The AI Boom Is Hiding a Dangerous Financial Problem

Bro, if you watch and listen to that earnings call and you heard Zerk of XP, I mean, it was pretty optimistic feeling, right? Like the stock jumped up to, I think, 750. And it was like, all right, great. And then they started talking about CapEx spend. And by the morning, you know, the street just was not enthusiastic about where they were headed.

And so, yeah, they had revenue climb up 26%, which is great.

But they're saying to, you know, the street is saying, hey, these gains are great, but will it justify the spend? And that is the consensus over the past two years with all these hyperscalers. Will the revenue justify the amount of spend that you are now saying you're going to put out? And Meta was one of these companies two years ago that said, hey, we're going to do, they were at the lower tier in terms of CapEx spend.

And now they're up here at almost a hundred billion, right?

Like That stock buyback that they're doing, the $ 95 billion, they're using that to now fund the build-out. And so now this isn't just, hey, we're bringing in revenue. Because the ad revenue is doing great, and Meta is expanding, and Muse is phenomenal.

That's amazing.

But again, that's still free.

And they haven't figured out the monthly charge on that or how to monetize that. They're saying they need $ 95 billion. Stock, you know, the stock is up. So it's like, this is a lot, this is a lot. And will it be justifiable? I feel like there's so many smart people in this, in these spaces, especially the CFOs and the CTOs of these companies.

Yeah.

That they got to get this right. Um, and if they overspend, then we'll have oversupply. And I know Zuckerberg's on record saying, Hey, I don't mind overspending. We just can't miss this moment. But you know, it's not getting rewarded for that, that, that thesis anymore. We've watched Meta, and again, own shares in Meta, own calls in Meta.

We've watched this happen quarter after quarter when it comes to these reports. And so we got to see. We got to see at some point here in the next six months, where is the revenue going to come in from? We talked about Muse yesterday, and we talked about Manus yesterday. And Manus was our first indication of, hey, we have a revenue model that works.

And then there was some.

there was some back and forth with the Chinese about who really owns that and whether, you know, they're going to let the founders of the company actually leave to sign any paperwork, which kind of didn't work out. So we got to see how will they generate revenue from a business that is growing, but it's also spending at a feverish pace.

Institutional investors can have financial trauma as well. Whenever Zuckerberg talks about heavy CapEx spend, They often go back to the metaverse disaster, and I've been the first to say I was critical of that spend. This AI spend is not that. If you look at the numbers of the company, gross margin, 81% operating margin, 32.9% net margin is 31% free cash flow, even though it went negative this quarter.

The percentage is 11.9%. If you look at the 10-year growth, 5-year growth projections, all have them plus 23% to 25%. Um, meta is a buy. It is definitely price sensitive. So like if meta, I don't want to go that low cause I don't want to alarm anybody, but if meta gets to like five 81, I definitely like it at that level. Meta is a buy for sure. Uh, five year hold, um, legacy company to hold in your portfolio longterm.

I think he is getting misrepresented and put into the basket of the core weaves. oracles irons for the capex spin when they have a much better use for the ai than most of those other companies so i think they've been beaten up and this goes back to the gambling nature wasn't meta up 30 last month they're up a godly amount last month and then to have this deep slide knowing when he told them already he was talking about this capex spin a year ago so it wasn't like he surprised and and changed course.

Yeah, I just think the amount has gone up like they fully anticipated to have to.

Spend at the end of 2025.

The number was between 75 to 80 billion. And now we're seeing that obviously out into 2027 is going to be much more than that.

But they did. They had pulled back throughout the summer.

They saw a nice run up in September and October and now at I think trade at 630 today, close to 630.

So it's one of these companies.

And I think that cashflow part is important. And I felt like we just explained this when Google for the first time had negative cashflow and understanding the two types of cash, like why are they having it? Because they're investing in themselves, right? They're actually going so they can put more money into this AI spin. Will it be justifiable?

I mean, I say yes, but obviously Wall Street is still the sentiment around the idea it's still making people uncertain.

But they were certain on super micro a year ago or a year and a half ago.

Super micro just had a good report.

They did.

But another company that split and we haven't seen it recover. I'm telling you the splits are, we got to put that. We, we, we, we forget that in the, in the list of splits. That one was a company that split.

Yeah.

Hovering at 32 69. Um, You got to be careful. And also the analysts.

I was going to say, technically, it could have been a lot worse for Supermicro when we started seeing the reports come in of mismanagement of paperwork and reports being misclassified.

So, yeah, I got that.

Also, if the analysts are downgrading a mega, super mega cap company like Meta for AI spin, what does that do for Corby, Nibius, Iron, Wolf? For my investors out there. Sometimes you can just read the tea leaves. Like, they won't tell you it's a burning building, but they're like, there's crimson coming out of the roof. The signs are there.

The signs are there. Capital management for our company is really key. If nothing else, Apple has underinvested. I hate that HomePod thing that they developed. I hate that they got the touchscreen thing coming out next month. I had that on Windows XP 13 years ago. One thing they have done incredibly well, though, It's manage that money. Like when Rashad said, hey, save your money because one day your money may save you. This applies to companies too.

I don't want a company that spends like Dean and A.B. Shout out to Dean and A.B.

I love y'all.

But I don't want a company that's recklessly spending money left and right and you don't know where you're going. And I asked the top of this year, if you're spending $ 15 billion on AI expenditures, how are you going to get a 5X on that? That's tough.

And most companies don't have that answer.

For Meta, I do think they have an answer, but most of these companies don't.

I know you brought up the neoclousing. Like I said, we'll get to it, but I think it's a fine balance, right? Because in the terms of CoreWeave, yes, the debt is very concerning, and obviously the market is like they're paying for that level of concern. But the idea of having a backlog of $ 140 billion in compute talks about the demand.

So the only way to meet the demand is actually have the infrastructure that can now house. So you can meet the demand. And so it's like this fine balance. It's the fine balance that it's like, how do you, you know what I mean? Like, so then you go into debt to try to build out. And then you, again, you're anticipating that that build out is going to generate the revenue, help fill that backlog and start to bring in more supply. But again, the sentiment around it is just so negative because of the idea of, hey, what if it doesn't happen in that manner?

Rashad, do you believe in the axiom from the movie, if you build it, they will come? Or do you need to have a plan for them to come to your, Paul, to whatever you're building first?

I said, Paul.

Um.

I think it's a little bit of both depending on the situation.

That's funny. It's a little bit of both, but I think you have to build it first.

I think you got to build it first if you want to be a leader, right? You got to be asked what being a visionary is.

Is Corweave a leader?

That's the other question. You're getting secondary products. You're getting stepped on. Like, I'm tired, bro.

Hold on, hold on, hold on.

You're getting.

First question. Is it a leader in what space? In the NeoCloud space?

Yes. In the stepped on work NeoCloud space. Yes, they're a leader. Are they getting secondary products?

Is it stepped on or is it strategic partnerships that have made it that way?

So does it lead a NeoCloud? Yes.

But why does it lead? Because of who's partnering it and who owns 10% of it. That's why it's a leader.

Right?

Like NVIDIA is 10%. If they're saying like, hey, we'll provide the compute. Hey, they don't have to worry about the debt. Why are they saying that? Because they know like, hey, here's the product. We're not using the product, right? Or we're going to use the design and say, hey, this is a product that you can now use. We're going on to the next variation of our GPU-CPU combination. You guys can now use this and rent it. Here's the product. Oh, wait. Nibius, here's the product. So in order, again, to house that infrastructure, they have to spend.

The problem is that....

That supply chain has to come online a lot faster. So yes, does it mean that they're great right now? No.

But they do lead in Neocloud for sure. Those two.

And maybe Iron.

Iron's in there too.

The other part, the macro we have to talk about to be fair. Even though I'm not the biggest fan of the company in terms of investing, the interest rate environment matters a hell of a lot. debt-to-GDP because it has a trickle-down effect, right? And then also, too, some companies have overspent. Some people have spent 7x a normal deviation of what they should have spent. And now when the big boys start to get attacked like a meta, it has a trickle-down effect to the companies that are not as valuable. So maybe if this spin would have happened in 23 or early 24 and debt-to-GDP wasn't at its highest, The one thing that this war did reveal was.

Oh, see, they got.

Damn, Corweave clipped me. Oh, my God. Hey, Corweave, I'm sorry. I'm sorry.

Let me get my feedback. Now you need that compute. They heard you. They said that step don't work. They said, no, no, no, we're not going for it. We for the step on your laptop.

And if it's Apple, I'm sorry. Listen, I love John Ternus. I love him.

Yo.

They say, here goes your graphic. processing unit right here my boy my camera no but i mean it it's not a great time and i think you you you like alluded to it but interest rates that's a real thing if the cost of business goes up and some of these people and some of these companies are running very thin margins or trying to get to profitability yeah that doesn't help that doesn't help so when you see oil and crude and All these things, all these things play into that. And so if we can have one domino floor, then we could be back on that uptrend that.

We saw in late April, May into mid-June.

And then obviously July, we saw a different sentiment when it came to definitely the AI space and semi-specific in particular.

The AI Boom Is Hiding a Dangerous Financial Problem

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