Beyond Nvidia: Finding opportunity in the AI buildout

0:09Very happy to have back Mr. Joe Albano, who runs the investing group TechCash, spelled C-A-C-H-E, on Seeking Alpha. It's always great to talk to Joe about the tech space and how he's thinking about stocks and the market. Joe, welcome back to Investing Experts. It has been too long. Yes, thank you, Reena. It's glad to be back. It's always great to have you. So what are you thinking most about these days? On the podcast, we have been talking about earnings and tech names doing well, and yet the market sentiment does not agree or does not seem to be in the same place. We have a real volatile market.

0:53Where are your eyes and mind focused most these days? Yeah, so I've been doing quite a bit on the AI investment side of things to build out with data centers, the CapEx from all the major companies, you know, Amazon, Google, Meta Platforms, Microsoft, OpenAI, Anthropic, everybody who's literally building the AI infrastructure as we know it. And we're reaching a point where CapEx growth is substantially outpacing revenue growth. And so that means the easy money is gone, the cash on hand in some cases, but mainly the cash flow part of it. We're now dipping into negative free cash flow for the first time in some of these companies' history.

1:47And then for sure in the last decade where it's all been about growth and all those high margins and how cloud has allowed them to have 75%, 70 % margins with massive free cash flow. And CapEx was kind of moderate back then because they were just investing in simple run-of-the-mill data centers, not anything crazy like the AI compute requires now where it literally is 10x what we were doing just a couple of years ago. and that money is kind of disappearing fast. Google's taken out debt, Meta Platform's taken out debt, we're raising capital through equity funding, issuing shares and we're getting to the point where these buyers of this compute or actually I should say the sellers of the compute are now in a position that they're moving down the line on customers, moving from these large, you know, Mag7 kind of crew to the AI labs and the frontier labs, the ones that don't have proven business models, who don't have free cash flow at all, who aren't profitable, who expect that we're going to grow revenue 10, 20x over the next three years.

3:18And as long as they get more compute, it'll happen, as they tell us. I tell my subscribers it's like listening to used car salesmen. They're running and playing their book and they're getting the money. They're getting the private equity. They're now in the process of having NVIDIA and Broadcom back them, especially with NVIDIA financing some of these. Broadcom saying that they're facilitating some of this financing, but they're keeping it off their balance sheet. using their chips as basically the backstop. And it's really been an interesting time because we got here pretty quick. I don't think anybody realized that the CapEx growth we would see would already be reaching into negative territory in terms of cash flow midway through 2026.

4:12I think some people thought that was still a little bit further out. Yet at the same time, we're not seeing any kind of masterful AI takeover. We're still complaining about AI slop from day to day. And while I know there are many use cases and I personally and my business have been using AI, it's very limited. I can't let it go off and do things unchaperoned, if you will. It's a lot of investment. I understand that any industry that goes through a revolution is going to have a lot of up front investment. You're not going to see stuff until later on. But how long does it go on until that money dries up and you have to start showing proof of life on the other end?

5:06So, yeah, that's more on the fundamental side. that's kind of the through line I've been following with my subscribers on the fact that we're seeing this shift where financing is becoming more difficult. At the same time, we're getting headwinds from the cost of this compute. DRAM and NAND, memory from Micron, is now hitting peak headwinds, and we're seeing compressing margins. So not only are we investing more. We're getting less out of it margin-wise, which then, of course, doesn't help your free cash flow to continue investing in that. And it's going to be a make or break kind of moment here, I think, over the next year.

5:49Have you gotten any insight or special insight from recent earnings, or are you expecting to pick up anything from the upcoming earnings this season? Well, I just did an analysis on Broadcom's earnings. And while it has, you know, accelerating revenue growth, it has accelerating AI revenue specifically that is almost doubling what the revenue growth is, if not more, actually. We're seeing those compressing margins. Memory's costing more. Chips are costing more. Components cost more. we're in a supply constraint environment so we're not even able to sell into the demand they have but more on the financing side I know a lot of people got caught up with the circular financing basically NVIDIA is paying itself to have other people buy its products that it comes around and their revenue I think it's more nuanced than that I think financing like that is fine but what you run into is something with Broadcom where you're now talking about how we're using collateral for that.

7:02And the collateral is the very chips that they're selling. And one thing that stood out to me with Broadcom CEO, Hawk Tan, is the idea that these chips are custom, they're XPUs, right? So they're made to run specific workloads. They're different than NVIDIA GPUs, AMD GPUs, that are general AI workloads, that they're custom and they do better, which that is true. But at the same time, he's also saying, well, we can backstop the financing with those same chips because if one company were to go under, somebody else could just take those chips. And they're like, they can run frontier models. Now, the key word in there is they can.

7:43Of course they can. They're going to be able to run the same kind of concepts on the underside of that application. But they're not going to be the same... to the same extent or the same efficiency. The whole point of an XPU is that it runs your specific workload. That's why every single company has its own chip. That's why Google has a chip. That's why OpenAI has a chip. That's why Meta has a chip. That's why Amazon has a chip. They all have their own names. Tranium, you name it. Jalapeno, everything they have, they're branding them. That's why they're setting themselves up to run their workloads more efficiently than an NVIDIA GPU.

8:20So how can you say that you're backing the financing with these chips when the fungibility of them is in question. So we're playing a game of chicken here where it says, well, if something were to happen, I'm telling you something that's unproven, right? We don't know if somebody is going to pick up the slack in that supply of that specific chip. They may because they're like, we'll take whatever compute we get, but they're going to be trying the next day to find a better solution because it's not going to be as efficient as the ones that they have built themselves or designed themselves. So there's a real distinction there where we're kind of talking out of both sides of our mouths into a setup that nobody has proven before, on top of the fact that their customers are on unproven business models.

9:14Sure, they can have all the annual run rates that we talk about, billions of dollars for from Anthropik and OpenAI selling subscriptions and enterprise stuff. But what makes them any different than the next one? Every time we come out with a new frontier model, we're just playing leapfrog and going through that. While some of them have their specialties, Claude might be better at coding, OpenAI might be better at image generation, Gemini might be better at doing certain math problems. It doesn't, to me, there is no moat there. Until the next person comes out with a better one, that's just who the leader is for that moment.

9:52And trying to finance them based on that they're going to not go under, right? And I'm not predicting that they're going to go under, but if something were to happen, this spirals out of control really quickly because say, for example, OpenAga goes under. Again, disclosure, I'm not saying that they will. If they do, they're assuming that everybody else continues like nothing happened, right? But if they go under, there's a reason for that. And that means the business model didn't work. Well, Anthropics business model is then is in question. And who's going to start financing a business model that's in question?

10:27So I think it's a house of cards and the financing. And as long as nobody blows on it, it's going to be fine. But as soon as something rattles it or blows on it, it's going to happen. Were you surprised by Broadcom's guidance that they offered up in their call? In terms of the growth and the fact that they're now out to fiscal year 28 in terms of what they're thinking? Yeah. No, not really, because I think a lot of this, we're in a supply constraint environment, so that demand just starts backing up and they have a line of sight of that. So to me, it's not surprising. I think Broadcom is just a little further behind than some of these other companies like Nvidia you know or whoever else is you know helping with these XPUs on their side so it's not surprising but I think it's overshadowing a lot of what I'm seeing on the undercurrents of like well as long as this house of cards plays nicely yeah that'll all work but we're talking two years out in a situation where everybody's rushing to find, you know, AGI.

11:34And if that doesn't happen, then, okay, then what? Do we keep kicking the can down the road? And at what point does that money really run out? Because we're in the debt markets at this point. And while people are willing to hand out a lot of debt, it's a finite system too. You know, obviously, even equity invest, you know, share offerings are finite. Until somebody stops buying them, it's fine. But how far do you dilute your shareholders? And unless, I mean, honestly, unless somebody figures out AGI and all the money just starts funneling towards them, we're just going to be on this continuous path of breakthrough that doesn't come.

12:20Anything else you would note, like stock specific wise, that you've been taking away from earnings or that you've taken away or that just stock-specific kind of highlights that you have in general at this point in the cycle? I mean, from a technical chart perspective, I've been keeping an eye on a lot of these names. Most of them are in corrections now. The question is, are they complete or is there another leg coming? For some of them, it looks like there could be another leg coming. And as we head into the end of the year, that could be lower lows that we wind up hitting that I think turn into buying opportunities because I think there's still one more rally after this before we really complete the sentiment run that we've started from years ago.

13:04That includes Google, that includes NVIDIA, that includes Micron. The only one that I'm hesitant on is Broadcom. I think Broadcom might have been one of the first to top. And I wrote about that actually back in December that it may be one of those first ones to top, just the way it's structured. So the way that we bounce from here for Broadcom is going to be more insightful than some of the other ones because I think if Broadcom isn't able to put together a new rally with the right structure, it just may be somewhat of a dead cat bounce that might last several quarters. There's better opportunities, I think, with NVIDIA, maybe even Google, but even some of them, they may look for more near-term lower lows, maybe not as long-term as like maybe Broadcom I'm looking at.

13:51But yeah, I think sentiment is still churning here. In my methodology, sentiment leads. Fundamentals lag. So what we're seeing now is basically the fundamentals catching up to where sentiment has already been. And now we're in this correction where we might be looking at the fundamentals still look good, but market's taking a breath here and consolidating before the next advance. What else would you add to this conversation in terms of retail investors looking at the space, looking at tech space, wondering kind of like how to suss out? Does it matter which column they're in in the tech space? Is it more important to look at the metrics?

14:28What's the most important thing for them to be paying attention to right now? For me, I've been, I set off in this year in 2026 here telling my subscribers I'm going to branch out from all the popular names, right? So I'm going to look beyond the NVIDIAs, the Microns, the RISTA networks, the Googles, the Amazons, the Microsofts. I'm looking at who is benefiting from the build-outs, right? Looking at energy, looking at opticals, looking at components down on two layers below. And one of my favorites this year has been Bloom Energy in the behind-the-meter energy space for these data centers. And the runway it has, I think, is much stronger than some of these other names that are at the top of this CapEx kind of exponential list of money moving out.

15:19I think I'm looking at where is that money flowing to that's absolutely necessary. Obviously, land, shell, power, everything else comes in component size. so I've been looking at Bloom Energy looking at its setup and I think the nice thing about it is that even though the data center is pushing it energy is still energy and this can stretch beyond just data centers AI data centers even though that's now becoming the bulk of this or at least the bulk of its revenue you still have industrial you still have other use cases for it because as they expand production So basically AI subsidizing that production expansion, it becomes cheaper elsewhere to bring it because it was one of the most expensive, but it's also the quickest in the market to stand up power.

16:12They basically have a 90-day SLA and they get it done in about 50 to 60 days. So that's practically unheard of. Even trying to get gas turbines on site can take months or quarters, mostly because we're now behind on the supply of them too, but also just permitting and things like that. Elon Musk basically kicked off this whole behind the meter thing and gas turbines were the first place to go. but they realized quickly that pollution, noise, it's not in my backyard kind of situation stuff. So, Lumenergy, quieter, more efficient, quicker to stand up. It doesn't require the same amount of permitting.

16:51That's one area that I'm looking at. And can it meet demand? It is not able to right now, and it's quickly expanding. And, yeah, I'm looking at that. Looking at other places like Opto Electronics, AOI specifically, they're trying to meet demand as well. They're on both sides of the new generation of pluggable optics versus standalone optics. And they have an advantage of having their own US-based production that they're expanding. So two different sides of the same coin, but both playing off this supply constraint environment that everybody needs. Because at that point, when you have the shell built and the land and all that stuff and the compute coming in, you're going to need these things.

17:38So we're already well into that process that even if funding were to slow down at this point, we're still building for another year out for data centers that are already paid for, essentially. What would you say? I've been talking a lot to Steve Kress lately. So whenever I hear about a stock that I haven't been looking at, I go to our quant page and it's a hold and a failing valuation grade is something that I see a lot these days. And that's something that Bloom Energy has. What would you say about that part of the valuation process. Yeah, I've paid less attention to valuation. And I know people are going to jump out of their chairs saying that for me saying that, but hear me out.

18:16Valuation is just a second derivative of sentiment, right? Stocks get cheaper all the time. Stocks get more expensive all the time. It's not an indication of where it's going. Even if you look at forward PEs and forward price to sales and all that, it's just a second derivative of sentiment. You know, how expensive is it and how cheap is it? I'd rather just go to the source and go to the stock chart because I can only profit off the delta in the stock price where I enter and where I exit. The rest is irrelevant to me as far as a methodology of profiting. I think people like to, you know, go down the rabbit holes of, well, it's really expensive, really it's all this.

18:55I don't care essentially how expensive it is if it can get more expensive. I'm going to profit from that delta. So to me, you know, you're looking at a metric that doesn't give you the insight into where's the stock going, right? The chart is going to lead, sentiment is always there. And the fundamental outlook is long term, which is why I look at a bloom energy and where the runway is, and how much more it's going to be able to produce, right? Fundamentals are part of it. They're just not the leading part of it. Sentiment is going to lead those fundamentals. Eventually, those fundamentals catch up.

19:36And then what you have really is a receipt for what sentiment already paid for. So you wind up with a fundamental situation where it's like, it looks really expensive. And then it doesn't in two years. But in two years, I've already quadrupled my money. And you're just now looking at it. So to me, I don't know why I would do that. I would go with the leading indicator and it's not fundamentals and it definitely isn't valuation. What else would you note or what other stocks would you highlight for investors? Well, we can actually hop off some of the AI train here. I'm looking at some cybersecurity.

20:11Rubrik is one of my favorites. I think that has a good outlook in terms of its products. where it's, we're seeing, I mean, I don't know if it's a marketing tactic or not. I kind of reserve that judgment right now with, you know, OpenAI having its new models break out and go into hugging face and take over things. And people are like, how did that happen? I don't really know if they're doing it on purpose, but I don't think they're also setting the right safeguards to stop it. And it becomes marketing, right? It's like, look how powerful our stuff is. We can't let this get out into the world. And four months later, there's Fable 5.1.

20:52We were just talking about Fable 5 being too powerful. Now we're on 5.1. So I think it's all marketing. But the interesting thing about it is it's driving people to understand the security around it. So if we have enterprises that want to go to agentic AI, well, they're proving either way, whether it's real or not, that they're not safe in their own sandboxes. So we need some kind of systems and security to hardest that and to prevent it from multiplying and escaping, essentially, causing collateral damage. And Rubrik has a product that is actually interesting. And I've always talked about their business model being genius.

21:36They've always said the inevitable breach hack is going to happen. Right. We are a model assumes it just happens. Right. There's no stopping it. So let's prepare for it and be the fastest in rolling back and undoing the damage. So their their business model has always been taking that the bad is always going to be there. So let's work to mitigate it the best. And what they're doing with agentic AI is that they've built a system that they're using internally, what we call dog fooding in the industry and using their own product to monitor their own agentic processes. now that product is available for enterprises to buy and then they have been over this year and a lot of what we've seen with you know the open ai models escaping um i think has really put a concrete conversation in boardrooms about oh i thought we were good in our own sandbox you mean we need this before production and yeah the answer is absolutely um because you know you're you're controlling things you think you have with guardrails but AI is going to be too fast to make decisions, even if they're wrong decisions, to stay on top of it, right?

22:47Some human monitoring and some static guardrails, some rules that you set up and say, don't do this, don't do this, they're going to work around. So what Rubrik has is a product that is going to provide or does provide the ability to stay on top of it and stay one step ahead. And if it were to happen, roll it back and undo it, rewind it. And I think that's key. I think this is actually going to be a bigger product than their typical cybersecurity, you know, overall enterprise kind of network management of users and processes and tasks that run, you know, autonomously. Because it's going to move so much faster with agents.

23:29So I love their product. I like where they're going with it. And on the chart, I'll give it away a little bit. I've been talking to subscribers about on the cusp of probably a rally here. obviously it needs to hold certain parameters on the chart and needs to do it at a certain structure but I really like where it's been I've been following it all the way down into the lows from I think it was earlier this year probably Q1, Q, maybe early Q2 March, April timeframe watched it all the way into the bottom watched the structure off the lows been keeping my subscribers apprised of that they've been profiting and having a fun time because it's been really clean and really good structure.

24:09And now we're setting up to really buckle ourselves in and wait for that next launch that I think is coming. I appreciate that. Just out of curiosity, because it's a stock we've been talking about, that there's a disconnect. Do you follow Credo technology at all? A little bit, yeah. I'm not quite as heavy into my analysis there, but I've definitely done some chart work on it. Any thoughts you'd care to share? Yeah, let me bring it up just because I don't have it top of mind. But I hate to say something where I'm like, nope, that was totally off base. I think Credo is actually kind of earlier in this entire run.

24:49Obviously, IPO, you know, sometime back in 2022. So right around this whole AI kind of setup. But I think it's actually run so far so fast that it's actually completed its structure. And now we're in this longer corrective setup. So I think it finds support somewhere around here. I have support somewhere down near 148, give or take. My setup looks like it's going to just have a bounce and then be followed by lower lows into more of a correction. So I think I'm going to be really patient on Credo in terms of the chart and let it prove it to me. If we do see five waves up in my Elliott Wave Theory analysis, I'll switch.

25:33but again that has to prove it to me because I think it has set itself up to have some kind of longer correction here could probably very much go back into the double digits before it sets off on its real large rally that I think might be coming after that that it might be one of those laggards that didn't get its shot in the market yet, and I think that's still coming, but I think it's going to have to work through a more prolonged period of consolidation before it does. Any thoughts on NVIDIA's purchase of Hugging Face? Yeah, I thought it was funny that, or maybe even ironic, that it now purchased the one thing that one of its clients essentially broke into.

26:25I think NVIDIA has been on this spree. this is the first time they're really doing something on uh outside of like the chip design side right because they they brought brock just uh i don't know i guess that was a few quarters ago now um or they just closed it so probably announced it a few quarters ago i can't remember so there's a lot of m &a going on um and uh it's the first time that they're really going into like the service space the application layer um and and owning that i think they're doing it more for the model hosting, that kind of stuff. They want to have their hands in everything because if they can advance models of their own, well, they can advance the chips of their own, which they've already been doing, then they sell that and, you know, Taiwan Semiconductor benefits, Micron benefits, all these semiconductor chip manufacturers benefit.

27:18So I think they're just living in that virtuous cycle that as long as they keep improving everywhere, everything else keeps improving everywhere. And they're creating this nice feedback loop for themselves. So hard to bet against M &A on NVIDIA. I think their best one was Mellanox several years ago when everybody went, why do you want networking? Until they realized that they were building the best and biggest racks in the world now because of that networking. So yeah, I think Jensen Huang has a lot of foresight and it'd be hard to bet against him fundamentally. So, um, yeah, I, I think, uh, it'll be interesting.

27:56I think it's obviously very strategic and tactical what they're doing with it. Um, I don't know if they see any kind of immediate kind of, uh, revenue growth from it outside from what the business itself produces. Uh, I think they're going to, uh, amplify everything that they do internally, which then, you know, generates, I hate to use the word synergy, but a more cohesive expansion of their business rather than just a bolt on. Do you, who are your favorite managers in the space, would you say? As far as like CEOs? Mm-hmm. Yeah. I mean, Jensen, you know, hard to bet against him. It is hard. Yeah.

28:36He's proven it, right? He's the real, he talks the talk and walks the walk. Yeah, and sometimes he talks to the used car salesman kind of, you know, rhetoric too. But I think he knows where the line is and how to, he sets the tone essentially, right? He's the trendsetter. So he can do that and then say, look, here's what we did. And then just match the definition to what he's talking about. Not that he's lying about it, but he's able to control the narrative. So it's hard to, you know, not mention him. even though I think was it time didn't mention him in top 100 AI influences this year so I don't know the world's upside down sometimes but uh Elon Musk another one um guy is crazy yeah I think we can all agree that he's crazy but he uh has produced stuff that nobody else has so when he starts putting turbines in your backyard and you start standing up data centers faster than anybody else and produces something yeah it's kind of hard to say that you know he's just full of crap.

29:32So I like where he's at just because he likes to push the envelope. So you got Jensen Wong, who's pushing the envelope one way, Elon, who's pushing the envelope in just what we can imagine. Yeah, so those are probably my top two, agree with them or not. They've proven results that happened, whether they happen at the right schedule or on the timeline that they have. I mean, that's really been the biggest thing about this whole AI thing. I don't have the exact number in front of me but I think we're 52 months into 6 months until AI takes my job so that narrative has died quietly while some people say that all of Anthropics code is written by AI there's still people sitting there pressing yes and no on pull requests to push it in do all that kind of stuff so yeah while code is being written by AI has it taken people's job maybe I don't I think because I see it from the inside as a software configuration engineer working alongside software developers software engineers I see it I mean it's not like it's not there but it's just like I tell everybody it's like the early days of Google back in 2001 Google is not the Google you know today You had to know what to search to get the answer you wanted.

30:58You essentially had to know what did you want to get out of it to search for it, right? That's where we are with AI in the sense that you have to know how to use it in order to get the thing you want out of it. You just can't go be like, create this app with these features and send it off. It'll come back with who knows what. And you'll be like, I don't know, what kind of decisions did it make here? You have to really be on top of this stuff. and for large code bases, it's not very effective. Great probably for small modules, functions, things like that. I've seen that. It does work well for that.

31:32Anyway, I've gotten off track on who's the best management in the business, but it just goes back to the idea of they're all speaking the same language. They're all putting their book up front and talking their book. So it's the ones who are actually able to prove something and produce something that I listen to. So I'll listen less to probably the Frontier AI Labs because you're the king of the hill until you're not. And we make all these timelines of, you know, nobody's going to have a job, universal income, all this stuff's going to happen in six months, then six years go by. And I haven't seen that.