What Can History Teach Us About Investing in 2025?

0:04Travis Hoium:How does the market in 2025 fit into the history of the stock market? Motley Fool Money 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.

0:36Travis Hoium:From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyam, joined today by John Quast and Jason Moser. And I think this is an important time in the market to take a step back and look at a little bit of context in history. There are sort of these decade-long trends that we typically go through, and it seems like we're either at the beginning or end of one of those with artificial intelligence and all of the companies that are going crazy right now. So I want to get your guys' thoughts on kind of where we are. We all see the potential of artificial intelligence, but the internet was a massive opportunity in 1999.

1:13Travis Hoium:Mobile was a huge opportunity in 2007. That didn't stop the crashes that ensued. So what sort of historic parallels, Jason, do you see in the market today that investors can learn from. Yeah, well, I love this idea. I mean, I think there are a lot of parallels we can draw here. There are some similarities, and I think there are some differences as well. You go back to, for example, the build-out of the internet, right? Back in 1999, the dot-com crash that ensued. I mean, there's a lot of similarities from then to what's going on today, right? There's massive infrastructure build-out. It's the foundation for what looks to be a new era of technology.

1:54And that's also accompanied by a lot of speculation in the markets. And we're seeing that in the form of, you know, a lot of nosebleed valuations. I mean, I'm not saying they're all nosebleed valuations, but there is some data that shows that AI-first companies today that are coming to market are getting 20 % to 40 % premium valuations over their non-AI driven types of companies. And then you're also seeing some of those speculative names are garnering valuations in the neighborhood of 200 times sales. And so that just... Some of them have gone parabolic just in the past few weeks. Yeah, absolutely.

2:33And I mean, I understand the enthusiasm, but there was an interesting interview with Orlando Bravo the other day on TV. He heads up the firm Toma Bravo, which they specialize in SaaS software and stuff like that. And the question that was posed, and as it's been posed to most of us, is are we in a bubble? And he answered simply yes. I mean, you can't have companies that are working on$50 million in annualized recurring revenue valued at$10 billion, right? That just doesn't work. It's not sustainable. And so, at some point, we will see that shift. But I do think there are some differences too, right?

3:10I mean, primarily, you look at the physical restraints of what was being built out back in, you know, 99. That was laying all that optic cable, right? Physically difficult to do, but a little bit different than really kind of the restraint today. But now we're talking about power, right? We're trying to figure out how to get the electricity and the power to really make all of this stuff run. I think funding is a little bit more realistic this time around, just because so much of it is coming from the hyperscalers. Let's put OpenAI aside here and look at the other companies, your Amazons, your Alphabets, your NVIDIAs of the world that are helping to fund a lot of this.

3:43And when you have businesses that are that big with more reliable cash flows, I think the funding side of it seems to be a little bit less speculative than it was back then.

3:52Travis Hoium:Do you think that has changed over the past, even the past few weeks, with things like guaranteeing revenue? I think, you know, NVIDIA did that with CoreWeave. You're seeing more variable interest entities, or they're going by different names now, but it's basically, you know, doing some of these financings off balance sheet. That's what ultimately got Enron in trouble, that isn't necessarily a parallel that we want to go down. But it's one of those things where there are these small red flags that you can look throughout history and go, OK, when you start to see this happen, you should perk up a little.

4:24I think you need to be asking the questions. I think it's no accident that this week we really saw a lot of those maps circulating around that kind of were showing the intertwineness of all of these. It's just a handful of companies that are really sort of dictating this space. And you want to put some numbers around it. But I mean, this is what really makes me nervous. I think you look at Morgan Stanley Research, they say that OpenAI itself, they make up more than$300 billion of this something like$880 billion total future contract value, right, that's tied to the spending with Microsoft, Oracle, and CoreWeave, among others.

5:00And so you think about that in the context of the fact that OpenAI, I mean, they just generated basically$13 billion annualized at the midpoint of 2025, and they're losing money still hand over fist. So that's where that capital ultimately comes from, I think, is a question that investors really need to be focused in on. It's not to say at OpenAI, I won't continue to grow, right? But that is a big delta that they're going to have to figure out a way to shore up.

5:27Travis Hoium:John, how do you think about this in a more historical context? What sort of things are you're trying to learn from history that could maybe apply today? Well, I think historically, whenever you see something new and exciting, investors are wanting in on that and they're not wanting to miss out. And I'd say that applies to both retail investors and private equity investors. And you can kind of see that in a couple of fronts here that there are some companies, I think, that are preying on that, taking advantage of that, knowing that investors are willing to pay up for the excitement, the admission to the theme park.

6:03And you look at the public markets, for example, look at special purpose acquisition companies. I'm not saying that all of them are...

6:12Travis Hoium:These are SPACs. This is what was really popular in 2020 and 2021. Yeah. Right before we had major, major pullback in so many of the companies out there. These are companies that don't even have a business. They're saying, give us money so we can go buy a business. Many of them came forward in 2020, 2021. There's been a couple of years of a lull, but now this year we have 161 that have gone and filed so far this year. And the year's not even over yet. That's as much as basically the last three years combined. I'm not saying that they're all bad opportunities. I'm not even saying that most, but I'm saying somewhere in there, the data is saying, yeah, somebody is taking advantage of a situation where investors are very excited and they're willing to pay for a lottery ticket, essentially.

7:02The same thing in the private equity space, you look at the AI private companies out there starting to do perhaps some questionable things, maybe counting some one-time deals as part of the calculation in their annual recurring revenue and doing that so that they can boost their valuations. And that increases the amount of funding that they're able to get from these private investors. And, you know, we would think that private investors are a little bit smarter than that. But again, I mean, we all have human psychology and we don't want to miss out on something that is truly transformative in artificial intelligence.

7:38Travis Hoium:Jason, you brought up that those images that are going around. There's one from the FT. There's one from Bloomberg. Yeah. They just show this web around open AI. And one of the things that I think I learned in the 2008, 2009 downfall of the market and the recession that ensued was things just got really, really complicated when a lot of things didn't need to be complicated. We started with mortgages. Mortgage is a fairly straightforward financial instrument, but then you start turning it into 48 different products that you're cutting into different pieces and nobody knows where the risk is or who's holding the risk.

8:15Travis Hoium:And that's what I sort of get concerned about right now is if AI is such a no-brainer and it's such a high return on investment, then why do we need all these complicated financial structures? That, again, it's just raising red flags to me. So let me put it this way because I think what we're trying to do today is take a little bit of our knowledge and pass it on to everybody who's listening. So if you were going to go back, Jason, I'll start with you. If you were going to go back and talk to yourself in 1999 or 2007, what would you tell yourself that you could maybe implement as an investor? Wow.

8:57Yeah, I like that question a lot. I think if I look back to 1999, while I was investing at the time, I wasn't a member of the Motley Fool's. I think first and foremost, and I'm being dead serious here, I would have told myself to get a subscription to The Motley Fool because from an educational perspective alone, I think that style of thinking, that style of investing and sort of taking that longer term view is just invaluable. I'd also say, while it's tempting, steer clear of speculation. I mean, I think you're right. One of the big problems back in 2007-8 was just how un-understandable that web of financial instruments ultimately became.

9:39And I think that was a result of greed, primarily. But I also, you know, I look at today and kind of you're talking about these special interest entities and whatnot. You know, money isn't limitless, right? And so I think they start to make it a little bit more complicated when they need to figure out ways to raise more money. And that becomes a little bit more concerning as well. So I'd say from me, I'd steer clear speculation. You know, these were stretches of time when some of the great businesses of our time went on sale. So stay focused on owning those high quality businesses, leave the speculating to those who think they probably know what they're doing and maybe don't necessarily actually know.

10:21John, what do you think? So 99, I wasn't an investor yet. And so it didn't really start for me until around the great recession. And I echo everything.

10:33Travis Hoium:Do you remember you weren't investing, but do you remember feeling the dot com bubble and crash? Because I think that is an interesting, you know, until you actually have money in the market, it is kind of this thing happens, but it doesn't really affect me. Well, I would say absolutely not. I mean, just where we were in our little corner of North Carolina back in those days. I mean, man, we had dial up Internet. So, I mean, we weren't even all that aware of what was going on. For me, the Great Recession was where I really began to take investing seriously. And what I tell myself, besides what Jason already said, was I wish that I had just held on to my original vintage of stocks that I invested in.

11:15I know it's 20 years later now, but I look at some of the ones that I had at the time. Buffalo Wild Wings, which is no longer publicly traded. But if I had just held on to Buffalo Wild Wings from the time I invested until the time that it went private, it was a 10 bagger or more. And I sold after it doubled. You know, I owned Marvel back before Disney acquired it and sold around the time of the announcement. I wish I had just held on to Disney all that time. McDonald's was one of the first stocks I ever bought. And yeah, maybe that's not the flashiest thing, but it's up over a thousand percent with dividends.

11:49And I know some of the listeners are saying, hey, well, that's 20 years ago. But let me tell you something for me, it's 20 minutes. I just started investing like time goes by so fast. And at the time, right, you say invest for three years, invest for five years. How could you ever 20 years is a heartbeat. So, man, I wish I could just go back and say, hang on. Don't try to get cute. Don't try to buy and sell trade all this. Just buy and hold.

12:16Travis Hoium:Yeah, John, the lessons that I have learned more than anything is not selling. To give you an idea of what I owned in those days that I sold, Chipotle, Apple. These are Las Vegas Sands. I remember buying for$2 a share. I think that was a 20-bagger over the next couple of years that I sold too early. So yeah, owning those companies that aren't going anywhere that can survive any sort of downturn. I would also say, start paying attention to balance sheets. because if companies are going to not survive, it's not going to be because the revenue drops a little bit. It's going to be because there's more risk on the balance sheet than they can handle.

12:54Travis Hoium:So something to keep in mind. When we come back, we are going to talk more about this build out and where there could be opportunities. You're listening to Motley Fool Money. Trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. No sifting to find exactly what you need so you can spend your time learning to trade brilliantly.

13:32Learn more at schwab.com slash trading.

13:43Travis Hoium:Welcome back to Motley Fool Money. One of the big topics of the AI buildout has been energy, and this has gotten a lot more attention over the past couple of months. Every hyperscaler, every neocloud is looking for basically as much energy as they can get. Some of them have made deals with Bitcoin miners. I think that's an interesting play here. Bitcoin miners spent a lot of time building out the energy they need to run their mining equipment. Now we're moving that to AI. So John, where are there opportunities for investors in energy, or at least what should we be keeping an eye at? Well, I think that nuclear power is a big trend and I know that people have been hearing about it, but I just think it's going to be a lot of emphasis put there.

14:29And even the emphasis that we put there isn't going to be enough. So you look at what open AI is reportedly wanting 250 gigawatts of electricity by 2033 just for running their AI data centers. That's just one company. President Trump earlier this year signed an executive order to quadruple the country's nuclear power. So it will add basically 300 gigawatts of nuclear power. But so you look at that, 250 is what OpenAI wants. We're saying, yeah, we'll add 300 gigawatts of nuclear power. So basically they'll take all of that. Doesn't seem like a lot of wiggle room there, John. Exactly. And here's the thing.

15:13The order is by 2050 to have that much extra power. And so President Trump is saying, well, we're going to add 300 gigawatts, give us 25 years and open AIs like we need it now. And so does every other company that's doing what open AIs doing. And so I just think we're going to have a heyday for nuclear, but even if we do, it's still not going to be enough.

15:36Travis Hoium:I want to put some numbers to this. The EIA, Energy Information Administration, which is a phenomenal source for energy information because they pull all the prices, all the capacity production, all that stuff. Between 2024 and 2028, in the US, there is a planned about 200 gigawatts of additions. About half of that, over half of that is solar. So an intermittent energy source, you have to consider that the capacity factor of solar, meaning the amount of time that it produces energy on an average day is about 20, 25 % of the time. So we're not anywhere near hitting those numbers in what is planned.

16:14Travis Hoium:And power plants don't go up, even a solar plant, which can be built relatively quickly. You're still talking many months, in some cases years. So all that said, Jason, where are you looking for opportunities today? Right. It definitely feels like we're going to need all we can get. So it's all hands on deck. And I think that the key is going to be focusing on every resource available. I think in regard to AI specifically and sort of the capabilities that it's driving, I think that the overwhelming demand is going to be on those reliable or firm energy sources, right? The stuff that's on 24-7 that's easily distributable, right?

16:50And so renewables are one thing, but I think for AI-specific stuff, we're gonna be looking at nuclear, natural gas, and hydroelectric primarily. We saw Google earlier in the year made a deal to provide some early-stage capital for elemental power to prepare some nuclear sites here in the US. I think those were with the small modular reactors. Um, and I think the other thing to think about longer term, and I'm talking about longer term, Travis, but think a decade out. There's an interview with Jeff Bezos this week that I was pretty, I was fascinated by because I actually can totally see this happening.

17:29I mean, he was talking about data centers in space, right? Essentially. It sounds crazy. It sounds crazy. It does. It sounds like, huh? But if you think about it, they're already trying, right? They're already in the process of trying to figure out how to make this work. Now, that solves two key problems. You get the limitless resource of solar up in space, and you've solved your... Yeah, suddenly that becomes a base source of energy as opposed to a variable. And you've solved your cooling problems as well. So it kind of knocks out... You kill two birds with one stone, so to speak. So I think that's pretty interesting to think about just further out.

18:05So just keep an eye on that. I don't think that's high-in-the-sky stuff. I think that's actually pretty legit. And then beyond that, I looked at other companies in the value chain that sort of enable smart usage and monitoring. And a company I've talked about before called ITRON that does that. They help their customers sort of safely and securely monitor that critical infrastructure and power and water. So you can look beyond the providers and look to those value chain adders as well.

18:29Travis Hoium:Do you think that the rise in electricity prices, which, again, is getting more attention this year, I've noticed it with my electricity bill. Jason, is that a pending problem in the U.S.? Because if AI is what's raising the costs for the average person, it seems like an issue. Consumers will not like it. I can guarantee you that. I mean, I noticed the power bill difference when the winter hits here in Northern Virginia, and it basically doubles. And if we see things going beyond just your typical seasonality, I think that's going to be a real problem. Yeah, that's something to keep an eye on because regulators do play a pretty big role in this.

19:06Travis Hoium:who's going to get the electricity, what are people paying. And that's not just an economics process, although the economics could help with justifying some of these investments too. Something else to keep in mind is that energy costs are important. And if prices are going up, people are going to put more money into the ground. When we come back, we're going to see how well Jason and John know their history of investing. You're listening to Motley Fool Money.

19:40Travis Hoium:As a podcaster, my voice is heard by thousands. And now with Vanguard Investor Choice, I can be heard by the companies that I invest in too. Vanguard Investor Choice makes it easy to set your proxy voting preference for your Vanguard index funds. In just a few clicks, you can make your voice heard on important shareholder topics like executive pay and director elections. Visit Vanguard.com slash Investor Choice to learn more. Vanguard investors own shares of Vanguard index funds and those funds own shares of the companies they invest in. Available for Vanguard index funds that participate in investor choice.

20:13Travis Hoium:Vanguard Marketing Corporation Distributor.

20:22Travis Hoium:Welcome back to Motley Fool Money. I want to know how well Jason and John know their market history. so i'm gonna i'm gonna ask you guys a few questions and see who knows the answer john i'll have you go first here what what was the date of the 1987 crash and as a bonus how much did the dow jones industrial average drop on that day oh and i assume that you're wanting more than the year 1987 yeah i would like i would you can give me the day of the week uh any any information is it was on a Monday, right? And what color was this Monday? Oh yeah. Yeah. Well, there we go. I've heard black Monday. Uh, I would think it's in October, but I don't remember.

21:08Travis Hoium:Jason, do you know the date? I actually do know this one. It's October 19th. Whoa. 87. And how much did the Dow drop? I guess. Is there a, do we have like a little wiggle room here? I know it was, it was like 20%. It was a little bit more than 20%, but I don't think it It was 25%. It was kind of somewhere in the middle between 20 and 25%. Oh, that's good. John, do you have an exact number? I was going to say 12. Okay, 22.6 % drop for the Dow Jones Industrial Average. But the other thing that's interesting with that historically is the Dow was what really got all the attention back then. Yeah, yeah.