CRWV v. NBIS: Examining Neocloud Approach & Capital Awareness in AI Buildout

this report is due out today. And our Tech spotlight. And Brian Mulberry, Senior Portfolio Manager, Zacks Investment Management is with me. Thank you so much for being with me. I want to get all your big picture, but some of your thoughts here on Core Weave ahead of the real report due out after the bell. I think a lot of really high expectations here because you saw the monetization coming from space X, Microsoft and Google. And so I think what they're going to really have to do is beat expectations by a lot, showing that their business model is actually tracking the same way their competitors are. What do you think about what you heard from Google and Microsoft? How does that fit in to what you may or may not hear from core weave? Well, I think monetizing excess compute was something that we didn't necessarily expect to happen. And so since they're directly in that business of leasing out Nvidia GPUs, what does the demand structure look like? What is their margin? How are they doing in terms of pricing? We would expect a lot of capacity out there and a lot of demand. But what does the monetization really look like. They should hopefully still have about $100 billion in a backlog of orders. If they can break through that and do even more in terms of a future backlog that's better for profitability. These are really high bars for this stock to cross. But that's really what the market expectations are given the strength in this area so far. But we may I mean, we are waiting on some big numbers. When you think about cloud and AI overall, but we are waiting on some huge numbers when it comes to the year over year. And in fact, the earnings per share may fall over 300%, but the revenue on the other side is expected to grow. Yeah, there are somewhat dramatic, aren't they? When you think about the year over year. Is that what you expected at all given their business model where they build up the demand first, book the orders and then go out and spend the money to actually build the actual compute. This is how they go. And it's a little bit inside out, certainly from a traditional business model, because that EPS number could be a little bit shocking. Yeah. The revenue is expected to jump over 100%, with the earnings per share falling over 300% year over year. And that's just the spend, the CapEx that they have to actually spend to build out the compute that they've already leased overall. And the earnings predictions markets, of course, are also expecting some volatility. I mean, what would you do when you see this stock maybe making a big move. I mean what if it moves 10% in the next 24 hours. Let's say it was the recent low was 6055 not that long ago here. And right now trading at 88. And change some of your thoughts on volatility. Does that provide opportunities. Yeah. If they can show that backlog of orders at 100 billion or more, then I would buy on any dip at this point going forward. The volatility that's out there is certainly some macro themes we're seeing. Obviously, interest rates tighten. The ten year Treasury at 4.7. It's retreated a little bit today in the afternoon. But still is the real cost of capital. So anybody that's financing this growth is going to experience a squeeze in earnings in the future. But that future earnings growth for core weave comes from that backlog of orders right. That nearly 100 billion. We turn our attention over to net and some of your thoughts there and where that fits into this story. Now this is a little bit different animal kind of in the same space, but they're more of a full stack provider where they have a whole bunch of stuff in line, vertically integrated that they can monetize, where it's just compute for core weave is more of a full service provider, where they offer a little bit of a layer of software to help customize what that data stream looks like on the back end. They can do networking solutions. They can help put it all together in one stop shopping. So they have various business units that they can show growth in. And that's what the market's going to be looking for is not just monetizing compute, but how is everything else doing in that full stack solution, right? Full stack versus one thing. And I mean, does one seem better positioned based on demand and AI growth and demand going forward than the other? Just fundamentally, I do have fundamental problems with core weaves business model and that they lease it first and then they build it second. Whereas nebulous is definitely getting online with their own data centers and going out and selling a full stack product that's customizable to the end user. So between the two at the moment, I would lean a little bit more towards nebulous. I mean, you did note the CapEx spend that's expected. Nebulous has announced that 20 to 25 billion in CapEx plans. How do you think the market may react? Because when we're starting to see CapEx, it's not so taboo anymore because we had some situations with the Mag seven. CapEx was a okay, as long as you brought in some return on investment versus the original mantra was maybe it'd be better to be CapEx lite, but that's not the situation. Do you think the market may criticize the CapEx spend here if they don't get the top line revenue growth that they're looking for, which could be in the triple digit range as well, then they're going to have problems explaining that they have enough cash on hand to make those investments. So that's going to be the tipping point for Nebula stock. Okay. And then just your big picture view, I know you commented on the jobs report. We're waiting on the CPI report. And we were just talking about the fed and the likelihood of a rate hike now up to about 50% for September. What's your big picture view on tech and the markets overall? I think really one of the biggest concerns at the at the enterprise or the input scale costs are definitely rising. The components, memory chips, all of that part of the physical stack tech stack is getting more expensive. But can those companies actually physically pass prices through to the consumer? The only one that we're really aware of is Apple, which is saying that they're going to have to raise prices because their memory chip backlog is getting more expensive. Otherwise, a lot of this isn't really going through to the consumer. ChatGPT is lowering prices. So in terms of the CPI tomorrow, I think we actually could see a bit of easing there and take some more pressure off that rate hike worry. Do you expect some new records between now and the end of the year? Brian. Steadily I don't see any real sharp upticks because I think we're kind of in this range bound. But earnings are very strong. And as long as that earnings growth stays in line, then yes, I would say we probably finish at a new high. Brian Mulberry, Senior Portfolio