Is Your Portfolio Ready for the AI Power Crisis?

Hello and welcome to Being Exponential. Today we are covering our stocks of the week. A couple of these have reported earnings, but the first one we're going to start with is Dell. They just crushed their Q2. Uh, incredible numbers. Uh, Luca, what are your thoughts on Dell currently? >> I mean, yeah, just absolutely incredible numbers. Big validation of the core underlying fundamentals of the AI infrastructure trade. Spending continues. Dell continues to win a big share of that spending. Uh, looking at the numbers specifically, revenue was up 58%. I mean, this is Dell. Boring Dell revenues up 58%. That's that's crazy. Um, the AI server orders, the backlog, no orders, uh, grew to a record 60.9 billion dollar. Uh, they hiked their guide for AI server revenue, uh, expecting triple, you know, 3x growth year-over-year, more or less. uh boosted their fullear revenue guide by $2 billion to $192 billion. So now if you kind of look at the the model over here um 192 billion puts them at 68% revenue growth this year. Two years ago this company was growing at 8%. Now they're growing at 68%. Now granted growth is going to slow hereafter but we're still talking at you know 19 14 13% growth. Gross margins look steady right around 20 high teens but that margins steady too with economies of scale probably producing a little bit of margin expansion. The growth story here is absolutely on fire. There is nothing wrong with it. The valuation is very compelling. I think it's only trading at 12 times forward. It's only trading at 16.6 times forward earnings. This is a cheap stock for this sort of growth profile. We're talking, you know, exclude this big year, 18, 19%, 20%, 26%. Like, this is a high teens, low 20s ZPS grower trading at 16.6 times forward earnings. That's an attractive setup. The estimates on this one are just absolutely soaring higher, obviously, because of that massive print we had today. And the stock is bouncing nicely at its 50-day moving average. All of that tells me that yes, the AI trade has been stuck. It's been uh out of whack. It hasn't really been working, but Dell's stock, the fundamentals are here. And once this AI trade starts to really click again, which I think is only a matter of time, Dell stock should be one of the big winners when you got it trading at 16 times forward earnings or 20% projected EPS growth over the next few years. Really attractive setup, one of the most attractively valued AI stocks in the market right now. I am bullish on this one. All right. So, another stock that just reported and they had a 150% year-over-year revenue growth. That's Crito Technologies. However, they did take a sharp downturn, uh, almost double digits. So, what's your take on Credo Technology Luke? >> So, the reason that Credo is getting hit, I mean, the numbers were fantastic. Just kind of just rattle off the numbers real quick. Revenues rose 115% year-over-year, 10% sequentially, record high of $479 million. Um adjusted net income increased 140% operating margins 48.2% 2% Q2 revenue guide boosted and management maintain its forecast for more than 85% fullear revenue growth approximately 50% adjusted net margins. The commentary was bullish. Uh AEC's kind of remain Credto's largest business. They continue growing as cluster sizes and bandwidth requirements increase at these really complex data centers. Now uh Credo has a relationships with five deep relationships with five of the six big hyperscalers. Neocloud exposure continues to expand. Um this is the fundamentally at the top line this company is firing on all cylinders. Why then is the stock crashing? Well, it's a growth mix, a changing growth mix that is impacting negatively impacting margins. So management acknowledged that um it's AEC growth should slow from where they are today. I mean it was tripling, right? Um, optics is going to become the primary growth engine. Now, that creates some execution risk because their optical ramp is heavily weighted toward the second half of the year and the optics business creates has lower margin. So, the margin profile might deteriorate. Gross margins are expected to remain flat. Obviously, investors wanted that to expand. And then there's some customer concentration risk, right? Like I said, they have deep relationships with five of the big six hyperscalers. Uh, four of their largest customers represent 84% of the revenue. So, one is 33%, one is 28%, one is 13%, one is 10%. So, four customers represent 84% of the revenue. So, it's heavily heavily concentrated. So, really good topline story. Margins mixed and then investors are worried about that debt customer concentration. But to me, the story's intact. Like, this is still an AI winner selling a lot of stuff to the most important players in this space. The chart is broken. Like, I admit this chart is nasty. You had a big rally and then you had a big breakdown. But that's kind of what this stock does. Look, you had this big rally in 24 and then this big breakdown in 25 to where? Just below the 200 day moving average. Then you had this big rally throughout 25. Big breakdown in early 26 to where just below the 20-day moving average. Then this big rally and now this big breakdown to where just below the 200 day moving average. So I typically don't like stocks after they nose beneath their 200 day moving average. But looking at the pattern of this specific stock, this is sort of where it should bottom. And the valuation I think is really compelling on Credo. I mean we're looking at the stocks trading at 22.6 times forward earnings, 19 and a half times forward EVA. Both of those are basically two-year low valuation multiples and let's call it 20 times forward earnings. That is dirt cheap for this sort of growth profile. I mean look at these topline growth numbers. We're looking at 87% 55% 30% into basically 20 you know the middle of 2029 EPS so margins pretty this is this is the concern right gross margins go 68 67 66 but even margins should continue to expand because of econies of scale when you're driving 50% plus revenue growth you can get econies of scale so you get 52 55 54 and this is you know 143 55 30% EPS growth and you're only trading at 22.6 times forward earnings. It's a really cheap stock with a really great growth profile. The the single stock chart pattern to me makes sense. I get why people are concerned about the margins and the customer concentration, but ultimately you don't want to catch the falling knife, but I think this thing is going to bottom somewhere just below the 200 day moving average. Right? Remember this 150 level maybe. And once it starts to show signs of bottoming, that's probably one when you want to buy the dip because I think the rebound is going to be pretty big. >> All right, love that analysis on Credo. Uh, next up we have Fervo Energy. They just got a significant uh catalyst from a hyperscaler Google and they are in that cross-section we talked about last week of just powering AI could be a huge boon in the future, you know, given that Felosi just bought Bloom. So what's your take on Fervo? So obviously Bloom's my favorite player in the kind of a new AI power space, but Furbo has has been it's a new stock. It's been a big loser, but it's starting to gain some traction because it just landed a 396 megawatt power purchase agreement PPA with Google for its Cape Station project. That is that's a real deal. That's real validated revenue visibility from a top tier counterparty for this company. That is to me that's the sort of deal that can wake this stock up from you know it had that decline from 40 above 40 to 15 bouncing 15 to 20 given back a little bit today. I think that this is one that can that can work with that Google deal um because again power is a big bottleneck. Everyone's looking for more power. Geothermal is kind of this like question mark question mark question mark like are the are the hyperscalers and the big tech builders and the one that actually need this power going to turn to geothermal. It's kind it reminds me a little bit of where nuclear and uranium were like 2023 summer 23. Everyone's like yeah this is a great power source but are the big tech dogs going to choose it? And they did. Then what happened is uranium took off like a rocket ship and nuclear stocks took off like a rocket ship. Feels like the Google PPA could be that moment for for geothermal and therefore I think I'm pretty bullish. I mean I think it's risky but does the bull thesis outwear the bare thesis on Furbo at this point in time after the Google deal? >> Yes. >> Excellent. So uh next up is another energy play. However, this is one of the first, you know, AI tangential stocks where it's it's lost on its reporting. So, so why did you pick uh Fuel Cell Energy for this week, Luke? >> So, Fuel Cell to me is kind of like the poor man's Bloom Energy that never really got a lot of traction and is now rolling over. Uh I don't know if there's enough space for Fuel Cell or if they're going to execute well enough to to capitalize on the opportunity before them. Right. Fuel Cell did just sign its first ever data center power agreement, 75 megawatts in Texas, and added $2.4 billion in awarded capacity backlog via Fit Energy's expansion option. So, it's definitely plugging into the AI power demand story. Uh, the balance sheet is clean here, so they should be able to execute. bankruptcy risk is is not a real thing, but the numbers are just I mean they they sign these big contracts, but it's not flowing through into the numbers. Um, look at the numbers right now. I'll just pull up the model. Their quarterly numbers are ugly. Revenues dropped, I think, like 30% year-over-year. Um, I mean, yeah, look at this. I mean, so there's this expectation that next year 2027, they're going to just grow 66% and then 48% and 110%. Like there's this huge ramp expected, but right now we're not growing at all. And I'm more of like a show me you when when you're this early stage and you're competing against really capable competitors such as Bloom Energy. Show me prove to me that you can do it that you can execute and then I'll become convinced. Right now they're not proving dogone anything. And so that's why I'm not super excited about fuel cell. I mean look at the chart. It's just rolling over. It wants to come back into that 200 day. that 200 day is pretty flat. So, if we don't show support there, that's not a good sign. I'm just not all that excited about this name. I I would just go Bloom Energy all the way over them. >> All right, good to know. And then the last stock of the week, another energy stock, EOS Energy. Another company that had a huge deal with Google. Uh what are your thoughts there? Yeah. So, to me, EOS is I mean, they're not Bloom, but they're in the same marketplace, except they focus on lithium ion batteries. Um, tough tough because lithium ion battery storage has not really been a choice destination for hyperscaler spending and EOS in that space is competing against Fluent who I think is a bigger, better, more well capitalized company. Um unlike fuel cell, EOS is actually growing dramatically. So there is a positive there. I think revenues are up something like 350% last quarter. Yes. So this year we're going to do 170%. Next year 93. This is definitely a big big big grower. I think there is potential for this company. They are landing those big contracts like you said, but my concern here is not. So, Fuel Cell, the concern is they have a clean balance sheet, but they're not growing at all. EOS, they're growing a bunch and they're winning contracts, but the balance sheet is is troublesome. When I look at this balance sheet, there's only 305 million in cash and we're burning 420 over the last 12 months. We're burning 380 this year. We're burning 112 the year after that. So, we're we're going to keep burning this cap. This is going to go to zero. We're going to have to do more raises. We're going to need more money on hand. We got 640 billion in debt there, too. So, this is one that I think long-term has a lot of potential, but between the long-term target and where we are today, there's going to be more dilution. There's going to be more raises. There's going to be more hiccups in the stock. And so, I'm not too excited about buying it. What is it? 50% 60% under its 200 day a declining 200 day moving average with the potential for further dilution on on deck. So this is one that I'm going to I'm going to wait out and then eventually I probably will become a buyer of this one but just not hearing. >> Excellent. This been a pretty energy forward episode and uh one can assume that Bloom Energy is that top dog in terms of the the bottleneck of energy going forward with data centers. But, you know, out of these three or maybe outside of these three, do you have a dark horse that could contend, you know, be that runner up to Bloom? >> I think at this point in time, and people will hear about this in our macro episode coming out later, >> Mhm. [clears throat] >> at this point in time with the market we have, you'll hear that I believe the big reason the market's kind of stuck is excess liquidity has dried up. In that environment, you don't want to bet on dark horses. This is not the time to be betting on dark horses or moonshots or, you know, lottery tickets or those super long duration assets. This is the time to just hunker down in your favorites, stay there, and once excess liquidity comes back into the market, once we start to get better risk sentiment, which I think we will very soon, then you want to start looking for dark horses. But right now, I think the question about a dark horse is the timing is not there for that right now. Which is one of the reasons I'm not super excited about an EOS. I'm not super excited about a fuel cell. Those are dark horses in the AI energy space. And right now, the macro backdrop is not conducive to dark horses. It's conducive to Walmart. It's conducive to McDonald. Like that's the macro we're in right now. Yeah. And uh from that perspective, if you're looking at AI energy, you want to hunker down in the top dog, which is Excellent. All right. Uh that that's it for the episode. Do you have any additional closing thoughts there, Luke? >> I can't wait for the Macro episode. I think people are really going to get some good insights there in terms of, you know, what we think is going on, why we think is it's happening, and why we also think most importantly, uh the recent dynamics over the last four months, Canon will reverse course by the end of the year, and we're going to get a pretty big rally in probably Santa rally, post midterms rally, as well as a big rally throughout 2027. So looking forward to that one. >> Of course. Likewise. And you know, as always, appreciate your insight, Luke. To everyone watching, please like, comment, subscribe. We do have question episodes regularly, so we will answer those questions. Uh that's it for this episode. We'll see you in that macro episode on Thursday or or Friday. Uh take care, folks. [music] Hey. Hey. Hey. [music]