Forget AI stocks. Buy the companies building AI

Welcome to Trader Talk. I'm Kenny Pulkar, your host. And today I am joined by Jared Blickery, who's the Yahoo Finance Markets and Data Editor, along with Michael Monahan, who is a partner and portfolio manager at Founder ETFs and the Founder 100 ETF, which I think is a fascinating product. So, we're going to talk about that. Actually, I want to kick that off and talk about that specifically because I think that's a great concept. So tell the audience a little bit what you mean by the founder 100. >> With the founder 100, we have a portfolio of what we believe to be the hundred best founder companies in the US stock market. The reason we chose to do that, we looked at historical data that said that founder companies tend to outperform by three times versus a board-hired CEO. >> So give me a couple of examples just so people understand what we're talking about. Couple of companies. >> Yeah. So our stump speech is we own Nvidia but not Intel. We own Dell but not Apple. We own Capital One, not American Express. We own Monster Beverage, not Coca-Cola. >> So, in these in these companies, uh, a lot of these founders, so there's a complaint that these super voting shares that they have are actually a detriment to shareholders, but you're kind of positioned the opposite way. You're like, these companies we want to invest in because the founders have a bigger stake. >> Yeah, we we we've looked at that and that seems to be an emotional statement that people make, but the data doesn't show that. The data shows that the super voting founders outperform >> well because they have so much skin in the game, right? So they want I would imagine that they'd want to outperform. So how long is this your ETF been ex existed? >> So we launched the product December 18th of last year. There's a companion index on Bloomberg that looks that you can look up under founders that has a 27year track record. >> And so how's how have you been performing? So, we went through the SAS apocalypse and uh we did a draw down then and that's one thing we should talk about is where the draw downs do and don't happen in these products. But ever since the war uh started in late February, we've outperformed the S&P 500 in the war backdrop. >> I think that's great. I think it's really fascinating. I want to talk more about that, but we have so much so much other stuff that I want to get to. And so, let's just talk about we're talking about founders, we talk about growth. um where do we think the next kind of wave I mean right now we're in the middle of this AI revolution which I think is still very much in the early stages I don't think this is anywhere near being over yet but talk about you know either within that tech space adjacent tech space adjacent to the tech spaces where do we see the growth coming from or where are you seeing it coming from so the products that we use every day that's not where the uh profits are coming from that's where a lot of the growth is coming from but you know open AI that that IPO is a big question mark right because he wants a billion or a trillion dollar valuation. That's going to be hard to do. But the further you move away from the AI user, you get from, you know, the data centers to the chips and all the way to electrical and power. That's where the most profits are right now, >> right? And I think that's actually maybe one that's less understood by a lot of the investing public. People just want AI, they think Nvidia, I have to or MU, I have to own. Those are names I have to own. When actually there's huge opportunity away from that. >> Yeah. Yeah, the picks and the shovel shovels, the optical components, the power components, uh the uh the construction companies that build out the data centers. >> HVAC and plumbing even. >> HVAC and plumbing. Very interesting. >> Yep. >> In in in that group when you talk about the adjacent names, are there founder companies in that group that are interesting to you? >> I think there's, you know, founders all up and down the spectrum. You know, we talked right before the three of us sat down together. I was with a large $50 billion industrial company the other day and by implementing sensors into their AI stack, they took an upsell process that with humans did a million dollars a month is now doing $14 million a month with their AI sensors. >> Right. Because the AI has has created that much more opportunity for them. >> Absolutely >> right. And we're seeing that I mean you're seeing that now during earning season. You're seeing that in a range of companies that have that have reported. >> Yeah. Not only not only the companies that are reported, we can go back to the last uh BLS, that's Bureau of Labor Statistics, non-farm payroll report that we had on Friday and there was an incredible bifurcation distance between the AI construction and the residential construction. So you take a look at residential homes, those jobs, uh including the contractors, they lost 44,000. And then you look at the data the the the industries where you would have the data centers. doesn't break out AI specifically, but you have 126,000 to the upside. So, there's a big imbalance there, but you are seeing pockets of strength, and they're big. Well, but it's interesting because today or over yesterday, over the weekend, uh, Governor Abbott from Texas came out with this headline article now saying that even Texas is kind of putting up putting the brakes on AI data centers, which I think it's okay to put some regulation around it because they don't want it necessarily spinning out of control, but I think you have to be careful not to bring it to a screeching halt the way Kathy Hogle did in New York. I I would agree there because you know the not in my backyard is a very valid complaint because people's people's electric bills are going up and I read >> is that true? I don't know. >> I don't know if that's true. >> I've seen evidence. So I've seen studies both ways and I think overall you take a look at electricity prices rising. There are other in there other factors there. You know energy cost costs are up. So it's hard to isolate. >> That's right. Energy cost costs are going up. And so I think that's more the more the issue in terms of higher utility prices than it is data centers because data centers they've got to pay for the they've got to pay for the energy they're using. >> They're going to go to space anyway and then we don't have to talk about it. >> That's right. That's right. And so when it goes to space that'll be the next issue. Right. >> Well and so much development behind the meter whether it's the fuel cells with Bloom Energy which is a holding of ours or whether it's the you know Caterpillar being sold out on their big gas turbines. That's why I give that gentle push back. I'm not sure it's affecting residential power prices given that the data centers want to have their own captive power so they're not beholden to anyone else. >> And so that's a very interesting that's a very interesting perspective because the anti-data center people will not use that argument, right? Because it doesn't fit their narrative, right? They want to use the argument that, you know, it's causing utility bills to to skyrocket all over the place. When I don't actually think that that's true and I think there was there was another article about data centers being, you know, all self-contained, right? Self-contained. They're not drawing water from the system. It's like a it's like a radiator. It's all self-contained. So, it's not it's not it's not putting extra stress on the community >> in as much as commodity prices are fungeible and you know they might drive up the price of uranium at some point. But yeah, I hear your point there. >> Right. But I also think the other thing is that and Mark Zuckerberg came out uh either today or yesterday talking about they need people that are building these data centers need to actually come out and have a conversation with the communities to talk about the benefits that this data center is going to bring to this community. the money that's going to generate how that's going to impact infrastructure spending, school spending for the kids, right? Better schools, better quality schools, better paid teachers. That's right. Better. That's a much better argument. But I think they haven't done that up to this point. And I think Mark Zuckerberg, you know, he he he penned a piece to an oped, right? Um and he was talking about that that's what needs to happen next. And I think that's a brilliant way to look at it. >> Yeah. And I think some of the other uh big model providers have done the opposite of that. they've sold a little bit of fear, right, when they should have been talking about the opportunity. And I think Mark's really leaned in. Uh he's not only talking about how to help the teachers and the firefighters, but he's really put his money where his mouth is on job training. Meta's got this program now. Well, they'll train you in a trade, guarantee a job. And if you raise your hand at the end and say, "I don't want to work for Meta." Go work for someone else. But they just want to grow the trade opportunities uh for the communities that they're investing in. >> Interesting. He's another founder. He's another founder. He sure is. >> He's another got to be one of your names. >> He's a founder. He's got super voting shares. And you know, we talk about the moral authority to pivot and change when need be. Mark is really uh you know, an example of that. >> He pivots. >> I got a question. Is it too early or is SpaceX in your ETF? >> We own SpaceX. Uh we bought it on the IPO print. As an old trader, uh yourself, you know, the head of the desk at Morgan Stanley did a superb job on print one. That was amazing. I I I look I'm a Goldman guy, but I got to give it to Morgan Stanley. I believe that is the best print ever executed in an IPO in history. >> The opening trade print. >> Wait, so just to clear it up, did you buy it at the IPO price or did you buy it on the opening print? >> There's a difference, right? >> We're not quite a big enough fish to get the love the love from Morgan Stanley. >> The IPO price is 135. The opening print was 150. Just so we're >> that's what I'm getting at is he gave folks like us the opportunity to buy at a a price cuz it was showing 175 plus pre-market but that's the experience that he had to say the real buyers folks like us then look the capitals and the t-ros and the phto the people are going to actually build a position we're much closer to that not way up here and so what he did is he put the print on where the real demand was and that took real judgment >> which and it was the right thing and I agree with you I thought it was considering what It could have been. I thought it was I thought it was actually very very well handled. And we saw what happened. The stock traded up to two and a quarter over the next two or three days. I think a lot of that was just it was just this excitement. Everybody wanted in, wanted in, wanted in. And some people just wanted in so bad they were felt like they were being fomoized, right? They're going to miss out on this opportunity. And uh which is fine, but then we see what happens, right? It kind of adjusts. And now they >> you got a 50% off ticket and now you 900 million shares came to for sale last week. Now it just came unlocked. it didn't hit the market, right? There were people that thought 900 million shares were going to hit the market the next day. Um, and I think if that were the case, it would have been like a secondary anyway. They would never have allowed it to all these people just hit the sell button all at once. They would have tried to gather up and create a a print, right? But I didn't even see that happen. I didn't even see talk of a big print happen. >> They had a nice day. So that was Thursday. They had a nice day Thursday. Next day they had their best day ever. And I think it's just look IPOs. I I'm going to quote some data from Jay Ritter down at University of Florida. He started 9,000 from 1975 to 2021. 60% of them uh after 3 years were down. And so IPOs are kind of a a risky proposition if you're on if you're buying from day one. >> But you got cut you it got cut in half. So you got the opportunity now. >> Well, look what happened to Meta. Let's be honest. They opened that at >> 45 or 48 traded down to as low as 16 or 17, you know, in in the week. That's why they called it face plan. Yeah. Well, I I'm going to I'm going to jump in with some super nerd stuff on on the Meta IPO and let's get to the broader IPO as well. Meta had two really wild things happened. Number one, the NASDAQ's computer systems went down that morning and UBS who was getting all the retail order flow cuz remember they had done the Schwab deal. I was sitting next to Seth Miller who traded the position. >> They had lost computer systems. They didn't know. So, the biggest participant of the day had no idea what their position was all day long. So, those were externalities that were very unique to Meta. >> Right. Agreed. But let's but let's dig back into your to your to your your curve of sorry to cut you off on the IPOs. We've been looking about how we want to grow our SpaceX position. And so we went all the way back to Google and said how do these things trade? Is there a curve we can look at where they bounce back to is it the last private round? Is the private round before? >> Right. Right. And we saw you know I actually thought as we moved into last week this was coming under pressure I think ahead of the Thursday you know release unlock. Uh and it traded all the way down to like 108 >> and and I was in the camp. If I kept saying below 100 is where I'm going to start to dip my toes, you know, and it came this close. That was traded back at 130. I didn't dip my toes, but I think there's still another opportunity. The >> these very good names, you almost rarely never get a chance to buy at what you want. >> And I think that's Let's talk about the discipline of long-termness. So for people that do want to invest in it, figure out what the price you want to own. I had decided that 2 and a/4 trillion was the absolute max. 175 looked good. It bounced down to what almost a little over a trillion. But the key is decide where you think the value is and if it gets there then have the the discipline to buy it. >> So your value was double digits. I wanted like do you as a >> I thought it was going into the high 80s. I really thought it was going there. >> Do you as a technical trader though do you have in your head like I want to see a minimum two months 3 months of >> No. I just thought if it I was honestly I was fully prepared. If it broke 100 I was going to say I'm going to start to you know I'm going to start to just dip my toes right if it goes lower because I thought it was going to be the 80s. I'd just buy it on the way down. Um, now it hasn't. So, I have to rethink the situation. It's trading back at like almost IPO almost IPO price. It was 135. Um, but I still think there's some volatility ahead in the market. So, I think there's going to be another chance. Now, look at I may change my mind. Maybe it's not coming back down to the 80s. But if it comes, you know, but it might be coming back down to the lows again, and that might be another might be a reason for me to >> to rethink my my strategy. But one or the other, I think it's one of those names you got to buy and just hold it. you know, you just got to buy and own it. >> You know, that's that's our our theme is these generational founders who know how to deploy capital, who know how to build, who know how to use speed as a strategic advantage. You buy, hold, and wait, >> right? And in this case, you're really buying you're buying Elon Musk. And yeah, well, just like you do in Tesla, but this is a this is a little bit different story. And I think this is much more exciting story than Tesla was. Yeah. I never owned Tesla just cuz I never did, but I think SpaceX is a different story. What's interesting to me is it's an AI story first. I mean that's you read the perspectus and it's all over page page one. That's where all the forward guidance comes into play and they're spending I think it was $16 billion on capex for AI. They took in 2.7 billion. Then you got to look at their Starlink uh operation which is funding everything but they're also their volumes are going up but on reduced prices. Look, Elon usually figures things out in the end, but you got to understand there's going to be a lot of volatility in the meantime. >> And that's fine, but like I said, you I think you have to buy and just hold it. And you got to be able to you got to be able to ride that wave, right? And actually, you got to be able to be strong enough that if the if it if it if it sinks and the story hasn't changed and you still like it, you got to you got to be able to add more to the position right? >> If you still like it. >> If you if you still like it. I mean, if you like if you liked it at 150, then you got to love it at 100. >> I've heard that before. Right. And that's why I think you've got to do the pricing work when you're not being emotional and things aren't moving around. And and that's what got us so comfortable with the IPO is I started kind of two months before the IPO. I was having dinner on Katie Trail and I just sketched out on a napkin. I'm like, man, these guys could do 200 billion in three years. I'm like, it's not that expensive. And then Morgan Stanley came out with their 330 number, which is I think what sort of the institutional community used and Goldman threw out 450. I think people are doing the 330 number >> and what I think made it hard to do and maybe I said this on your show was >> there normally Wall Street analysts want a staircase to get to the growth and in this case it's a figurative and literal rocket ship so you can see the growth you can see where it's going but you need a giant ship to get there >> but it is a rocket ship that's right >> and then with 3x le or 2x leverage which you had on day two or three and then options on 2x leverage instruments it's That's crazy, >> right? All right. So, listen, let's move on because we need to talk about the Fed and we kind of need to talk about the message that we're getting from Kevin Worsh, right? I think he tends to be a little bit more hawkish. I think he I also love the fact that he's going back to a kind of an Allen Greenspan model where less is actually more in terms of how much he says and who he allows to say it, right? Because I think at one point, you know, during Bernani and Yellen and and Powell is that, you know, they'd have their FOMC meeting and then every one of the 18 members went out and started talking to the media and everyone's got their own perspective and point of view and it created a lot of chaos in the markets. I think for not a lot of reason. >> People were watching the reports and saying, "Oh, what does the Fed think about this?" Instead of looking at the actual numbers, that pendulum started swinging under Bernani in reaction to the global financial crisis. There was so much bad press for the Fed. I think they went too far. >> Yeah. But and so the point was I understand it during the crisis, you know, when people were panicked, I understand they were trying to be more transparent and all that stuff. The part that the part that towards the end here that was making me crazy was that every time if they didn't hear what they wanted to hear the the community or the algos or the tra they'd stamp their feet and scream and yell and yo, you need to tell me exactly what you're doing. Well, what is that, right? You green spin never did it. I actually thought the markets did I thought the markets did fine on the green spin. You know, were there days of volatility? Of course they were. But I think Kevin Walsh is right. Not not painting himself into a corner, not telling them every little thing that they're thinking about doing. Let the market figure it out. >> Little less transparency in terms of where the Fed is coming from, I think is a good point. >> Okay. So tell me so tell me now what the Fed the in interest rates the the Treasury market reaction. 10 years of are higher, 30 years are higher and Kevin W hasn't done a thing. You know, it's one of our our three waves the market and the final wave is kind of what's going to go on with inflation and rates. And we talk about this phantom rate cut where we think because Wars went in with a mandate to to take rates down, the economic data is really not giving him the room to do that. But we think because of his mandate, he'll get a chance to leave rates unchanged a little longer than maybe another Fed chair would. >> Right. And unchanged. I actually I'm in that camp, too. I don't think rates going up, but nor do I think they're going down. at least not the rest of this year, right? I think I I think that the I think that the the market at the long end, the bond market at the long end is going to do a lot of the work for the Fed so he doesn't have to do anything, right? He can just sit here and almost just jawbone and sit and wait. >> Well, the problem is when you when you abdicate your job to the bond vigilantes, you lose a lot of uh you know, you lose control. And I think him being vocal in that regard is probably refreshing because I think, you know, previous Fed chairs might have uh not brought that to light. But I I'm a little uncomfortable with the fact that he's very vocally comfortable with the uh bond market doing it work. >> Yes. But the Fed doesn't control the 10 and 30. >> Not directly, but the threat is there. Yield curve control thread is there and then operation twist 3.0 is there. >> Okay. But his argument is he thinks there's way too much money in the system. He wants to tighten it, right? He's already said he's made it very balance sheet. He wants some balance sheet. He wants to tighten it. I think which I think is the right thing to do. I I think they left it. They left quantitative easing for way too long. >> And I think that's the reality. Inflation comes from printing money without productivity catching up. So he's really leaning in to some strong economic theory there. Well, the I mean the bottom line is you take a look at earnings, you take a look at uh the engines of growth. This very well could be they could be bailed out by all of this even if they made a a misstep, a bad policy decision. >> Well, what was it last week? The productivity um the productivity number went up right on th Wednesday before the uh >> quarterly. Yeah, it showed an increase which was actually pretty bullish, right? That productivity is going up. It's going to help GDP. It's going to help the the economy. It's a good thing. Then AI is at the was at the kind of crux of this this this increase in productivity. >> Yeah. And productivity booms. So another thing we did ahead of the SpaceX IPO was looked at all of the big innovations from from uh steam engine, electricity, railroad and what happens is there's a lag factor and the main reason is you organize your workflows around the previous system and it takes 3 to 5 to 10 years to reorganize reorganize around the new technology and that's where the boom comes >> right. cept on now is probably going to be accelerated. Everything just seems to move a lot faster. >> Yeah. May not take that long, right? >> It is. But if we think about corporate America, they're trying to figure out how to bring AI in, but it's still in their traditional system. So, it's applying AI to the traditional systems rather than 3, 5, 10 years from now, it's a completely new system. >> That's interesting. I I think it's probably good if it goes slow, a little bit slow. >> Well, I I would agree. I would agree. Yeah. I I would agree. Going slow is okay, but not not too slow. No. And because then you risk the you know go backwards >> because we've got to make the new jobs that didn't exist fa as faster or faster than the ones that are taking out. out. And if I could go back to the steam engine one more time, that's my favorite example. When they switched from steam to electricity for the first half decade in the factories, you didn't have any productivity gains because they set the factory up in the same way they did a steam engine. About a half a decade or a decade later, they said, "Wait a minute, we don't have to be on a single belt because we could put a electric motor anywhere." And that's when you had the J curve of productivity. So that's what I think we're going to see with AI as well. >> But how old were you in the steam when that story happened? When did that J curve begin? >> You have a great handle on that story. Yeah. >> All right. So, let's talk about just where we think um uh what inning we think the AI trade is in. Are we still very much in the early stages of this? I think we're very much in early stages, but >> yeah, I think this this plays out at least over decades. Um and probably it's going to be frontloaded into the first and we're just a few years in. So, very early. >> I I think we're early. People are just figuring out how to use these tools. And to the point I just made, we haven't even reorganized our systems yet to take advantage of these new tools and processes, >> right? So this idea, you know, in June when we were having when we're having pressure in the tech industry and they were selling all these great names off and everyone's talking about, oh, the AI trade is overdone. It's, you know, it's it's on its way out. I you almost have to laugh you almost have to laugh at that conversation. M they traded Microsoft down to 350. Where's the trade take? 450. You know, it went from 350 to 450 in a matter of feels like days, but maybe it was a couple of weeks. >> Yeah. Things went on sale. I I the whole SAS apocalypse was way overblown and that was there was evidence of that way back in February, but the multiples for a lot of software companies kept shrinking. Then you saw the chip companies got hit. That was a market clearing event for for my for myself. And so as soon as we saw that kind of wash out, you saw Mag 7 come back. You got the old leaders in AI leading again. Well, because they oversold, you know, some of it was, you know, the trader types, the algos, their leverage products that that that need to rebalance, right? And they and they sell these names only because they have to rebalance it, not because some fundamental, nothing fundamental really changed. And that actually creates long-term opportunity for investors, not day traders, investors, right? That suddenly we see Microsoft trading 350. I'm scratching back going, "This has to be a screaming buy." I I do want to see Okay, you take the the top of the socks, where was that like 13,000? Then you go to where it sold off just below 10,000. I want to see that midpoint exceeded. I want to make sure the shorts are out and then you got an easy ride to the highs and I think we have new highs. >> Right. So, we're we're running out of time here, but I want I want your view on two things. Is >> is there midterm volatility still ahead of us in the market? And then where do we end year? What does it look like at the end of the year? I think we have a Yeah, I think there's definitely the possibility of a midterm surprise, although I don't even know that it's going to have anything to do with midterms because anything can happen in this political atmosphere. By the end of the year, I think we reclaim the highs or I think we're on our way to reclaiming the highs depending on what happens in, you know, the end of Q3. >> A bunch of the big firms out there have 8,000 as a target at year end. I I think we continue to climb the wall of worry, right, that you know, we've made some progress on the upside and, you know, something will be around the corner that we don't anticipate. You know, we've got stability in the Middle East. It could get unstable again. So, I think we go high. >> We have stability in the Middle East. I don't think today I don't think we have that today. Yesterday we did, but I don't think today we Yes, that that Yes, that's the point, you know. That's exactly the >> So, where do you think because I you give me just a broad sense of where you do you think the markets do you think the overall market's in a good place in terms of year end? Do you think we're going higher from where we are today? >> I think we're going higher. You know, the the the growth reports are coming out. Um, you know, I'll use Palunteer as as my favorite example is, you know, when when Alex put up backtoback 100% quarters, people just said, "Okay, you're just growing into your previous multiple." But when he did it again and he's probably going to do it in next quarter, stocks need to respond. So I think we're seeing stocks um respond. You know, talking about the hyperscaler starting to work again, people are starting to believe these growth numbers. And I think there was a change that spooked the market is that these near monopolies, right? Google Adwords, uh Meta Display Ads, these were near monopolies and now they're getting into businesses that aren't near monopolies. They're very good businesses. And I think it just took investors a while to digest that. >> So listen, speaking of that, I gotta tell you, I just finished reading The Philosopher in the Valley, which is the Palunteer Alex Karp story. It's a great book. You should, if you have time, you should really check it out. It's a great book. Um, >> uh, and I enjoyed it very much. In any event, gentlemen, listen, uh, the time goes by very quickly. I appreciate I appreciate coming here. I appreciate meeting you. I'm going to start paying attention to the Founders 100 ETF. I want to look it up and see what it's all about. See what's in there. And yeah, and TripleF, is that what it is? That's a ticker symbol. That's a symbol. Triple F. Perfect. And so until the next time, take good care.