AI data centers are becoming a new asset class, expert says

[00:00:00] Speaker 1: I want to bring in our Niles Investment Management founder, Dan Niles. And Dan, does the scheme compute, pun intended, or does it just add validity to the notion that NVIDIA has become sort of a modern day GE capital or even worse an Enron? Well, I mean, I think [00:00:16] Speaker 2: so if you go back and you kind of think about AI infrastructure or anything, right, you just, I loved your segment you just did on cheese, right? You can make any asset class into a cheese. I mean, into an asset, right? You can make Tootsie Rolls if you want it, right? So you can go wherever you want with this. And the question is, does it make sense? Now, is AI data centers an asset class? Absolutely. Is there a lot of money being spent? 100%. Does this make it easier to get financing for these companies because you're bundling all of these guys together, much like you do with auto loans or, you know, home mortgages, which has been done for a long time? You bundle them together and then you can sell them to investors that are looking for a better yield than what you can get from treasuries, but with more risk. And so you're turning this into an asset class. You know, it's not surprising. Does this mean that you're going to have more money to fund all these investments? Absolutely. What I find interesting is the fact that Nvidia stock is basically flat. And so investors aren't necessarily looking at this and saying, this is all good, even though the purpose was to get away from this notion that it's all circular financing, because these are third parties that are going to be financing these build outs, not Nvidia, but Nvidia stocks actually not up that much. So it's kind of [00:01:40] Speaker 1: interesting to see. Yeah. And in the meantime, I know that A100 pricing is held up nicely. There's all kinds of debate about depreciation and things like that. To your point, though, I'm raising this money. Goldman says, listen, we need to raise trillions of dollars in the coming years. And, you know, again, at least from an investor's point of view, you would argue that maybe it gives us visibility or is it just maybe more Wall Street hype than anything else? Well, you've got to remember, Charles, [00:02:05] Speaker 2: like every great industrial revolution, there's always hype involved. Because if you realize that this is a big thing that's going to change the worldwide economy, and we're talking canals in the 1800s or railroads in the 1900s or fracking or the internet back in the 1990s or today, AI infrastructure, if you realize it's going to be huge, then everybody wants in. So by definition, a big revolution is going to lead to overinvestment. Now, the question is, where are you in that? So if you go back to 1999, NASDAQ was up 86 percent. It was the best year by almost 2x the next prior year. But that was right before the bubble burst. And by the way, in the early part of 2000, the NASDAQ went up another, I think it was 26 percent, or 24 percent, before it actually blew up. So I think we've got at least another year in this bubble building out. And I think the returns are going to be very, very good. And because Agentic is a brand new thing, and you and I talked about this before, that just kind of showed up with ClaudeBot on January 30th. So I doubt in six months, we've seen all of the benefits from Agentic. So I think we've got about another year in this build out. And then at some point, you're going to get a bust and all these new and innovative financing schemes, they're going to have issues. But for right now, I think, you know, you've still got a lot more room to go. [00:03:35] Speaker 1: And we should, if you are, and we are going to make the correlation back then, that 99 to 2000 was a monster. I mean, like, the more money was made that one year before the bust. On July 29th, you called for a short-term bottom, in part because of the situational awareness thing, led by hyperscalers. They've done extraordinarily well. Feels like Wall Street's changed their mind on them. I know you like Microsoft, Amazon, and Google. But again, now all of a sudden creeping up are things that they've committed to, maybe off-balance sheet things. Is that going to be a problem for now, you think? [00:04:08] Speaker 2: Not now, but just like our conversation on, you know, turning data centers into an asset class, it will be a problem. I just don't think it's in the near term because you're exactly right. There's over $1 trillion in off-balance sheet financing just looking at the six biggest guys out there. And so that just keeps building and building because, you know, these companies don't want you to really focus on that. Right. And I understand why, right? A trillion dollars is a lot of money, I think. So, but in the near term, I think what to focus on on the positive side is this last quarter, when you look at the big hyperscalers, they all saw revenue growth accelerate. And if you look at Google, revenue growth accelerated from 63% to 82%. But the more important part was profitability improved for Amazon Web Services, Microsoft's Azure, as well as Google Cloud, where margins expanded by about 3% from March to June. So the good news is revenue growth is accelerating. Profit growth is also going up on a margin basis. And so that should keep this trade going for a while longer. Yeah, I love when [00:05:15] Speaker 1: margins expand. Hey, Elon Musk last week commented and committed to Nvidia, the best, calling it the best out there. That put a little bit of spark in the stock. And you, I think in your note, I read, you said it's both a value and a growth play here. Yeah, well, I mean, if you look at it, [00:05:31] Speaker 2: Nvidia's revenue growth in the July quarter of last year was 56%. People are thinking that's going to be closer to 96% in the quarter they're about to report. So, and then accelerate from there. But as I just said earlier, it makes sense because if you look at the cap X for these big hyperscalers, the March quarter saw the fastest year-over-year growth in this entire, almost four years we're approaching now, build out. And that growth is expected to accelerate in June, or it did accelerate in June and expected to accelerate even further in the September quarter, almost 100% year-over-year growth. So that would support Nvidia where you've got a PE multiple just a little bit above the S&P 500, [00:06:16] Speaker 1: but growing revenues at over 90%. Hey, Dan, I just got less than a minute, but I want to ask about Intel. You wrote it's going to be super successful. And maybe judging from yesterday, they put out saying we're looking for $15 billion, $100 billion pours in. They raise their offering to $20 billion. Maybe that in and of itself is proof of point. The stocks come down a little bit. We've got the chart here. Where do you think it can go from here? Yeah, I never pick price targets because [00:06:42] Speaker 2: they can always go higher. You saw that with GameStop than you ever imagined. And they could always go lower than you ever imagined. But I think Intel is going to be one of the great semiconductor stocks for the next couple of years. This financing, I think, removes one of the big overhangs that we were all waiting to get out of the way. But it also tells you they need the money because they anticipate some big customers coming next year. And I think you're going to see that. [00:07:04] Speaker 1: Hey, Dan, I wanted to give you props on Impinj. I'm not sure if you're in it. I've watched it closely and I've got my subscribers in it and it's starting to make a hell of a move. So, you know, I just think the moral of the story with some of these things is when you learn the fundamentals and the price gets right, maybe you make a move. Yeah, no. And I think [00:07:21] Speaker 2: with this drop from what you saw from the highs for a lot of the tech names, now's a good time to, well, obviously, back when I wrote that note late last week was a great time to be involved. But I think with names like Intel, where as you put up that chart, the stocks come in a lot. I think that's a really great name to be involved in right now looking for. It's big. It's liquid. It's everything you could ask for. And it's going to be a national champion for Foundry in the United States. [00:07:47] Speaker 1: All right. Hey, listen, if so, if anyone knows that very few would know more than you, that's for sure when it comes to this. Dan, I appreciate you, man. Thank you very much. Thanks, Charles. All right. See you soon.