming now not just an EV company, not just a satellite company, not just an AI company, but also a chip company. Tim, I want to start with you. What in the world is going on here? Because it seems like chips is one of these businesses that is really hard.
I mean, Intel has not gotten this right over the past decade. And suddenly Musk comes in and do we have a new player in town in the chip game?
It's a floor wax and it's a dessert topping, you know, for those who remember their 1970s SNL references. I mean, it's it's no, I mean, look, I've got to look that one up. There is there is nothing that Elon Musk thinks he can't do. And so here we are. Now, to be fair to him, what he believes is that in order to serve all of his various businesses, he needs compute.
And he needs compute at scale. He needs it for SpaceX, he needs it for Tesla, he needs it for XAI. And so, in order to solve that problem, he wants to create TeraFab. And TeraFab is this idea of just this massive scale chip manufacturing facility organization I think there are reasons to ask questions, but there is a logic to it, so let's give him credit there.
But TSMC is an incredibly efficient supplier, and they are able to manufacture chips at scale because they've been doing it for decades. And they do it at the smallest possible form factors. And if you want to do what Musk wants to do, which is manufacture AI compute, then what you end up getting is a real push to manufacture the smallest chips possible. Right now, that's at 2 nanometer.
TSMC is already there. Musk is presumably going to get there. But I think there is a lot to be determined with this. The vision As with most things that Elon Musk gives us, there is a logic behind this, but the difficulty level is just extreme.
Dan, the reason that this, I think, is so important is it impacts so many companies in the entire ecosystem. You've got the chip manufacturers, TSMC, you have Intel, you have the AI chip suppliers like NVIDIA, AMD. Is this something that investors should be thinking about?
that maybe there's a new supplier in town, that maybe this is going to be this vertically integrated company that's going to take on a Google. I mean, where does your head go? Because it seems wild on the surface. But like Tim said, there is some logic to it. So you got to take it seriously.
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Chapter 2: How does Musk's chip vision impact existing chip manufacturers?
But if we get to a world five years from now where you're suddenly building all this CapEx and we do have some sort of bubble, that seems like a really tough place to be.
It is, but I think that Tesla in particular, and Musk more generally, has generally been pretty good about adapting to changing market conditions. The example I'd throw out is Supercharger. I think at some point, Musk would have thought that Supercharger was going to need to compete
against other third-party charging infrastructure, but the fact is that the third-party charging infrastructure just has never come close to matching what the supercharger network was. Given that opportunity, given excess capacity in the supercharger network, given excess capacity and demand from the rest of the EV world,
Tesla saw an opportunity, Musk saw an opportunity opening up, essentially, the supercharger network to these third parties. And I could see the same thing happening here. I think the question you raise is, Travis, is Musk going to get the timing right? Or is he going to make these supply agreements too late? There's a lot in the air right now.
And it's going to take three or four years even for this project even to come close to completion, let alone getting up to capacity. So you're right. The timeline is going to be important. A lot of our information about this is coming from a one-page property tax abatement application in some county in Texas.
So yeah, we don't have the details yet, but I mean, we've been around the block with Musk plenty of times. The details come when they come and you kind of fill in the blanks. In the meantime, there's a whole bunch of people trying to speculate about how those blanks are going to get filled.
Tim, let's speculate a little bit. When you think about the investment landscape and this kind of an announcement, the one company that came to mind for me is, I mentioned early on, TSMC has been this break on the AI build-out. You can't overbuild when you can't get enough chips. Right.
We've now seen Intel, their stock has skyrocketed, which maybe gives them the cash and the ability to invest a little bit more. We've seen Micron and other memory companies say that they're going to build more capacity. Now you have Musk coming in as well with $119 billion plan. That's an area that I'm curious to hear what you think about the supply-demand dynamics longer term.
But is there any other areas for investors for either opportunities or risks as a supplier like this potentially comes into the market?
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Chapter 3: What challenges does Musk face in building a chip manufacturing empire?
But ASML right now is in a wonderful position for the next five, maybe even 10 years. Look, I don't think you're going to get unbelievable returns on ASML, but if you or I could get 7% over 10 years and that was relatively guaranteed in a market as turbulent as this, would you take it? I would. I think ASML is interesting.
Well, it definitely is going to be interesting to watch because we have the SpaceX potential IPO coming in the next couple of months, still, I think, in the plans for June. And what happens with Tesla? Does that get rolled into SpaceX? Do they build out a new chip manufacturing business? Lots to watch, and we will be covering it here.
When we come back, we are going to talk about the death of the SaaSpocalypse. SaaS stocks actually went up this week. We'll tell you what's going on. You're listening to Motley Fool Hidden Gems Investing. One of the down parts of the market in 2026, there's been some hotspots in semiconductors, in energy, but software, SaaS stocks. We've talked about the SaaS apocalypse on this show.
The potential disruption or the idea of disruption has hit a lot of those stocks. But this week, that narrative was really broken, Tim. What earnings reports stuck out to you? Because it seems like almost every company that reported earnings this week did not report something that filled that SaaSpocalypse narrative.
Well, not all of them, but I think it was probably better than expected. And I think Datadog is the one that stands out for me. So that's ticker DDOG. Rallied over 30% on results for Q1 that were just outstanding, much better than forecasters expected. Revenue was up over 32% and passed $1 billion in a quarter for the first time. It was really impressive.
This is also a very efficient company, like, for every new dollar of sales and marketing that they invest, they got back $3.74 in revenue. That's the kind of thing that boosts margins and gets you free cash flow, and they are still producing free cash flow. So, I think that's good. But the real story with Datadog here, Travis, is that They have some AI-powered products.
They have one that observes the behaviors of GPUs. For those who don't understand Datadog, what Datadog does is it looks at the infrastructure that you have as a company. It looks at how the software is behaving, how it interacts with systems, and it looks for outliers. And when it spots outliers, sometimes it takes actions, sometimes it reports on it.
A lot of the output of it is logs, like, have a log that says, hey, all this crap happened. And that is actually really, really useful. So useful, in fact, that They said, this is from CEO Olivier Palmel, one of the co-founders, and apparently he went on CNBC and said, we got seven- and eight-figure deals with two of the world's largest technology companies, and it's for their AI research labs.
Now, that sounds like you are hitting all of the buzzword bingo when you say that on CNBC.
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Chapter 4: What are the latest trends in the SaaS stock market?
If it's a bolt-on, it doesn't really work. Now, what both ServiceNow and Salesforce have working for them is data inside their systems, and you can build around that. But it is going to be interesting, Travis, to see not only the startups that are building from the ground up, but also the incumbent companies who are building new features from the ground up.
I think the latter is going to be really, really interesting to watch.
When we come back, we're going to get into a time capsule and see what Dan and Tim think about the next 10 years. You're listening to Motley Fool Hidden Gems Investing. We like to have a little bit of fun in this segment and I wanna get Dan and Tim to jump in a time capsule and see what the future is gonna look like a decade from now.
We can also look at this as what is gonna be in the next big thing graveyard. This is the challenge with investing with technology. If you get the big things right, you can make a lot of money, but if you get them wrong, you can end up owning stocks that go to zero and you're wondering why that's the case. So Tim, I'm gonna have you go first.
10 years from now, are we going to be still be using LLMs? Is a product like ChatGPT or a Claude going to look similar like it does today? Or is that going to be a thing of the past?
No, I think it's going to be totally different. By the way, what I love about this, there's something internally we do on the investing team. It's something that Bill came up with. I'm giving Bill way too much credit right now. Yeah, we can't be too positive about Bill. This is very, very uncomfortable for me. But I will give him credit on this. We call it the DeLorean exercise.
So you called it a time capsule, but it's the DeLorean exercise from back to the future where you go to the future and then you work back to the present. And so if I do that into the DeLorean here, and in this case, I believe that what we see from these LLMs right now is nothing like what we'll see
10 years from now, usually technology over time abstracts and the abstract layers get more and more abstracted. In this case, I think they get more and more embedded. So you're not like conversing like you do right now. It is entirely embedded inside the system doing something It is intelligent, it is acting with AI, but it is embedded to an experience.
So, let's say you want to rent a car, certainly there is AI going to be involved in that, but your interaction will be, say, the voice interface, or it'll be the phone, it'll be a chat, but you're not really just... Is theory in a really good spot then? That's what comes to mind. Maybe. Like maybe. I could see that, but I just think embedded, not explicit, I think is the big takeaway for me.
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Chapter 5: How is Datadog performing amidst the SaaSpocalypse narrative?
They had the Waymo, they had the Amazon products. There's all kinds of cars competing for eye time in the big markets, but not seeing passengers in them for the most part yet. I think that the younger generations are much more willing, much less excited about driving themselves, much more excited about putting the time of their commute to work. I do think
That all of this, yes, it's been a long time coming. Yes, regulation has been slow. Yes, the promises have outpaced the reality. But I do think that we eventually get there. And I'm also heartened by the work that we saw recently over the past week or two from Joby Aviation, finally getting that electric vehicle takeoff and vertical takeoff and landing.
experiment from a Manhattan helipad out to a JFK airport on Long Island. That is a fascinating area for me. That's probably not a 10-year item. That is probably a 20, 25-year item. But yeah, I do think autonomous driving is coming and there will be huge demand for it from people who are not like me, but who are much happier not letting somebody else take care of the transportation floor.
Tim, I want to frame this even a little differently to you. When Uber launched, it was the idea of getting into a stranger's car to take a ride somewhere was crazy. And now it's just something that millions of people do every single day. Do we look back on autonomous driving as a similar thing? step change in how we think about transportation in general?
I think we look back on autonomy 10 years from now as something that is a given. I think autonomy is a given. Is autonomous driving a given? That I don't know. What I mean by this is, that, again, going how technology historically has developed. Right now, autonomous driving is this big, massive thing. All the roads have to be mapped.
We have to be able to have vehicles that can go anywhere autonomously. I think this breaks down to very purpose-built use cases. And it doesn't always have to be a car, it can be short hops. So, like, cities can have autonomous vehicles that get you places. So, like, if you have, for example, a downtown civic transportation system, might be light rail. Would that light rail be autonomous?
I think it would be. Would you have short-haul trains that also are autonomous? Yeah, I could absolutely see that, of course.
Semi-trucks is another thing we've been talking about for a long time.
Just think about something that is predefined, purpose-built. Wherever there is a predefined route, I think autonomy really has a chance to take over that use case. If it's wide open and really hard to define, autonomy is going to be harder to disrupt that particular use case. But there's plenty that are predefined, Travis, and I think autonomy takes those over.
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Chapter 6: What technologies are expected to thrive in the next decade?
While they have come back down and said, okay, maybe we're not going to give that because there were a whole bunch of GA folks that were appalled by that and saying, hey, you got us to spend $600, $800 on a receiver and now suddenly you're jacking the monthly subscription price up and threatened all kinds of stuff. That I didn't think was going to go anywhere.
But you've seen this from companies like Garmin, ticker GRMN, where, yes, their primary GPS technology got commoditized, but there are niche purposes like aviation, like marine, where you're able to charge a lot more because the marginal utility is a lot higher in those use cases. Same is going to be true for these companies that are able to discreetly serve those markets
and extract full value from them, I think are going to be financially successful. Again, not sure if it's enough to justify the valuations involved at this point, but they're not going to just disappear.
Tim, quickly, do you think we're going to have space phones or is this kind of a flash in the pan?
Maybe. But I've got a simple phrase here for you, Travis, on making money in a sector like this. Picks and shovels, baby. Picks and shovels. And I'll tell you why. Because none of this works unless you get more miniaturized satellites and you really introduced massive cost reductions in the unit cost of launches.
You have to have more mini-satellites, you have to be able to launch them effectively, you have to be able to launch them, even probably from, like, you need to have space platforms in which you can repair and also launch new mini-satellites that would allow this kind of network to act pervasively and give you the kind of coverage that would make these things affordable. but that's the move.
Like the phones themselves, who cares? The network itself, yeah, there's infrastructure that needs to be built there. None of it matters. Not a lick of it matters unless you get incredible unit economics in launch and mini-satellite. That would be where I'm looking.
That makes sense. Well, when we come back, we're going to get to the stocks on our radar. You're listening to Motley Fool Hidden Gems Investing.
Confusion is nothing new.
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