0:05 spk_0
Welcome to Stocks and Translation. Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicky, your host, and with me is Yahoo Finance senior reporter Ali Cannell, who’s here to keep the conversation simple and relatable to you, the viewer.And today we’re gonna be talking about the biggest forces reshaping the markets right now from the AI tech trade to the retail investors driving the flows and what that means for the next bole of this market. Our phrase of the day, high performance computing or HPC. It is the engine room of AI.Where electricity, real estate, and silicon turn data into intelligence. And this episode is brought to you by the number 36%. That’s the chunk of US stock trades that are now in retail hands, according to JP Morgan. It’s an all-time high, why the retail revolution keeps marching on.And today we are welcoming Lou Bassina, who builds bridges between entrepreneurs and public markets. He co-founded a financial publisher, reaching 700,000 daily readers, then ran MDB Capital as president and chief market strategist, and today he’s executive vice president of market strategy at Prairie Operating, and he also hosts a show called The Big Skinny, which features, quote,Straight up street smart investing content that slaps different. No NBA or NAP required. I love that, Lou. I got to catch it. Um, let’s begin here with your big picture overview of where we are in the markets right now. Tech took a little bit of a stumble at the beginning of the month, kind of on it got its footing today, but big picture, what do you see?
1:41 spk_1
Big picture, I mean, seasonality plays into this year. September is usually a swooning month for stocks, butThe backdrop, the fundamental backdrop is really solid. I’ve been saying this for three quarters now. Earnings growth continues to impress to the upside, not just the mag 7, but the unmagnificent 493 keep beating expectations. And at the end of the day, if you want to make it as simple as you can, investing is all about earnings growth. If earnings keep going higher, stock prices go higher. If they’re going lower, stocks are going lower. So I think we have a good setup for the back end of the year here for stocks that keep hitting new all-time highs. All
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right, and we’re going to get into a lot of those details. First, I want to introduce our phrase.Of the day, high performance computing or HPC. It is the heavy duty computing used for AI, scientific modeling and big data measured in megawatts and GPUs were powered, cooling, and ships, they all come together. Uh, so talk to us, talk to me about HPC and how you’re seeing that kind of trade evolve in the marketsnow.
2:35 spk_1
Yeah, I think this is the new commodity that drives the entire economy. We used to talk about commodities like oil, right? That was the most readily available and really was the engine of economicgrowth. Now it’s computing power, right? So you talk about it’s a combination. You need the real estate for it, so the data centers that we were using for just more routine everyday personal computing. Now it’s actually being high powered computing. We’re shrinking that down in the silicon that matters too, the computing power, the chips from Nvidia. Then you also have all these other supporting chips that allow that data to be processed and moved around and then the cooling infrastructure. So there’s so many things that come into play here, but at the end of the day for the everyday investor, I think you have to think about.This is the next decade’s growth trend, right? You think of, I think of as an investor. What are those trends that can grow and persist through economic cycles? We think smartphone boom, right? Everyone knows even through the, you know, the financial crisis, smartphone growth continued unabated. I think HPC is that as well, because if you think about it, are we going to stop using chat GBT at all as as time moves on to throw me in jail. Yes, right. So I think the desire and the needs andThe uses of AI are going to continue to increase, which creates more and more demand for high powered HBC. It’s really just a commodity. It’s the oxygen of the digital economy heading forward like that.
3:53 spk_2
Sodemand is high. Do we have the supply though to meet that demand, because that seems to be probably the biggest risk even after Nvidia, which they missed on data center revenue, but then all the commentary basically was saying, but look, look at these gains, it’s still so significant, yet the supply side, there’s still that.of whether we can fill all that. Yeah,
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so I think China wants more supply. We can’t give the two of them yet on the chip side, but I think the bigger supply issue is on power, right? If you’re thinking about it, it’s not, it’s, it’s not dissimilar to the commodity markets where you can’t just flip a switch on and off to provide more oil. You have to set up and explore for new wells and drill it out of the ground. Well, same thing is true here to get that power supply to the data centers, you need transmission lines. You need guaranteed power that’s actually available, the power, you know, capacity, the production of that, andIn the United States, we’ve been woefully behind on that. China’s been anticipating this need for power, and we’ve just kind of been sitting around not realizing how big it’s going to be. And to put it in context, we’re stuck at about 4600 terawatt hours of electricity generation right now in the US. China is at over 10,000, so they’ve been building power plants faster than you can snap your fingers, and the US has been verySlow and decommissioning other power plants that were coal fired perhaps being slow to adopt nuclear. China’s got 22 nuclear power plants coming online. We have maybe 1 to 2 in the plant. So, uh, so the supply issue is a huge one here. I think that’s the only thing that can slow this trend down.But I think we’re seeing the the pivot from Bitcoin mining to provide that that bridge to get to where we can bring on more
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power capacity. And is that how you find those opportunities, maybe those offshoots of AI, not the mag 7 players, but what are those opportunities where maybe you can get in early and we could see some of that
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significant, maybe some individual stocks or sectors, absolutely.
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So I always look at like pick and shovels are a great way to play a new trend.Nvidia was the ultimate pick and shovel play, but now you have to think of first derivatives, right? Who else is doing something that’s essential? So that brings in names on the power side. These I mentioned the Bitcoin miners that are pivoting to providing the compute. It brings in names like Core Scientific, which was acquired by Core Weave. So Core Weaves the household name in the space, but they also have a ton of leverage on their balance sheet. So maybe not so attractive from an individual investment standpoint.But in that same class you have Twolf, WULF, and I own all of these, so full disclaimer because this I see is the next leg of this trend. IREN, which is another Bitcoin miner that’s pivoting, and then cipher mining. So those are three opportunities that you can play this power supply struggle, and you’re seeing the likes of Alphabet and Google do deals with Tewolf to secure power. So I think you’re going to see more in those deal types of deals unfold as the year goes on.And that’s really re-rating these stocks because they’ve been pinned based upon Bitcoin prices, right? How much bitcoin can they mine? What’s their hash rate? What’s
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you got the happening, the rewards kind of decrease over time. So that
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exactly. So now you’re changing the model, almost like we changed the model for Apple. Remember it always traded at a lower forward multiple because it was just a hardware company. And then when services revenue breached and hit an inflection point, it jumped and now it trades at 27, 28 times forward earnings. So you’re seeing that same re-rating.And applying a new valuation model to these bitcoin miners that are pivoting to HPC. So I think that’s one of the best opportunities in the market right now. I’m personally overlevered there, overexposed, so either I’m wrong and sorry or right and happy, and I think ultimately this trend plays out favorably forthat.
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What about the traditional AI play? We’ve seen the hyperscalers. They’ve still done well. I mean, Google’s in the news because recently they’ve had these antitrust troubles, and thatTotally unrelated to what we’re talking about here, but in a way, you know, the AI trade was Nvidia plus the other other mega caps. So maybe the Mag 7 has expanded and maybe it’s not the, uh, it’s not the block, the juggernaut it was once was, but you still see opportunities within those bigger
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names. Yeah, and the bigger names, so I own a small position in Nvidia because I think you have to. It’s one of the household names. I also like Microsoft because I think they’re a solution provider with AI and I think that’s how you have to think about this as well.The chips come first, and then the real solutions that provide and generate revenue and profits will come second. I think Microsoft is uniquely positioned to win there. And then Alphabet, I’ve been a contrarian there ever since the, you know, Liberation Day sell-off and the fears of regulatory breakup, and now that’s panning out, you know, AI was supposed to get rid of the need for search and we’re seeing that it’s not the case. So I think among those, I think I’ve used it with you when.It appeared that Mag 7 is like a boy band. They broke up, right? And you got to pick out the individual winners. I think Microsoft and Alphabet continue to be those winners out of the 7.
8:31 spk_0
Joey and you candivvy
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up which one is which,
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when we talk about the news.Couple that with a more dovish fed. What does that mean when it comes to the future of this bull market? It feels like there’s a lot of momentum here after this ruling that can really continue to powerstocks.
8:57 spk_1
I think earnings too, yeah. So I think on two fronts. One, let’s talk about big tech first. I think for the first time since, I think, February or May of 2019, when Elizabeth Warren first came out and suggested we should break up big tech, you’ve removed that regulatory over.Hang for the entire group, right? So now you’ve seen an attempt at Google and it failed. So I think everyone’s now biased to say other attempts to break a big tech tech are going to fail too. Let’s let’s take that discount out. Valuations should move up. But then earnings. I mean, if we look at Mag 7 earnings growth, we’re waiting for them to cool down, but they’re not. I mean, two quarters in a row we’ve had 25% or 25% growth or better from the mag 7 group, right? So.You know, yes, there’s some change like Tesla is not obviously in that camp, but you get the metas of the world, alphabets, Nvidia. I think the stage is set for them to continue growing by double digits. And
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is that still healthy when we talk about concentration risks? I know there’s been this broadening out of the.But at the same time, I mean, if you remove big tech, I’m not sure we’re going to be continuously seeing the recordhighs that we see.
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So I’m a contrarian by trade, so the best data point counterargument to this is, well, the railroads way back in the 1800s made up about 61%. If you
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get to Dow theory, I’m going to get.
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So if we go back that way, look, concentration obviously is a concern because if, if they start to stumble, then the whole market’s going to stumble. That’s why I think you can’t be an indexer right now. This is a stock picker bull market.You’ve got to start looking for individual names, not just buying the easy ETFs and just the Mag 7. We talked about those first derivative plays. I mean, there’s even cheap names in semiconductors that are levered to AI, but everything else like NXPI semiconductor. Um, it’s got a lot of autos exposure, which is another growth trend, but it’s not as much AI, so I think you have, but it’s trades about 15 times for. So I’d rather.Put money to work there versus Nvidia, new money and Nvidia at 38 times forward earnings.
10:48 spk_0
So we got aminute to the break here. I want to get, we haven’t talked about tariffs and their impact, and I know you have some thoughts about small caps as well.
10:55 spk_1
Yeah, so I think the tariff tantrum has been a little bit overblown. Like I have 4 kids, so I’ve gone through the terrible twos and threes. You get through it, and I think we’re through that really difficult adjustment period. We don’t have clarity yet, but we’re starting to get more and more clarity. I think with the Supreme Court or the appeals court saying, hey, these are not legal, it throws some uncertainty back into the mix, but we’ve been here before. My argument is that both countries have agreed, whether it’s, you know, theBetween the president and the United States, whatever country you pick of the deals that have been struck, those parties have unilaterally agreed to that. If we have to find another way to get to that agreement that’s legal, I think that’s what’s ultimately going to happen. So it just kicks the can down the road a little bit further. If you look at the average trade deal in a normal market, not when we’re trying to negotiate 100 at one time.Usually takes 18 months to get to an agreement and then 45 months to to implementation for average. So we’re doing that in a very compressed timeline. I think we get clarity from that. I think it sets the stage for small caps because small caps are the ones that are the most economically sensitive. They’re all sitting back wondering if you’re an individual business owner, what, what are the impacts? What are the cost increases? Should I be hiring right now? Should I be holding back? And I think we’ve weathered that storm now, so you get that with a rate cut.You get tariff clarity. I think the stage is set for small caps to finally hit a new all-time high because it’s been it’s been waiting for you.Actually leading the market off the bottom just like they did out of COVID. So, yeah, when, when small caps rally, if you look at the COVID bottom, small caps and microcas have a fierce and fast rally off the bottoms. Microcas are up like 150%, small caps 120% coming out of the COVID bottom.I think you get that sudden and large rip. I mean, we were talking about a couple of weeks ago on here when we saw that the inflation data and we saw small caps were up almost 4% in a single day. So
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that was incredible. I’m glad you mentioned the micro as well. We need to take a short break, but coming up we’re going to be talking about the retail revolution and a runway battle to power the future of the AI trade. Stay tuned.This episode is brought to you by the number 36%. That’s retail share of US equity flow or how much of the daily trades and stocks that retail controlled, and this is according to JP Morgan, and it’s significant because it is an all-time high, and it kind of adds to the theme that we’ve been talking about in the show.Over multiple episodes, the retail revolution, which was born out of the pandemic and how it continues to gain steam here. So what’s your perspective on the retail trader?
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Iabsolutely love this because I wasn’t the smart kid growing up. I didn’t have the traditional Wall Street pedigree, and we always got lumped into that dumb money category.And then got ignored because of it. If you looked at retail trading volumes, it was about a third of what it is now, about 12% of daily trading volume. But the democratization of information flow has happened because of the internet, and now retail investors can educate themselves with places like Yahoo Finance more than ever before, and they can actually have an edge. I would argue this. I came out of Morgan Stanley’s private client.Group and learn the only place that retail has a definitive edge against Wall Street is in small and micro caps, and it’s undeniable. So now you’re seeing that play out. Is that
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because of volume liquidity they can, you know, they
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got volume, liquidity, lack of analyst coverage. If you look at the average large cap stock, they have over 15 analysts covering it. You look at the average small cap or microcap, it’s, it’s next to nothing.So there’s an informational arbitrage advantage that exists there. So I love this. I think, does it have dangers, obviously, right? Because you get into her thinking, herd mentality, you get into the behavioral finance aspect of things where we just go, Well, Ali told me this is a good stock. I’m just going to buy it. I don’t know. I’m not gonna do any research. I’ve done that. Yeah, everyone’s done that, right? I do that to Jared
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all the time. That’s why I own Open.
14:46 spk_1
Yeah, yeah, I own Open as well. I bought into it. I had interviewed Eric Jackson, but so I think this retail revolution is, is, was long coming, but now it’s finally here. How do you crystallize that into making these investors, educating them quickly because we’ve all been on our own investing path. I know we’ve talked about this before. How did you start out getting invested in ETFs and then you start diversifying out.From there and getting comfortable, I think there’s a lot of investors that need to go on that educational journey. So if we can compress that learning curve, I think it makes this force even more powerful. Yeah. All that said, Wall Street, traditional Wall Street smart money has always got more capital behind them, so you can’t ignore them. There’s never going to be a retail revolution that overthrows, you know, the, the superiority of traditional Wall Street.
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What pockets of the market do you think retail traders maybe need to be a little bit more educated on, especially, you know, we talk a lot about the stock fiasco and the ramifications of that, but, but when you look across the landscape, is there anything that youthink the
15:43 spk_1
AI gets a little bit dice. I don’t know that’s up to speed on the ins and outs because it’s technologically driven, right? It’s really hard. I’m a generalist, so I spent a lot of time to go from a generalist.if I can, but I don’t know that everyone’s putting in that work. Um, I think biotech by its nature, life sciences are really hard for retail to get their arms around because you have to have advanced degrees in many cases to understand biotech flies right over my head. Yeah, how do immunotherapies and Tregs and all these different arcane names work and how does that translate into earnings and and stock price growth. So I think those two areas just the heavily technical and this heavilyscientific
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AI being like the use cases and the offshoots and the ripple effects that we could see from AI.
16:25 spk_1
Yeah, so and I think all the opportunity though is to look at the solutions. Where is AI providing solutions in your life? It’s, it’s a classic like Peter Lynch philosophy like what invest in what you know, right, and you see transpiring in front of your face. So I think you see applications like we can see that chat GPT is a tremendous productivity increaser, right?OK, now look for other derivatives of that. Are there other AI applications like I’ll think of a company like Tempus AI which was in genetic testing for a long time and now they have all this data and they’re now saying, hey, we can take all this genetic screening and testing and match it with clinical trials and use that to advise patients, hey, this trial would be a good match for you because of all this data that we have based upon you.Different genomes and stuff. So I think looking for those practical real world applications of AI, those solutions, not the suppliers, is the next leg where retail has an advantage because they can see it playing out before Wall Street.
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You said something really interesting a minute ago. I wanted to just touch on again is that you don’t see Wall Street being overthrowned or dethroned and yet that’s kind of something that President Trump has hinted at.Some of the policies that he’s pursued via, you put it all together, you got deregulation on one front, then you have tokenization and the pursuit and the pursuit of tokenization over the traditional capital markets, which would theoretically cut out Wall Street. I don’t know if that actually happens, but you know, you could see, OK, the blockchain finally has a use in the way that it can sidestep a lot of what Wall Street used to do.Do you see the US becoming a place where you have this massive entrepreneur entrepreneurial shift because of the deregulation and the ability to raise capital in these non-traditional ways that does kind of uh sidestep Wall Street more than it, yeah,
18:04 spk_1
my crystal ball is not.Completely clear on that. Well, yeah, but I think you bring up a good point. The president has ambitions to overthrow the establishment. I don’t think that ever happens because there’s too much capital there, and I’ll point to some key data points. Look at how quickly Wall Street’s coming around stablecoins, right? Look at how they’re coming around tokenization. I mean, companies like Robin Hood, which are leading the retail investing revolution, are also leading tokenization as well. So I thinkYes, you’re going to bring the retail trade with you, but they’re never going to overthrow because Wall Street, one thing traditional Wall Street has always done is adapt and thrive in new environments. It’s very dynamic. You say we can’t invest in this way, we’re going to find another way to do that. We’ll create synthetic securities. We’ll find other ways to do what we need to do.
18:43 spk_0
CDOs squared on tokenization. I can’t wait,
18:46 spk_1
right? So I think tokenization, I don’t love the idea of the potential of 24/7, 365 trading markets. Forget it. It makes all of our jobs way harder at that point.Um, so I don’t think that overthrows the establishment. There’s just too much capital behind them. All
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right, wegot just a few minutes left. I do want to hit tonight’s runway showdown because it is about the fight to power the AI boom. And on the one side, on one of the catwalks, we have new wells representing the legacy energy sector. So these would be the traditional push to drill more oil and gas, promising quick supply and proven playbooks. And on theother catwalk, we have new wires, which is repping the massive expansion of the electric grid needed to feed data centers and supercomputers. And why wells versus wires? Because AI doesn’t just need chips, it needs enormous amounts of energy, which is what we’ve been talking about. So the question is simple, Lou, which pathway can deliver reliable power fast enough to keep up with the demand surge? Is it more drilling or moreEmission lines, is it new wells or new wires?
19:48 spk_1
I got to go both here. I mean, look, I’ve been a tech guy all my life, but now I work for an oil and gas company and I see the connection. You need both of them. Um, electricity generation in the United States is still driven 60% by fossil fuels. So that means just to maintain the status quo, you’ve got to keep drilling. There needs to be more wells, but it can’t just be that traditional form of fossil fuels. We need all forms nuclear, wind, solar.By the same token, technology is the great accelerator, right? So if we come with new wires, new chips that provide faster switching and computing of data that can be more efficient and drive down the actual energy demand, I think that’s a golden opportunity there too. So I think innovation is always the great commodity that we underestimate, the great resource that is part of the American fabric, and I think that’s going to play a big role in this too. So I think it’s a two horse race and it’s going to be a tie at the finish between new well.And wires.
20:37 spk_2
All right.Well, you mentioned how you’re an oil guy, so I want to get your take on what’s going on in the oil markets right now and where you see prices ultimately going and what it says about where we’re at in theeconomy.
20:46 spk_1
So I’m a bit contrarian in this. The president wants to drive prices down to $50 a barrel. It’s not possible. So if structurally we’re at a disadvantage in the United States, and here’s why. Permian Basin Wells, the most prolific producing basin in the United States, has peaked out.We’re now at tier 2 and tier 3 wells just to maintain production at current levels, we just don’t have enough inventory. So once OPEC figures this out that we’ve hit the ceiling on production, they now control the supply because they can dictate where prices go from here. So I think on a reasonable inflation adjusted basis, somewhere between 65 and 75% is really the sweet spot for oil and gas producers in the United States for most parts. Uh, I know people don’t love to hear that at home because that.Means gas prices will be higher, but I do think the other end and deflationary part of that is technological innovation. So we’re seeing a lot of that even in the oil and gas space. We used to be doing just vertical wells. Now we’re doing 2 mile lateral. Now we’re going to 3 and 4 mile lateral. So there’s a lot of innovation there that’s allowing us to extract more oil, uh, from the same resources. So I think it’s a, it’s an interesting play right now. Goldman Sachs is out with a bearish forecast for like $50 to $55 a barrel of oil.I mean, remember though, back in 2013, 2014, they called peak oil at like 140 and then prices
21:59 spk_0
I remember peak oil,
22:00 spk_1
yeah, that was atime I think it’s a great contrarian setup for Goldman Sachs to be wrong again and for Main Street to be contrarian here. Oil and gas sector produces the most profits per employee out of any other sector out there. It’s the most undervalued right now. It’s the least weighted in the S&P 500. For me, that’s the perfect contrarian setup. Does it play out next week? Probably not. I think over the next 6 to 12 months it
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starts to almost sounds like a value play and.Got to wrap things up here in Stocks and translation. Learned a lot. We started out with the big picture view of the rally. Can it get to new highs? Well, it’s gonna depend on earnings among a lot of things, and earnings have been surprising to the upside. And we talked about the retail revolution, how that keeps chugging on, and how retail is positioned well to take a bigger slice of the pie into the future, but probably not upsetting Wall Street once and for all. So that’s gonna do it for today. Make sure you check out all our other episodes of Stocks and Translation on the Yahoo Finance site or mobile app.
