Cory Johnson on Surging Neocloud & Data Center Demand, ORCL Earnings Preview

[00:00:00] Speaker 1: For a look deeper into the tech sector, in particular, especially neocloud and data center space, we want to go deeper in that sector in our tech spotlight. Joining us now is Corey Johnson, Chief Markets Strategist, Epistrophe Capital Research. Corey, it is good to see you today. We've been really honing in on the tech sector from late last week through today. We saw that sharp sell off the end of last week, a little bit of a recovery yesterday. Well, actually a big recovery to some degree. The recent pullback, some would say, and I've seen this argument that it's not about any single headline per se, but investors reducing crowded exposure as the IPO calendar heats up. What's your thought on that? Does that make sense to you? Yeah, it certainly [00:00:43] Corey Johnson: makes sense. It's hard to really know what's going on with the dynamics of the market are behind the trades. You know, there are those moments in the market where the market is quite divorced from the fundamentals of the companies underneath them. And you have to figure out what you're doing in the very moment. You've got to figure out if you are a trader just looking at wiggly lines or a screen, or you're trying to attach yourself to longer term business trends and be part of the weighing [00:01:07] Speaker 1: machine, not the voting machine. The weighing machine, not the voting machine. And it seems like there's a debate between both right now, right? And the popularity contest seems to be going in certain directions. Let's talk about some of the data center and neocloud names. You've been vocal about some of those names. Accord Weave, Nebius. Under some pressure today, but, you know, strong performance when you look at a year today. What's your take on how investors are approaching these [00:01:34] Corey Johnson: names? Yeah, I think what we can see, regardless of whatever the day-to-day market moves are, is that when I talk to companies, and I talk to companies and visit with companies here in Silicon Valley and beyond constantly, and every one of them is talking about supply and scarcity of the ability to provide what their customers want. Nobody's talking about pricing. Nobody's talking about even sort of market share that much. They're saying, can we build it? Can we build more? What can we do to build more? So when you see deals like you saw yesterday with the Amazon investment in Corning, when you see deals like NVIDIA, from which we've been talking about for months, investing in companies like Coherent and Lumentum, when you see deals like we're seeing ahead of the SpaceX IPO and XAI, and you see Anthropic coming in, a competitor of XAI and Grok, when you see Google coming in with its Gemini, a competitor to XAI and Grok, renting space that might have otherwise gone to XAI and Grok, it shows you how much demand there is for the compute from NVIDIA GPUs, and how even competitors are willing to do business with each other to get a hold of that compute. Yeah, listen, we've seen that kind of circular [00:02:44] Speaker 1: handshakes that's been happening amid this both AI arms race and the AI build out. So if AI demand, and that seems to be the case, is still outstripping supply, how should investors think about the companies that are providing the infrastructure? Yeah, I mean, you know, what we do at Epistrophe is [00:03:02] Corey Johnson: we do a lot of research by talking to a lot of companies and finding out what's happening to these businesses. And yes, we're preparing these voluminous IPO reports that we sell to our customers that are about the businesses, but you can't ignore the stocks when you're looking at it as an investor. I see we see some really unique dynamics happening in the market, particularly with these giant IPOs coming this week and in the weeks ahead. And the size of those IPOs might make for some some really real opportunities if money is moving around, not based on the fundamental of these companies, which to put in a clear way, these stocks go on sale. The volatility provides investors opportunities to find the positions they want at prices that are sometimes better than they've had another day is something that, you know, if you loved it, if you liked it at 1000, you'll love it at 900. Those are kind of the numbers we're looking at with some of these stocks right now. And some of these things are certainly on sale. I think we're gonna look back on some of the prices today and say that was a time to sell. In other cases, we're gonna look back and say that was a time to buy. [00:04:02] Speaker 1: It's so funny. In one day, we've seen so much volatility today. We started out the session higher, then we were sharply lower this afternoon around noon, Eastern time. And we've come back, we're still under some pressure here. But we're off the lows of the session. So it's the kind of anybody's guess where we're land today. So the market seems to have rewarded anything to do with AI infrastructure. What should be the first sign that we're kind of seeing a shift? What do you look for in terms of especially the conversations you have? I mean, honestly, what I'm looking for is the pricing on [00:04:32] Corey Johnson: GPU rentals. And we got some data last week about what Google is willing to pay XAI for these rentals. Now, a cynic is going to look at this and say, well, Google was an investor in this company or an investor in the larger SpaceX. And so maybe they just want to prop up the deal. Or maybe they just need the compute here. And I have to say, with my channel checks, what I'm hearing is everyone needs compute right now. There are also a lot of outs in these contracts. Jim Chanos had this great line saying there are more easy outs in this contract than a kid's t-ball game. So clearly, the companies want some optionality as well. And I think it's worth looking that these fantastic Colossus data centers that XAI built in Mississippi and built before that in Memphis, Tennessee, weren't being used to their capacity. They were overbuilt for the needs that they had because Grok has failed on a lot of the comparable tests. We did a big study in this in our epistrophe research IPO report about SpaceX saying that, look, this business has really struggled. It is not reaching the same metrics as their competitors. And as a result, they've got extra compute. Now, yes, they're able to rent it out, but it shows you the demand for those data centers, but how difficult it is to succeed in the world of AI when new models are being released even today with clawed out with its brand new model that's it's performing really fantastically [00:05:53] Speaker 1: according to some of the metrics that let's talk a little bit about I want to get your views on Oracle because we haven't talked about that in a little bit here. You often point to committed contracts and backlogs as a differentiator. How should we think about Oracle from here? [00:06:11] Corey Johnson: Yeah, I mean, look, I the most important number that has moved the stock in the last call a year and a half has been the RPO number through the remaining performance obligations. You're just talking about that in the last segment. That's all about data centers and AI. As much as we think of this as a software company, and we should, it is also the preeminent builder of data centers in America right now. And what we see from Oracle, what we're going to see from their earnings is how well that business is going. I've met with management a lot. I was out in Nashville just two weeks ago talking to them exclusively about data centers. Software was barely a concern in terms of these conversations because what's happening data centers is so exciting. And they are building data centers fast. They're making very special power agreements from one data center to the next. The deals look really different. The things they're doing to deal with communities look very different because they're trying to make everybody happy along the way. But there is a big land rush out there, a literal land rush out there to build these data centers. And I think we're going to hear a lot more about that in Oracle's call. And it's going to tell us about the other neoclouds. And it's going to tell us about the development of LLMs. And it's going to tell us a little bit about these big IPOs that are all around LLMs, whether it's the XAI LLM, or Anthropic, or about OpenAI. We're going to get a lot of news about that from the Oracle conference call this week because we're going to hear about both how the data centers are built out, how much RPO demand they're satisfying, and where the build out goes going forward. [00:07:35] Speaker 1: MS. All right. Good stuff. Thank you, Corey. Great conversation, as usual. That's Corey Johnson of Epistrophe Capital Research.