AI, Superman, and Solar’s Kryptonite

0:04Oh, yes, we're talking all kinds of stocks. This week's Motley Fool Money radio show starts now.

0:25Everybody needs money. That's why they call it money. The best things in life are free, but you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm on in Chocobaloo. Joining me are two of my favorite fools, Jason Hall and Matt Frankel. Today, we'll talk about stock market winners and losers from the big, beautiful bill. We'll pit Superman versus the Hulk. And we'll, of course, debate stocks on our radar. But first, we'll discuss whether there's an AI opportunity in investing in data centers. Upstart data center company CoreWeave again made news this week, this time for announcing the purchase of Core Scientific for$9 billion.

1:12This allows it to add infrastructure to consolidate vertically as it seeks to gain market share among AI and high-performance computing customers. CoreWeave is just the tip of the data center iceberg. Matt, what categories of data center opportunities are out there? Yeah, so first you have hyperscalers. These are companies like AWS, Microsoft Azure. They're companies that operate the large-scale data centers. They offer computing and storage infrastructures to customers. As Anand put it, there's CoreWeave, which is one of the least understood recent IPOs that I know. They run out GPU data center infrastructures to customers.

1:50It's not always practical for companies to invest in all of NVIDIA's latest chips on their own, for example. So that's really what they do. There's the REITs, Digital Realty, and Equinix are the two big ones. They own the data centers. CoreWeave is actually a big Digital Realty tenant. And then there's power generation. I know Jason's going to talk about this a little bit later in the show. But data centers consume a lot of power, and it's growing at an exponential pace. These chips that NVIDIA produces, they are power drains. Nuclear especially could be a big part of the solution, but solar and other renewables are also in there.

2:29Yeah, we're definitely in the land grab phase of the infrastructure build out for accelerated computing. And I think accelerated computing is maybe a better description than just AI. We talk about the cloud writ large. And as we see more of the companies involved start to monetize things like AI agents at scale, I think that's where these investments are going to pay off. Big question. Do any of these categories interest you all for investing? Yeah, well, I mean, I'm well known as being the real estate guy at The Motley Fool. And so it shouldn't be a big surprise. But Digital Realty is my second largest and my second longest running REIT investment in my portfolio.

3:07I'm an Amazon shareholder, and I know that's not their only business, but AWS is the primary reason I own it. I don't own CoreWeave yet, and I think the stock is a little bit pricey, to say the least. But the more I read about it, the more I'm intrigued by the company. As I mentioned, they're a big tenant of digital realty, so I have some exposure already. Yeah, the things about CoreWeave that concern me is the stock is definitely expensive, but if the opportunity is even close to as large as we think, it could still work out, but they're going to need a lot of money to pay for what they're trying to do.

3:41And depending on how much of that is from raising debt versus secondary offerings of shares, there's still a lot of questions there, but Anand you've given me a chance to talk about Brookfield here. How do I not take that opportunity? But I do think that there's a couple of Brookfield entities that are positioned really well here. And I want to talk about the providing the energy part of it. Brookfield Renewable is really in the driver's seat here as a global provider of renewable energy on multi-decade contracts. It is not just accelerated computing, it's the energy transition writ large. We've already seen it strike big deals with Microsoft and others to provide renewable power on those multi-decade contracts.

4:24The dividend is really attractive too. So BEP, that's the partnership, the yield's over 5%. The corporate share is BEPC. The yield's about 4.5%. And since mid-2020, that's when Brookfield Renewable rolled the corporation part out and restructured its dividend. The payout's been increased almost 30%. So, there's a lot to like here. Beyond the yield, I think it's primed to be a total return dynamo over the next decade. If you don't want to own a company that's in the energy part, you want to own the infrastructure, Just take a look at sister company Brookfield Infrastructure. The tickers there are BIP and BIPC.

5:02Of course, these aren't the only AI stocks out there. Hi, NVIDIA. Do any other areas of AI interest you guys? I love that. You can't talk about AI and data centers without talking about the chip makers. NVIDIA just hit$4 trillion today, the day we're recording this. NVIDIA is an amazing business, and it has more room to grow than people think. Just in the data center accelerator space, which is why they're getting so much attention, for good reason, the market size is expected to roughly double over the next five years. That's not even to mention the opportunities they have in chips for autonomous vehicles, chips for gaming, and more.

5:39But I prefer AMD, which is often referred to as NVIDIA Junior, but I don't think it should be. It's an incredibly well-run company that's been a mistake to bet against in the past. And as Intel found out the hard way, just having a dominant market share in an area of chip making is not always enough. An area of the market that I think could do really well is some of the legacy enterprise software giants. I think there may be underappreciated winners from AI. And I'll use Salesforce, ticker CRM, as an example. It's really starting to get traction with things like its data cloud and with AI agents.

6:14It's starting to sell. We're seeing really rapid uptake of those things and monetization. And it has a benefit, an advantage over a lot of these AI startups that are just kind of pure AI businesses. It's already a trusted, integrated partner with hundreds of thousands of enterprises. It knows their business, it knows their challenges, regulations, opportunities. And that credibility, I think, is an edge that we don't give enough credit to. We shouldn't underestimate switching costs, I guess is what I'm really getting at. And you look at Salesforce trades for about 21 times free cash flow and less than seven times sales.

6:50That's a really good opportunity. And I think it equates to double digit returns. If it can just grow revenue around 8 to 12 % a year over the long term, which I think it can. We started to talk a bit about energy and the need for it with all this AI. Let's talk about the energy industry implications of the big, beautiful bill, which was signed into law last week. Jason, can you give us the summary of the energy portions? Yeah, summarizing anything is hard for me, but I'll try. I think the short version is the incentives for renewables. They're getting gutted, really. There's a 30 % investment tax credit, or ITC for short.

7:27The residential solar and battery systems portion of that had been in place to run through 2032 before gradually declining for a few years after that. That now expires, the systems have to be fully installed and commissioned by the end of this year. The commercial ITC for solar and wind projects was on a similar track, but now it expires at the end of 2027. But those projects must begin construction by July 4th of 2026 to qualify for that 30 % tax credit. It also terminates the tax credit for new and used EVs,$7 ,500 for a new EV and up to$4 ,000 for a used EV. The purchase has to happen before September 30th of this year, so a couple of months.

8:18Lastly, it ends the U.S. regulatory credits around vehicle emissions that automakers buy, largely from Tesla. This is a significant and profitable revenue stream for EV makers that essentially is going away. Jason, when you say renewables are being gutted, you're essentially referring to solar and wind, if I'm not mistaken. It's not gutting anything for nuclear power, correct? Yeah, that's correct. These things, again, are the pure renewables as we think of them. Let's put a fine point on this with specifics. Who are the relative winners and losers, Jason? This could be an hour-long show, but I'll try to summarize it here.

8:57Thinking about the companies that are most directly affected, I think Canadian Solar, which is a large manufacturer of solar panels and energy storage, and they really largely target the utility market, but also residential, is definitely a loser here. In the near term, Sunrun, its business model, is tied to these tax credits as an installer. And to some degree, First Solar is also going to be affected. I don't think there's really any winners out of this when it comes to solar. But I think Enphase is probably still in a better position than the market may believe. And maybe First Solar as well.

9:30It's been through these battles before and has been a winner over the long term. If you look at wind, GE Vernova has been on a huge run. I love that business, but I don't love the stock right now. Tesla, I think, is maybe one of the bigger losers that investors haven't really considered. Last fiscal year, it earned$2.76 billion in revenue from regulatory credits. That's largely pure profit. And then there's also the loss of those EV tax credits for buyers. That might be offset from some incentives for U.S.-made autos that are part of the bill now, that were part of the law. But I think this puts Tesla in a tougher spot.

10:10The tailwinds are not favorable for fossil fuels before this. This doesn't really change any of that. There's opportunities there, but not because of the law. The reason I asked about nuclear a minute ago is because that's really what I see as the big winner here. I like some of the nuclear-focused utility providers. Constellation Energy is one that comes to mind. One of their stated goals is to have the largest carbon-free nuclear power fleet in the U.S. by 2040. Jacob Solutions, they provide consulting and design services to the industry. Taker symbol is J, so it's really easy to remember. and they recently had some really big nuclear contract wins.

10:46And I'm going to push back on Jason's Tesla as a big loser. One, they're American-made cars. They qualify for that new auto loan interest deduction, so that could help offset what they're losing from the EB tax credits. And they have a big energy storage business. And AI has not only giant power demands, but very variable power demands. And it's going to create a lot of need for large-scale energy storage. and Tesla does that. So I think they're worth watching. Yeah, that's the one part of Tesla's business that's done extraordinarily well over the past few years as the EV business has weakened.

11:21Is that the battery business? Now quickly, the big question, is solar still investable, Jason? Yeah, I think so. We have a very US-centric view, obviously, and the US is a massive important market for solar, but you look around the world and the regulatory environment is still largely favorable. and I think if you're willing to write out plenty of volatility, that global opportunity is still really good. Businesses like Enphase, businesses like First Solar that have been through these battles before and even a Canadian solar where it has a ton of projects that it's been funding to build on its books that the math just got kind of changed for them in some big ways.

12:00The valuation is so cheap that I think that there's some opportunity there. Yeah, I mean, taking a step back, the reason you have incentives for solar energy, for EVs, for all this is because without them, they're not price competitive with the existing technologies. The gap has narrowed significantly, especially in solar over the past, say, 10 years, as to the efficiency of the products themselves and just how much they cost. Eventually, solar is going to be able to stand on its own without incentives. But like Jason said, you have to be able to ride out some volatility because that could be five years, that could be 10 years, that could be 20 years.

12:34So eventually, it won't matter. After the break, we'll move from solar to something else that gets its power from the yellow sun. Stay right here. This is Motley Fool Money. They say leadership isn't just about where you're going. It's about the conviction it takes to get there. For those who demand the world and possess the drive to claim it, there's a vehicle of equal distinction. Dynamic by design and engineered for pure impact, the Range Rover Sport rises to meet you the moment you take the lead. This is the most advanced Range Rover Sport yet, a master class in uncompromised performance and unbridled agility.

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13:56welcome back to Motley Fool Money I'm on in Chocobaloo here with Jason Hall and Matt Frankel Warner Brothers Discovery's much anticipated latest reboot of Superman hits theaters on Friday Hoping the Justice League can one day catch Disney's Marvel Cinematic Universe and hot on the heels of last week's Jurassic World Rebirth from Comcast? In honor of summer movies, we're going to rank those three companies based on the value of their intellectual property. We'll throw in Netflix for good measure. Its headline this week was stating that half of its global audience now watches anime. Chocoblou household certainly does with One Piece.

14:36My kids have gotten me into it. for those unfamiliar. They have more episodes than The Simpsons. Matt, once again, your four choices are Warner Brothers Discovery, that includes the DC Universe, Superman, Wonder Woman, Green Lantern, Harry Potter, The Matrix, Looney Tunes, all our favorite HBO shows. You got Comcast with Shrek, Minions, Kung Fu Panda. You got Disney with Marvel, Star Wars, Pixar and Mickey Mouse. And finally, you got Netflix with things like Stranger Things, Bridgerton, Squid Game, newer Adam Sandler movies, and tons of niche content. Mentioned anime. You could argue whether that's niche content or not at this point.

15:18Whose intellectual property do you most value, Matt? See, I said Disney. All four of these have excellent intellectual property. And I'll give you a kind of more elaborate description there. So in my household, you mentioned your household, how you have all these streaming things. We have a streaming service from all four of these. We have the Peacock service, which is a Comcast product. We have HBO Max, which is a Warner Brothers Discovery product. We have Disney Plus, and we have Netflix. Disney Plus also has Hulu attached to it. I asked myself, which is the least dispensable? I could cancel all the other ones before I'd be allowed to cancel Disney Plus by the other members of my household.

15:58Their film franchises are beyond compare. They have a much longer history of building intellectual property than all of these, especially in terms of valuable ones. Mickey Mouse is so old, it's not even intellectual property anymore. It's over 100 years old. So, I think it's actually in the public domain now. So, I have to say Disney, although it's a lot closer than I would have thought a few years ago. Yeah. If you had have asked me a few years ago, I absolutely would have said Disney. But I'm going to give the advantage to Netflix here. So let me contextualize that. I think the total value of Disney's IP is probably higher, but Netflix's ability to monetize it more effectively all over the world, I think is even better than Disney's.

16:39I don't think any of these businesses and their studios have done a better job of making content that's relevant in more markets around the world than Netflix does. And let's be honest, I was able to watch Happy Gilmore with my eight-year-old son this weekend. And I watched that on Netflix. That's, I mean, that's bridging generations right there. Three things. One, Chocoblou household's very excited for Happy Gilmore too. Even my wife is in on it. Two, the Steamboat Willie era Mickey Mouse is free to the world. The other ones aren't. And I'm glad I'm not the only one with way too many streaming services, Matt.

17:20Let's talk about last place. Who are you cutting first, Matt? Well, all those streaming services are still less than I was paying for DirecTV a few years ago. So I think I'm doing all right. So for me, the last place, it was between Comcast and Warner Brothers Discovery, both of which have amazing intellectual property, just to show you what a tight race this is. I mean, Comcast has Universal. I was just in Orlando. The Universal theme parks are massive down there. But I have to put Comcast in last place. I think the HBO Max acquisition was such a big advantage for them. They have some of the most valuable television assets of all time.

18:03More people watch The Sopranos now than they did when it was originally on TV. It's a very, very valuable asset. Game of Thrones, all these HBO shows that are among the highest rated shows of all time are part of their library, in addition to their film studio and all the other assets that we can't name because it's not that long of a show. So I'd have to give Comcast last place. Although, like I said, there's a good argument to be made for most of these to be in the top one or two. Yeah, I think that's fair. But I agree with Matt that Comcast is the number four here. But I don't think that's a flaw.

18:44It's just the nature of its business. About two-thirds of its business comes from its cable subscriptions and high-speed internet. So, it's built differently than these other companies. So, I think it's fine that it's a little bit smaller. I will say, just to defend Comcast a little, I was thinking about my parents live in Florida, and it's high time we bring my two boys to Disney World or something like that. Honestly, the Universal theme park, the new one with Nintendo, Mario, and the Harry Potter realm, it's close. We might prefer that one, but just to give a little love to Comcast and Universal.

19:24Jason Hall and Matt Frankel, we'll see you a little bit later in the show, but up next, we'll talk to the founder of one of the top five networks in the world. So stick around. This is Motley Fool Money. The power of love is a curious thing. Make a one man weep, make another man sing. Change a heart to a little white dove. Born in a feeling, that's the power of love.

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20:49Welcome back to Motley Fool Money. I'm on in Chocobaloo. Dave Schaefer is the founder and CEO of internet service provider Cogent Communications. Believe it or not, Cogent's the seventh successful company Dave Schaefer has founded. Schaefer joined Fool Analysts Asit Sharma and Sanmeet Deo to discuss how its deals with customers like Netflix and meta platforms work and what keeps him up at night. Well, hello, Fools. I am Asit Sharma, and I'm joined by fellow analyst Sanmeet Deo today. And our guest is Dave Schaefer. Dave is CEO of Cogent Communications. He's also the founder of this company, founded in 1999.

21:31Dave has grown Cogent Communications into a global tier one internet service provider. It's ranked as one of the top five networks in the world. Dave is also a serial entrepreneur. He's founded six successful businesses prior to Cogent. And foolishly, he's also one of the longest serving founder CEOs in the public markets. We're delighted to have him with us today. Dave Schaefer, welcome. Hey, well, thanks for that great introduction. So to get started, let's jump in. Dave, for our members who might be unfamiliar with the ISP or internet service provider industry, can you just explain what Cogent does and how it makes money?

22:10Yeah, sure. So Cogent provides internet access to customers and to other service providers. I think virtually everyone uses the Internet, but rarely understands how it operates. Cochin has a network of approximately 99 ,000 route miles of inner city fiber that circumnavigates the globe and serves six continents. We then have an additional 34 ,000 route miles of fiber in 292 markets in 57 countries around the world. That network is solely built for the purpose of delivering Internet connectivity. So when a customer buys Internet access, what they are really buying are interfaced routed bit miles connected to other networks.

23:13If you tried to sell a customer that they would have no idea what you're talking about. The average bit on the public Internet travels about 2 ,800 miles. It goes through eight and a half unique routers and 2.4 networks between origin and destination. Cogent carries approximately 25 % of the world's internet traffic on its network and has more other networks connected directly to it than any other network. Yours is a primary network. Oftentimes, we hear of sort of middlemen carriers in between ourselves sending that bit. Let's say I'm chatting with Sanmeet over Slack, sending him some bits as we have been exchanging through the day and him receiving that.

24:08But you are, I think, we can think of Cogent as being sort of the primary fiber that is the backbone of this information communication network. Is that correct? That is correct. So we operate two very different customer segments, roughly 95 percent of our traffic, but only 37 percent of our revenue comes from selling to other service providers. So we provide Internet connectivity to 8 ,200 access networks around the world and about 7 ,000 content generating businesses. So whether it be Bell Canada, British Telecom, China Telecom, Comcast, or Cox, they could be customers of Cogent on the access side where they aggregate literally billions of end users.

25:11And then on the other side, we sell connectivity to large content generating companies like Google, Amazon, Microsoft, and Meta, where they use us as their internet provider. The second portion of Cogent's business is selling directly to end users. That represents about 63 % of our revenues, but only approximately 5 % of our total traffic. Cogent is an ISP primarily in North America, where we connect to a billion square feet of office space where we sell directly to end users. And then globally, we sell to multinational companies, oftentimes using last mile connections from third parties. You know, I always like to understand, you know, how exactly the companies I'm looking at make money.

26:14So, for example, for Netflix or Meta, or you pick a content provider, whoever it might be, when they work with you, explain that to me. How they buy, do they buy bandwidth in a package? Do they have a contract? How does that work when they look to you to say, hey, we want to buy some bandwidth? Yeah, so typically, we will provide them connections in multiple markets around the world. They will then have a minimum commitment level, and then above that, they pay on a metered basis. So the way in which we bill is megabits per second at peak load over the course of the month. We bill it the 95th percentile, which means if you have a very spiky event that lasts less than 18 hours in a month, you don't pay for that incremental bandwidth.

27:18But everything below that peak utilization, you pay a bill on a per megabit basis. That is the way in which any service provider, whether it be an access network like Telecom South Africa or a cable company like Rogers in Canada, would buy from us. But for our corporate customers, the billing model is very different. For corporate customers, they typically buy in end-user locations, not in data centers, and they are paying us a flat monthly fee for a fixed connection that is unmetered. So think of it as an all-you-can-eat model. Yeah, so there is a monthly kind of recurring revenue that you get.