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Welcome to Stocks and Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicky, your host, and with me is Yahoo Finance senior reporter Ali Cannell, who’s here to keep the discussion easy to understand and very lively. And today we’re putting the fun in fundamentals. Our guest is a veteran of turning company financial statements into and unusual data sets in.To actionable trades. Our phrase of the day is data center. We use it a lot to describe the AI trade, and today we break it down and dig into some of the nuances you might not be familiar with. And a brand new segment for you, the viewers, which we’re kicking off today and calling Market show and tell. Today we’re featuring Apple and a potential merger and or acquisition. We’re gonna fill in the details. And this episode is brought to you by the number 50%. That is the gross margin threshold thatchipmaker Micron is expected to cross over the next year, according to our guest, and we’re doing a deep dive into this off the radar AI play. And guess what? Today we are welcoming Corey Johnson, who is the chief market strategist at Epistrophe Capital Research. He also hosts the Drill Down podcast and is a veteran builder in business media, having helped launch thetreet.com, also co-founding Slam magazine, which has been honored by the Basketball Hall of Fame. Fromcabs to improvising jazz guitar r to short selling stocks. Corey brings a wealth of skill sets to the table today. Corey, it’s great to have fun and
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fundamentals. Yes,
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sir. That’s what we’re here to do.
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You went with the Sesame Street line brought to you by the 50.
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Yeah, well, we don’t, we don’t use that phrase. We’re trying to get sued for trademark. Well,
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with all the, I think it’s just good to give them some love. You know, we’re all forit.
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I appreciate that and yes, I sentiment.Uh, how about some market talk? How would you like to describe how you’re seeing the markets for us right now? Big picture.
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Well, I think thatwe’ve got a bifurcated market. We have a bifurcated economy. You see tremendous success in some places. You see some reasons for war and concern in other places. So we see that in the market of, and it’s the same thing, right? So the thing that is driving our economy, according to Jerome Powell, more than anything else, is theAI spend. And the thing driving our markets more than anything else is the AI spend. So you can see, and indeed, if you want to look at the indices, I’m not a big index guy, but you would need to know who you’re competing against. And when you’re looking at the indices, the indices are driven by these, these, you know, these big companies in the world of AI. I don’t like the mag 7 name because there are companies in there that aren’t, aren’t the same. Some of these things are not like the other.We can go I appreciate that all day if we need to, but we can do that too. But I think that, uh, what we see from these markets right now is that, and indeed from our economy is that there’s a bifurcation of the success from the companies that are building AI infrastructure in the rest of the world. We also see in our economy where poor people and people of color are doing a lot worse than wealthy white people like me, uh, andTrying to be more wealthy. I don’t know if I could be possibly be more white, but I’m trying to drive this this economy to better places is happening in only parts of our economy right now.
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I hear that. And let’s keep the AI talk and focus here, and we’ll break down our phrase of the day which is data center or data center. It’s the buildings that power the internet and AI, rows of.Computer storage and cooling that turn electricity and chips into useful services. So what are your views on the data center? How are you playing this? How does it fit into your investments?
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So, um, again, I don’t, I don’t get stock advice, um, but I, I do run some investments and we cover a lot of companies for epistrophe Capital Research. My personal portfolio, I have a very concentrated portfolio ofYou know, probably 22 names right now, not much at all, and, and their size for different outcomes, hopefully all great outcomes, but the size for different things. Um, but we cover the 50 most important companies in technology, episttroph Capital Research, and what we see, um, I’ve seen the market, I see.Uh, the commentary I watched, um, you know, media and what what I read is a real focus on semiconductors, a focus on Nvidia and others. But I think we’re going to see a lot of what we saw on the internet build out, which was there was an initial focus on certain things back in the the dotcom era was a focus on networking, uh, and I, and I think we’re going to get to that with um AI. I think we’re going to start to see a focus on the other things that are happening in the data center. We’ve we’ve gone fromUm, Nvidia chips powering large language models and and and starting to develop to sell into a data center and then the scale up of building bigger data racks. Now we’re getting the scale out we’re going to wider and wider data centers, and I think we’re eventually and soon going to get to data centers that are connected by hundreds of miles, not thousands, as they run simultaneous workloads, um, managing large language models, training large language models, and as we move an inference.You can separate out away from the model just a little bit more than you could during training. And so we’re going to see the connections between the data centers matter a lot more. So we start looking at not just the GPUs from Nvidia and maybe AMD and maybe God forbid, Intel someday, but we’re gonna start looking at the networking componentry that connects these things, whether it’s the connectors, the cables themselves, um, the routers that go into data centers, they’re gonna be different than we saw in prior eras of area.Technology, but it’s going to be really cool to watch data centers grow out, not just grow up.
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And two things struck me from what you were talking about earlier. One is that you’re not a big fan of index investing, and one is that the mag 7, you tend to think they’re not all the same. So when we’re talking about data centers, what is sort of that next trade for you outside of your typical Nvidias of the world that gets a lot of attention
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right now. And to be clear, I’m absolutely for index investing and everyone.Should be index investing and if you don’t know what to do in the markets, you should be index investing. If you really think you can beat the market by some some way. I mean, I spent all day doing this stuff and I still have a lot of money sitting in in indices, but the parts of my portfolio, most of my portfolio is trying to beat these indices. I recognize that I’m, that historically everyone who thinks they’re like me is actually stupid and they’re getting beat by the indices and you can put the money into an index and walk away and forget about it, and that’s often a better way to invest. ButWhat I’m looking at is opportunities for one company to replace a product in the in the market right now with something that’s newer and better.And so I spend a lot of time trying to understand the technologies behind what’s happening, in particular in the data center, because we’re the greatest growth is in our economy. If it was an oil and gas, I’d be looking at oil and gas for my investments, and I have done that in the past. But I think that what’s happening in AI data centers right now again about networking, when you’re looking at a lot of the companies that are connecting our data centers to other data centers, I think that’s where we’re going to see outsized growth that is not priced in the market, even though we’ve seen some rich evaluations lately.
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Thank you for that. Hold that thought, because today we are testing the waters with a brand new segment called Market Show and Tell. And our featured ticker is Apple, which has been reportedly kicking the tires on smaller AI startups like Perplexity AI and also Mistral. Tim Cook says he’s open to deals that speed up Apple’s AI roadmap, and if it happens, this would be what falls under M&A or mergers and acquis.It’s when one company buys another or they combine, and it’s a shortcut to get tech, talent, or customers and deals can get done using cash, stock, or both. So Corey, your thoughts on any potential acquisition here by Apple?
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Well, Ihave the new iPhone. Yeah,
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so you’reyou’re part of it for
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the listeners right now. I said I wasn’t look at camera, but I, but I haven’t figured out how to turn the sound off of the messages, even when the sound is off for everything else. So if you’re a careful listener.For the rest of the podcast or what you might hear my phone noise that I don’t want it to make. Nonetheless, um, uh, very impressive, very impressive growth from Apple. Apple gets beat up about not having AI.But I think they might be smart to sit this one out and just to wait for to see what happens, so we to see where the smartest things happen in AI and look what see what AI looks like in the future. This company conserved cash very, very well. They are in a position to go out and buy things big and small as they need to, and I think that things are going to be on sale at some point in the next 2 years or so when it might become more important than it has been in the past. You know, AI has been a place for companies to lose money.Not make money and Apple is a company that wants to make money. They’ve been in that place where they’ve had near-death experiences, I think has permanently scarred the company. I remember when Apple was about to go out of business. I remember when Steve Jobs came back and the company had less than 18 months and it turns out less than 9 months’ worth of cash. So that is seared a memory in the folks at Cupertino, and they run the company accordingly.
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I want to rewind back to that for a second and kind of the dot-com area, the end of that.And that might have been around the time that Apple was struggling so much, but from a different angle, because phrase of the day is data centers, and what I remember from the dot com era, there was all this build out in fiber. And for years after we had the crash, demand just kind of plummeted. But then over the next decade, finally, all that, uh, all the supply ended up being used. I’m wondering if we’re seeing anything like
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that. Yeah, I’m actually working on a piece of.Search here. I don’t want to go for it. I don’t want to jinx it. You guys will get it in your inbox over the weekend, but all of that fiber did not get used. A lot of that dark fiber will never be used. There are technological problems with some of that fiber such that some people think they can just turn it on, that they, they did all this work that companies like Quest that we don’t even remember anymore, that were all kinds of accounting fraud, Global Crossing, WorldCom. They spent all this money, what was it called? Netcom.They spent all this time and money and billions of dollars laying fiber, getting access next to railroad tracks, connecting the country with fiber with the idea that we would connect your internet, uh, which we have done with a lot of the fiber in there, but they were working all of these funky deals where they were, the vendors were financing the customers and the customers were paying them back with bandwidth, and there was never any cash moving back and forth, and there was all kinds of financial fraud that accompanied that.So this dark, dark fiber in the ground, a lot of it’s never going to get used, and we’re going to need to put new fiber into the ground. If you look at shares of Corning, you can see this fantastic move in the stock. I think it’s gone from 40 to it’s 90 about now, if I recall. And part of that move is a lot of it’s the sales of the glass, the iPhone. It’s also um.notion that maybe there’s going to be some more fiber put on the ground that Corning is making right now. So the notion you can overbuild out eventually you’ll get to it doesn’t prove to be too because technology changes too fast.
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So you’re just talking about the dotcom era and obviously the dotcom boom and bust. That’s fresh in a lot of minds for investors, and there’s been a lot of bubble talk recently. I
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was justa kid then.
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Yeah, I
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mean, as far as you know,
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exactly who knows, but right now, where do you think we sit in that bubble debate, especially because data centers, earnings, AI, they all seem to be supportive of these high valuations, but then you also have maybe some yellow flagsemerging.
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So there are certainly overvaluations, right? And and umYou know, but this, I think that’s uninformed. I think if you look at what’s happening, if we look at the results from Micron last week, they showed us a company that is building for the future. I know we’re going to talk about this a little more, but, but we show, we see a company that is used to boom and bust cycles more than maybe any other.Any other company technology, nobody knows more about boom and bust than Micron. And yet you see a company that’s spending inordinate amounts of CapEx right now when we’re what some people are calling a peak in the cycle. And I just don’t see it. What the feedback we get from companies is that they are sold out. The feedback we get is that all of the stuff they are selling, unlike the fiber of 1999.All of the chips they are selling are getting used. They cannot possibly make more and sell more. And so, um, what I see is, is, is not a buildup in inventory. I see a massive consumption. I see that the AI tools that are being created are being used by users in incredible numbers that are growing and the use cases are growing. I think it’s, I hate this innings metaphor or this cliche. I’m not going to go with it. It’s very, but I think that there we go.I got, I don’t know if it had sound effects in the show or not. I was going to give a moment
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we can do all sorts of wonderful things,
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but I, but anyway, I think, I think this is still early, and I think we, I know that I am right because you can see it from what the companies are saying about what’s happening with the products as they sell them. The demands there.
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All right. Another hold that thought moment here and we’re going to tackle that after the break, but we do have to take a short break. Coming up after that, we will be talking about microns under the radar transformation.In a runway showdown, sure to be a slam dunk by any measure. Stay tuned.This episode is brought to you by the number 50%. That is a key threshold for gross profit margins of Micron Technology, a company that manufactures memory chips. And according to Corey, who’s done a ton of interesting research on the company, Micron will cross that 50% line for gross profits sometime in the next year, and as part of a long-term transition that Corey, you’ve researched meticulously by pouringOver job postings by Micron over the last decade plus. So fill us in on some of the details of your research here. Yeah,
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so we spenta bunch of time going over, well, so here’s how this started. I started off approaching Micron earnings, trying to think what the heck do I say about Micron earnings? I’ve covered Micron earnings for years and years. I’ve covered this company for years, but something different is happening. I can’t quite figure out what it is.So I, I, as I always do, I read the annual report and I read the 10 cus, and I listen to the conference calls, and look over the transcripts and I watch the earnings presentations just like every other analyst on Wall Street, but I’m, I’m trying to come up with something more. I talked to management. There’s something going on there that’s different. So I dumped all this stuff into chat GPT and I asked it to talk to me as if we were texting. Please don’t give me anything longer than two sentences. Don’t
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is agreat prompt. I’m gonna remember that. Let’s just
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go on for a while. Let’s have a conversation.Some ideas. Let’s kick around some ideas, because I wish, you know, because my dog doesn’t want to talk about micron, and I wanted to. And so, and I looked like a moron as I brought up stupid ideas. And what I started to think about was how microns, how high bandwidth memory is different.Than DRAM. DRAM was not terribly different than RAM. I know uh silicon engineers get mad at me for saying that. But as, as Micron has managed DRAM capacity and inventory, again thinking of boom and bust cycles, as it relates to both PCs and the phones, they, they, they add manufacturing capacity, they make more chips, they try to manage inventory, they make sure the customer orders are.Being used, the customers aren’t building inventory. They inevitably get caught towards the end of a cycle. The customers have got more inventory than they than they actually needed. They get, they hit some bumps and then they managed down inventory and as you said. And, and it’s, it’s, there’s some agricultural history here, you know, Micron came out of the potato industry with JR Simplot, and they, they also know about boom and bust in agriculture. So.Micron managing the boom and bust, it’s different this time, because high bandwidth memory is an AI, which is requiring high bandwidth memory, is a different kind of product, and the design is different. You have to understand two things, where companies are other companies are going with their design process. What is the roadmap look like for Nvidia 5 years from now, and how might high bandwidth memory look different?And what is the software that’s going to go into these devices that’s going to use an Nvidia chip perhaps and micron high bandwidth memory perhaps? And how will the software design necessitate changes in a high bandwidth memory?These are questions that old Micron couldn’t possibly figure out, because they didn’t have software engineers, and they didn’t have business development people in Silicon Valley in in armies of of people, and they didn’t have people in Colorado or in Taiwan managing relationships outside of the semiconductor industry in the ways that they do today, at least this is my thesis. So then I went back with, with some help from AI with my research team.And with the Wayback machine pulling down hundreds of thousands of pages of the history of micron’s hiring over the course of 22 years. And we put that into a database and tried to understand how it was changing.And what and then and how that related to the things we’re hearing from Micron, like I said, in the 10Q in the 10K in the 10Qs, in the 10K in the investor presentations, in the investor transcripts and my meetings with management. And what I found was a changing company and a change, a company that uh CEO Sanji Mahotra has really led some dramatic cultural change at the company and you can see it.In the hiring data, and you can see that this company is now employing people who connect with the fabric of technology companies worldwide in ways that Micron has never done before. And it’s really cool to see, you can see the specific job listings. So in our research report that we put out this weekend, we actually uh highlight different kinds of jobs over the years that reflect the changing culture at Micron, particularly in the last 3 years where they are.Racing AI for different kinds of products connected to the rest of the world of technology, which I think is going to which also suggests to me that they are planning for a longer cycle than we have seen in the boom bust world of phones and PCs.
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So what can other enterprise tech firms learn from this hiring metamorphosis from Micron? And are we seeing similar cultural shifts from Oracle, AMD, maybe even Nvidia?
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I would expect so anecdotally, but I haven’t done the research for those other ones yet. And
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another take.
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Well, now the ideas there. I I don’t want my competitors to steal these ideas. There are some better data sources that I’m exploring right now to do this in the future, but I do think that you are seeing companies like I was talking, I met with some startup tech CEOs last night here in New York City andAnd we were talking about Oracle and the great changes at Oracle, and I’m an Oracle shareholder and I, I love the company. There’s some people in the company I’m very close with and and I, um, uh, but it’s, you know, the changes at Oracle are, are definitely cultural as well as technological, and um you can see that the, the fabric of Silicon Valley keeps coming closer and closer together, and AI I think is making that happen once again.
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All right. Hold that thought. 3rd time I said that for this show. Lace up your sneakers. It’s time for who wore it better. And today we’ve got a basketball theme pitting the layup versus the 3 point shot. On the left catwalk, we’ve got the layup. Think short, high percentage shots, safe, close to the basket. In markets, that’s your steady eddie companies that send you regular cash payments called dividends, not flashly, but they add up. And on the right one.We’ve got deep threes, long range shots, harder to hit, but when they drop, the score jumps up fast. That is your growth names reinvesting to get bigger tomorrow rather than paying you today. One side prioritizes reliability and income, the other chases speed and upside. So Corey, which style walks off with a win in today’s markets? Are you team take the easy 2 or team let it fly for 3?
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Defense wins championships.We all know that. Where’s defense in your metaphor? Um, and there’s your index funds, right? And there’s your dividend. Um, look, I, I, I’ve been doing this for a long time. I was a journalist for a while, but I’ve been a professional investor for much of my career, just the world doesn’t know that because I keep that quiet money’s made in the dark. Um, but this is hard, and this takes a lot of work and trying to beat the indices.You know, people who are doing this for a living are the greatest, some of the greatest minds and some of the hardest working people in the world. And so, um, in order to beat the markets, it’s really hard.This isn’t like Peter Lynch’s show. I, my, my dad goes to Walmart. I’m gonna buy some Walmart stock, or maybe that works for some people, but I think this is really hard stuff. And so if you want to be the markets, you got to be willing to put in a lot of work and a lot of time. Uh, indices are perfectly fine for most people because then you’re just betting on the success of the American economy. Warren Buffett has written about this eloquently, that indices and reinvesting, you’re investing indices is great, but if you really want to do the work and learn about some companies, some companies are going to lead those indices, and some companies are going to outperform and some companies.Will be fakes and frauds and failed businesses, and I, I actively look for those companies and spend a lot of time researching shorts in the market.
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Do you look for underperformers or do you look for companies that are, you know, consistently trading your highs?
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So I never trade on valuation. I, because a company that’s not worth 150 times earnings cannot be worth 250 times earnings. Um, and, and it seems to be a new cliche in the markets that markets don’t depreciate because of overvaluation.But that’s, I think that’s a stupid comment because what really happens is something happens that makes people say, oh wow, why am I paying this much for the market? It’s the thing that gets blamed for the, you know, the market didn’t crash in 2008 because of overvaluation, but it was overvalued and was allowed to crash for that. It was easier to crash at that moment. Um, I pay attention to evaluation, but I recognize that the markets might not always be doing so. Uh, but II tend to get more nosebleeds when when the valuations are really high, and I don’t like to trade stocks. I don’t look at PE ratios as much as I look at peg ratios, which is price for earnings growth. If a company like Nvidia, it’s not a stock that I own or have ever owned, but if Nvidia’s massively increasing its earnings, then what do you care if the earnings ratio is really high? It’s the earnings growth ratio that I think is much more important, but that’sme.
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Any final words for investors? I know you like the index funds, maybe they’re the best for a lot of people, but for somebody who wanted to get started in stock picking, how would you start under a minute?
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I mean, I, I would start to understand what things actually are worth, and that’s where, you know, the, the little blue book that beats the market is what I’ve given all of my kids when they’ve showed an intro, my poor kids. But as young teenagers, all of my kids have read the Little Blue Book that that beats the market because it really teaches you about the notion of valuation. There’s way too much room that we’ve done as financial journalists. I’m not criticizing you guys, I don’t criticizing my old work, but pointing at a wiggly line on a screen does not tell you what something.is going to do in the future. I think technical analysis is ridiculous personally. I want to understand what a company does. I want to understand what the product is. I want to understand who’s buying the product and why. And then I have a sense if maybe this can be changing in the future, whether they’re going to sell more or whether they’re not actually selling as much as they say. Corey,
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we got to leave it there. We could probably go on for another 2 hours. Appreciate your time. And just a quick recap of what we learned. I loved mining.All these alternative data sets and using chat GPT to come up with investment theses. Micron, uh, really a company in transformation makes me wonder who else is out there really, uh, kind of under flying under the radar and doing some of these things, and, uh, you got to play defense. That’s another one. I’ll keep that in mind for future metaphors. And that is it for stocks and translation. Be sure to check out all our other episodes on the podcast on the Yahoo Finance site or mobile app.
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