This Hasn't Happened in 25 Years (Your Investments ARE NOT Ready For What's Coming)

Interest rates are now the highest they've been in 25 years, and it has the entire market bracing for impact. But, what will be the real impact on your investments? Joining us today is Professor Joel Litman and Rob Spivey with Altimetry Research to break down the great interest rate debate that was really sparked on Friday after that Fed chair speech at Jackson Hole. Guys, there's a lot of fear in the headlines right now, kind of fear in the overall market. So, guys, a lot to break down today. Thank you so much for joining us to to watch to talk through all of this. I feel like the fears have really been kind of percolating all weekend long for people who heard what Warsh had to say at Jackson Hole on Friday and have really wondered, what is this going to mean for the rest of the market? What did we hear Friday that has so many people worried about that long-term impact on the market? >> Yeah, Warsh got the message that everybody basically said two things, right? One is in terms of, hey, maybe think a little bit more about, you know, forward guidance in terms of what's going on. But, most importantly, are you going to be as serious about inflation or are you not going to be serious about inflation? And, you know, it's funny, there's kind of been a a whipsaw with Warsh. And, you know, honestly, every Fed chair gets a bit of baptism by fire in the crucible when things start. Um, it always happens. And, for him, you know, he came out and he was really strong in his first conference about we're serious about inflation. And then, last conference, he kind of showed his cards about what he really thinks, which is, we're serious about inflation as long as inflation is there, but we don't really think inflation is there. And, this speech was kind of I think him reorienting to say, no, everybody really we're serious about inflation again. And, people are worried that that is a sign that interest rates are going up. What they're missing is that middle, if you think about the two ends of the book in the middle, and what our what our earnings call analysis actually shows in terms of what he thinks about that inflation, shows he really still does think though that the inflation isn't serious and isn't an urgent thing, and that's why he's saying, we will be serious about inflation, and everybody's worried about interest rates going up. But, in reality, interest rates in terms of what the Fed's going to do, it's unlikely to have to hike because what she's really telling you when you get down into the roots, inflation isn't really an issue in the US. >> And Bridget, let's put things in a context. Everyone's afraid because that headline, you know, the sensationalist mainstream media wants to say it's a 25-year high. Yes, in the 25 years of the lowest interest rates in recorded history of humanity. You've never had such low interest rates. We had negative interest rates for many, many of the years of like negative real interest rates. And so, yes, they're getting back to a number that makes sense, right? But at 5%, that is not a high rate. It's a rising rate. And so, of course, we want to pay attention, but it's only high rates that cause a problem for the economy, and these rates are not high, especially when the companies that are taking out the money, and that's I think the real kicker of why it's happening, are getting a return that's so far higher than 5%, they don't mind paying a 5% or 5 and a quarter or 5 and a half percent interest rate for that debt. >> Oh, there's so much to break down in in all of his answers that you just gave. I think one thing, Joel, going back to what you said about historically, this might seem high in the last 25 years, but if you talk to somebody who grew up doing business in the 1980s, a 5% interest rate seems like a treat, right? This is nowhere near the highs that we've seen as far as interest rates in in the business world have to go. I also think what you said about these large corporations are still getting massive returns even at that kind of an interest rate is a real thing, and we're seeing that right now in the market. But I want to talk a little bit deeper about what this means for investors. What rates, what inflation, all of what all of this means for the economy overall. But let's talk about why all of this matters for investors. What's that trickle-down effect to the market? I think the business explanations that you gave make so much sense, but I think for investors, what have we seen the stock market do when we have all of these economic factors popping up and these kinds of conversations happening in headlines all over the globe, not just in the US. >> If the real reason that that interest rates are rising is not because suddenly everyone's dumping, you know, you know, US debt because of afraid of default and it's not the economy. If the real reason is there are companies that are borrowing massive amounts at 5% because you know that they can get a 20, 30, 40, 50% return on that money and they're going to put that much more work. Well, I would want a company that is essentially a larger bank account cuz you're pouring money into it and is getting a 30, 40, 50% interest rate, which is what some of these companies are getting. I would stay away from the companies and that's what we'll talk about that are also borrowing at 5% and maybe aren't going to get a 5% rate of return and those are the companies you should stay away from. But either way, the battlefield is not oh my goodness, the US economy is in trouble, let's just get out. The real issue is let's find the companies that are borrowing like crazy because they have phenomenal investments to get into and let's stay away from the companies that are going to be hurt by the interest rate because for them, they can't do business at that rate and there's a couple of companies we'd stay away from in a big way because of that because of that reason. >> And just to add to that, pressure, I mean, when you look, there's been this if for when people have been talking about bond vigilantes for the last two months, the other thing they've been talking about is the idea that the hyperscalers are going free cash flow negative. Oracle, uh uh micro Oracle, Amazon and Alphabet all are negative free cash flow right now. In terms of investment, everybody's saying, "Isn't this a sign that right, this is all male investment that all these companies are not getting a return on what they're actually producing? And isn't this is a concern that that might be the sign that the investment cycle is over cuz they're starting to lose money on this?" And that's the important thing that everybody is totally missing the picture on, which gets to that idea of the investments that matter and don't, is no, it's actually the opposite. What's going on right now, and this is just a step back in history, if you look over time, sometimes the best signal for buying a stock is when free cash flow goes negative because that's the moment when if you have a high return business and again to Joe's point when you look at a company like Alphabet, Alphabet has a 25% return on asset business. It's 2x corporate average. Microsoft 25 to 30% return on asset business. 2x corporate average. These companies when they're with with they're seeing an opportunity is and this is you know every single time I feel like we're on here Bridget, I feel like we mentioned this idea like Satya Nadella every single earnings call what does he tell you? From Microsoft he gets on and he goes, "You know what? We would have sold more Azure revenue if we had more Azure capacity and the reason why we are investing so much in Azure in data centers is because the demand is so far outstripping our supply." And so what's going on here is not negative free cash flow because these companies are borrowing to invest in bad businesses. One exception as Joe said that we'll talk about at the end here everybody so stick around. It's the reality that for all these companies they have high returns and they just want to invest so aggressively. And this is you know time and time again you look Amazon is a great example of this over history. When Amazon went free cash flow negative really deeply free cash flow negative to invest in AWS in the late 2000s early 2010s, that was one of the best buying opportunities for Amazon. On the flip side when companies like Home Depot or Starbucks in the early 2000s went positive free cash flow, that wasn't a buying signal. That was a sell signal cuz they had stopped growth. So this idea that these companies that are borrowing to invest that that's a worrying signal, it's not. It's actually really bullish signal to tell you they're seeing so much opportunity that the AI investment boom is going to keep on going for a while and that's what really gets to what's important for the investments. >> So if you have negative free cash flow because the company's losing money in operating cash, that is a bad company. But when you have a company that's minting operating cash flow but investing all of that and says, "Wait a second, we have these great opportunities. We actually need to take out more debt. That's what we're seeing right now. Take out more debt to invest even more. Well, when investment exceeds operating cash flow, you have negative free cash flow. Well, that's a good thing if that new investment is going to drive massive operating cash flow in the future, and that's why you measure the return on investment. And so, again, if we separate between the companies that have negative free cash flow for a bad reason and the companies have negative free cash flow for a good reason, meaning phenomenal investment opportunities that they need additional debt for, which ties to why we're seeing interest rates rise a little bit, well, then we've got some killer winner stocks. >> And knowing the difference is what the two of you are so good at. That's why I love having you both on the show. You guys look at investing from an accounting perspective, and that again is such a great way to weed out the bad companies from the good companies. And for those of you who watched our channel before, you know we often do a segment with Joel and Rob talking about three stocks to buy and two to stay away from. And so, that is what we are going to get into now as given this interest rate environment and all of the massive investment going into this AI build out story, we are looking at the companies that actually are making money from those massive interest rates that they are are investing in right now, and the companies that are far more at risk uh investors would likely want to stay away from right now. So, we're going to get into those names, but I also wanted to illustrate a lot of what you were talking about of all of that investment is happening right now because there's so much demand. I know that you guys have uncovered one area where that is happening incredibly behind the scenes right now that a lot of investors are missing. And that is with SpaceX, XAI, and what Elon Musk is doing there. And there are a list of other companies behind the scenes where a lot of that investment is happening right now. Um and this report is fascinating. It is such a unique way to look at what is happening here with all of the investment and the payoff that could be coming down the line. This is a report you don't want to miss, and if you want a special offer to take a look at that report and the research that Rob and Joel and his team at Altimeter Research have done, scan the QR code or click the link in the description. You can get that report right now for a very special offer. It also gives you a full year of learning more from Joel and Rob and the unique way that they look at investing and look at companies in the market, which we love. So again, don't miss that special offer. Just scan that QR code or click the link in the description to take advantage of that now. All right, guys, let's get into the stock list today. We have a lot of stocks to cover today. What is the first company that you are looking at in this interest rate environment uh that is still a very good buy for you? >> Yep. And the first one is ASML, ticker ASML. And so for this company, what we think is so powerful is when you think about that idea of the AI build-out, the core essential thing that's powering all of it, obviously, is chips, right? Be it GPUs um from Nvidia and AMD, be it memory chips from Micron and from SK SK Hynix and from Samsung, be it eventually CPUs or, you know, Broadcom with um, you know, with with um specialized chips, anything else. And for you to build all these incredibly complex chips, you need the equipment that fuels it, and that's what ASML does. ASML is arguably the linchpin of the uh semiconductor chip manufacturing companies. That they have their proprietary framework in terms of what they have for EUV, which is a unique technology that no one else in the world builds, allows them to basically dictate who gets to build the best chips in the world and not. And what we're seeing happen right now is because of that demand explosion that we're seeing. Again, as we see all the hyperscalers say, "We're going to go from $350 billion of capex to $800 billion of capex to $1.2 trillion of capex." What's the other thing that's happening? Well, all the memory companies, Micron, Samsung, SK Hynix, they just announced that they're going to spend a trillion dollars in capex to make new chips. And that doesn't even get into Taiwan Semiconductor or Intel or anyone else or Elon also, for that case. Well, guess what? That means they all need a ton of ASML's chip uh chip equipment. And that's why ASML has improving um in it basically is improving pricing. They just raised prices for the first time in in a while. They're also ramping up capacity, which they're expanding massively. And that's leading return on assets, uniform ROA for this business, to double from 20%, which is already 2x market average, to 40% in the coming years. And the market is totally sleeping on just how big of a move this is for ASML. Even though the stock has moved, it has a lot more room to run because of the dominance of its monopoly and just how strong the growth is for all the equipment that it makes. >> Now, when you talk about how strong their monopoly is, just as a as an aside, as an example, Chinese manufacturer of computer chips bought an ASML machine, took it apart with the intent of re-engineering it, in the words of the ASML uh engineers. They took it apart and they couldn't put it back together again and work. And so, they had to call ASML and say, uh "Our machine's having problems." And when the engineers went out, they saw, "Uh wait a second. Someone took this machine apart and tried to put it back together again and couldn't because the blueprint alone is not the reason they have a monopoly. The maintenance of these incredibly this deep ultraviolet um in this case, a deep ultraviolet uh lithograph machine that makes chips um is not just the parts, it's the maintenance, it's the calibration, it's how it's all put together. And simply having the pieces and the blueprints isn't enough. So, this ASML is a monopoly that's going to stay for a long time, no matter how many people try to copy it, nobody can. And you cannot build the new world with new AI and everything else without an ASML machine. And raising capacity and everything else gives them a moat and pricing, uh we love this company. It's a great stock to own. >> Yeah, I think over a year ago, I had you guys on and we talked specifically about moats and why you want to look for companies that have those moats or kind of the monopoly situation you're just describing with ASML. Uh so, this is one of those companies that absolutely qualifies as having a really good moat. And I want to talk about what that means for growth down the road for this company because right now they're not at all-time highs, but they're fairly close. And you can see in their earnings that they've had a really strong recent reports. They are bringing in cash flow right now. But how long does that continue? And what do you guys know about what's happening in that broader AI growth story right now that can really give you some insights into how long ASML's growth story is going to continue? >> Yeah, and this um right, this is where one of the really powerful tools that we have isn't just the accounting work that we do, but we also analyze in detail the earnings calls. Um what we're actually doing is we're using audio analysis to identify where we're seeing inflections from management, where we see guiddiness guiddiness and excitement, or we actually see that they're kind of holding back on something. And something jumped out that was really important for ASML on its most recent earnings call. Management was specifically highly confident when talking about their capacity expansion. So for EUV, right, which is the flagship, you know, basically these are these are literal piece of equipment that are the size of an elephant that they have to transport and as you all said, set up and everything else. They've historically produced around 85 of these a year. They're ramping that to 110. So that is basically 25% plus ramp in terms of capacity that they're planning on ramping. They're highly confident that they're going to be able to hit that expansion and also continue to expand beyond that. And they're highly confident that if they built way more than that, they would still be order booked out. Meaning they would still be fully have their their full order book out. That to us, Bridget, is exactly what you need to know to understand when you've got a company who's raising prices, expanding capacity, and still has a multi-multi-year order book in terms of what they could have if they took orders that way. That tells us how long this company has a run rate to be able to grow, which again is why even though this company has had a phenomenal run, we're still really bullish that there's a lot more upside. >> A really great first company to look at. Again, this is one that I I know we talked about on the channel over the last year or two, it's a name that's popped up and it's continued to prove it's a strong growth story. And so, the fact that we're still talking about ASML as a a huge growth potential for the future shows the strength of this company and that moat that you were talking about. I think this is a really great stock to talk about. It is one that I want to put on my Bridget's Buys watch list. We haven't done this in a while, but I think that this is a company that is so strong um and I think you make a really compelling growth story for the future. So, I'm going to add this to my watch list. If you haven't checked it out yet, uh it's just marketbeat.com/bridget. It's a way that I track some of the stocks that we talk about. This is one that I wanted to add for a little while, so I'm glad that we talked about it and there's a chance to actually add it to the list. And you can scan the QR code or click that link that marketbeat.com/bridget to just go check out that watch list for yourself. Okay, guys, let's move on to the second stock that is a buy in this current interest rate environment for you right now that is still shows that their investment to the the debt that they're bringing on is actually paying off with huge revenue for the company. >> Bridget, I think I've mentioned to you in the past that I've been involved with uh Project Matador, which is in Amarillo, Texas. It is it will be the biggest gas-powered AI electrical power plant in the world, 17 gigawatts. That's like 17 Bostons of electricity all geared towards AI power. And the one thing you need to generate that much power and not wait 5 or 10 years for nuclear is gas-powered turbines, electric turbines. Now, these are things that are about the size of a small house. They're turbines um the blades will speed at the speed of they'll actually break the sound barrier. They're spinning so fast. They'll in about 10-15 seconds, they'll suck in as much air as a blimp and then push out massive amounts of power and that's what you need for these AI centers. And so, I've seen this, I've been looking at it intimately and one of the things that you really need is GE Vernova. GE Vernova makes the kind of giant gas turbines that one of them one One the big ones and they often call them Jersey Boys because they they're not Jersey Boys the musical but because they get these big machines they call them Jersey Boys cuz they come from where GE Vernova had been and it's, you know, in New Jersey. These giant turbines can deliver that kind of power. One machine can get you 400 to 650 megawatts of power. That's like inner-city Boston. I mean it's it's pretty amazing. And when you put enough of these together, you end up with enough power to power massive data centers. And so GE Vernova is also has a backlog that goes back 5 plus years. Similar to ASML, they're investing in capacity. Whatever capacity they build, they will sell. And it's amazing because these machines work. They're they're fantastic. Um and so we like GE Vernova. The stock's been up a lot. We think it has a lot more legs to go. I don't think people realize just how valuable these turbines are to the world. Um the US needs, you know, I'm talking about turbines that generate 400-500 megawatts of power. Um a couple of them can generate a gigawatt of power. The United States needs at least a thousand plus gigawatts of power. So as much as this is the United States alone, let alone the rest of the world. So whatever GE Vernova builds, they're going to be able to sell. They're getting top pricing. And again, like other machines, they also get it's a bit of a razor and blades. They they sell the machine but the maintenance and the ongoing uh calibrations that you need from GE Vernova, they also make a lot of money on that. Once they get installed, they keep making money. It's not like they just sell it once. So for all those reasons, their earnings will continue to grow at GE Vernova. The real return on investment, by the way, is something like 20% well as if you look at Yahoo Finance elsewhere, it says 5% because GAAP accounting totally messes up companies like this in terms of what's really on the balance sheet and what really they're generating for operating cash flow. When you act when you calculate it accurately, this company's generating almost double the US average return. Um not less like you might see. >> Yeah, I think what you said that whatever they can build, they will sell is so true because we know the need for energy. I think about nuclear and and I we do so many videos talking about nuclear and how uh many people think that's the solution for the energy crisis in the US, but it's so far off. The the timeline it takes to build these nuclear power plants, even to develop these small small modular reactors, the timeline is just so long. Whereas what GE Vernova is producing uh is right now. This can actually help fulfill energy needs right now. And I think that that um is a slight advantage, especially in the short term, for the next 5 years or so for GE Vernova is that this is a solution that works currently, right? There's not a long timeline for it. >> Well, it's an immediate solution, and it's also a long-term solution. And the reason is you're looking at the United States, which has hit on the biggest the biggest fields of hydrocarbons, of gas, natural gas, pretty much in the world. And so in certain parts of Texas and other areas, you have virtually unlimited natural gas. I mean, they they almost can't get out of the ground as fast as it will pump out of the ground. I mean, you just have to put a pipe on it and send it to where it needs. So, that's one of the reasons Project Matador, the one that I've been working with for the last year, happens to be uh in Texas, is cuz that's the right place to build these things. And so you'll see a lot more GE Vernova gas turbine setting to those locations. But even worldwide, anywhere there's natural gas is a very inexpensive way to quickly get these turbines up and running online and get the electricity that countries need, that companies need, that people need. And gas, natural gas, can still be very very cheap if it's in a short pipeline and just plugs right into the the back of your of your site. So, yeah, for those reasons, it's also it's a short-term and a long-term answer to the electrical needs. I'm not saying it's a replacement for nuclear, but I think what we need is a multi-factor response to the big energy needs of the world. Nuclear is definitely one of them. Gas is one that you can get up and running right now, and it's amazing. >> Yeah, one thing with GE Vernova, too, to talk about just the the the chart right now, is it's had a lot of up and down volatility. You said the stock has run a lot, and it absolutely has, but we're not trading at those all-time highs that it's hit a couple of times in just the last 6 months or so. What is behind some of that volatility with GE Vernova? >> Yeah, I mean that's a great question. And I mean the big thing is GE Vernova is kind of a is effectively a very high beta perspective on whether or not the AI buildout is happening or not. And if you look, the pullback that GE Vernova's had really since June hasn't been about GE Vernova specifically. They had phenomenal earnings and everything that came out in their most recent earnings, etc. It's been really an issue about people having that second guessing of hey, whether or not the AI boom is going to continue and the investments going to continue to happen. Um and and when you really look at it, and part of it is if you think, and this is really when you understand investment cycles, there's a thing called the S-curve in investment cycles, which is the idea of things start slowly and they accelerate, and then you've got a deceleration, you know, even if you've got a new level that you're at. And what the real debate seems to be right now is where we are on that S-curve. Because if we've gone from $350 billion of spend to $800 billion of spend to $1.2 billion trillion dollars of spend, well, the concern is one, are we slowing down there? And two, the other concern for GE Vernova specifically has been really about everything that is what Joel and I have talked about ad nauseam really over the last, I'll call it 9 months, which is the idea that we are in the midst of the electron election, which is the idea that people are trying to figure out whether or not we're going to get the regulations out of the way to enable us to build the power plants we need to make sure that power prices don't go through the roof, right, for consumers and AI data centers get it. And and the question is whether or not regulations, as you see, everybody from Janet Mills, where I am in Maine, to Virginia, to Texas, right, with Abbott, etc., are they going to let us build data centers and power plants or not? And all those things combined with with question of when are we where are we in the S-curve? Are we at the slow down period of investment growth or is it going to keep on going up? Those two things have been kind of the GE battleground, but the real telling thing is when you look at this business and this is what comes down to what Joel was talking about. This is a company that's going from 12 gigawatts of capacity for turbines to probably 30 gigawatts of capacity for turbines in the next 5 years. That is a massive amount of growth and as Joel said, the backlog is there. So, what people are using this as this battleground story about whether or not it's there, the fact of the matter is the demand is so strong for GE, it doesn't really matter. >> If they can triple their capacity, they can probably more than triple their earnings because once things go into capacity, start making money on those, it's not just the sale of the machine. And so, why can't you see the stock triple from these levels? The volatility is a buying opportunity. This is one where you can really buy the dips. >> All right, another really great pick to look at. Let's move on to that third company that you are watching right now as a buy even during this high interest rate environment. >> Right, and this is a $60 billion company that I bet Bridget, almost nobody who's watching right now has ever heard of and it's Comfort Systems, FIX is the ticker. And so, what this company does is this company is basically a contractor and equipment and and and E&C company, an engineering and construction company that basically does HVAC and electrical work. And right, no surprise in the current environment, a contractor that does that really is somebody who people are very very interested in buying a lot of. And so, this is a company who their backlog has gone from something like $8 billion last year to upwards of $14 billion this year because of how much data centers, power plants, infrastructure for power, infrastructure for fiber, infrastructure for all these things needs exactly what Comfort Systems does, which is bringing the people to bear to be able to build all of that stuff. And what's really interesting about Comfort Systems is they have a bit of a competitive advantage over almost anybody else in this space cuz most people when you think about a you know, basically you know, a subcontractor or a ENC company, you think they're going to bring a whole lot of people to bear to build this thing right here and then stand it up. And right the issue there is scarcity of labor. It's also about navigating all of the stuff that goes on once you're you you know, you've got you've got feet on the ground to build something. What they do is really interesting. They've over the years built this specialty in doing effectively modular construction. So instead of everybody else who if you're going to say build a power plant or you're going to build a data center, well, you bring in the Jersey boy, you bring in the transformers, you bring in the power lines, you bring in the water, you bring in all this other stuff. Or if you're going to build a data center up, let's get the chipsets in here, let's get the um the servers in here, let's get the H back in here. Instead, they do this modular construction where they construction construct as much of it as they can in specialty facilities that they have. So basically, they reduce the amount of time that they have to have people on the ground to put things together, and it gives them a real phenomenal competitive advantage over anybody else. And the thing is they can do this because of their scale. Cuz they're bigger than everybody else. They can have the facilities all over the place to do this. That's really hard for anybody else to do. And so this is really interesting cuz this company, people don't understand because of the as reported metrics just how profitable this company is. It's not a 15% return on asset business. It's a 50% return on asset business. It's like four to five X what corporate average is because of these phenomenal things that they're doing and cuz of how massive the demand is for them. And that's why we think this company is just so interesting. >> Yeah, this is definitely a name that we have not talked about much on the show before. And it's more one of those names that's that AI infrastructure company where it's been around for a long time. It's doing this traditional thing and then the AI story changed the demand story for what they have to offer. I think when investors hear about companies like this, it is exciting to see how much demand is there and what that means as far as their earnings and how much they're actually making. But the question that so many have is a little bit like the S curve that you just talked about is how long is that demand going to last? How long is the growth story for this company going to continue? What are your thoughts on that? >> And this comes all the way back to that idea of negative free cash flow and why it is that we're seeing that negative free cash flow happen. And that is when you talk to Satya Nadella, when you talk to the management team at Alphabet, the management team at Amazon, the management team at SpaceX and what Elon is trying to do. Right, for all these companies, what they'll all tell you is, we are not seeing a slow down in demand for data center capacity. And so the idea that the S-curve is going to slow down isn't there. And the important other thing that's happening here, and this is what's important for a company like Comfort Systems, is there's this misnomer that the investment cycle that we're in right now is just AI data centers. It is about a re-industrialization of the United States of America. That was happening, by the way, long before we started getting tariffs and everything in 2024, um 2025 I should say. This is all about the idea that we are seeing not just semiconductor fabs being rebuilt in the United States, but also um broader factories and return of uh of supply chains and everything else. And all this is a long-tail investment cycle for these companies that is going to be lasting. And the last point that I'll make about this is we monitor uh over long, long, long periods of time how new and old assets are. Right, meaning how much companies have reinvested in themselves. And what's really telling is even after the last 3 years of massive investment that we've seen, when you look at how {quote unquote} new assets were. Basically, how depreciated they were cuz we're Joel and I are accounting geeks. Um assets are in um in terms of what they were in. We are halfway from a low of reinvestment, which we were in 2022, to the highs that we got in 2000. And through that we spent like seven plus or minus trillion dollars across the US in investment in hard assets. We're looking at at least another 7 to 10 trillion dollars, if not plenty more, to finish that reinvestment cycle to get to the kind of new assets that you see at the end of a boom of investment like we like we're in the middle of right now. >> This is the third or fourth inning of this baseball game for AI and any re-industrialization spend. It is not the ninth. It is not the back and it's still the very much the front end. >> I think that's something for investors to remember when they're looking at any of these companies that are seeing a ton of growth right now and you have fears of whether that growth could continue. We've seen over the last 2 years that that growth story is not slowing down and I think that third or fourth inning is a good estimate on where we are in that AI growth story right now. I also love that you mentioned some of this negative free cash flow and the amount of investment that these companies are doing because it's paying off long term and I know you mentioned a little bit about Elon and SpaceX. That is where you guys have really dug deep onto what the SpaceX IPO and all of the fundraising essentially that that IPO did for SpaceX and all of that reinvestment going into XAI and why that could be a game changer not only for Elon's companies but the other companies that are playing a part in that as well. So if you want to check out that special report, again this is a very fascinating discussion that is related to what we're talking about today but really it's its own in-depth story. You can get all of that with that special report from Rob and Joel. Just scan the QR code or click the link in the description to read some of the research. Again, it's a fascinating look at what's happening behind the scenes and that reinvestment and what it could mean for Elon's companies down the road. Also, it's a chance to just learn more from Rob and Joel which we love doing here on the show and you can do more of it by getting that special offer today. Okay guys, now onto the also very important part of this video and that is talking about the stocks to stay away from. So what is that first company that you were looking at as a potential red flag with the amount of money that they're spending in AI and whether that investment will ever actually pay off. >> So when you look at all the debt that's been issued is being issued by US corporates that is slightly driving up interest rates, especially on the duration of the longer bonds. We want to look at those companies and and so many of them are double-A, single-A, but one of them is not. One of them is triple-B minus, which means even S&P, Moody's, and Fitch, who are usually late to the game on these things in credit ratings, even they are saying they're concerned. At triple-B minus, you're just a half a grade above junk, above junk debt, and that's Oracle. So, Oracle's issuing debt, they're not getting the phenomenal interest rate everyone else is getting, and part of the reason is people are worried that it may not be paid back because they're investing in data centers proper. We're not talking about the power for data centers, where there's a lot of money, or the equipment suppliers of data centers, and we're not talking about one of because they're not one of the big AI companies. We're talking about one part of that supply chain that is heavily commoditized, which is data centers themselves, who are at the behest of all the costs of having to buy from all these high backlog companies, and then they're selling into a market where there are so many other data centers popping up at the same time. Look, I don't I don't want to get into how great we think Oracle was. I mean, I think Larry Ellison is was genius. Um, you know, there's a joke that uh what's the difference uh the joke is what's the difference between Oracle and um >> Larry Ellison and God. >> No, no. Larry Ellison and God. >> [laughter] >> What's the difference between Larry Ellison and God? Uh God doesn't think he's Larry Ellison. Well, Larry Ellison has done with Oracle is absolutely fantastic over the years, and building software is something you can't switch away from. But, the tough part is moving into data centers is a is not the best part of the supply chain to get into. It's the least profitable. It's the one where they may be issuing debt at 5 1/2% and not getting a 5 1/2% return on the investments they're putting into. That scenario we'd say negative free cash flow or lower free cash flow would be very concerning, and so Oracle's one of our big stocks that so many people own, and we'd say stay away from it. Sell it if you own it. >> Just to bridge it add to this. The for context, two things. One, and this is is distinction between when you think about a Microsoft and Alphabet or an Amazon with an Oracle. Cuz how can we say that we're so bullish on all these other ones and not Oracle? When you look, and this is what's telling, but when you think about that reinvestment that's happening, it's all about this idea of what is the marginal incremental return on an on assets on investment that you're getting from a business. And for all those other businesses, because when they build cloud, when they build data centers, they're not just selling an empty data center vessel. What they're selling is they're selling all of the services that go on to it. They're selling data storage, they're selling security, they're selling infrastructure as a service. When Oracle is building these data centers for OpenAI in terms of Stargate and everything else, they're building a dumb shell, right, which is effectively what a data realty or what an Equinix does. And that's why you've seen while return on assets have been very, very stable for the other hyper-scalers at around mid-20% returns, for Oracle, they've gone from 39% to 27% to 17% to their forecast 11% next year. And what that tells you is that all the investment that they're doing is pulling down return on assets, which is that bad negative free cash flow that that we talked about earlier as opposed to the good negative free cash flow that we're seeing from everybody else. >> Yeah, I know Oracle is one that has made your do not buy list before, a stock to avoid before. Um, and I've had a several people on the show before who have different perspectives on Oracle, and I think it's important to hear your uh accounting perspective on why Oracle is maybe not the best investment in this space. Uh, let let me hear from viewers. Do you have different thoughts on Oracle? I know you've heard from different analysts, if you watch our show all the time, who have a different perspective on Oracle. Let me know where you land on this stock uh in the comments below. Okay, guys, we have one other stock to get to that is on your uh stocks to avoid in this kind of environment right now. What is that last stock that you were looking at as a do not buy right now? >> Right, and that stock is the Rocket Companies. And this company has absolutely nothing to do with AI at all, but it does have to do with what we very started talking about the very, very beginning of this conversation, which is look, interest rates in the US, now at this point it's pretty clear, are not going to be coming down massively on the long end of the curve because of supply and demand with US corporates so aggressively looking to invest and borrow money to invest, that means they're going to keep the long end of the curve up, and that means that anyone who has a lot of exposure to mortgages and to the home buyer in the US is going to struggle, and that is Rocket, right? Rocket Companies are Rocket Mortgage, uh which touches I think something like a sixth if not more of every single mortgage in the United States today, also Mr. Cooper, which is the servicing of mortgages, and Redfin, which is, you know, basically along with Zillow, the way that you find what house you want to buy. Well, if you think about that business in a low interest rate or falling interest rate environment, amazing business to be in, but in an environment where we think that rates might stay higher for longer because of really good economic growth happening on the corporate side and consumer under stress, the market basically needs these companies return on assets to triple for it to be fairly valued right now. We just don't see a setup for that to happen, and that's why we're saying this is one you should avoid. Don't think that, you know, this is a company that's going to benefit because of what they've done to change their business. Don't think this is a company that's going to benefit because we're going to get a bid on, you know, on home sales. It's just not going to happen with interest rates where they are. >> I think this is a perfect example of why investors need to pay such close attention to what is happening in the economy, what's happening in the world because the story can change so quickly. Look at Rocket Companies 5 years ago when we were in that incredibly low interest rate environment post COVID, 2020, 2021, 2022, companies involved in mortgages were adding staff because they couldn't keep up with the demand for refinancing of mortgages, and now that story has changed very quickly, and investors who aren't staying on top of those stories and the headlines that we talk about so often on this channel, uh it really has true impact and trickle effects down the entire market. So, I think that that is such a good way to talk about why we pay attention to what's happening in the broader economy. Guys, thank you so much for diving into a lot of these issues today. We brought so many important things for investors to consider and also the stock list, always so good to hear your recommendations and your stocks to avoid. Appreciate both of your time today and let me know your thoughts in the comments about the their and their stocks to avoid. I'd love to hear your thoughts, too. And if you want to take a look at some safer stocks to look at in this kind of rising interest rate environment, we just had a new guest on for the first time who was talking exactly about that and some of those more dividend-heavy safer stocks to look at if you are concerned about some of the fear factors happening in the economy right now, you can take a look at that perspective here.