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Next-gen investing experts Julia Ostian, Kenio Fontes, and Jack Bowman share their thoughts on today’s market (0:20). Kevin Warsh’s 1st meeting; market’s a little too hawkish (3:00) SpaceX IPO bewilderment (6:00) AI dominance (7:20) Meta: 2 bulls, 1 contrarian (25:50) How to properly value tech stocks (38:45) Private credit picks (52:00)
Transcript
Rena Sherbill: Welcome back, everybody, to Investing Experts. Thrilled to welcome back our next gen panel. We have Julia Ostian, Kenio Fontes, and Jack Bowman joining us once again to talk everything markets, really anything that they want to talk about, that they’re thinking about, that they’re digesting, marinating over. Welcome back, everyone.
Instead of all three of you saying hello at once, let’s start with a brief reintroduction of yourselves. Kenio let’s start with you. If you could just generally introduce yourself, what you talk about, what you think about, what you write about.
Kenio Fontes: Perfect. So hi guys, thanks for having me here again. I’m happy to chat with you again. for those who don’t know me, my name is Kenio Fontes and I mainly cover tech and retail companies and I was born and raised in Brazil. I think that pretty much explains me.
Rena Sherbill: Julia?
Julia Ostian: Hello. I was just telling the guys that we’re at almost our anniversary for the first time we met almost a year ago in July. So happy to be here again. My name is Julia. I am a student of economics and business administration in university. I started investing some time back already, I wanted to say a couple of years back, but I just realized it was like six years ago.
I’ve been a Seeking Alpha contributor for a year and a half almost. I have a YouTube channel for over two years about investing. So that’s me. Thanks for having me.
Rena Sherbill: Remind us of the name of your YouTube channel before we get to Jack.
Julia Ostian: The market monkeys.
Rena Sherbill: Jack?
Jack Bowman: Hey, so I am a idea guy, is kind of the best way I can put it. I write a lot of narrative about macro, and that’s one of my big focuses on Seeking Alpha. I cover some text talks, some retail, but a lot of what I do is focusing on the big picture, you know, where are the where is the index going and what should we know about things like unemployment or inflation, how the Fed’s gonna respond.
Outside of that, I run a newsletter called the Macro Obsession that I send once a week that’s my more unedited, raw takes on things, but on Seeking Alpha I try to I try to keep it in in my lane in in in macro. And thanks for having me.
Rena Sherbill: You get measured takes on Seeking Alpha, you get hot takes outside of it, pretty much. Jack, let’s start with you. Let’s start macro and and work our way down.
There’s a lot of volatility, there’s the SpaceX (SPCX) IPO, there’s the Iran war, there’s geopolitics, there’s a whole bunch of stuff going on. There’s jobs, as you mentioned, there’s CPI reports. What are you most focused on when you’re talking about the macro picture?
Jack Bowman: I think there’s two major stories that need to be followed by investors currently.
That’s where the AI arms race is headed. SpaceX is a huge part of that. I’ve been talking about this one image, it’s from the S1 filing in SpaceX and it’s their total addressable market, and it says AI infrastructure is about two trillion, digital advertising six hundred billion, and enterprise applications will be twenty two point seven trillion. Which is about the real GDP of the US, a little bit under.
And I struggle to think about in terms of like, can Grok become the size of the US economy? Is that feasible or likely? And the answer to that may change SpaceX and then the entire AI market that follows it, because OpenAI (OPENAI) and Anthropic (ANTHRO) and all this, and the big IPO race.
This question, are they accurate in their projections? Are they capable of meeting those things? And I don’t think we know.
And I’d love to hear what Julia and Kenio think about that, and then the second theme is where the Fed’s going, because nobody knows what’s gonna happen.
This is recorded a day before the Fed decides on their next meeting. They’re probably gonna hold, but it’s Kevin Warsh’s first meeting as chair. And his tenor, how he chooses to talk about in the in the statement and how the FOMC delegates that through who dissents and who agrees and that politics is gonna really set the stage for markets moving forward and what they expect for rate cuts.
And we’re kind of in the dark. Markets think rates might go up. I don’t know.
Rena Sherbill: Before we get to Julia and Kenio’s thoughts, Jack, I know you kind of set us up and I appreciate the brevity, but do you have any further thoughts on the Fed meeting? Do you have a sense of if they hold rates, this is gonna happen, or you have a sense any further thoughts there?
Jack Bowman: I think actually the market’s a little too hawkish. I think they’re pricing in a hike way too early than it than it would come if inflation doesn’t abate.
But now that we have news that Hormuz is supposed to be open, and of course, you know, fool me twice. I don’t know how true that is or not. When we see the the numbers of the tankers go up in the Bloomberg charts, we’ll know that they’re being more genuine.
But if inflation goes down as I expect, because energy prices come back down with the peace deal then I don’t think the Fed has to raise rates.
And I think that they’re going to be more dovish in their statement than the market is projecting.
And I actually think that’ll be a good thing for the markets. If they’re more hawkish than the market’s expecting, they say actually rate cuts might come as soon as the next meeting or the meeting after, we have a couple more for the end of the year.
If they call it sooner and say, hey, we really need to be you know tackle inflation, that’s our big deal, that’ll spook the markets at these levels for sure.
Rena Sherbill: Julia, I’m gonna get to you next and I’m gonna ask you about SpaceX. But Jack, what are your thoughts about how SpaceX has been trading since its IPO last week?
Jack Bowman: I have been absolutely bewildered by the vertical line that is SpaceX from a year ago to now and even from five days ago to now or three days ago, right? It’s only been trading for a handful of days. I don’t know where that ends.
I assume that it ends somewhere, as a lot of people are speculating on this passive investor pump that’s gonna happen from the early inclusion from indexes. But there’s that trader aphorism of buy the rumor, sell the news.
I don’t think that pump is gonna be as big as people expect. And in a couple weeks, we’ll really see what the more fair value for SpaceX is. I don’t think it’s three trillion.
But the other aphorism I have to toss out before I move on is don’t bet against science projects. Like shorting things that could go out. What if Grok does become 22.7 trillion in addressable market share? If that’s true, then the people who short SpaceX are fried.
Rena Sherbill: Julia, take it away.
Julia Ostian: I just really like how you said that we are kind of marinating in everything that’s going on and this is exactly how I feel with this whole AI story. And I guess it’s definitely not a secret that we should be looking at AI at the moment because I’m not sure if you have noticed this in your portfolios, but my portfolio has not been performing at all if we take AI out of that portfolio.
So basically the whole economic stink in the US and also the US stock market, they are all being pushed by AI solely, as of right now. And I’ve read an article, I think, on the Wall Street Journal, but anyway it doesn’t matter. It’s like there are a bunch of them saying that the the economy doesn’t go anywhere, which is not surprising, with everything that’s going on.
I’m keeping put. I’m kind of nervous about what’s going to happen because I see the fuzz and buzz around all of the new models about the narratives that Anthropic is selling. They’re like our models are going to take over the world and they’re the best and everything and people are excited.
I for example, I see developers, I follow the text in closely and I see developers and they are really excited. They’re saying that this new Claude Fable Five model is incredible. People are happy. And I actually have seen some video from a very great guy he’s a developer and he showed how he wrote one prompt and he basically created this whole world like gaming world just with this one prompt without fixing it without doing anything and this basically Claude Fable Five did this thing.
And this is incredible, this is impressive, but the problem is, and everyone is discussing it by now, is that you are not able to fix it. Basically, the code that this AI writes is unworkable with. And I’m just this whole point, this basically gets me into thinking that the market is definitely excited about AI.
We are excited only about AI infrastructure for now and not about the companies that actually use this AI. But at the same time, we’re not hearing the excitement from the companies.
At the same time, people who are using AI developers who are using AI, they are saying that it’s great and you can work on things very fast. You can present a nice demo, for example, of a software or gaming or whatever.
But at the same time, you cannot really do anything with it after that. And in order to actually understand this code, and in order to get into this, and in order to be able to work with it, it may take you the same amount of time as it would take you to work on this thing from the beginning without that AI model. So it may be slightly more technical than what the our usual discussion looks like.
But this is just something that, I’m from Israel and Israel is very big on this whole startup thing, right? So now everyone is dropping from the companies trying to open their own companies and this is actually the fears of the market from software and cyber. And I’m just seeing that those people who are dropping off, they’re able to very quickly create something, show something to venture capital, but they’re not being able to raise any money.
Because AI has been able to create those demos and show those great presentations for a couple of years already. And those venture capitalists and investors, they already realize that this is possible. But after that, you actually have to have a large tech background and you have to be a professional. You cannot, as people say, you cannot write a prompt and kill a software company. It just doesn’t work that well that way.
So whenever I try to talk about this and whenever I try to write about this, there are many, many people who are, let’s say, having different views. so that’s just me with my thoughts. I’m sitting here, I’ve trimmed some of my positions of the AI infrastructure.
Obviously, if AI would be such a great and big thing in a way that companies that actually adopt it and use it, then we would see companies, software companies and cybersecurity companies, the same companies that are adopting AI, adopting AI agents, Adobe, the stock that is falling for so long already, we would see it actually going up.
But the story is still not there. So it basically means that for now we are just hopeful that it will bring us some growth. But the growth is still not there.
That’s basically what’s making me nervous personally. I’ve been moving slightly into private credit on one of my accounts. On the other one, I have almost third of the account in cash for now.
I want to see what’s going on. I’m from Israel and I don’t really think that this whole deal could hold, just from overlooking how it’s going and overlooking that the US really did not get basically any target that it put in front of itself before going into this war. The US did not achieve, they didn’t achieve anything. And they’ve basically put Iran in total possession of power so I don’t know, I think the next few weeks will be very, very volatile with the Fed and with the deal and with Hormuz.
Iran still, by the way, they said that they will open the Hormuz, but they didn’t yet say that they will not be taking tolls for countries that want to use the Hormuz. So I don’t know. I’m just expecting the volatility and I think that this whole AI story is really distorting the economy very much and we are not seeing, we are unable to see the clear picture and that’s it.
I just think that investors have to be careful and have to realise that. I’m not saying that the market is going to drop. I’m not saying anything beyond that. I just think that this is a real time, it’s an exciting time, interesting time, but this is also a time to be careful.
Rena Sherbill: I believe interesting times are a curse in Chinese history. I that that old phrase: May you live in interesting times.
I think Jack categorized himself as being bewildered by the movement of SpaceX. I feel like you can pick a point in the market and just be bewildered. It’s bewildering out there, it seems. and then how the market reacts to that also seems to be somewhat bewildering most of the time.
Julia, I do want to get back to you and talk about what positions trimmed in AI and what you’re getting into in private credit. But I do first want to get to Kenio and hear your thoughts on SpaceX, tech, how you’re thinking about this market.
Kenio Fontes: Okay, perfect. First I have a point about what Julia said, the AI portfolio thing versus the non AI portfolio and also AI software versus AI infrastructure. And I feel like it’s also because one affects the other.
I mean it drains liquidity from the market. I think Jack may explain it better than me these technical things but when we have an IPO as big as SpaceX and Micron (MU) is a trillion dollar market cap now. This money has to to leave somewhere and we saw this even in Brazil the market recently sold off and people were asking what happened, where is the money going and we discovered that gringo was selling Brazilian equities to buy US equities. It’s just a part of it of course we have macro problems and all of that.
But this explains it a little bit. People are selling US equity Brazilian equities, US defensives and all of that to buy more AI infrastructure, to buy IPOs, to have cash to join an eventually OpenAI IPO or Anthropic IPO so I think this explains part of of of this picture
About SpaceX, I don’t know if Jack saw saw the presentation, the road show presentation. I think it’s a little bit better than the S1 filling because it just shows not only the long term total addressable market, but also the near term.
And the near term is very high too, something like five trillion I guess. So it’s still a huge total addressable market. I tried to think, is this real? Is it just a dream? And I feel like it is a little bit of imagination. Jack talked about the AI for enterprises like Grok.
But I think the market is aiming most for AI infrastructure, they call it AI orbital, AI compute orbital or something like that. It’s literally an AI data center. But if you see the the presentation of SpaceX, we also saw asteroid mining, lunar bases, bases on moon, bases on Mars, manufacturing and on all of these planets.
So we have no clue what’s the total addressable market of asteroid mining. I literally can’t tell. So it’s very hard to tell how it’s profitable. How much is the revenue? How much is the margin? I literally don’t know. So it feels like a lot of euphoria, FOMO is pushing this stock up. So not only the total addressable market, but all of the expectations. So that’s my two cents about SpaceX.
Rena Sherbill: Has it been trading how you thought it might be in the days after the IPO?
Kenio Fontes: I think mainly because of supply and demand. It’s a two trillion dollar market cap company but only eighty billion available or something near that.
I think it will be good for a couple of quarters, but as soon as the shares are unlocked, because the current shareholders can’t sell right now, but soon they might be able to and I think when Elon Musk or Google or the private equity funds start selling, I think we might have a problem. ‘Cause a three trillion or even two trillion dollar market cap is hard to sustain.
Rena Sherbill: Julia, let’s hear about your trimming of AI positions, if you would.
Julia Ostian: That’s actually a tough one. I could definitely name a couple of big ones. I’ve been very bullish on Dell (DELL), one of the companies that I think it was not very straightforward and when I’ve written a couple of articles about Dell, Cisco (CSCO) I think, and something (IBM) probably I was getting a couple of comments that were like, are we in the 2000s?
Such great new ideas, but I mean it worked and I decided I won’t be greedy and it worked well. I left a part of that possession still in my portfolio just to see how it is performing. But that’s actually that’s my strategy with this AI rally. I’ve got some incredible returns in a couple of months.
Most of these positions more than doubled for me, sometimes tripled. So I decided it was really a good time for example as it happened with Micron. Micron I trimmed already for a few times and this position is still like incredibly large in my portfolio. I think it’s still eight percent or ten percent of my portfolio just because how it skyrocketed this year.
Some other ones I’ve traded, Celestica (CLS), just on earnings I think it dropped like fifteen percent and I made twenty percent in a day or in a matter of a couple of days and that was a quick trade. Applied Digital (APLD) I held for some time, I closed my position entirely.
Rena Sherbill: Maybe give us a few reasons about your main stocks, why you’ve been bullish on them, why you continue to hold on to them.
Julia Ostian: I mean Dell was probably as opposed to the Super Micro Computer (SMCI) and the whole story there is not very kosher and I’ve been a shareholder and I liked the story before, but after we will not be repeating the allegations, but stuff happened and I basically sold that position in losses a couple of years back and the only big and serious peer to that company was Dell.
I saw that Super Micro is having volatility and some trouble. So that was one of the main reasons for me for Dell.
For Micron it’s pretty obvious I guess this whole rally and I’ve been actually relying heavily on Samsung’s (SSNLF) earnings for that because they’re on the Korean stock exchange, the time of the earnings, they’re like a month and a half apart. So it’s basically very easy to rely on something and to see if the demand for memory is still strong and whether this whole story will hold up.
So that’s what I did for a couple of quarters. It worked well and for now I mean the shortage is still enormous and credible and this rally may continue to go, but the stock is already pretty expensive, especially for the levels that cyclical companies should trade at. So that’s pretty much that.
Jack Bowman: So I was getting onto your point here, and I think this is this is exactly what we’re talking about. In AI so far, there’s tons of money going in. We don’t have to rehash the CapEx thing.
We’ve been talking about that since last year. I think we literally talked about that a year ago: where is all the CapEx going? Is it gonna pay off? We’re still talking about that.
But currently, all of it flows to the chip companies. Right? The only people making money in AI right now are NVIDIA and Micron and the memory oligopoly, right?
With Sandisk (SNDK) and all these people. And where that stops, I don’t know. It depends on how profitable the AI layer is gonna be. But currently, and this is my big fear, is we’re seeing exactly what Julia was talking about is shovelware, is the existence of massive amounts of software that can be produced instantaneously with low barriers to entry.
But not a lot of it’s very good or useful or compelling to the end user. So there’s more software, but we’re looking at, I saw this great FT article the other day that was since 2024, the app store on Apple, the iOS store, is up 180% in number of apps that exist on there. It’s almost tripled the number of apps that exist. But the number of reviews on apps are down 25%.
And the number of apps that people use in general is down fifteen percent. We’re using fewer even though there’s so much more, right? It’s the TV problem with Netflix of like you can watch anything, but there’s nothing to watch.
Rena Sherbill: Hashtag capitalism, baby. Go on, Julia.
Julia Ostian: This is actually exactly the point I wanted to mention before. I also saw this article about the App Store. And for me this is exactly like that. I realize that I stop using certain things and reading certain things, watching certain people, because I hear, for example, that their scripts for their YouTube video were created by AI.
This is not a genuine story. This person written something using the AI and simply is reading and I’m just closing it and I’m never returning to this again. And this is very interesting because people who tried working, maybe playing around with Claude and other software that helps building software, because my husband had and they are actually creating similar software.
So you can see this as probably we all can hear the AI slop as Palantir (PLTR) says. Programmers or AI developers they can see what AI had created. And this is very funny because I really think that we will get an oversupply of all of this and people will just cut back on using things until this wave, and I really believe that this is a wave, until it will pass.
Whether we can really rely on that to be something big, something huge, I’m not sure. I’m very skeptical.
Rena Sherbill: I feel like the AI slop thing is like the what was it, the NFTs, like when crypto was just like everybody’s talking about crypto, now there’s NFTs, it’s like the AI slop is like the new NFT. It’s just like something gets big and people get gross. Please continue.
Jack Bowman: I’ve been posting notes recently of just, it’s feeling kind of 2021 in here sometimes. I was saying that one of the things that the shovelware epidemic actually benefits, I think, are super apps.
These companies are trying to build these all-in-one solutions, you never have to leave. Uber (UBER) is my first instinct always on super apps. And I know Julia and I are both Uber Bulls generally, so I was gonna ask Kenio, what his thoughts were on this shovelware and do you think super apps are actually the way to go here? And is there anyone that I’m missing?
Kenio Fontes: I was already gonna say, but I don’t think about Uber, I think about Meta (META). You just said you can create an app, not me but a couple of devs can literally vibe code the WhatsApp, but they can’t vibe code all the user base, all the infrastructure behind the security and all of that, like WhatsApp literally has a billion users. It’s a tool that Europe, Brazil, I think India too, uses every day. And it’s a very complete ecosystem. You have payments, you have WhatsApp business, you have something like a social network with WhatsApp status and everything else, but it’s not a very high half in your app for Meta right now.
I think they can monetize it better in the next few years. So I think there is a lot of potential to include some AI service or anything like an AI a agent to business, to WhatsApp business. So I think that’s the way to think about it, to think about huge enterprises that has moats.
Moats is the the name of the thing here. Like network effect like Kubernetes or some scale advantage or anything like that. So that’s my thought.
Rena Sherbill: I just saw that Meta’s Threads hit 500 million monthly users. Speaking of Meta moats.
Kenio, let’s stick with you for a second. What are your thoughts? You mentioned that you focus on tech and retail. What are you focused on in the retail side of things?
Kenio Fontes: Interesting question. When I talk about retail, I talk about consumer discretionary companies and even consumer staples. I follow a lot of stocks, but I’m really not a big fan of retail in my portfolio right now.
I’m not buying any retail stocks. I think the last one you can say is a retail stock or a consumer discretionary stock was Amazon (AMZN). And it has been five months from my last buy or something like that.
I’m pretty focused on tech right now. It may not make a lot of sense. I just sold (AMD), and we can talk about that later, to buy other stocks. And my first stock after my AMD sell was Meta.
I think what I just said explains this well. Like if I ask you which is the most overlooked or underrated Mag 7 right now. I mean it’s not Alphabet (GOOG) (GOOGL), it’s not Tesla (TSLA), I don’t think it’s Nvidia (NVDA), maybe Microsoft (MSFT) or Meta.
So I stick with Meta because I think it’s dirt cheap right now and it still has a lot of potential. The revenue just grew thirty percent. And PE is seventeen I guess. Like seventeen times earnings. So I think it’s pretty cheap for a company with that room for potential and this level of growth.
Rena Sherbill: And you’re still in Amazon, you’re just not adding to it? Is that right?
Kenio Fontes: Yeah. I’m still on Amazon, I’m still bullish on it, but I already have a big position in Amazon, so I just don’t want to increase it anymore.
Rena Sherbill: Gotcha. Go ahead, Julia.
Julia Ostian: I just wanted to say that it’s funny that Kenio said that he’s not been buying much lately because in March I was like a kid in a candy shop. I literally went and bought like half of the positions that I’ve already sold.
And by the way, Kenio just reminded me, of course I’ve held AMD for two and a half years and that was one of the victims of my portfolio. I closed my position entirely and another one was Marvel (MRVL). There have been a few. It was like I’ve made a a substantial amount of trades for some reason over the spring and in the last couple of months.
But I completely agree about Meta. Meta is an interesting player, although right now people are putting it with anthropic open AI SpaceX in a MANGOS thingy. I just wrote an article about this that mangos it’s the new Mag 7 and Microsoft is not going to take place, but Meta will.
And the reason is of course because Meta is spending a lot of money on AI right now. That’s not the story for me about Meta personally.
I really like Meta because I think that online advertising is one of the industries that has the biggest long term potential, at least the one that we can definitely tell today that this industry has the potential and we can be sure it will be growing, it will be stable, and we can see the direction, we can see the trend, and it’s not going to be volatile.
Of course, there are other areas like AI, robotics, space, mining, whatever on other plan planets and other things, but online advertising has an enormous, enormous potential. I’ve seen some research showing that people are starting buying more and more online. People are okay making purchases they were not actually going to Facebook to make. So basically they’re scrolling the feed, not expecting anything. They’re seeing some pants or a shirt and they’re basically just clicking and buying it in a second.
And by the way, I had some podcasts about buy now, pay later. And that industry is growing so well because of the online advertising industry. So Meta is big for me because of that, not necessarily because of AI.
Microsoft, I really like Microsoft and I think this whole story with Microsoft selling for so long will be repriced once people start realizing what I just discussed before about the fact that it’s impossible basically to go and to create a SaaS company from scratch.
So once this whole idea market understands this whole idea, I think Microsoft will be repriced and I think Kenio has something to add here.
Kenio Fontes: Just a point about Meta. You said advertising business and also the AI thing. And I think AI is actually a tailwind for the advertising industry.
Meta is growing the price per ad very, very much and I think the prospect is very good here because the algos and everything with these personalized ads, Meta can with AI make more personal ads, more engaging ads and people will buy even more so they can charge more per ad. So I think it’s a good thing too.
Julia Ostian: This is actually a great point because while I argue often that this AI thing that we’re having today, this is very far from this general intelligence or whatever people want it to be.
And I think our current large language models and these AI agents they have nothing to do with this general intelligence whenever it will come. But anyway, large language models they’re amazing in pattern recognition and this is one of the areas online advertising. This is actually one of the areas where this thing might be especially powerful. So yeah, I agree.
I think they can really use it. I think they can really leverage it and I think they have a whole new market that they may open with this yet.
Jack Bowman: So I get to be a little contrarian here. I have an issue with Meta. and I haven’t sold Meta, but I’ve been as it’s done negative 15% in the last year, I have not been adding because I worry about the culture of token maxing at Meta.
So for the uninitiated, this is a Gen Zism turned market aphorism about companies that basically say, hey, you should spend X number of AI tokens.
And that’s how we know that you as a developer are doing your job. And when you prioritize the output of AI tokens, then you’re not gearing for efficiency and you’re not going for the outcomes of what is the best product we can deliver, but how much AI can we use?
Then in March, Meta published an internal well, I think it leaked. It was like an internal leaderboard of how many tokens they spent, and it came out that they had spent 60 trillion tokens in March, which, for context, if you took all the books ever written, they would be 20 trillion tokens. So they did about three of those in a month, and then they released Muse Spark, which then continues to underperform Claude and ChatGPT and all and Gemini on all of its benchmarks.
So we’re going through massive amounts of spend and producing things that are inefficient and not up to snuff with the Frontier Labs. I know Llama had its own issues, but it was open weights, so it was a little different.
But the new proprietary models are just not as good. But Meta keeps spending an enormous amount on producing them. And I don’t know how well that’ll end up if they, LLMs do get good at ads, but they just license Claude later because it’s just better than what they can produce. That’s a fear that I have for Meta.
Kenio Fontes: If I may add a point. I just read that Meta is not token maxing anymore, they are token managing or something like that. So they are now very concerned about the the token spending.
Jack Bowman: Good. so they’re actually like correcting this. That’s important.
Kenio Fontes: Exactly, exactly. We can’t see a company as a photo or as a picture, we have to see it as a movie. So Mark Zuckerberg said, Hey, let’s token maxing and then okay, it is not going anywhere. We are spending billions and billions and billions, so let’s correct.
Julia Ostian: It’s just an another thing that I’m struggling with, but I’m seeing this trend which well let’s say this is a speculation of mine, something that I’ve noticed that these companies I don’t really think that they don’t know exactly what they’re doing because token maxing had been some kind of a trend and investors were pouring money into the companies that were token maxing.
So this is just, I think they’re really trying to play on trends. They’ve been including into this MANGO thing, as I already said. And this is all of these things right now, we’re not looking at the tech sock sector from the standpoint of technology. We’re looking at it like they’re playing marketing, marketing for investors.
They’re not playing technology for now. And this is the biggest thing, but at the same time, it is working for many companies. A company like SpaceX. They made this incredible IPO first on the very smart financial engineering on how they’ve created this whole IPO situation and how the stock basically couldn’t not go up.
I wrote an article about SpaceX a couple of weeks ago and I called that article the terrible truth about SpaceX IPO and I explained the whole situation and how in my opinion it was even immoral on some conditions what SpaceX decided to do. But at the same time I gave it a buy rating.
And some people they were like, well, this is inconsistent. And I was like, I’m sorry guys, but this is exactly, they did a smart thing. They did a good job. And for their company and for their pocket it will be working well.
So this is why I’m saying we should be careful, but at the same time I am keeping my foot, I don’t want to miss out on if I am able and I think I’m able to recognize the game, I can actually try and participate. Of course not at those levels, but at the same time why not?
Rena Sherbill: Man, if something doesn’t encapsulate the times that we’re living in by what you just said, like it’s pretty immoral, but I consider it a buy, and I’m gonna get in on that. I get the game.
Jack Bowman: There’s a great George Soros quote where he’s like, When I see a bubble, the first thing I do is look for more fuel.
Rena Sherbill: Right, right, right, right, right. Let’s talk a little bit about the metrics that you’re using. I hear the narrative points and the story points. And Kenio, I really love that line about we have to look at this like a movie and not like a photograph. Is that your line? I’ve never heard that before. That’s a really nice visualization.
Kenio Fontes: It’s something that we used to say in Brazil. I just translated the sentence. I think it’s pretty common here.
Rena Sherbill: Love it. A lot of questions about valuation and how to properly value these tech stocks in particular. For those that can’t see, Julia is basically giving a mind-blown emoji. It’s very tough to do.
So what metrics are you all most focused on? Kenio, let’s start with you.
Kenio Fontes: I think I’m mostly looking for expectations. I would say valuation and metrics like price to earnings or price to sales, but it all boils down to expectations.
So I sold AMD and I just have some notes here, let me check. In our last episode I was still an AMD holder. And the stock was $200. And the PE adjusted was $25 to 30 times earnings. And it’s now something close to let me just check again, it’s now 70 times earnings adjusted for forward. So we have to wait three years to get at this level again at 30 times earnings.
I think it’s pretty inflated right now because the market just is expecting that AMD will grow EPS by 70% per year in the next two years. And they they have some good reasons to think about that. Like AMD AI PCs, the new AI hack structure, the new AI CPUs and all of that.
AMD really has some good reasons to be bullish about. But I think it just doesn’t feels balanced, you know what I mean?
If I ask you, is AMD more likely to have a D-rating or a re-rating? And I just said market is expecting they will grow EPS for two or three years, like 50, 70%. So I think we have some potential risks here, regulatory shifts, macroeconomic risks, competition, all of that can be can be a risk, can be a hurdle to AMD.
And of course positive surprises are a thing too, but I think the market is very pricey in the positive surprises. But it’s not priced in the risks at all. So I think that summarized the whole question. It’s about expectations and what the market is already pricing in.
And we we can talk about SpaceX again. Market is pricing in all of the potential and none of the risks.
Rena Sherbill: Julia, you wanna go next?
Julia Ostian: Sure. For me that’s a very difficult question to answer because talking about the long term perspective I guess it’s easier because like Kenio said, we could be looking at the expectations and very much hope that we’re getting it right.
Although I found a very funny and interesting thing about Nvidia (NVDA) on my YouTube channel in some of the videos I randomly threw in that in twenty twenty three we were expecting because I remember something like that. I’m a long term Nvidia shareholder, so we were expecting that the company will be still growing by around thirteen percent by twenty twenty six, by sixteen percent by twenty twenty six.
And I talked about this in my article where I broke down recent Nvidia’s quarter and NVIDIA is growing by that quarter over quarter. And not annually, as we were expecting back in 2023. And back in 2023, it was an article from an author on Seeking Alpha actually, and he’s been bullish on NVIDIA. It was not a bearish article, and it was actually a bullish expectation for this company going forward.
So a couple of things that I learned from this. First of all, it’s very important to guess the direction. You don’t really need to know by how much it will grow. The direction is what matters.
And I guess with this all of our projections and expectations could help. On the other hand, it it doesn’t really matter because the market, especially right now, is so volatile and in general the geopolitical situation and everything that’s happening, it’s changing so fast that if we will actually sit down and try to evaluate company, we could be changing this valuation every single second of the every single day, and we might be getting different results.
So what I’m doing for myself, is I’m breaking down the business, I’m breaking down what companies are planning on doing. I am checking whether for me it sounds logical, whether for me it sounds something that this company should be doing. It may not be the right way, but I’m choosing the company for myself and for my investments.
I’m really trying to understand whether the direction and in general the narrative that this company builds looks right. Of course I’m looking at the valuation, of course I’m looking at what is projected for growth of this company.
But at the same time if we’re looking at some like Celestica (CLS), I just traded it, although I’m really not a trader. I’ve pretty much never done this.
Maybe five years ago when I just started out, I traded Snowflake (SNOW) and it was actually very successful. I made in a couple of weeks some incredible returns, but that was the only time I’ve actually traded something.
But I started doing it again because right now the market is so crazy and sometimes I just see these disconnects with what’s going on with the company and how the market reacts.
And sometimes that’s just enough for me. I just see the disconnect and I’m like, well okay, I will jump in on that. So it’s it really depends on the company. It really depends on how long I’m planning on holding it. It really depends how I’m feeling about this, how I’m feeling about the industry. It’s really important for me to know that the industry is stable and for example, with software, I know that software will not go anywhere.
And I’ve been buying software. I don’t care people are saying that I’m trying to catch the falling knife. I’m happy to get in early and I will be averaging down because I just know that we’re not there that software companies will be killed.
The same for cybersecurity, for example. Cybersecurity is one of the industries that’s been sold off and there are plenty of stocks that people can buy right now. They’re very cheap and they’re great companies. There is a competition there, but it’s interesting that Ovac has just published the they’re usually making a list of main cybersecurity threats that we are having and right now they’ve made this list of the cybersecurity threats created by AI.
This is one of the points that I’ve mentioned in some of my articles that AI is not going to kill cybersecurity, it’s actually going to help it grow because it will create a bunch of threats. So now we’ve got an official confirmation of this fact because OVAC just published a full official list of the problems that AI is creating. So basically that’s just the common sense logic, some valuation metrics.
Rena Sherbill: It’s a bit more art than science. Jack?
Jack Bowman: That’s my take, it’s a little more art than science. I think on the micro level, valuations are so blown out in some firms and not in others, but you have to know their business really well.
That’s how I’ve always felt about valuations on any individual firm is, Micron’s trading at like nine times forward earnings, right? Which is like, wow. That sounds great for a chip company, but their normal is like six, in a given world. So you have to know and understand their bits.
Kenio Fontes: And they may already be in the peak of the cycle. So the margin is like sixty percent. The operating margin, the gross margin is even better than Nvidia’s. So what happens when the demand becomes more neutral or the supply becomes more normal? So if the margin falls, the expectation will fall too. So the multiple is now higher.
Julia Ostian: Yeah, and actually with Micron especially, people are looking at the forward metrics, something I wouldn’t do at all because forward metrics basically right now are overblown by a lot.
Even with this memory shortage that we are having right now, the expectations that actually it will be only intensifying for a couple of years forward, which is it could happen, definitely. But if we’re taking a look at the trailing twelve months, which in my opinion is a right way right now to evaluate Micron, just in order to maybe not evaluate, but in order just to see how expensive it got.
The difference between the forward and the trailing twelve months shows how people actually hope for this AI rally to continue. And that may happen, but they also it could stop.
Jack Bowman: To answer your question, Rena, about how I’m looking at is I think in in terms of S&P 500 (SP500) valuation, big picture valuations, right now we’re sitting at 20.5 times forward earnings on the S&P (SPY). We were at 22 back in January. And if we got back to 22 by the end of this month, so we’ve got two weeks, the S&P hits 8,000.
And I think a good peace deal news cycle and and Julia’s closer to to that reality than I am on what’s going on with that. But actual good news that comes through I think could easily re rate us back to twenty two and we could see the S&P jump, just like we’re watching SpaceX. I’m a little bit of a bull, I suppose, in that way. We’ll see.
Rena Sherbill: We got a comment a few weeks ago that they’re wondering what about the B2B AI companies that we talk a lot about the semis and we talk about the software stocks. What about the B2B AI companies? Any thoughts there?
Julia Ostian: B2B AI companies. I’m just trying to think what it could be. Like all of those companies, like Anthropic (ANTHRO), Anthropic is B2B.
Kenio Fontes: Like Palantir (PLTR), maybe?
Jack Bowman: I mean the Frontier Labs I think generate almost all of their revenue from enterprise solutions. At least we’ll see when they IPO. I’m so interested to see OpenAI (OPENAI) and Anthropic’s actual financials because there’s a really big question. I know they filed their S ones confidentially, which I didn’t know you could do.
So we didn’t get the crazy presentation. I mean, SpaceX, that was the loudest S1 I’ve ever seen. It had like 28 pictures of rockets in it that were like full page, just pictures of a rocket going. It was cool and it was a lot of fan service. But then you get into the numbers and we start talking about the numbers issues. And I worry that we’re gonna get that whenever we get our first big investor presentations for these Frontier labs. I worry that they’re spending way too much money on subsidizing tokens for end users.
I worry that that’s why a lot of small businesses, which I think are benefiting from the AI of software ability or creation ability like more than anyone else. But if they’re just being subsidized, it’s so good for them because the Frontier labs are just paying for all the tokens. I wonder if they’ll actually be good businesses. And until we see their numbers, I couldn’t tell you.
Julia Ostian: I actually expect the numbers to be bad on one hand, but on the other hand I see how the interested parties, they’re basically helping each other. I just in my recent article I mentioned how Google conveniently made a deal with SpaceX ahead like a week ahead of IPO for thirty billion dollars in over the next three years, something like that, and SpaceX, they can actually break the deal. Any site can break the deal at any moment after December 2026 for basically no reason. And they will have to just give a month’s notice and they will stop paying.
And anyway, they find ways to boost each other’s books.
And this is something I expect we will see from SpaceX on its first quarterly results, but I think as ones from OpenAI Anthropic, they will be something. I think they didn’t have the time to actually boost those numbers yet, but anyway, SpaceX, no one really cares about the numbers, right? People are loving the story, people are looking forward and they’re like, yeah, but they became public and now we’re seeing all of those huge deals, and Google will be pouring in money, and everyone basically will be pouring in money, so SpaceX will be good.
Let’s see that that could happen with Anthropic and OpenAI, but I actually think that it might be the time when we s when we see the first cracks in this whole narrative and in this whole bullish rolling. Whenever we see the S-1s and I think they will have to publish them, make them public two weeks before the IPOs, I think. But I’m not sure.
Rena Sherbill: I’ve taken up a lot of your time, but Julia, I did want to ask you about the private credit because you said you were somewhat bullish on some names there. And private credit has been a space that we’ve talked about a bunch recently on the podcast for I think obvious reasons to all of you.
Julia Ostian: I guess I can’t say that I have so much of an opinion. I’ve broken down a year ago I think a couple of companies and even funds there for myself right now I can say that I’ve picked Ares (ARES). It just seemed like a good one. I’ve picked it for a portfolio of mine, not for the tech portfolio but for the other one that I have with my mom, so it’s more like a stable portfolio.
They pay eleven something percent dividend right now, so I thought why not? I’ll lock it in. And even though I think the rates will be held as they are, there is still a chance that they will be raised by the end of this year. And if it happens then private credit might do very well.
So this is what I am not expecting, but this is something I am preparing for. If the rates are being raised, at least I will have something to mitigate the risks that will be happening definitely with the whole AI story.
Jack Bowman: I had one thought on this as my take on private credit, because I have been a little spooked alongside the market since Jamie Dimond got on that call and was like, where you find one cockroach, there’s more. The opaqueness of the industry scares me. The ability for the managers to use what are called continuation vehicles, where they can basically like, we can’t sell the portfolio companies, but either because the valuations are low or there’s no buyers or whatever it is.
But we need to pay out investors. So they’ll start a secondary fund, dump the entire portfolio in. The secondary fund buys it at a discount, and they can pay out the investors and keep the portfolio codes in in play. And this is now getting to the point where they’re doing this, and and these port the these companies have been in three portfolios so far, three continuation vehicles. so they can’t get rid of them.
But if I had to make a trade here and I don’t know how to actually take this trade other than the one side, which is long GPs. I want to be along the people selling all of this stuff, Ares and (KKR), and and and this group, but short LPs, I would not be buying into private credit funds. I would not be buying into low grade CLOs right now. We’re seeing a lot of those those equity CLO BD and BDCs and these kinds of groups get hit really hard.
And I think that’s rightfully so, but I like the issuers a lot more. I’d say to to Julia’s point here.
Rena Sherbill: Appreciated. Let’s get your final thoughts, how you would encourage listeners, investors to be thinking about these markets? Jack, let’s start with you.
Jack Bowman: I think that I’m optimistic about where we go from here, but it has to rely on the AI trade continuing forward. We’re talking about AI companies are pulling the market. So if I’m looking at markets and I’m trying to make this call of I think we re rate before the end of the year up to twenty two times.
At the end of June that would take us to 8,000, but that’ll go even higher if it takes us until September. We might be eighty two, eighty three hundred in the S&P. So I’m staying long here, but I’m long in a very macro sense.
I’m avoiding a lot of the riskier companies in my portfolios, the ones that have taken off Micron I had to get rid of too. I kept some, but barely.
I mean, after a 400% run over not that long a time, it’s like, I don’t know how it sustains it. And I think that investors should be really scrutinizing what’s left in the portfolio if it’s been part of this big AI trade.
Because if there is a rotation, it’ll be quick and we won’t see it coming, and then we’ll be talking about it on the podcast after the fact. So now’s the time to get ahead of it.
Rena Sherbill: Kenio?
Kenio Fontes: I will just summarize everything I said here. I think avoid FOMO, avoid euphoria, and try to think what the market is pricing in on your portfolio or what the market is pricing in on your stock, like we talked about SpaceX, AMD, Meta. Market is pricing in the risk but it’s not pricing in the potential about Meta of course.
So that’s it. And I would avoid FOMO mainly because we all know that even we we have some rational thoughts about SpaceX, we feel the FOMO. We have the regret, why didn’t I buy it and then just sell in the first two days? So we have to avoid it.
Rena Sherbill: Julia?
Julia Ostian: I guess I just want to remind our listeners that even though as Kenio just rightly said, that we’re in this kind of crazy FOMO, people are afraid that they will be left behind.
But I just have to remind all of you that just six months ago people were actually afraid and were telling that the Capex is too big and that the bubble is bursting.
So this is just about the cycles and how the market works and even if nothing crazy happens but just the sentence changes or people get frightened or whatever happens, we may enter another fear cycle like that. And it would actually be the good time to buy once again the same AI that I just was skeptical about.
And this is just for me the balancing act probably because on one hand I am very bullish on technology and I think it’s great and I think that companies can achieve great results and I think that mixed with people I don’t believe it will change or substitute the workers, but I think mixed with the right workers, companies will be able to make great I don’t know, reach efficiency levels, productivity and whatever they want to achieve, but they have to take some time and to manage in the right way the token spending, how it will be working out.
It’s still very fresh, it’s still very new. So not only the market is volatile, not only the investors doesn’t under don’t understand what’s going on. CEOs and workers at the companies we are discussing, they have no idea what’s going on. And I know not one CEO like that from an AI company, a tech company, and they’re all trying to figure out how they should manage this landscape.
So try to manage this landscape together with them. And as I already said back in time when everyone was screaming that AI is not going anywhere, I was the one buying AI stocks and telling I was bullish on AI. Right now I’m still bullish on AI, but I think the market is just way over its head at the moment. And I’m buying software and cybersecurity.
In any case, if you want to stay in the market, stay in the market. And you can definitely find, especially now cheap stocks out of AI. And for me, I think this is the best thing that anyone can do, or at least this is what I’m doing. I’m not only in private credit, or I’m not, of course, switching all of my money.
I just said that I’m trimming my position, some I’m closing, but some I’m leaving behind. So as I said, balancing and trying to not get burnt but on the other hand to stay in and stay put in order to catch those incredible upsides that we’re seeing.
Jack Bowman: Something I’ve been noodling on, and I hope to come back to this in in six months when we get back here after the other one. But I hope we start tracking for some of these companies like Meta and Amazon, whoever else, return on invested tokens. I wanna sell you, I wanna see the actual returns on these, and I think that would be very telling of market valuations and what we should and shouldn’t be buying.
Rena Sherbill: Is that a likelihood in any way, shape, or form?
Julia Ostian: Nobody is going to tell you that. No nobody is going to tell you that. In in no way, in no way. We’ve already seen that Uber just burned in a month or like a crazy amount, a yearly amount of tokens, right? And they said that it’s not not efficient and they didn’t see the productivity of all of this. So but no, I don’t think that we’ve actually will be getting those numbers.
Jack Bowman: Maybe I’m too hopeful.
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