[PODCAST] Reminder to Bet on Things That Won't Change
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Our Power Hour this week was recorded pre-Deepseek news. We discussed Project Stargate, some recent earnings from IBKR and Netflix, as well as a pitch on Bumble. Here are the timestamps for the episode:
(03:30) Anecdotal Insights from Texas
(06:39) Netflix Earnings and Subscriber Growth
(12:26) Exploring Netflix's Future Strategies
(18:25) IBKR Earnings and Market Dynamics
(24:32) Bubble Watch: Signs of Market Sentiment
(30:17) Cultural Reflections on Investing
(34:05) Introduction to Sponsors and Community Engagement
(35:39) Small Cap of the Week: Rev Group Analysis
(41:59) Project Stargate: AI Infrastructure Investment
(50:28) Nintendo Switch 2: Anticipated Release and Market Impact
(54:54) Dating Apps: Bumble and Grindr Investment Insights
Let’s talk about R1 and Deepseek. Or, what I know I don’t know about the future of artificial intelligence.
Deepseek came out with a workable LLM that is much less costly than ChatGPT, Gemini, and all the AI start-ups. It is also Chinese. Shares of Nvidia are down 17% today because people are worried the future of AI models will be less cost-intensive from a semiconductor perspective.
In the last year, Nvidia has looked invincible. The financial results have been fantastic. Perhaps they will continue to be fantastic. I don’t know.
That is the key: I don’t know. You don’t know. Not even Sam Altman knows what the future of AI will look like. If you are investing in AI stocks, you are buying into a sector that is rapidly changing, making future earnings unpredictable.
I want to invest in sectors where I am confident things won’t change. That doesn’t mean the companies are guaranteed to have durable earnings, but it is one less variable to worry about. I want to be certain that end-market demand will be present in the future.
Let’s look at my current portfolio to see if this stacks up:
(ignoring Harbor Diversified, which is an illiquid market cap that is untradeable right now. Long story for another day. Also ignoring Nelnet which is a conglomerate bet on management.)
Will people need to send money across borders in the future? Yes.
Will families be looking for kid-friendly home entertainment options? Yes.
Will people want to eat greasy food at a reasonable price? Yes. (maybe Ozempic kills this. Maybe.)
Will business jets want access to high-speed internet? Yes.
Will people use nicotine? Yes.
Will South Korean people want a wide selection of e-commerce products that can be delivered in a few hours? Yes.
Will there be publicly traded Mexican stocks? Yes.
Will people want to fly in and to Mexico? Yes.
A business with more predictable end-market demand is one that is of higher quality than one with unpredictable end-market demand because you can be confident in earnings durability.
AI is the complete opposite. None of us know what the sector will look like in a few years, just like none of us knew what the internet would look like in 2010 back in 1995.
Why pay up for this uncertainty?
If it walks like a bubble and quacks like a bubble, perhaps it is a bubble. We will see.
-Brett
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