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Is there an artificial intelligence bubble here? Well, maybe, but the question is: if the AI bubble exists and it bursts, what investments will we want to make in the long term? John and I have four promotions for you today . I'll start with the most controversial one. I don't think John even agrees with this one.
Well, look, if we go through a bubble burst, if we go through some kind of recession, maybe it won't be as bad as 2009, maybe it wo n't last as long as the dot-com bust. I don't think people are going to cancel their Disney subscriptions, their Disney Plus subscriptions, their Hulu subscriptions. I don't think they're going to cancel ESPN.
And I think that especially in the high end of the market, people will still visit Disney parks. That's why I think buying Disney stock today, with a forward price-to- earnings multiple of just 14.5, is a phenomenal choice, John. A stock doesn't mean it can't fall. But it is an underrated company, even though it continues to grow and invest in its products.
And in a world where we increasingly use artificial intelligence and technology, real-world experience will become increasingly valuable. Earlier this year, I visited Disney and Universal parks in Florida. It's impressive how much better Disney is managed and how much better they monetize their business.
I think this will be the company we remember if some bubble bursts. This will be a promotion that will thrive. I definitely can't disagree with the wording of this thesis that we should rely on real-world experience, regardless of whether the AI bubble bursts or not. I mean, it's really a differentiator of what's happening on the network, to a large extent .
It is becoming more and more artificial. So, it is logical that the real will have increasing importance in the future. And so it helps the development of theme parks and even movies to some extent. This is not a company that creates garbage AI content. This has Yes. Theoretically, it possesses very valuable intellectual property that can be turned into quality content.
And that's why it makes sense to me . What confuses me is that they have only grown by 20% in the last 10 years . So, Disney had a lot of opportunities. Why will the company finally be able to turn things around and become a truly profitable investment for shareholders? Well, let me tell you, Disney has been through this before.
And if you look back at Disney's long history, they usually go through decades of stagnation before anything really changes for the better. So, if you look back to the time before Eisner arrived in the early 80s, the company was a bit confused. They have lost their creative spirit. He really revived the business, invested more in the parks and raised ticket prices.
By the way, that's when these price increases began to take full effect. At the end of his reign, stocks again stood still for a while. Bob Iger comes in, buys Marvel, buys Pixar. Everyone starts to rejoice again. Over the past 15 years, the entertainment industry has undergone many structural changes.
And for Disney, this became a serious obstacle. Think about the decline of cable television: it will affect not only many of their businesses, the cable brands they sold to other companies, but also ESPN, which is their "real cash cow." Movies are not as successful as they used to be. Streaming has clearly taken the lead.
But what other traditional company is better positioned in streaming than Disney today? I mean, there's Netflix. Netflix is obviously a big player, as is YouTube in the streaming space. I would say Disney is in third place. That's a pretty good position, and their streaming business continues to grow and become more profitable.
But the part I wanted to show is the amusement park business. So, this is the income for the last 12 months from the end of 2022. The average annual growth rate is about 7%. I think it will probably accelerate in the future as they have several large-scale expansions planned around the world. New cruise ships are being added .
In addition, their margins are increasing. The average annual growth rate of operating profit is about 8.5%. And now it exceeds 10 billion dollars. This is the true core of business today. I wouldn't be surprised if Disney got rid of some of its non-core assets. I mean, I'm not sure ESPN really fits into the Disney we know today.
That's what I want to have—the theme park business and everything that goes with it. I hope they're at least somewhat profitable, but if this business grows by, say, high single-digit or even low double-digit percentages over the next decade, this could be a phenomenal stock. This is the type of company that won't fall 90% during a recession.
So sometimes during a crisis, you want to take a slightly defensive stance. Okay, I want to talk about your first promotion. This is Sea Limited . Yes, Sea Limited. This is a $50 billion company from Singapore. And it has three areas of activity. So, first of all , they have Shopee, which is their e-commerce business .
They have SeaMoney, which is a financial services division. And then there's Garena, which is their video game business. This is a very big business, but revenue growth is accelerating. So, 47% growth in the first quarter, 48% in the second. If you look at the growth forecasts. Management only provides a forecast for volume growth for its e-commerce business, but expects about 25% volume growth for the full year.
This is quite comparable to the first half of the year. So that's still a great growth rate. It does not take into account two other business lines that are growing slightly faster. And the stock is trading at just 22 forward earnings. So this is a phenomenal business , growing, very profitable, almost a billion in net income for the first half of 2026, not adjusted profit.
This is real net profit. And at a fairly reasonable price. So Sea Limited is a company I like to start with. I think it's a great combination of growth, profit, and value, but I also, as we'll discuss later, think it's immune to the impact of AI. But are there any thoughts on this ? Yes, I like that the assessment is really convincing.
I always have a hard time with companies whose products I can't interact with directly. But, you know, the markets you're talking about are extremely attractive. You showed revenue growth rates earlier, phenomenal revenue growth rates. And, you know, they seem to have built a good position. The gaming business is something that raises questions for me.
This applies to all similar gaming companies in general. I think it's just become a much more complicated business. But right now, trading around 10 times free cash flow, that's a pretty compelling valuation. What is their history with AI, or lack thereof? Well, I mean, it's interesting that you mentioned free cash flow, because that's one of the things I wanted to point out.
This is not the kind of company that invests capital expenditures in building AI infrastructure. It has no data centers. She doesn't try to participate in this game at all. In fact, it doesn't even have its own logistics warehouses. She rents them from other companies. So in this regard, this is a business that requires minimal capital investment.
So when it comes to free cash flow, yes, it is indeed very strong because the company is not investing much in capital expenditures. You know, if you think about it, she's just using AI to optimize her own business. She doesn't use it to sell AI to her clients. So AI is not a product. This is what she uses internally to make things better.
So, one of the advantages is the fact that it is developing this advertising business. And we've said in other videos that AI is one of those things that can make digital advertising better because it allows you to use existing inventory better and more efficiently. Make sure it reaches the right people.
This allows for higher tariffs to be set . So it uses AI in its operations, but does not sell AI as such. This is one of the good sides in this situation . Yes, I am increasingly interested in companies that potentially benefit from artificial intelligence but do not have the risks associated with capital expenditures.
And I think we'll look back on this moment as potentially a bit irrational because of the amount of money we're putting into AI today , because it seems like, "Hey, you can get a great ROI on everything." While many of these companies are not profitable, we have seen massive cash generators, one of which I will talk about in a moment, go from generating cash to negative free cash flow and taking on debt.
Some of these companies will eventually succeed, and some will find that there is no going back. There is no pot of gold at the end of the rainbow. So sometimes it's better to wait, and I would put Apple in the same category, right? Wait it out. Perhaps it will be possible to take advantage of the opportunity if something worth buying appears in the future.
So, Sea Limited is on my watch list . I don't own this stock yet. Okay, I want to talk about another company that is probably in a lot of people's portfolios. I continue to call this the "easy button" in the field of artificial intelligence. But in the context of this video, we're talking about companies that could thrive if the AI bubble burst.
I want to present Alphabet as one of those companies that can really adapt its business and spending to build AI infrastructure. Because if we talk about the bubble bursting, we assume that there will be a signal: "You know what? There is no return on investment in this development." So what will Alphabet do in this case?
They will simply cut their expenses. Instead of spending a ton of money— $200 billion or whatever they plan to spend by 2028—maybe they'll cut that spending by 50% or 75%. You know, we've seen companies do this before. And suddenly you become a business with positive operating cash flow and can profitably buy companies that are in trouble.
Alphabet has done this before. Dark fiber , which was laid during the dot-com boom and then, eventually, the crash. Where did it end up? Most of it ended up on Alphabet's balance sheet . Of course, GPUs are not the same thing, but the technology companies that they could acquire, I think, could be very attractive.
Another thing I have here is the revenue components of their business. Search is marked in blue . Orange— YouTube. Purple—Google Network. This is advertising that is placed all over the internet. Not necessarily. This is the only area of Alphabet's business that is n't really growing. And green—subscriptions, platforms, and devices.
This includes, for example, Android, Play Store, etc. It's a much more diversified business than you might think, and I believe the long-term growth prospects remain whether we use AI or not. And this is a very interesting position for them. Yes, definitely. It's hard to argue with the investment thesis regarding Alphabet.
I've talked to other analysts before, and essentially what you get with Alphabet is an incredibly dominant business, as well as options in many other directions. Yes. I like this factor. Artificial intelligence is an option here, but you have other options . This is quantum computing, driverless cars, and some other things.
But your investment thesis doesn't depend on whether these things work. So this can be a very powerful factor in a world where there's so much hype around AI investments: having a company that's a leader but isn't completely dependent on it. This can be a powerful thing. I just wanted to back up the capital expenditures that we talked about earlier with numbers.
So, last year: $132 billion in capital expenditures and $186 billion in operating cash flow. In fact, if we look at just the quarterly figures , capital expenditures are already exceeding their cash flow. This is truly a fundamental change that Alphabet has gone through. Several other companies, like Amazon, have gone through this in the past.
I think Meta Platforms will probably go through this in the third quarter when capital expenditures start to exceed cash flow. So now you're taking on debt to maintain that level of capital spending, especially if it continues to grow. But I want to emphasize that operating cash flow remains extremely strong .
So, if you look at companies related to artificial intelligence, where does the risk lie? If you look at Coreweave, Nebius or Oracle, they don't have that kind of cash flow from operating activities. They can't say, " You know what? If this doesn't work, we'll just cut those costs ." This is $100-200 billion in capital expenditures.
We'll just cut them next year and spend significantly less. And then what's left is a cash flow positive business." A lot of companies don't have that luxury. And so I think that puts them in a very different position if you expect the bubble to burst. I'm not saying they're 100% protected, because they're not.
But they're the type of company that can use that to their advantage. And not everyone can say that. Okay, the fourth stock is BJ's Wholesale. Why would they thrive if the AI bubble bursts? So, in my previous idea with Sea Limited, yes, it's somewhat risk-free when it comes to the cost of the AI infrastructure, but when it comes to the AI itself, there's some risk.
In particular, the agent shopping in the Shopee business is very large, and if it's agents interacting with the platform , they're looking for the lowest price. It's really good for the company, but it also removes the middleman from the shop, or excuse me, Sea Limited, in the relationship with the end consumer, and it can cause complications for the finance and advertising business .
So the company is not completely immune to AI risks. If you're looking for reasonable growth, good valuation, and no AI risks at all, then BJ's is the one to go for. And so, it's kind of a " Costco for the poor." Costco stock, everyone knows it, the business is fantastic. Yeah. Except that the valuation is way too high, and it's been that way for a long time .
BJ's is half that much lower with a very similar business model. But BJ's is a much smaller company. So 268 stores, 8.5 million members—that's much, much less than Costco. But it's been gaining market share, gaining it for 15 straight quarters. That's good. It has a 90% membership renewal rate. Not as good as Costco, but Costco's is only about 92%, so it's not much of a difference.
Um, and it has very similar private label penetration. So about 27 % of the products it sells are private labels, which gives it a little bit better margins, so that's good too. The growth may not be that great. It 's only planning to open 25-30 stores over the next 2 years compared to the 268 it has today, so that's about 5% annual growth.
Not a lot of new stores, but still , if you're looking for a reasonable valuation, the stock is trading at about 22 times forward earnings. A reasonable valuation. And look, people aren't going to stop buying products just because the AI hype has died down. Yeah, and that's one of those shopping categories that I don't think will be dependent on whether it's agents or whether it's delivered to your door.
I mean, we get a lot of stuff delivered from Target to our door, but if you want to go buy a bunch of everything and fill up, you know, three big carts, that's probably not something you're going to do it through an app with delivery. Plus, you have to pay for it if you do that. So the margin is completely different, and that's where , you know, BJ's, uh, Costco's business model—the reason why they have lower margins and why they can keep their prices lower on their products is because they can just say, " You know what?
"We just want the store to break even because we're going to get our profit from membership fees. It's a very different approach to business than Target or Walmart, where they have to cover their operating expenses, rent, employee salaries, and everything else with sales, and only after they reach a certain level do they start making a profit.
It's like thinking about business in reverse, and that's what makes this model so appealing. And that's exactly what you can't completely replace with online shopping, because you don't get the same benefits. The whole efficiency is that a big truck brings all of our products to one place. Everything is assembled in one place, and then you bring it home yourself.
When someone else starts delivering it to you, you still have to pay for it somehow. That's why buying things on Amazon is often actually more expensive than buying things at a physical retail store . That's not to say that's always going to be the case, but you're paying for the convenience, and I think you're right.
Those are the companies that will continue to exist. They may not be a growth machine, but they're still going to be great businesses in 10 years. And then there's digital platforms. They have those too. They're using AI on a digital platform, a shopping assistant, and now everyone has that. It's interesting what you just said: most digital orders are still picked up in- store.
So for the most part, people are coming to the store to pick up their order. They're just adding convenience to it by ordering through an app or something like that. And so that's a really interesting part of this business. So, like you said, AI isn't going to destroy that. It's not going to go away .
People still have to go to stores for a lot of things. So let us know what you think about these four options. Disney, Sea Limited, Alphabet, and BJ's Wholesale. If some kind of AI bubble bursts, will these stocks be sustainable? Leave your comments in the comments section below the video. Don't forget to subscribe to the Money Fool channel here, on YouTube. Thank you all for watching. See you next time. Bye.
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