Hightower's Chief Investment Strategist on the Case to Buy SpaceX, the AI "Food Chain," and Whether It's Too Late to Buy NVIDIA

23:29One is AI because we have no idea what that means for our business. And two, cybersecurity because we can't afford to wake up and lose our business. And he has 20 vendors. This is Hightower. We have 20 vendors because not every company offers everything. But the problem is these 20 vendors don't talk to each other, which is why we have cyber attacks all the time. So I think you're going to see massive consolidation in this sector The big five get bigger and bigger. You know, CrowdStrike and Palo Alto and Cisco, Zscaler, so many different. IBM, a lot of companies out there that are going to get bigger, offer more to their customers because there's the demand, there's the need.

24:15And we're going to see this for the next decade. So what's the best cybersecurity stock to buy? So for me, Palo Alto is my favorite. Here's the interesting thing. These stocks got clobbered in the AI is going to kill software apocalypse that happened in January and February of this year. The fastpocalypse. It was crazy. But cyber got hit as well because they are software companies, but they're also hardware too. They got hit really hard. And so in March, when they hit their lows and they were like down double digits on the year, two CEOs actually bought stock. Palo Alto CEO bought$10 million worth of stock in March, almost at the lows, and the same with CrowdStrike.

24:57Those are the two best, in my opinion, but you could own a whole package. You could own a bundle of the names I just mentioned, throwing Fortinet in there. So CrowdStrike, Palo Alto, Zscaler, Cisco, Fortinet, you could put them all together and have a bundle. You can own HACC, which is the ETF, if you don't want as much volatility. Yeah. I have ETFs for all of my things.

25:23Nicole Lapin:No, that's a good name for what it is. Right? I know. I mean, my husband bought CrowdStrike. I was flying that day of the big debacle that they had. Oh, yeah. And so all the airlines infrastructure went down because of it. And CrowdStrike was to blame. And the stock got hit. And my husband's like, I'm buying CrowdStrike. It's on sale. That's the best advice to give anyone is if you can find the number one or number two player in any given industry that goes through a crisis, but that you know the management team is top notch, which CrowdStrike is, that's when you want to be buying. You want to buy on strike, right?

26:04We buy low, sell high. People say they do, but they don't. It's the hardest thing to do.

26:09Nicole Lapin:It's the only adage on Wall Street, and it's the hardest thing to actually do because of human emotion. But I want to buy my shoes on sale. You do too, right? I mean, and then when it happens, it's just such an emotionally tough industry. But high quality, to be clear. Like sometimes when they're on sale, it means they're in the pooper for a reason. Oh, absolutely. And by the way, CrowdStrike was in the pooper for a couple months, maybe even quarters. Yeah, they're in the penalty box. But it's so rare to get the number one company down 50 % in a matter of months because everyone was just attacking.

26:42but you know the CEO why I knew it and it's funny your husband was buying it I I never owned it and I bought it on the on the collapse too because I said this this CEO his reaction mechanism was something textbook yes he went to see all of his customers one-on-one 500 different customers on it yeah he went everywhere and he was on TV all the time he looked horrible by the way didn't I mean, he had some stuff going on.

27:10Nicole Lapin:He had some stuff going on. But it showed that this was a winner and this was a dude to bet on too. That whole crisis, it felt like it put a fire. 100%. And that is like the number one thing I look at. I look at a lot of fundamentals when I'm looking at stocks. But the number one thing that's really important is to get to know the leadership team. You can, and I'm lucky I'm on TV and they reach out and we get to meet them, but you can listen to conference calls. They do them all the time. You could read some of the transcripts. If you like watch these great leaders, what makes them such great leaders?

27:50Because they can, they can actually fix the problems when they do have problems. They can actually grow and they have great strategy and they have great execution. That's really important. But in the bad times, it's how do they react and how do they respond? And history is a guide on that.

28:07Nicole Lapin:So if you were to buy one cybersecurity stock, would it be Palo Alto Networks? Yes, absolutely, 100%. Because they, well, first and foremost, it's half the price, half the multiple of CrowdStrike. CrowdStrike trades at a premium valuation for a good reason. It's number one, the best, everything. But Palo Alto, it's a little bit more attractive in terms of the valuation, but I like what they're doing from a strategy point of view. In the last six months, they've made$30 billion worth of acquisitions. And so what he and team are trying to do is have more stuff that they can offer to their customers.

28:47Remember I said no one company is a one-stop shop. in offering all the cyber needs for their customers. So they're getting bigger and bigger and bigger. And so not only do you have the secular total addressable market there, I think it's, by the way, over$2 trillion easily in the next four years. Not only have that, but now you have something that the company is doing that you can watch to see how the synergies evolve over time, which I think is really a lot of fun.

29:18Nicole Lapin:I love that you're doing the undercover boss thing. I mean, a lot of investors will say they also talk to their kids to see what's cool and what's coming up next to see what to buy. But you're like talking to the CTO and figuring out what's the needs there. And it's it's it's a you do a little bit of a little bit of everything. I love what you just mentioned, because I am a firm, firm believer in investing the way Peter Lynch, the great Peter Lynch invested. Right. Peter Lynch was the CEO. I know, you know, from Fidelity Magellan Fund. And he actually, his returns, did you know that his annualized returns up 29.5 % from 1977 to 1990 when he was a PM beat Warren Buffett?

29:59Okay, Peter. He's there. Right? He's a rock star. But he used to say, invest in what you know, invest in what you see, invest in what you experience. Absolutely invest in what your kiddos are doing because they are super smart and you learn a lot. But keep it simple. And what's your daughter buying these days? What does she think is cool? So she started investing. We gave her some money, small money, when she was five. Stop. Five? Five. And because I was always working nonstop. My laptop was always open. Bloomberg was always on. It was always red and green. And she'd be like, what's all that going on?

30:32So we taught her. She didn't really understand. But I said, well, what do you like? Well, I like Estee Lauder because I like Mac. I like Mac makeup. I'm like, because she was five years old. She was wearing my Mac makeup. So it's that. It was she liked Nike. She liked Google. She liked to search. And so she liked Microsoft. There's a lot of things like it's just common sense. And so I think what's also very interesting, and she's a Gen Z, so she's 19. I think what's really interesting is how influential the influencers are. And I will tell you that they really listen and watch and buy and react to the influencers.

31:14Some are good. Some are not so good. some of you agree with, some of you don't, but it's a big thing. And I'll tell you what her friends are buying, and I won't let her. They're buying crypto. They would rather own crypto than stocks. And when she told that to me, I told her to stay at college because she wasn't allowed to come home. I mean, that's like, no, you can't. I mean, you can own a little bit of crypto. One percent. One or two. And you know what? I would rather own the exchange or exchanges because I don't know. And Coinbase. Yeah, Coinbase. I don't know what the price of Bitcoin is going to do on a day-to-day basis.

31:46I don't think anybody does. But I know an exchange needs a buyer and a seller, and I know I have that. And they're also broadening out into other currencies and other products as well. So that's the way, my chicken way of playing that. But that generation, they're all in. How's her portfolio? She's doing better than me. She is super growth and just quality. And I'm a little bit more growth at a reasonable price. So I do own like the financials and the industrials and I love that stuff. But, you know, it's really paid to be the growth investor over the last decade. No doubt.

32:20Nicole Lapin:Waste management for the win. So what are you not buying or what are you staying away from? Crypto. So crypto. Yeah. Yeah. Crypto. I would say I think Bitcoin's way down though. Are you buying? It is. I'm holding. I'm holding. It's we'll talk. We can talk SpaceX in a little bit. It's like Like SpaceX and Coinbase, I'm holding for like putting it, setting it and forgetting it, putting it away forever because I think they will accumulate over time. They'll be volatile. But yeah, it is way down and it is very tempting. The only thing about Coinbase is it's just so volatile. At any given day, it could be up 5%, 10%.

32:55And I don't want that to be ruling my portfolio and being in my head. So it's a small position. I kind of keep it there. And yeah, I mean, if it were to continue to pull back, I might add a little bit, but I don't want to trade that. I just want to be like more of an investor.

33:10Nicole Lapin:Well, I like your thesis that Coinbase is the infrastructure. It's the platform that all the coins have to use. So I'm assuming that you don't have individual coins. No, I don't have individual coins. No Bitcoin? No Bitcoins. I know, no. I just have enough exposure with Coinbase because guess what? It's going to trade with Bitcoin. It's going to trade with any kind of crypto. And it's a risk-on asset. I mean, I know people say it's a diversification. It is, but it's also risk-on. And in fact, there's a high correlation between non-profitable tech and Bitcoin in terms of you look at a chart. You love ETFs.

33:44What about Bitcoin ETF? Absolutely. 100%. I mean, is it? You can own any one of them. I think like BlackRock, you can own, JP Morgan, you can own whatever one you want to own. And I almost prefer an ETF for the viewers here because it's a little less volatile. It won't go up 5 % and 10 % in a day like a Coinbase kind of thing. But by the way, I think the reason why crypto has done well in the past several years is because of the innovation with ETFs and people embracing it. Yeah, more institutional money coming in versus retail investors. You also asked me what else I would not own. I think consumer staples are super expensive given the limited growth that you get.

34:31I know that everybody knows Pepsi and Coke and McDonald's. McDonald's. Like PNG. Yeah, those kind of names. They're expensive for what you get. You need to own one or two of them in a portfolio for diversification purposes, but I just think that there are better values elsewhere. And I do think, I might be wrong on this energy thing, but energy stocks trade with the commodity. And if you believe my story of commodity prices coming down and oil prices coming down and likely to come down further, it's going to be hard, I think, for them to outperform, especially after they've had such a nice run.

35:04Could you own Exxon, Chevron, I own SLB, Schlumberger? Sure. But like right size it. It's very, talk about momentum, it just follows the commodity, even if you want to do the fundamentals. Yeah.

35:18Nicole Lapin:But what about alternative energy or what about nuclear? If you're thinking about like a thesis around AI, you know, my husband and I think a lot about what is lower in that stack. So you need alternative nuclear types of energy. I know there are two types. You need uranium to power that. 100%. That's part of the, but not the traditional energy companies. They'll benefit too. But we're talking about in terms of power, it's nuclear, it's coal, it's natural gas. You're right, it's renewables. I think over the long haul, it's going to be natural gas that wins because we have a ton of it. We just don't have enough pipelines.

35:57So back to my food chain of, okay, AI and the companies that are spending, all those companies are spending that$800 billion. They're spending it on building out data centers, putting stuff inside of data centers, upgrading the grid. 75 % of our grid, electric grid in this country is over 25 years old. It has to get upgraded. And that's also companies that are going to be building that out. Who's behind them? Like, who can we buy? Qantas Services is one, is a big, it's a great company. And let me tell you about Qantas Services. They had an analyst meeting a month ago, and they're such a conservative company.

36:3570 % of their customers are utility companies, right? So they're building with a grid, and they're doing all the infrastructure with the utility companies. They said at their analyst day that their total addressable market between now and 2030 was$960 billion. They raised it to$2.4 trillion. This is between now and 2030. This is the most conservative, I'm telling you. I've known this company for years and years and years. When I heard that, it almost fell off my chair. Happens to be a very big position for me. But they are involved in all the aspects, in the data center, in the grid, and then also on the power side.

37:11What's the ticker? PWR. It's a great, great story. Listen, sister, give me a boring stock every single day, all day, every day, twice on Sunday. This is, I mean, this whole sector, so this whole theme, it's Qantaservices, GE Vernova. GE Vernova actually is sold out in their power until 2028, sold out. And they supply 30 % of the global electricity in the world. So they are a big, big player, the top three player. So that's GE Vernova. Vertiv. Vertiv is a company that puts, they're inside the data center. They make the cooling systems front and center. So you need, I don't know if you all know this, but the data center gets super hot and the chips won't work if it's hot.

37:58So you need these air conditioners. And that's what Vertiv does. It's like the end-to-end solution. And they also have services. No one really quite does it. And talk about management teams. The executive chair is a gentleman by the name of Dave Cody. Dave, you probably know, was the CEO of Honeywell for 15 years. When he was the CEO of Honeywell for 15 years, the stock was up 450%. He is a rock star. When he went to Vertiv, I'm like, I have to own that somehow, some way. So to put it into context, though, about the cooling systems and the stuff that goes inside the data centers, because, again, this is a huge theme, too.

38:38It's if you want to build a one gigawatt data center, you need 500 acres of land by law. And you need the box. Okay, that costs$3 billion. You have to put stuff inside that box, meaning the cooling systems. I love that you're explaining to me like I'm five. Because I can only understand it that way. But like you have to, you need the cooling systems, you need the transformers, you need the wiring, you need the semiconductor chips, you need software. All of that costs$40 billion. So you're talking about one data center to build out costing over$40 billion. So this goes right back to where we started with these big tech companies.

39:20Why are they spending$800 billion? Because it costs so much for just one data center. And we have only 11 ,400 data centers in the world. And we need 30 ,000 by the end of 2030. We're not going to get there. It takes three years to build a data center too.

39:34Nicole Lapin:So your thesis is the downstream beneficiaries of AI are going to be the real picks and shovels, the winners of the AI boom. Yes. So what else? So cybersecurity, we have all the data center stuff and AC and whatever. Yeah, the food chain. Just say the food chain. And the CEO of NVIDIA calls it the five-layer cake. It's the same thing, right? It's the modeling. It's the energy. It's the chips. It's the coding. It's all of that. And so he calls it the five-layer cake. I call it the food chain. I don't know. Whatever you want to call it, it's a big theme, and it's a big deal, and it's not going away anytime soon.

40:13Well, cake is my favorite part of a food chain. I love it. I think robotics is another theme that is just in early innings. I feel like it's far out. It is early innings. But I'll tell you, companies are investing now for robotics. I mean, Amazon has a million robots. And they believe over the next 10 years, they're not going to have to hire 400 ,000 people because they're going to continue to build out robots. and humanoids. You're right. We are not there yet, but I own this company, Rockwell Automation, and the amount of progress that they're making because of the technology, it's every year I see it.

40:56It's an enormous change, an incremental change. And I think you need three parts of robotics. You need the brains, bronze, and you need batteries. You need the brains because you need the intellect. You need to build that stuff. The bronze, you have to build the motion and that stuff. And then you need the batteries. Shoot, we don't have enough power. Here we come again, right? So we have no power or we're short power. So all of these things are all tied up together. And I think as we get through some of these bottlenecks, we will continue to see a dramatic change in this part, in this theme. Not a lot of people are talking about that.

41:32Quantum computing is another theme. That's far out. That's 2029, 2030. But I would also encourage your folks here today to listen to the CEO of IBM. That's the largest quantum computing company in the world. They have 75 quantum computers. That's more than any of their competition combined. And he basically, I didn't say this, but he says on these videos, he said it's AI on steroids. HSBC used quantum computing on their equity trading desk, and their algorithms actually saw a 34 % increase in productivity and in output, an increase, 34%. It's kind of wild. That's insane.

42:19Nicole Lapin:So if you want exposure to AI on steroids, quantum, so it would be IBM, what else? I mean, Honeywell just spun out their quantum company that I think is interesting. The reason I like IBM is because these other companies, they're not even earning anything right now. And so they're very volatile. You can own a package or a bundle if you want. I think IBM is doing a great job in not only in quantum computing, but also in software and really fixing the company. They're not a mainframe company anymore. And that's the CEO who's done a really great job. So I think you could pick and choose a couple of the smaller players, But I don't even think it's really, I don't think it's worth it because it's just so vault.

43:04It's so vault.

43:04Nicole Lapin:Or don't expect anything in the next five years. Have some patience. So just to be clear, when you're mentioning these tickers and these names, and I've known you do so much research. Can you just like clarify, when you suggest something, how much are you understanding and digging in and researching it and your entire team to these names? It's a 24-7 thing. It's the reason I do it though, because it's so much fun and I learn so much every day. It's like, and I'm not going to be right on everything. I mean, if I get a 500 batting average, that's a home run in my mind. But I just love to learn. But most of the names that I talk about, I own.

43:41And I don't own any stock in my portfolio, which is only 30 names in my portfolio. It's very concentrated. But I don't own any stock that I don't know the CEO and the bench. So it goes back to that whole process of I can do all the fundamental digging in all all kinds of homework, but I have to feel comfortable with who's leading these companies. And that's why I get to know them. And I don't get to know them like personally. Some of them I do, but others I just read about and others I just observe what they've done historically. And that's really important. Yeah, but it's just so ubiquitous.

44:15Nicole Lapin:You mentioned your daughter and her friends are listening to Crypto Bros on TikTok, and it's just not as regulated. And there's so many people who can just jump on social media and suggest something. Oh yeah. No. I mean, I think it's dangerous. I think you're a hundred percent right. I would not recommend something that I wouldn't own or I don't own pretty much every name I just talked about. I own. And if I don't own, it's either I'm watching it and wanting it's on my short list or it's I've owned it in the past or when I just, yeah, I think you have to be very careful on social media to, to listen to to random people.

44:52There are a lot of smart people on social media. And so you just make your list. I follow you. Thank you so much.

44:59Nicole Lapin:I mean, another darling of social media. And you said you were avoiding some consumer staples because they're really expensive. Individual Bitcoin micro strategy is worse than in the pooper. But, you know, when you look at something like that and you hear us talk about like buy low, sell high, that's low. I don't know. But I don't understand his strategy. Do you? I personally don't. But when somebody is like, oh, well, it's on sale. Can you explain the difference between on sale for a company like Palo Alto versus a company like MicroStrategy? MicroStrategy is I've learned early on if I can't understand a stock or I can't explain it simplistically, I can't own it because that just I don't have any confidence in myself.

45:47Maybe I'm just slow at understanding it, but I don't quite get the strategy of him leveraging and him borrowing and every day Bitcoin goes down or crypto goes down and they're buying and they don't earn anything. That's a problem. See, I want to own companies that have earnings. Earnings are the most important thing when investing, when you think about investing in general. What is the growth rate of earnings? Why is it growing? Why is it important? It's important because that's companies making profits, and we will pay multiples of that if we think it's a sustainable profit generator, a profit grower.

46:28Why I think it brings me back to total addressable market, because not only do I think Palo Alto, it's doing a great job on its own because they're making all these acquisitions and they're in a very strong position market share-wise, and they do have a good financial balance sheet and they do have earnings. They're also part of this whole total addressable market. That's an additional tailwind on top of this very strong company that's operating quite well. And so that's different than micro strategies. I don't even really know what the strategy is. It just seems complicated to me. And it's expensive.

47:01And I can't justify the valuation. And that's important, too, to be careful what you're buying at what price. Price is always important.

47:08Nicole Lapin:So if you're a new investor or you're in your early innings of investing, stick to the Fangs, which is now turning into, have you heard this, mangoes? No, we haven't heard that. So Fang, Facebook, Meta, it was dubbed Fang before it became Meta. So find Facebook, Amazon, Apple, Netflix, Google, and now Mangoes. Mangoes. Meta, Anthropic, NVIDIA, Google, OpenAI, SpaceX. Obviously, OpenAI and Anthropic, not public yet, but in anticipation. Oh, that is so fun. I have not heard of mangoes. That is hilarious. Very clever. I mean, look, I like all of them. Some are going to win. Some are not going to win.

47:52I happen to own SpaceX's new position in the last couple of weeks because we know they just went public a couple of weeks ago. And this is the way I'm viewing it. like I said on Coinbase, I am buying a small position. It's 2%. It's a set it and forget it. Do you know how much Tesla was up when Elon Musk actually went to the company in 2010?

48:16Nicole Lapin:So if you invested$10 ,000 in Tesla at the IPO, you would have 2.62 million right now. 20, 25 ,000%. And you may think he's a little nutty. I think he is a little nutty. He is brilliant and he will make you money over the long term. Over the short term, he doesn't manage to a quarter's earnings. And so that's why the stocks that he is involved in, SolarCity is another one, they are very volatile. And that's why I say, put a position that you're comfortable with. If it goes up 10 % one day, down 10 % another day, you don't stress about it. So 2 % is what I'm comfortable with. That's what I do. I'm putting it away and saying, forget it, because I think there's three ways they win.

49:03They win as a hyperscaler, right? I mean, they're on the AI side. They are renting out compute to Google and Anthropic. $2 billion each. Sorry,$2 billion a month from both of them a month. They're paying SpaceX to use their compute. and it who knows how long these contracts are going to go but it tells you that it's sophisticated enough and it's good enough and it's accessible so they they can win there not sure if they will but they could space starlink of course is they have 10 million customers that could get to 250 million customers by 2030 i mean the momentum is there as well and start in starlink anytime you go on an airplane and you have starlink it's like a game changer and then of course you have space and they have a very low cost advantage over their competitors because they have renewable rockets.

49:53So their cost per launch is expected to go from$14 million to something like$3 to$5 million per launch. That is going to be such an advantage and so much lower than their peers, and they have first mover advantage. I don't know if they hit on one of these things. I think they can hit on all three, but if they hit on one of them, I think the stock will be much higher. What I don't believe just to be the case is that you're going to build data centers in the sky, in the universe. I just don't. I think we're not there yet. I think it's possible and anything's possible with Elon Musk. But I think that's 10, 15 years away.

50:31That's my personal opinion. I could be totally wrong. But because people ask me, well, you're so bullish on the data center makers on Earth. How do you not get scared about SpaceX? And I just think it's a time. It's a time thing.

50:42Nicole Lapin:Yeah, but we got to get the party started. We need compute. So like go to the sea, go to the air, go to the land, go everywhere at this point because it's going to take a while. So what did you buy SpaceX at? So I bought SpaceX at, I think it was 175, 180. It was not at the most recent low and it certainly wasn't at the super high. What happens when I talk about a stock on TV, I get restricted. And so I was restricted on the day of the IPO because I happened to be on TV talking about it. So I had to wait a couple of days. I think this is going to be so much higher in so many years that I'm like, okay, forget it.

51:18I know I'm going to be up and down on the position or whatnot. But I don't do many of these kinds of investments, I will say, Nicole, though, because I prefer just traditional investing 101. Look at the fundamentals, look at market share, look at balance sheet, look at valuation. This one's hard for me to tell you it's cheap. It's not. It's hard to even give you evaluation. But I do believe sometimes you want to go with, you know, just the Peter Lynch thought process of, yeah, what do I see? What am I watching? What am I experiencing right here and now? And I think it's something that, like the AI revolution, I think it's going to be something that we look back on and say there was a lot of money to be made.

51:58Nicole Lapin:Well, you mentioned a lot of the bull cases for SpaceX. The other one is this government contract idea that there's huge space infrastructure that's becoming increasingly more important to national security. And so they have so many government contracts already in the pipe, too. They do. And wouldn't it be interesting if the government actually took an interest in SpaceX at some point? Do you think they will? They could. Well, what did they do with Intel? That was like the buy of a lifetime, right? I mean, I don't know. I wouldn't be surprised. Do you think it's going to combine with Tesla? It's a good possibility, but I don't see it near term.

52:39But I think there's a good possibility. I think a lot of people are speculating that to be the case.

52:43Nicole Lapin:I mean, a lot of people are going to own SpaceX anyway through if they are in the indexes. Not S &P, but QQQ, right? And Russell, I think, also did it. Yeah. And I think, look, they have to be profitable to be in the S &P 500. I'm really glad the S &P didn't change their rules. I hate it when companies or organizations change the goalposts during the game. So I'm glad that they didn't change their rules. But look, in a year's time, you never know if they make money. Like I say, I mean, this whole renting out compute, if they sign up a couple of more customers, I mean, that gap in their balance sheet gets narrowed down pretty quickly.

53:23Nicole Lapin:What do you say to people that are pissed that they bent the rules for SpaceX, the indexes that did? I'm furious about it. I don't think you should change the rules. Wait and see. But that all being said, it's small weighting, right? Is it like 40 basis points, 20 basis points in terms of the weighting in these indexes? It's not big. As compared to Apple, which is 7 % of the weighting in the S &P 500. So what about the bear cases for SpaceX? People are obviously, they have so many feelings about Elon. They have a lot of feelings about the way this IPO was orchestrated and choreographed. But what about this idea that it could go to zero?

54:07Nicole Lapin:Is that a possibility? It's a possibility. I mean, but you never know what does he wind up doing in terms of what partnerships does he collaborate with? What does he himself do in terms of his own wealth? I mean, remember, he sold a whole bunch of Tesla to take it on himself and then invest, reinvest in different parts of the business. So by the way, talk about a robotics company. That's Tesla 101 right there. So you just don't know what he is going to do. I think he's too brilliant to have this thing go to zero. But by the way, wasn't he on record saying I wasn't sure even a couple of years ago if this would be a zero?

54:49So we'll have to see.

54:50Nicole Lapin:But also 20 % of the stock comes up in the next couple months around the lockup. And we saw Rivian stock when this happened, when their lockup expired and a lot of insiders were selling, the stock fell like 20%. Do you anticipate some short term volatility when that happens, when insiders are going to start selling? I think it will definitely be volatile for sure. And maybe that's when, you know, your viewers, maybe that's when you take a look when it, you know, once this starts, once it starts and see what the volatility is and use it as an opportunity. I just kind of, I just feel like we're not going to be, the first year of any IPO is always kind of a little rocky, right?

55:32And so you got to find what is the price equilibrium? And right out of the gate, you just don't know. But I just think like, ignore it. This is one, I'm telling you, I only have like two stocks in my 30 portfolio stock base that I would do this with. I would not have a whole portfolio of all these kinds of things because I could be really wrong. But if I lose 2%, I lose 2%. It's not the end of the world. If it was a bigger position, I had someone come up to me the other day who said, I want to have 20 % of my portfolio in SpaceX. I said, what are you, nuts? I mean, you could be the most brilliant person in the world in 10 years, but I couldn't do it.

56:10I couldn't on a day-to-day basis feel comfortable with that.

56:13Nicole Lapin:Well, you're so good at explaining the concepts in simple, plain English. And what came up a lot as SpaceX was going public was this idea that the multiple was insane. I know. So for somebody who's listening and saying like, okay, it's a multiple of sales or it's a multiple of revenue or whatever, and it's so, so high. Can you give the comparison of how to think about that and what the multiple, why do Wall Street people talk about the multiple? What should it be? Well, because they don't have earnings, you can't use P.E., price to earnings, right? which is my preferred way of looking at any company because that's what it is.

56:49It's real. So we do price to sales because sales are growing so rapidly. What are you willing to pay for that rapid growth? And it's projected that this company is going to have 70 % sales growth between now and 2030. Not only that, but they're expected to see double their margins, which goes back to the point of what I was saying earlier that their space business has such a cost advantage and it's the costs are going to come down, margins go up, and then eventually, hopefully, we're going to see some earnings. I don't know when, but so price to sales is the way people are looking at it. Also, I've seen some of the parts valuations.

57:30So you break out the AI piece and you break out Starlink and you break out space. Any way you look at it, this thing is expensive. The best case scenario I can come up with was that it was at 40 times, including Anthropic and Google and the compute, 40 times price of sales. That's crazy. Just by comparison - I thought it was 100 times last year's sale. If you include the new deals, the two new deals. But you're right. You're 100 % right. It was 100 times. And then that's why these two deals are really pretty important in my mind. Just by just by comparison, and by no means is this cheap, Palo Alto going back is at 22 times.

58:0822 times sales. That's not cheap, by the way. What should it be? I think it should be. I think Palo Alto is priced right. It's not a screaming buy. It's up 86 % year to date. You don't want to chase it up here. You wait for a pullback. I was buying it at 14 times price to sales. Is 40 times cheap for SpaceX? I don't know. I can't tell you. I don't want to sit here and tell you I know everything. I don't think anybody really knows, but I just think that the growth, they're going to grow into the multiple. That's what they say when you're growing at 70%. That's a nice number. What people are willing to pay, we're just going to have to deal with the volatility and see, again, what the price discovery is.

58:52We don't have it yet. There's no question. But I don't want to worry about it. I just want to set it, forget it, kind of ignore it, have fun with it, and then deal with my other 28 boring names that I can value and feel comfortable with.

59:06Nicole Lapin:So you're going to set it, forget it, look back in what, five years, 10 years? Put your blinders on or are you going to be buying more? I might buy more. I mean, the more we learn, the more their strategy evolves. By the way, this is not just Elon Musk. That whole team is brilliant. They really are very, very sharp if you listen to them. Let's see how they execute too, right? And let's see, there might be new businesses. We were valuing Tesla as a car company. We're now valuing it on a robotics technology company. And we may do the same for SpaceX. So when we compare the multiple ideas, basically like decoded, it just means it's very expensive compared to the fundamentals of what the company is doing.

59:49Nicole Lapin:So we often use NVIDIA as an analog or a lot of media has talked about that. Do you think that's correct? Where it should be closer to that 20 times? I mean, well, the problem with NVIDIA is a couple of things. Number one, there's no question about their growth. Not at all. Not at all. I mean, they are growing leaps and bounds. I mean, more than 70%. It's incredible what they've done. So it's not too late to buy NVIDIA? NVIDIA actually has done nothing in the past six months, believe it or not, when semiconductors, other semiconductors have done amazingly well. We mentioned Intel. I own Marvell, Broadcom, AMD.

1:00:31There's so many other companies that have done so well. And there's a couple of things with NVIDIA. NVIDIA is a great company because it hasn't done anything in the last six months. It's actually trading at about 14 times forward estimates for a company that's going to grow 50 % plus. It's crazy cheap for what you're getting, but you have more competition now today than you did even six months ago, particularly Amazon, particularly Alphabet, in terms of the chip space. There's also the question of these custom chips that Broadcom and Marvell are making, which are cheaper to make. They don't have as much power, but they're a lot cheaper so that the companies that are spending money on all this stuff, they have options.

1:01:11That's not to say that NVIDIA is a bad company or that their product is inferior. I just think there's a little more competition. And then the last point is everyone owns NVIDIA. And you rarely make money when everyone owns and everyone's on the same side of the boat. I like as an investor to be a little contrarian. I don't need to be all by myself on the other side of the boat, but the middle part of the boat is kind of like my sweet spot. And that's how I made a lot of money with Broadcom because I was buying this five years ago when it 14 times earnings, 4 % dividend yield. It was nuts. Today, it's a heck of a lot more expensive, but they have delivered in spades.

1:01:49And we try to find different ways of playing it. This whole AI food chain, you could buy NVIDIA on the whole food chain and forget the food chain. But guess what? You've made more money in the food chain because they were less popular and people didn't understand them as much and less owned. So it is too late to buy NVIDIA. You can buy NVIDIA if you have a long-term time horizon and you can get away with the valuation, you should feel comfortable. Valuation is always certainly supportive if you have the growth and the story is not over. We're not even, we're in the third or fourth inning. I think you could buy NVIDIA.

1:02:24I don't own NVIDIA because I own all these other things, but I think you could. I just think you have to temper your expectations because it has been a phenomenal stock over the last five years. So if somebody is like, dang it, I missed out. You could buy it. I have no problem with that. I have no problem with that. Again, the valuation, the growth, seeing where we are in the revolution. I think we're in the third inning. How many innings?

1:02:51Nicole Lapin:I'm not a baseball person. Eight innings? How many innings? Nine innings. Nine innings. We might even go even over time. We might even go over time. Okay, great. Okay, so we're in the first third of this game. We're in the third. All right. Let's just say this. We're in the third inning of AI revolution. We're in the second inning of cybersecurity. We're in the first inning in robotics. How's that? That'll give you a little bit of a let's go. In my mind. You'll be the chief sports officer of Manhattan. You know, my very first, what I really wanted to do is be on TV. I wanted to be on ESPN. You'd be great at it.

1:03:27Killer. And I kind of took a detour and got into the financial part of TV, but it's fun.

1:03:32Nicole Lapin:You're never as young as you are today. Hey, I'm going to start a petition. Stephanie for ESPN. You'd be incredible. So what other hot stocks that people are like, damn, I should have got this. I should have, would have, could have. Micron, you know, whatever else is really buzzy. Sandisk. Are these real talk? I know. Is it too late to buy these? I don't think so. I think I'd be careful as to what days I'm buying these things. You get looks all the time. especially semiconductors, semi-cap equipment. One of my biggest regrets, I owned Lamb Research, they're a semi-cap equipment company, and I made a ton of money on it.

1:04:14And then it went up another 200 % on me, right? Because you can pick and choose the semiconductor company you want. There's a lot of them. But the semiconductor capital equipment companies, that's who their customers are, are all of these semiconductor companies because the equipment companies make the stuff, right? And so Lamb Research, Applied Materials, KLA, those are names that are up on me an enormous amount of money, but they are winners over the long term because it doesn't matter who wins. Even more? Like they've already run so much. I know. Is there more to run? I think there's more to run because they have all of these players, NVIDIA, Broadcom, Marvell, all of these companies need the cap equipment companies, and they are not, believe it or not, they're not that expensive because the earnings continue to go up.

1:05:04So that does not mean that you run out and buy these names today. You wait for a pullback. We're going to have one or two or three. Put them on your shopping list. 20 % below these levels, if these stocks fall, that's where I think you want to start a position. Same thing with Micron. We are short memory in this world. And if you believe but we're in the third inning and we're short, the pricing power of these companies is enormous. So do you know that last quarter, Micron, they make two kinds of memories, DRAM and NAND. DRAM, their ASPs, average selling price to their customers was up 60 % year over year.

1:05:42And in NAND, pricing was up 80%. Pricing power is king. I mean, that is, they are minting money at Queen. And they signed 16 license agreements this past quarter, valued at$100 billion. What does that mean? That just means that they are contracted to get$100 billion between now and 2028. $22 billion of it in cash. This is for Micron. Yeah. I mean, these are numbers that we just haven't seen. So I do not own Micron because I feel like I missed it for sure. But it's absolutely on my radar screen. and I happen to own other names that are fine too, that are good and they've done really, really well as well.

1:06:22But that is certainly a name that they're a leader in the industry and we don't have enough of what they have.

1:06:28Nicole Lapin:What do you say to people who say, Stephanie, there's an AI bubble. It's gonna burst. It's all gonna be 1999 again. Well, with the internet, we were building out the internet without knowing what the demand was. We were laying dark fiber. We didn't have contracts. We didn't have backlog or any of that. We had interest. We had indications of interest. But we had a lot of double, triple, quadruple ordering going on. And so there were winners and there were losers. We happened to create a whole bunch of, by the way, jobs that didn't exist back then because everyone asks me about AI taking over the world in terms of jobs.

1:07:06I would say for the bubble talk on AI, there is real demand. That's why I care about the cap. It goes back to the capex. how much are these companies spending? They're spending, and that number continues to go higher and higher and higher. What I'm not happy about are these companies going to the debt markets, to going to the equity markets, to raise all this cash so that they can fund all this. But the numbers continue to go higher, and it goes back to what the CEO of Amazon said, we're not going to see the returns this year, but we've never seen anything like this, so we're going to continue to spend so that eventually we do see returns that are double, triple quadruple of what we would have done if we didn't spend.

1:07:48Okay, but here's the deal.

1:07:50Nicole Lapin:What about the circular spending idea? So what about the fact that they're just all fueling each other? It's like a big incestuous, it's very uncouth to say circle jerk, but it feels like it's just like they're all spending on each other. And so they're propping each other up fictitiously. I think that the numbers, where I'm going to be wrong, is if they start to cut back on the CapEx. And we're seeing just the opposite. Even last quarter, almost all of them either raised money to increase the CapEx or they had the free cash flow to actually increase the CapEx. They're spending on all different parts, though.

1:08:29That's why it's so important of listening to the picks and shovels companies, the food chain. Because what they're saying is, yes, their orders are enormous. I mean, absolutely enormous. But the backlogs are even bigger. Backlogs, really hard to cancel. Orders, really easy to cancel. So we pay attention to backlogs. And those names that I mentioned are the picks and shovels companies that I mentioned. Vertiv, GE, Vernova, Qantaservices, Eaton, I didn't mention Eaton, Rockwell, Vistra, I didn't mention Vistra. All of these companies, on average, they saw 34 % backlog growth year over year from these companies.

1:09:10Backlog is stickier stuff. It's contracts in hand. And if I can just give you perspective, because I've been covering industrials for 35 years, on average, backlogs grow 5%. We're at 35 % on average. Backlog versus orders just means what? Yeah, so orders you can cancel. Backlog is contracted stuff. So orders, in some instances, like Vertiv, they do have their firm, their orders are firm. And he has insisted on that. And the companies that need this stuff are now also insisting on. They want guaranteed stuff. Backlog is guaranteed. Unless you have a tremendous amount of double and triple ordering.

1:09:53But the backlog is different than orders. Orders, you can just say, I forgot it. I didn't get it. I didn't get filled. you're committed. Backlog, think about it that way. You're committed to be buying that stuff.

1:10:03Nicole Lapin:So you're not worried that NVIDIA is getting money from Microsoft and then giving, and then buying from Microsoft, and then it's all sort of incest-ish and propping each other. I mean, it's complicated for sure, but they wouldn't, I just don't think that we've been, we're talking about billions of dollars, you know, I mean, billions of dollars. I don't think that they'd be spending this amount of money if they didn't see this insatiable demand. And I think we are seeing it. Again, where I'm wrong is if we go from$800 billion and next year is$500 billion, then I think, not necessarily wrong, but this whole kind of, we want to call it a frenzy, fine, whatever, then this whole thing kind of starts to unravel because it impacts so many different companies.

1:10:47But I go back and I listen to what really these smart CEOs are saying and then what other industries are saying too. It's not just one. Like the internet was just the internet. This is like the entire economy almost, absent a couple of sectors. So I worry about it. There's no question. But that is the biggest worry that I have is we got to continue to see this spend. And if we don't, I'm going to be wrong. And you'll never have me back. But if I'm right, I think I will be right to a certain degree. And look, the stocks may not work. They may get over-owned and maybe they get expensive. and maybe they take a pause and we see a rotation into some of these other sectors like we talked about.

1:11:31But I think that this is something we haven't seen. I don't want to say it's different this time because I hate that phrase, but I do think it's something that it's remarkable. Just think about what it's meant in your life, right? And my life. And sure, there's going to be disruptions from AI in certain industries, but we're going to have certain industries that we even know exist and jobs that we don't even exist that are created.

1:11:56Nicole Lapin:Well, I think it's going to be the latter for sure. And I cannot wait to have you back. It's so weird. Like I miss you already. I want you to come back and have more of a conversation because I could listen to you talk forever, but we have to let you go so you can research more stocks to tell us next time. We end our episodes, as you know, by asking all of our guests for a final tip that listeners can take straight to the bank. So if somebody is listening today and they're like, oh my God, that was so much alphabet soup. You mentioned so many different ticker symbols and companies. if there was one ETF for them to buy, what would it be?

1:12:24Well, based on the themes, I would do hack for sure, but I would more importantly want more diversification. I really do strongly believe in the S &P 500 and the ETF, and Vanguard is what we used when I was 22 years old. And please start as soon as you can, and it's never too late. And the reason I say the S &P 500 is because it's such a diverse set of companies. You're going to get so much exposure. By the way, 40 % of this S &P 500 is technology. So you're going to get the growth aspect there, but you're also going to get other sectors too to help keep you sleeping at night. And hopefully 7.7 % on average total return is going to continue.

1:13:06I think it will. It might even grow a little bit more, but you will never be sorry in 5, 10, 15 years for putting money into the market today. Never. No.

1:13:16Nicole Lapin:You never regret a workout. you never regret an investment in the S &P 500. So not like semiconductors, you're the semiconductor queen. So not like SOX, S-O-X-X or SMH. No, because they're up 85 % year to date. And I would hate for your viewers to, you know, it's so volatile. You get a lot of semiconductor exposure in the S &P 500. You really do. I have more confidence in hack longer term, like 10 years out. I have no question in my mind that those stocks are going to be much, much higher and you're going to see much more consolidation. And that's the industry that I think doesn't get enough respect.

1:13:52Everybody thinks, well, you know, they're going to get hit by, you know, AI and they're not going to get hit by AI. We need cybersecurity companies because of AI. That's really important.