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Nicole Benjamin: Hey, everybody. It’s Nicole Benjamin, your host here at Seeking Alpha to bring to you another episode of Portfolio Pulse, where, as the name suggests, we are keeping a pulse to all the big financial moves happening in the market. Now, for today’s episode, I am joined by none other than Jennifer Warren. Thank you so much, Jennifer, for joining us today.
Jennifer Warren: Welcome. Glad to be here.
NB: Yes. So, Jennifer, I see you’ve been on the Seeking Alpha platform since 2013. So, tell our listeners, what’s your background in the finance world, and how did you get started?
JW: So, I was in a corporate job for, like, a decade where I was doing a lot of financial services, marketing, and policy analysis, and just trend analysis, basically. But then in 2013, Seeking Alpha came to me to ask me to contribute about energy because I had been writing about energy, doing analysis. So, I already had this financial background. And then I’ve had like two decades of energy trends analysis, which includes infrastructure. And then in the last, probably five years, I’ve added more of this infrastructure element. And of course, really starting in 2023, I started looking at technology, digital infrastructure, which now is called AI infrastructure, but it’s still digital infrastructure. So, yeah. So, I’ve been here for a while, contributing research notes and analysis.
NB: Well, I love that. And speaking of AI infrastructure, I want to jump right into your most recent article that, you coined the term MANGO, and you’re grouping together major tech firms like Meta, Microsoft, Apple, Nvidia, Google, and so on and so forth with AI infrastructure models like ChatGPT and Anthropic. So, with these private companies hitting public markets with multibillion dollar valuations, how can investors distinguish between long-term value versus just headline hype?
JW: So, the idea of the MANGOS, plural, because now it includes SpaceX, I had been to India in March, and when I came back in April, May, there was like a lot of news headlines about Indian mangoes because there was a capacity crunch. And I’ve been always looking at the FAANGs and the different acronyms that have come and gone. And so, Big Tech is the big element, but we have all these new entrants like potentially Anthropic, OpenAI, and now we have SpaceX.
And so, the idea of the MANGOS is it captures Big Tech, but it also includes future prospects. And all of these frontier models, these AI frontier models, are really included in Big Tech because many Big Tech players are investing in them. They’re using the models. There’s a lot of integration that wasn’t even obvious, say, two years ago. And so, it’s a different day just from a year ago, two years ago.
And I would say, those that are trying to invest need to look at what the core competencies are of the firms because they’re all different. They all do different things and there’s some overlap. So, they have distinctive competencies. And so, I think you have to be objective about what the operations are and be objective. Don’t just follow the headlines and do your own due diligence with it.
NB: And, tech scalers are spending upwards of $700 billion on data centers and AI infrastructure. So, with that in mind, what specific indicators are you seeing that prove the spending is fueling top line growth and rather than just depleting that free cash flow?
JW: So, I would say, the indicators are really looking at the fundamentals of demand. So, what is driving this demand? And what is driving this demand, there’s demand for cloud compute. There’s also demand for AI workloads increasingly. This demand is being driven by both enterprise and consumers. And Big Tech captures all that usage. But also, with inference, we’re using more data. The AI workloads are using more data. So, we’re creating more data. And you have to put that somewhere. Data centers house data and so they’re the physical infrastructure to that. And those data centers are massively expensive these days and largely because of the chips.
So, you have that chips layer on top of the – included in the AI infrastructure. Some include that. So, there’s a lot of different ways to look at that. And I would say, we know that, like Anthropic and OpenAI are earning revenue. They’re early stage. They’re still private. And so, there’s a lot of expectation and I think you just have to step back often and tame one’s impulses about the headlines.
NB: Now, Jennifer, I see here that you’ve noted that the AI revolution is shifting from a software story to a physical powerhouse story. So, why should investors be considering allocating capital to energy and infrastructure assets instead of just focusing solely on pure play?
JW: So, in 2023, really, the chip story was the big story when NVIDIA had its breakout. And Big Tech was really thought of before as, computers and software and all that. And then we’ve shifted this focus with chips. Right? The semiconductors, the GPUs, which really are supporting the AI workloads and AI revolution. And so, now those chips, they have to be housed somewhere, which is the data center, which is AI infrastructure. And so, that’s why you’ve seen this incredible build-out, and that’s what’s consuming so much of this $700 billion CapEx, which is going to be allocated over time. And so, now those data centers have to be energized.
Nothing operates without power, and they consume a lot of power. And so, you’ve seen a lot of estimations of what that’s going to look like in future. And I think there’s a lot of variation. I don’t even think you can look at headline numbers because there’s so much nuance per region, per grid. So, there’s just a lot of nuance to it. And I’ve said before that I do like some of the midstream firms because they are early entrants in some way connecting to data centers. So, there’s going to be a lot of opportunity in energy going forward and just knowing how things are moving because the energy story is very much integrated with the AI infrastructure story.
NB: And for my last question here, I want to talk about just this intense optimism around AI. How do you see investors filtering out the noise to identify these companies that are hitting operational targets versus those that are just vulnerable to the reality check of where we’re at?
JW: I think the headlines shift around a lot. There’s been freak-outs and melt-ups and meltdowns and all that. And so, I just try to, I mean, of course, we’re all affected and we’re paying attention, but I try to stand back sometimes from the headlines and just take a beat for a week or two and try to sort out what’s fact from fiction. And so, it’s good to look at both bear cases and bull cases.
And then also, it’s, one way to do this a little bit more safely is just to invest in an index like a QQQ or S&P because they capture all this development as well. But there’s also, some people may prefer stocks, picking stocks because that’s their competency. So, what I do is, I have some broad indices that capture the MANGOS and then just broader market. But then I will look at select targeted stocks or ETFs or mutual funds that reflect where I have a natural understanding or domain knowledge. So, that’s my approach.
NB: Well, thank you so much, Jennifer, for joining us today. We’ll leave it right there. And for everybody that’s listening in, go ahead, click the follow button on Jennifer’s page, and go read her article. See if MANGOS might be something you’re interested in for your investment portfolio. And also, if you haven’t heard, we have our summer sale happening right now on all products, 20% off across the site, now through June 30th. So, we’ll catch you here next time. Thank you so much.
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Follow Jennifer Warren on Seeking Alpha!
