He Nailed Nebius Early. Now His Next 6 Calls transcript

Do you think we're in an AI bubble? >> Or do you think the AI boom is just getting started? >> Today, we're going to tell you about stocks that could win in both scenarios. >> We've invited back one of the top AI stock pickers who will walk us through six stocks. >> Right. Three if we're in a bubble >> and three if we're not. >> Okay, let's get started. >> This is Tickor. [music] >> Tennis, anyone? >> We're playing tennis, Caroline? >> No, this is our metaphor for today's show.

Okay, I'll bite. Tell us more. >> Well, it's just that the market seems to be playing tennis on this AI story. >> Ah, going back and forth on the bubble versus nobubble story. >> Right. Exactly. And it's fun to read those headlines, but it's also kind of annoying. >> It's totally annoying. You want to make real investment decisions and that can be harder to do when one day you're told AI is the future and the next you're told the sky is fall. >> Yeah.

And we don't want any of you to fall. We want you to rise up, which is why we brought back one of the best voices on AI stocks. >> Good transition. Yeah. But we're pleased to have respected technology analyst Gil Laura from DAD Davidson back on Ticker Tank. He joined us just over a year ago when AI stocks had already rallied and so we had asked him to point out some of the under the radar AI stocks. Should we tell the fine folks how he did? >> Yes, we absolutely should, John.

And we want to be clear that Gil covers a lot of companies and for that episode he was very specifically answering our questions about under the radar AI stocks. Yeah, and that means Gil's made a ton of good calls on AI, and this was a subset of stocks that we wanted to talk about. Okay, so how'd he do? >> I mean, he pretty much crushed it. Seven of the 10 stocks Gil recommended have risen since then. Yes, there were a couple of duds, but Gil had some huge winners, including Nebius, which to Gil's credit, he was talking about pretty much before anyone else. >> Okay, so that's helpful.

A lot of people have been asking us to revisit past picks on the show, so this is good perspective. And so because of his track record, we wanted Gild to tell us how to play AI if we're in a bubble or not in a bubble. >> Right. And coming up, he'll give us three stocks that work if the boom continues and three stocks you might want to circle if you're worried the bust is coming. >> Okay, great. Now, I will say for the record, I don't see a bust.

I mean, I covered the dot boom and bust 25 years ago. I think this is a different time. I think there are stocks that could fizzle from here, but I think there are too many companies that are growing like crazy to think that even if we're in a bubble, that it's a bubble that's about to pop. >> And we have explored some of those themes on recent episodes. We had the post Nvidia earnings breakdown of stocks that could benefit from Nvidia's growth.

And we also had our episode on Michael Barry's short positions. >> Yeah. So, subscribe to Tickor and check out those episodes. But let's start by getting Gil's take on whether this is an AI bubble. >> I do not think we are in a bubble. I have to really be cautious when saying that because we don't know we are in a fog and and so when we ask ourselves three fiveyear questions right now it's very hard to answer but I do think we could answer the question six to 12 months ahead and it does not look like we are in a bubble overall that doesn't mean some individual assets or securities are not overpriced that always happens uh especially if you're looking at the big AI labs the upcoming IPO those anthropic and open are they worth several trillion dollars?

We won't know that for a while. Those asset prices may be high. Most of the asset prices are actually not very high. Especially not the big uh tech participants from Nvidia to Microsoft, Apple, Google, Meta, those are actually trading at very low multiples relative to their history. So it's very hard to argue that those are in a bubble. Now overall for the economy we may be starting to inflate a bubble right bubbles happen because of leverage.

That is one of the common things to most bubbles and we are starting to borrow a lot more to build data centers. Up until now we built data centers mostly from cash on hand from cash flow of the largest companies that had plenty of it. But we're now we're getting to a point where they've exhausted some of their cash on hand, exhausted some of their cash flow, and we're starting to borrow as a system. And if we go to a world where we're borrowing hundreds of billions of dollars to build data centers, which are a speculative asset, we may be inflating a bubble, but that's different than saying we're in a bubble.

Now, the core observation is that AI is already powerful. We're using it a lot as consumers and increasingly we're using it in businesses and yet we already know that the models are getting a lot better. So if we're using it now when we're already spending as an economy more than hundred billion dollars just on anthropic and open AI it's safe to say that as we get better at using them the models get better we're going to use them more.

So there is real economic activity being created that is not a characteristic of a bubble. So right now, I don't think we're in a bubble, but we have to be weary of individual asset prices. We have to be weary about inflating a bubble by borrowing too much money to invest in what is a speculative investment. Okay, so as we said, Gil's going to walk us through three stocks if we're in an AI bubble and three if we're not.

So, the goal here is to help you think about how you might structure your portfolio for either scenario, which I think is a great way for people to get a bit more granular on how all these companies we're always talking about are structured. Like, what exactly do these businesses do? >> Exactly. So, before we get to the stocks, we asked Gil to explain what he, as an analyst, is looking for in a stock if we were in an AI bubble versus what you're looking for in a stock if we're not in a bubble.

And here's what he had to say. >> Our job is to make forecasts into the future. And we have to do it under uncertainty on any day. And these days the uncertainty is far greater. So the methodology really is a a probability weighed outcomes. We have to weigh the various outcomes, put a certain probability on them, and then decide what that means. So if I think there's a 50% chance that uh we're in an AI bubble and a stock will be worth a 100red and a 50% chance that we're not in an AI bubble and the stock will be worth 200.

I'll find it interesting under $150. I'm I'm going to have um outcomes. I'm going to probability weigh them and then I'm going to decide on what the stock is worth. And if I find stocks that I feel like in either scenario will do well, those are the most interesting stocks. And we also have to in as my job I have to give advice to in very very smart investors that have both types of opinion. So I have to talk to investors that that are very firmly in the camp of we are in an AI bubble.

It's going to come deflated. I need to pick stocks that way. And then I also talk to investors that are extremely enthusiastic about AI and just want the highest leverage to that. So we have to look at a world that's complicated that has a lot of different possible outcomes and try to make forecasts based on that. Especially in cases where we think a company can do well either way. Those tend to be some of our favorites. >> All right, with all that said, let's get to Gil's six picks.

Three if we're in a bubble >> and three if we're not. But first, as always, a friendly reminder. >> This is not financial advice. Okay, let's start with three stocks if AI is not in a bubble. >> Stock number one, Micron. >> Well, remember after Nvidia's latest results, we did a follow-up tick or tag episode about how that could benefit some of the big memory players. So, I was really curious to get Gil's take on Micron.

Here it is. So Micron's an example of a company that if we are not in a bubble can be worth many multiples of what it's worth right now. And even if we do have a slowdown in data center construction, Micron has locked in a few years of business to a level where there really isn't as much downside. And considering how inexpensive it is, it will probably be okay even if there is a downturn. So we look at Micron and think about a company that is doing something completely different than it was doing even three years ago.

Their product is used in an entirely different way than it was used three years ago. Everybody's familiar with the story of Nvidia that started by making chips that we ran uh PC gaming on, right? There were graphics chips that we ran PC gaming on and now everybody knows that we do AI using GP Nvidia GPUs and that's why they're the biggest company in the world. Not sure everybody's giving Micron the same credit in spite of the fact they've gone through a similar journey.

Up until three years ago, Micron chips and memory chips were really just used for storage just for holding on to information, applications, data and really wasn't used for a lot more than that, which is why it got commoditized between them and a few other companies. Now memory is used to do AI in a similar way that GPUs are. GPU cannot produce the AI inference that we are all uh excited about without memory. And in fact, the more memory you provide the GPU, the better the model, the faster it runs and the bigger the context window, the more we can teach it on the fly.

And so the role of memory has changed dramatically. We don't think Micron's getting credit for that. So as they trade at six times earnings, we can say look in a great scenario where they keep growing the stock could go to 20 times earning. As it grows earnings, meaning it could be more than a triple on the upside. And then even if there's a data center slowdown next year, they've sold about half of their business three or five years ahead.

So they could probably retain at least half their earnings. So even in a trough scenario, they're only trading at maybe 13 14 times. So in that case, Micron could do well in another scenario, but it especially has leverage on the upside if AI continues to to to grow at these rates, then it could be many multiples bigger than it is right now. >> Stock number two, Oracle. >> Well, this actually is another stock we've covered since Nvidia's outlook, seen as a beneficiary from that continued boom.

So let's hear from Gil again. Oracle is leverage. If we think AI is going to continue the the demand uh slope that it's on, which will keep it higher than the compute supply slope that we're on, then Oracle is going to do well. And because Oracle has so much financial leverage, financial leverage is bad on the way down. On the way up, it's terrific. It means that if they can just make it through the year, make it through next year as demand continues to balloon, they could actually uh grow their business and their earnings a lot faster than any of the other participants because they have that leverage.

And they're not getting any credit for it. Right now, Oracle is trading as if its backlog is basically worthless. They have they have more backlog, more compute backlog than Amazon or Google. and they're getting zero credit for it. It's because they have this financial leverage and people are worried about the downside. But if you're in that camp that AI is going to continue to grow and demand is going to continue to grow, Oracle has the most leverage of any of the companies providing compute. >> And stock number three, if we're not in an AI bubble, Palunteer. >> Well, obviously it's a name that comes up a lot on ticker tank.

So, let's get Gill's take. >> Palanteer is the best company in the world. Uh, I've spent a lot of time this year talking to their customers, their channel partners, the company itself, and what they're doing is remarkable. While everybody else these days, all companies these days are trying to figure out how to use AI to win. Palanteer's customers are already winning because of AI. they had the business that was at the the right business at the right time for AI because at their core what Palanteer does is it helps you take disperate sources of data combine them without sacrificing any of the uh privacy and confidentiality of the sources and then applying analytics to it to help with decision making.

Well, that gets superpowered with AI. And because they have these, they've always had this professional services component, the four deployed engineer army that they have to deploy to their customers to help build the product. They have been able to get results from AI into their customers more so than any other company. And so in the most important market, which is enterprise AI, Palunteers getting the best results.

And you're seeing that from their uh really tremendous growth rate that just keeps accelerating. There's no other software company that's growing even more than 30 35%. Pound futures grew 93%. And they're accelerating still. It's because they're adding value to their customers and they their customers are coming to them for help. Pounder doesn't even have to make outbound calls. It's a great company. It's doing very well and as long as it continues to lead the way, it can continue to grow at these rates for a long time. >> Okay, now let's get to Gil's three picks.

If we are in a bubble, >> stock number one, Apple. >> I mean, I've been covering Apple for so many years and in the post Steve Jobs era, everyone has always wanted to know what is Apple's next big thing. Interesting. With a new CEO, there's lots of buzz about what's happening on the hardware side. Here's why Gil thinks it will help Apple regardless of what happens with AI. >> Let's say that the AI is as good as it's going to get.

It doesn't get any much better. The models aren't that much better. And we're only going to use it in a similar way that we're using it now. Well, iPhones are still incredibly useful. Macs are still incredibly useful. People will stay entrenched in the Apple ecosystem. Apple will be able to monetize that. And and whatever we have from AI, we will be consuming through an Apple device. So, we have this situation where even if AI is just as good as it's going to get right now, we're still going to be buying an iPhone next year.

And in fact, we are actually right at the transition of between Tim Cook and John Turnis. John Turtis is a hardware guy. So, we're about to get a lot of new hardware. We're going to get a foldable iPhone. Next year, we may be getting a glass iPhone. There's going to be a lot of hardware innovation that has nothing to do with AI. So Apple can continue to grow regardless of what happens in AI. And even if AI does succeed, we're still going to be consuming it through Apple.

So there's not a lot of risk there. >> Stock number two, Meta. >> Well, Meta's business is advertising and it's benefiting from AI big time. >> But it's also spending a lot. And Gil's view is that if Meta had to put on the spending breaks due to a bubble, investors could actually be encouraged. Here's his perspective. Right now, Meta is expending tremendous resources and competing in AI and only some of it is impacting their core business.

Their core business is doing phenomenally well. They're growing digital ads by 20some percent. It's gaining significant share from Google and from everybody else really, but they're spending all that on this AI gambit. They're not providing anybody compute. They don't have one of the best frontier models, and yet they're spending hundreds of billions of dollars on it. If the AI bubble bursts, if we no longer invest in data centers, Meta will pull back on all that spend and their cash flow will skyrocket.

So, they're already inexpensive on a price earnings multiple in spite of this tremendous investment. If Meta pulls back on this investment, their cash flow is going to grow so fast that the multiple will go with it. And there's tremendous leverage to that. So Meta will um will have the best earnings growth, the best cash flow growth, ironically if AI doesn't succeed. >> And stock number three, Palunteer. >> Okay, it is true this stock did come up on Gil's previous list, >> but that's because he thinks it works in a bubble or no bubble.

Let's hear from Gil. >> Even if AI is just as good as it is now and doesn't get keep getting any better, Palanteer is already adding tremendous value to its customers. So we will continue to add tremendous value to his customers based on AI as it is today. They do not need to win in compute. They don't need the models to do any better. They don't have any of the frontier models. They'll just use whatever models available wherever computes available to help their customers get better.

And so even if the AI bubble bursts, they will be the ones that are able to help their customers even with today's technology. That's what makes them so special is that they can win either way. >> All right. Our thanks to Gil for walking us through [music] those stocks to own whether we're in an AI bubble or whether we're not. >> You can learn more about Gil in our description where there's all sorts of ways to connect with us here at Tickorake from our free weekly investing newsletter.

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