00:00 Josh
Talk to me about this Air7 idea.
00:01 Kevin
Yes. Yeah, Air7.
00:02 Josh
Walk me through that, Kevin.
00:04 Kevin
Sure, move aside Mag 7, make way for the Air 7. And so the way I look at this right now is that there’s a better way to play arguably the most transformative technology revolution in all of our lifetimes, that being AI. And I’ve identified seven stocks across the entire AI ecosystem that I believe are the best picks with respect to the AI Revolution. Two of them are also in the Mag 7, those being Nvidia and Alphabet. But I got some new names in there as well.
00:30 Josh
What do you got?
00:31 Kevin
So I got names like Micron Technology. The AI Revolution starts and stops with memory.
00:38 Josh
Which has been outrageous.
00:39 Kevin
Outrageous and guess what? It’s still only trading at a forward P of around eight right now.
00:43 Josh
Rocket ship. That’s astounding, actually.
00:45 Kevin
That’s astounding given how much their stock price has go up. Yeah.
00:48 Josh
Yes. Yeah.
00:48 Kevin
I also like Taiwan Semiconductor, the largest dedicated chip foundry in the world with a 70% market share. You know who their largest client is? Nvidia.
00:58 Kevin
But let’s not forget, once we have these chips, we have to put them in the servers farms. So where do they reside? Data centers. So I added Digital Realty to the mix, the owner and operator of 300 data centers worldwide. Data centers run hot, they need cooling solutions. Introduce Vertiv, VRT to the equation.
01:15 Jared
Might as well be called vertical.
01:17 Kevin
Might as well be called vertical. Yes.
01:18 Jared
I mean the chart is astounding.
01:21 Kevin
And then last but not least, power. Power and memory go hand-in-hand keeping this AI revolution going. As it stands right now, data centers can’t manufacture their own power. They’re trying to. So they have to turn to the utilities of the states they operate within. I selected American electric power, AEP. They supply electricity currently to 5 million customers in 11 different states including Virginia. Why do I mention highlight Virginia? The data center capital of the world right now. More data centers per square miles than anywhere else in the world.
01:53 Josh
What do you make of this Air7 idea, Jared?
01:54 Jared
I’m quite interested in it. You know, I wanted to see, I wanted to be able to chart it, so that’s exactly what I did. If we go to the, if we go to the Wi-Fi Interactive, I’m going to show you a heat map first with Kevin’s uh Air7 picks in there. and you can see, yeah, we got some giants. There’s Nvidia and Alphabet taking up two-thirds if not more of the real estate, Taiwan Semi. But down here we got these, these four interesting names, Micron, you got that memory play, Vertical, uh as we’re I’m calling it now, AEP for the power and DLR for the real estate. And I went ahead and I combined this into an equal weighted index and here we go. This goes back to basically the end of 2018, but you can see how uh after this little blip in the pandemic, we got a nice rally here. We got that bear market in stocks. It’s interesting to me because this bottomed right around the time the S&P 500 did almost to the day. Since then, the and this is a log scale, so this is why you’re not seeing it go parabolic. If I used a standard scale scale, it would just be uh you’d have to kind of squint to see uh what the history was looking like. But just some big numbers here. Since that uh October 12th, 2022 low, so in this bull market, VRT is up 3,000%, Nvidia up 1,600, Micron up 1,100%. The index index itself up almost 1,000, 983%. So I want to ask you, how are you using this? Because, you know, we didn’t create this probably back three and a half years ago. Is this like a sentiment indicator for you? What are you looking at?
03:03 Kevin
For me, we have two solutions at Smart Trust. One is our AI Ecosystem Trust, the other is the power solutions Trust. Combined together, I think that represents the entire investment opportunity within the AI ecosystem. There’s roughly in those two portfolios about 85 names. I picked the top seven names from those two portfolios and we’re going to use this as a benchmark moving forward for charting the AI revolution because we think this will present a much smoother path with more upside potential and less downside risk than just concentrating in those seven hype stocks.
03:26 Jared
Maybe a canary though? Like if you see it roll over suddenly, you’re like, whoa, maybe the AI trade is going on pause here.
03:32 Kevin
Right. But the nice balance with the Air7 is that we have two companies that are actually spending money, the other five that are receiving the money. Where a lot of the concern is right now, Josh and Jared, is all the money being spent because those companies likely won’t receive an ROI on that spending for years to come. But you know who’s receiving an ROI today? The company’s receiving the money. The data center companies, the utilities, the memory providers, the chip manufacturers, not the chip designers, the chip manufacturers, and then of course the cool.
03:57 Josh
Well what, what would you say, Kevin, the big risk is for this Air7 ecosystem? Is it is it valuation? Is it uh AI demand cools? What do you think?
04:05 Kevin
That’s a very good pun there. So I I think it’s really investor sentiment. People keep poking at this AI balloon almost hoping that it’s going to burst. I think the biggest concern will be when does the spending stop? Do companies not have real base cases now to show that this spending makes sense for them and is delivering results to their bottom line? But I still contend that we’re just in batting practice of the AI revolution and we got a double header of games ahead of us. Until the AI infrastructure buildout is done, we’re not going to really be able to know whether or not AI was as transformative as we thought. So now, if you’re looking for investment opportunities, look to the Air7 names and broader names within that infrastructure play and then start to pick and nibble around the edges for those spending the money.
04:40 Josh
All right. Kevin, Air7, man. We like it. Thank you, sir. Great to see you as always.
04:44 Kevin
My pleasure, Josh. Thanks.
