IS AI COMING FOR SOFTWARE? | IWTB S2EP02

SaaS is dead. And I think that's a fun one because I think SaaS is very dead. We talked to, um, bill McDermott, that ServiceNow two weeks ago.

We've talked to a couple people in that space where being a SaaS company is now having the nicest house in the worst neighborhood. Welcome everyone to episode two of season two of Investing with the Boys. We got all three of your boys over here.

Again, we got Logical Shai and we got Sam, myself here for the second episode kickoff. And I'm gonna just jump right into it. It's been a crazy week, two weeks with earnings.

We've seen crazy moves and volatility from both ends. Very popular retail stocks making big moves up and down. The one that really stands out to me out of all of them, especially with the recent news and the recent moves it's had, I mean the last month the thing was like up to 20%, down 20% whatever is HIMSS and hers.

This stuff, you know, it's actually really interesting on the most recent earnings is that it was the first quarterly revenue missed on analyst expectations. When on top of that it hit basically a new all time high intraday last Monday. And then it went all the way down to 52 bucks and then it recovered that and then it gave that all back after Novo Nortis came out with the news that they opened up litigation cases toward a lot of telehealth companies.

I know we have a lot to talk about this one, so let's just get right into it. Shy, what are your thoughts on their earnings and what are your thoughts on the company moving forward? So if you're a HIMSS and her, uh, investor, it's not for the fan of heart.

You gotta know, that's probably the most volatile stock that I track out there. And this is coming from a rocket lab, ion Q shareholder, et cetera. I think there's two ways of looking at HIMSS right now, and both are true.

On one hand you have the business I think was growing 70 or 75% top line. I think they're just, EBITDA is expanding at over a hundred percent. They're adding subscribers at scale on a market that kind of has failed incumbents have failed to disrupt, that's like clear business execution.

They're doing a great job at that front. And it's also not coming from these like lost leading pricing, uh, F type stuff or one-time pops like I'm pretty sure the average subscriber, uh, the spending one is like $74 a month. I think that was like 30% increase year over year.

So like the platform has proven that it can drive sustained engagement through personalization. Like that's our whole thing. Uh, it's not going to be just this commoditization prescription delivery system, but this drop is justified because I do believe this is the first real stumble as a public company.

And it wasn't just a revenue miss, it was a sequential decline in revenue and margin compression kind of happening at the same time, at a time when the business is supposed to be scaling. So there is somewhat of a perfect storm of, on paper, it looks a little off the street was pricing in, uh, the transitioning away from the compound GLP ones that would, that would be a lot more smoother than it actually was. And they thought that the core business would be picking up with Slack and that HIMSS would be continuing their compound like they've done like clockwork.

But I think this earnings re report proved it's gonna be a lot messier than anticipated. So you have to revise the expectations. And the GLP one alone went down 20% quarter to quarter.

That's a huge pullback and that was their biggest growth engine last year. I know this is not a GLP one business, but it's still a anchor on what the stock is gonna do going forward because it has that transition phase right now. Yes, they reinfor, I think they reaffirmed the reaffirmed their weight loss revenue guide, but now that the target assumes a sharp reacceleration in Q4, I believe, and that is a high bar to, uh, to pass because there is no room for further slippage.

So meanwhile, I think the rest of the bus, uh, business, the sexual health, the dermatology, the mental health, they actually all went flat or decline sequentially as well once you stripped out to GLP one. So there is somewhat of a high expectations and potential problem if they don't hit their full year guide. Uh, and and the fact that adding in the fact that the average revenue per subscriber also fell $10 quarter to quarter, despite I think hims positioning themselves in the high a CV part of their platform.

The, essentially, this is a long winded answer saying there is a lot in flux right now and especially in a highly commoditized like space like telehealth, like when you have Nova Nortis suing you and you have like this, uh, commodity, your, your industry is a commodity narrative and these are the fundamentals you reported. Like it's kind of a very noisy situation, especially the runoff has had this year that it feels like there needs to be a digestion period. I don't think it's gonna go in the twenties.

I'm not saying that I just think it's $50 looks like a very clear floor until they can like iron out what's happening with the business. But I don't know what, what do you guys think? Do you have any other inputs on that?

Uh, what to do with hims? So I mean, $50 as a floor would be today, as of our recording on Wednesday that it, it's dropped pretty con pretty considerably and been extremely volatile. I mean I I've been invested in HIMSS since, uh, since the high teens, um, not even for that long, which is really interesting 'cause it's had so many ups and downs and you know, it can be pretty advantageous for a lot of traders in the market.

And this is a trader stock. It has very high premiums. Uh, a lot of people do practice selling cover calls and and so on.

But going back to the fundamentals, uh, I think that ever since their relationship or partnership with Novo Nordisk did break off and all the allegations that they put out there, you know, which is of course what they're gonna do in their own best interests. And then we heard that Novo Nordisk is opening, I think it was 14 uh, cases with telehealth companies. They didn't specifically name HIMSS per se, but it was almost like they said, we're gonna sue 14 telehealth companies.

We're gonna open 14 cases and they're gonna be targeted toward companies that rhymes with bims and burrs, right? Like it's obviously for himss. And it was actually pretty interesting because there's another telehealth company out there, much smaller cap company called Life md, where they do focus more on the telehealth sector.

And then there's also a business that they do consume on top of that, which is included in the metrics. They just actually just reported earnings after hours yesterday. Didn't get to dig into it too much, but the stock is down 45% today.

It made its all time high around $15 and it's dropped nearly 58% from that all time high. And this was another telehealth stock that was also running hot in addition to himss. So I would really attribute this to not just the fact that HIMSS being a growth stock, of course with being an online pharmacy for a lot of, uh, for a lot of generic branding medication, also with the generic branding or compounded glide, uh, but also the fact that the entire sector in terms of tech when it comes to disruptors in, uh, in med Medicare, not Medicare, but when it comes to disruptors in pharmaceutical products as well as uh, online medical professional assistance, they all got hit.

And we all know the whole story with United Health. There is a bigger narrative going on here that's hitting healthcare stocks all across the board, whether they're generational, disruptive healthcare companies or where they're legacy conglomerates like United Health and so on. They're all taking a hit across the board.

And I think there's an underlying macro reason for all that happening, which I believe is starting to come to fruition. But the fact that you have leaders in, uh, leaders in, uh, semaglutide out there, of course you had Ozempic and you had Wegovy from Novo Nordis starting to stir up that drama and the whole situation. It does make investors a little bit uneasy in the scenario.

However, I look at the quarter, I'm looking at it with, uh, you know, with probably a little bit more optimistic in that sense, mostly because I am biased in the situation. But I mean, they did grow subscribers by 73,000 quarter over quarter and they hit some good numbers as far as their, uh, as far as the segmental metrics. But yeah, I think missing missing that revenue expectation for the first quarter ever was probably a big thing to kind of put like investors and the momentum itself at like a stand hold.

'cause now it's like, hold on a second, is this like the leader that we are all expecting or are they gonna run into a little bit of a de digestive period, which you're saying, which I do think they will. Uh, the thing is, is that as far as the mark goes, and as far as we goes as fundamental investors, this is a trader stock man. Like they can bring this thing all the way down to 30 bucks and bring it right back up the 70 bucks at the very next day.

You do need that stomach to own this stock. In fact, I would always attribute that, and I think logical will agree me on with the, with this, is that you need to have the positions size. And when it comes to something like this, there are people who are like a hundred percent invest in in their portfolio in himss.

Great, you have that conviction, go ahead, do what you gotta do. But for people who wanna diversify portfolio being in the leaders of the entire world, it's so difficult to put that much leverage on this company as far as concentration of portfolio risk goes. Well, I I also want to add, this isn't a broken business.

We're talking about HIMSS being a business in transition right now. We're there, they're like their GLP one business is completely unpredictable. It's obviously eroding and it's transitioning that self out.

It's just at the same time of that flux, their core business is also losing momentum at the worst possible time. And just as they're trying to ramp up marketing CapEx headcounts, but they are launching some really exciting things like they are expanding into hormonal health, which is a really big market. I think they're layering in diagnostics with lab testing.

They're launching AI Asians, like this is ingen AI play. They're pushing into international markets like Canada and the EU and also Latin America, I'm pretty sure they announced in Asia, like they are going global and they're not just trying to sell more pills. They're not like a pharmacy.

They're trying to build a vertically integrated consumer healthcare platform. One where a customer, uh, starts with hair loss or acne and ends up with personalized wellness membership that spans across so many different lanes like diagnostics, treatment, prevention, like it's, they're really trying to disrupt a massive industry. It's just this is the first speed bump as they're scaling up and I think it's going to be okay.

Like you can't just go vertical. But anyway, I do want to pass it to you logical on position sizing because I think a lot of people were very over indexed on HEMS in their portfolio because it just ran up. They did no trimming and now they're really filling this pain from this temporary bump.

How is the portfolio management going on your end? Because I know this is a very important earnings week for you, a lot of names for all of us. Uh, how do you like manage that?

Yeah, let me, um, real quick before I go to portfolio management, let me give a comment on the HIMSS topic. I think the elephant in the room is that they declined quarter over quarter on revenues. This is a growth stock.

You can't do that. And if you do that, you're, you get crushed. And I think something that people don't really appreciate in a business like this is, I know I'm gonna get a lot of hate for this, but it, it's kind of a commodity business, right?

I mean, they're not, they don't have any product themselves. They're just a, a distributor of a product. There could be other entrants.

People have always downplayed that Amazon risk of getting into the market. But the truth of the matter is, I mean, someone could, they have good branding, I will give them that. Um, but I know a lot of doctors that are, you know, doing this on the side where they're, you know, building up these side businesses where, you know, you can go to them for, uh, prescriptions without having to go to your primary care doctor just to get something a little bit more conveniently.

Um, and you know, the bear case has always been, look, I think that core business revenues outside of GLP ones have actually been stagnant. And I think you're probably starting to see that in the business right now. So that's kind of where I, I'm, I'm kind of seeing this right now is revenues are declining.

A lot of the explosive growth was probably on the GLP one side, perhaps that's still going, but that revenue is at risk right now with all these ongoing lawsuits. You don't want somebody like Nova Nordisk who tried to be buddy buddy with you, you kind of stepped on their toes and now they're livid and they have the IP and the patents to go to court. Um, so I mean, you know, I I would just say that there's gonna be a lot of lobbying against you as a compounder.

You know, whether, whatever that ends up being, I, I don't know if investors are gonna sit still and watch this company, which, you know, it's, it's not that expensive given the growth, but people don't care about growth as a velocity. They care about it from an acceleration standpoint. Everyone only cares about growth businesses in terms of the second derivative.

What that means is, is growth accelerating or decelerating? And right now growth is decelerating. So that's gonna chop that multiple, especially on a business where I know they talk about, oh, this is a 76% gross margin business, but the truth of the matter is their operating expenses are extremely bloated.

The sales and marketing line item has always been high. So they've, I don't wanna say artificially, but in a sense like the gross margins are high, but the operating margins have never been that high adjusted EBITDA obviously looks good. S BBC's pretty high.

So that's getting adjusted back. I don't know, it's, you know, it's one of those things, it was always gonna be musical chairs that stand at some point. And a lot of these growth stocks, you know, besides maybe a Palantir, which can keep, you know, defying the impossible, uh, a lot of these end up having a day like this and I'm not sure where the stock net's out, but I would just say that, you know, potentially like some of these other growth names have something that's a little bit more durable from a growth standpoint.

Um, so that's my thoughts on hys. Let me quickly touch on portfolio management because I think it's really important. Um, you know, people love a bull market.

People love high beta stocks. People love it when their stocks go up, but the reality is that at some point it is like musical chairs or there are gonna be pauses at the very minimum. And what a pause could look like is, hey, like this stock is up 100, 200, 300% in the last one to two years.

I mean, that's beating the market on like a 10 year timeframe in, you know, a year or so. I mean, you've pulled forward a ton of those returns and you know, maybe a lot of that's been alpha, but probably a lot of it is attributable to beta, which means that there have been people who have been chasing the stock on these great results. What happens when, okay, something that people need to understand is that when you have price, it determines the market cap of a stock.

When you have a market cap of a stock, that that's what you use to determine its valuation. Whenever a stock has very high positive sentiment, people chase that stock up in price. The price means that the multiple is expanding, the valuation is getting more expensive, which means that, that the expectations got a lot higher.

For me personally. I understand there's a lot of people who can do really well, um, chasing, you know, what's been working, but when it gets to a point where the price is really high, then it's really tough to keep beating expectations and going up higher. So that's one thing I would say from an expecta expectation standpoint, that's why I personally try to shop in areas that have somewhat lower valuations that I can feel a little bit more com comfortable in.

And I know this is a topic, a whole topic on its own, you know, shy puts valuation in the backseat, totally get it. But he does pick best of breed companies which are able to defy those odds. So you can do it, it's just a lot harder, I would say to pick true quality.

And, you know, I don't know, is this gonna be the first indication that HIMSS is really not that high quality of a stock? We'll have to see, um, in terms of position sizing and then we can move on to the next stop topic. When you're dealing with small caps or high beta stocks, things that are very volatile, something that people don't understand is that these, these small caps, high beta, they move so much five, 10% a day, they're not one 2% we're talking no news.

These things move like options on large caps. And so when you realize that, then you have to understand for your own sake of not having a heart attack every day, it's probably best to size it in a way where a five, 10% move on a daily basis doesn't, doesn't kill you. And you can end up holding through that volatility through with conviction.

So volatility is the price you pay to have high returns on the upside, especially with these volatile stocks. And guess what high upside means there could also be significant downside. And so to that, I would say, look, a lot of my positions, I hold around four, 5%.

Why is that? If I take, if I go into earnings with a four or five, let's just say a 5% position, let's keep the numbers easy, 5% position's down 20% on earnings, that's a 1% hit to my portfolio, I'll be fine. But when people come into these earnings and they're, you know, sizing these things at 10, 20, god forbid, 40% or whatever they're doing, and then they have potentially calls on top of that weekly ones with high iv, I mean, you're just asking for it.

And you know, so I would just say when you're dealing with high beta stocks, you're dealing with things that are, you know, more volatile in nature. The best thing to do, and I get laughed at about this because people say, oh, you're never gonna get rich with, you know, concentration, uh, without concentration you can't do diversification. The truth is that when it comes to small caps and high beta, a a small position is enough to have significant upside and a small position is also enough where if it, if it, if it implodes on you, you'll be very happy with that small size.

So I think small size is, you know, kind of underrated when it comes to these high beta volatility stocks. Yeah, I wanna, I wanna add some color to that. 'cause this a great topic, especially when the market's at all the time high.

So I'm sure there's some over index positions for a lot of people on how, how do I maneuver this anecdotal evidence? I'll give you all of them. So Palantir 2% position when I started under 10 bucks, what's that right now?

180 freaking nuts. I, I've don't own the same amount of shares I did under 10 bucks that I do now. I wish I did, but it's risk management.

It's been overvalued since the forties to be honest. And I think now there's validating their presence in stage two ai. But I sold half my position at 50 to 60 bucks.

I have not touched it since, even though I think it's very expensive. Why haven't I, I de-risked my position, I sold my initial risk. I'm laying the profits ride until thesis breaks.

We'll see where the market takes it. And that's what happened. Same thing with Rockola.

I got over index under four bucks. I I could have again 10 XII sold half in the twenties and now I'm laying the rest ride until thesis breaks. So Palantir is still my top position.

I've trimmed along the way. I took the profit out reallocated elsewhere, but I'm just gonna let the winners keep winning since Rock Lab. But Rock Lab's an interesting one because Rock Lab has proved my thesis that they're gonna be a full end space prime, and they didn't really do that on an initial pop as much.

Now there's like, you're seeing their services, bi bus, there's so many hot pockets in their business where I actually kind of want to add more rock collab now where I sold in the early twenties, I'd actually probably would love to buy those same shares back. So that's like, uh, it didn't work that time. But either way, the way to, if you have anxiety right now and it's a multi bager, there's no shame in de-risking original position, original capital and just letting the profits ride in compound.

And I kind of, I wanna get to Palantir's earnings, but I think, Sam, any comments on position sizing before I do. I mean, you have to practice risk management and that goes for downside and also upside, like you were saying. Uh, I mean, sterile Labs, I'm really happy that it basically tripled since the bottom last April as we were talking about earlier.

Um, and it was actually a decent sized position for me, uh, near the bottom. So my cost basis was like around 3% of my portfolio. And then, um, when it ran, when it ran up all the way to a hundred bucks since I was adding on the way down, uh, I trimmed probably I think like 30, 30% of my position.

Um, and I've just basically let the breast ride and I've considered trimming over here, but it is just, you know, at this point around three to 4% of my portfolio, I feel like I'm just gonna leave it. And, you know, the, the, the research that you guys come out with in future equities, totally agree with all of it. It, it just seems like the, now I don't, I don't wanna say we're getting started on the narrative per se, but it just seems like since we're very early when it comes to ai, in my opinion, and when you think about the bottlenecks that come in with network throughput, with a lot of inference queries that are running, I I don't, I can't last time, like trading around the position.

Yeah, go ahead. For the audience network throughput, what's your, your interpretation for that? For me, it's this data movement between memory and it's just latency speed, but describe to everyone else in a well that, That would be latency speed.

So you have, you have the homes, I would say, as far as individual servers in an environment, and then you have the data that runs through them, right through the servers, whether it's network cables, whether it's retainers or whatever it is that Sterile Lab has. And that's where their mode is, right? They, they have, they have the components that are used to build these GPUs and GPUs clusters, but they also have the timers that are used to basically increase the speed or redo the re-accelerate the, the speed that these data packets are running through the system.

So think of that as the highway, right? You have the highway which is the wires, the physical wires, or which is the wireless signals that run between each one of these, uh, units. But then you need these retirements in order to re-accelerate or give it that little boost to be able to make it as fast as possible to the other end or to the host, to the destination as soon as possible.

And that's what happens with inference is that someone's sitting on their phone and they, let's say they're using chat GBT, they ask chat g PD a question where the information already exists in their database or in their LLM, but they kind of need to work with the existing data that they do have on the already trained model. So instead of training, we're thinking inference. And that information needs to go back and forth between chat gpt as well as the phone itself, as well as other parts of the database that needs to hit.

That is inference, that's how inference works. You're not teaching the model how to speak, you're asking the model to translate something for you. And that is what matters in all this.

Because like you, oh, go ahead. Go ahead. Sorry.

No, I was gonna say, so add more color. AI is intelligence. We can all agree AI just is intelligence.

That's why it feels like there's going to be an indefinite demand for all all this AI theme because it's not a product launch, it's a characteristic change on the society who knows the ceiling on that inference is, is the tax on ai? It's as simple as that. So like what Sam was saying, tragedy BT inquiries or every AI workload, it's inference.

The tax, the tax you have to pay to use ai. That's why Broadcom is the probably the most quiet trillion dollar company in the world that nobody would realize it. 'cause they're Uncle Sam of ai.

They are, they collect the tax on everyone's AI workload through networking Aire Labs. Aire Labs essentially is, I'm trying to think of a better term. I the toll, um, the toll booth for example, like, um, what's that phrase in the California highways where you go on a toll?

It's it's uh, freak anyway, it's a toll booth. You got, you go on a highway you to get So no, I'm saying for audience But highway. Yeah, No, there's like a specific fast section on the highway that you can pay.

It's like a to road lane toll road. It's, I guess it's just Express Lane or Toll Road, whatever it might be. Broadcom essentially allows every single car on that highway to go through their toll booth.

They'll collect tack on every single one. Ster Labs is hyper specific to the spec AI bottleneck that's happening right now. The Ferraris uh, out there that just will go on that one lane and just go from point A point B super quickly.

That's why Aster Labs is kind of a derivative play on this networking theme where Broadcom is the king, absolute king. Sterile Labs is just the purest form of capitalizing on what's making Broadcom do so well right now. And the only issue though, I'm curious on your input on this, Sam, is we all know what happened in Confluent last week.

Maybe we didn't talk about it, we won't get into it. But the AI tsunami that I constantly talk about, it happened to confluent last week. The first glimpses of it were their biggest cu one of the biggest customer, maybe the biggest, I don't know, open AI drop them.

Essentially they're gonna use their open source, create their own in-house competing product for, uh, streaming data. And they're like, why should we pay for you when we have an incredible open source product? We'll create our own AI agent solution to compete with your managed services and we'll we'll be done with you.

I feel like Sarah Labs is somewhat of a risk for Nvidia to stop being buddies, buddies with the stair lab if they get big enough. And that's always the worry 'cause they're so reliant on Nvidia right now that if a stair lab becomes like a 50 billion, a hundred billion company, you never know when Nvidia would just create their own competing product and cut them off on any kind of envy linked derivative. Like do you think there's that that's a risk at all for Sterile Labs or am I just being too paranoid?

I feel like it's very different. I mean obviously when we get to valuations that Sterile Labs is trading at, you know, it can become very sensitive to any type of negative news that comes out. Since everything is just good news, it's all balloons, parties everywhere for ES stair labs, every Wall Street analyst is probably very excited and hiking the price targets as they always do for Wall Street.

'cause they always chase up and they always chase down sort of. Um, so yeah, I mean I wouldn't be surprised that ES Stair Labs comes back and visits like the a hundred dollars mark where it found a lot of resistance before. But from a fundamental perspective, confluences software, it's the stickiness of software products is, is a lot more impactive as far as budgeting goes, as far as headcount goes and scale wise than changing your hardware, right?

Especially a critical component that a Sterile Labs does offer. In order to change that out, you'd either need to build it in-house or you'd either need to outsource it to a different company, right? So let's just say that there is no other company that does it and there likely is not another company that does it as good as Sterile Labs as we know of right now.

Nvidia would have to do it in-house. Now if Nvidia were to have to in-house, they're talking about architecting and designing a complete different component that they used to outsource, I think we would probably have wind of that ahead of time. And if that were to happen ahead of time, I think Sterile Labs probably knows that as far as management goes, that they're trying to diversify where their income flows and clients are, which they have already been doing.

But also on top of that, like I was saying was that switching from Confluent to building your own in-house platform as far as data streaming goes is something very easy to do for a lot of companies, especially when you have billion dollar engineers that, uh, Sam Alman has said that they didn't go to Meta, they ended up staying there and so on. But also, uh, a lot of companies like Meta as well, they don't really buy too many vanilla products or off the shelf products. They build their own concept.

They, they basically fork a branch of whatever they're trying to do and they just build it in-house. It's hard distributing in-house. They save a lot of costs in doing that to do that with software, especially with Confluent, which Jay Krebs who's one of the founders of Kafka itself, it could be easy to do that for them.

And they probably were working on it for years and they finally figured out a way, Hey, we don't need to use Confluent anymore. So they would just drop them for that. This could be happening.

It's actually very interesting because we were talking about this before with Datadog, right? Datadog could be in the same situation. Datadog is not an open source platform, but there are a multitude amount of software platforms in terms of monitoring, security, whatever it is, including Prometheus as far as visualizing graphics, also Grafana as well, Grafana, iss open source and a lot of these hyperscalers offer their own platforms as far as CloudWatch for AWS in fact, I would even say firsthand, not Not, not just them though cybersecurity too.

Law of cybersecurity platforms have the observability. So it's easy to switch off of software. It takes a little bit of effort, takes a little budget switching, maybe recode some of your applications for the dependencies and everything, whatever.

But to switch a component, a critical component in GPUs that you're trying to meet demand with, with building a lot of supply ahead of time and still being short the supply, that would be a very ballsy move for Vid do even Jensen won maybe within NVLink. That was something possible. That's something that they've always been working on that came out with env ENV Link Fusion.

So then that way people will stay within their ecosystem, their GPU clusters by offering compatibility for other GPUs offered by other companies, including TPUs and so on. But to do that with Ster Labs by They partner, they, they partner with STA Labs for that. So like they, they know how valuable Stair Labs Scorpio is that they're just gonna partner up with them, which is a great sample of approval.

When that was announced, by the way Stair Labs was, is in the sixties I think or seventies crazy Opportunity. It didn't really react like it didn't really react like it. No, I that, that that was, that was some time ago.

And also like, you know, they went below their IPO price, which a lot of people were saying like, oh, if I bought an IPO whatever and people had the opportunity, they didn't take it right? So, you know, I'm not saying that's a miss the only missed opportunity on the market, but when we think about just the opportunity that's been presented three months ago versus today, there's not a lot of opportunity today. I mean I obviously there's a lot of, there's a lot of smaller caps and mid cap stocks that do have a lot of opportunity, which Logical has been taking advantage of a lot lately and has been seeing a lot of upside on.

Uh, but as far as like mega caps, like well-known brands that a lot of people know, like a lot of those opportunities are really just gone. Well You, you, you brought up a great point. What's the next opportunity?

And I think Logical and I both share one name on where that opportunity is and it's going through a re-rating and this this week's earnings prove that I'm gonna let Logical take it and I'll add on, finish off my thesis on them. Uh, hold on. It's, Are we, are we talking about Digital Ocean?

Yeah, we are. We're swimming in digital Ocean. I I'm, I'm sorry, but we I already told you I cut it today.

I I know, I know, I know. But you're probably this, you got, you got the post earnings gap, you had the set up, but you got the 30% move. What, what attracted, yeah, What attracted me to it?

Um, it's always been an interesting one in the compute space. It, it just kind of operates where the other ones don't. Um, and the valuation always looks so good.

I mean, for me, look, I I've been having a little bit more of my trader hat on and I noticed that, you know, this thing has basically trading near its lows of the range, uh, valuation looked very reasonable. The reason why I was alerted to the stock is because I saw a lot of, uh, options flow bullish, options flow come in and I revisited the name and it made a ton of sense. And so I just took a position and it's a name that I always wanted to own and we've talked about a lot, but it was back to a point where it made a lot of sense ahead of earnings and it worked out really well.

But honestly, you're the expert on the name so I'll let you talk about it. Okay, yeah, I'll add some color and how dare you portray me. Uh, we might have a new co-host guys next week.

Honestly. That's how dare how dare you. Believe me.

It was a mistake. It was a mistake to cut it. I'll say that right now.

It is going higher. I can feel it in my bones and it was just portfolio management strictly not anything against, yeah, All, all good. Yeah, I mean I've been in digital OSHA for far longer than I want to admit.

It's definitely been not the be best stock to own. But I did double my position in Digital Ocean in the past couple months. 'cause like what Sam was saying, the winners or the proven winners have gone through that multiple expansion opportunity already.

So it's becoming more and more expensive to own the no-brainers. So if you have capital coming in every single month, you, it's not wise to continue adding to the proven winners at this current multiple. You have to look elsewhere.

What's the next opportunity? Cloud computing was on fire this cycle. You got it from Azure, you got it from Google Cloud.

AWS is still really, really, uh, doing well. Like they exceeded expectations. They had a, the head of AWS completely messed up a couple years ago, maybe it was in a year or two ago.

He went way too hard on TRA and he got fired for doing that. And now they're just compute and energy constraints and that's why they kind of didn't exceed expectations as much as the Azures and Google Clouds did because they uh, they couldn't fulfill the demand like their backlogs growing at 25%, their top lines at 17 or 18%. That's a huge fumble on management and I think that's why that person was let go.

But it's not a demand issue. I don't call that out. But either way, all three, the demand exceeded expectations.

So there is a hot pocket right now on cloud computing. DigitalOcean is a name that I always had believed would benefit from the explosion of SMBs that we're gonna see from AI agents, uh, creating these companies overnights. I can have five SMBs in the matter of like a week just having an incredible AI agent create something for me and I need it.

Don't want to pay up the prices for the big three, I'm gonna go to Digital Ocean. But obviously business spending has been ta uh, put a bit anchored in a small business space due to high tariffs, um, high interest rate environment. But either way, I think that I saw DigitalOcean trading at 10 times ebitda multiple management has called out a couple times that they expect their top line growth to end 2027 at 20% with while maintaining 35% EBITDA margins.

So either the street which is guiding only 14% top line growth does not believe what Patty's saying to the CEO or they're just like looking, they're overlooking this AI cloud that nobody's ever heard about. And that's where the opportunities are always found when there's a massive disconnect from what the market's saying, this is what you're worth and how many eyeballs are on it. I love just like risking the biscuit on those kind of names and this is the cycle where I think they're going to go through that inflection rerating they beat across the board.

It was a one of the cleanest beats they've had in years. I've covered the stock for years, but the real signal wasn't the top line B it was the mechanics that were underneath it. They had the highest a RR in three years this past quarter that tells you everything you need to know about the momentum that's building in their cloud computing offering.

It wasn't just from one segment either. It was both the core cloud. Uh, and it was also the AI that contributed me meaningful to that number where the AI machine learning revenue by itself doubled a hundred percent year over year.

That shows that this, there is an AI story that's being had right now. And also I think it destroys the bear case that this is just a one legged growth story. It's not AI is providing a renaissance for their offering.

And I do think that their second B Bear case is net dollar retention sucks for the same, it's awful. It's never been, it's been a while since it's been over a hundred percent. I think it went from 97% to 99%.

And I think it's really important to know that this net dollar retention is excluding the AI revenue. So lemme say that again. AI is not included in their NDR calculation yet.

They're still improving cohort behavior and raising their forward guidance that tells you everything you need to know that this is gain going through a re-rating, it went up 30% after their earnings. What did it do the following day? It went up 6%.

The follow through days are vital to see if a move's actually valid and if there's a rerating that's happening, especially on a 30% move on a name that just isn't highly shorted, it's just left for dead and nobody really cares about it. Shows it's got the, it's got the analysts IT attention. So I think that, um, DigitalOcean is one of those names where if they stick to their guidance in 2027 and they continue this momentum, I think there's gonna be a massive rerating towards like 25 to 30 times ebitda.

And I think there are EBITDA right now. Let me pull it up real quick for 2027 is, wow, it is 600, $500 million. So I think, wow, this is going to be a 15 to 20 billion company if I assign a 20, 20 times EBITDA multiple.

What's the train out right now after this move? 3 billion. I I think this could be a five Xer in the next couple years.

I really do believe so. And just because it's just so severely undervalued. AI is not just a product cycle bump, it's an indefinite behavior change.

And I just, I think that that alone combined with the fact that I think they said somewhere between, I think they said 10% of their business now is AI machine learn learning revenue correlated and it's growing at a hundred percent clip. Wow. And I do believe that they're building this full stack agent AI cloud now as well because that AI business is really picking up steam growing fast.

And the customers are buying in. They, they're investing in it. Gradient AI is live in Geor in Atlanta, Georgia.

I think they're AI and um, they're, I think it has like already 14 or 15,000 agents that are created by over 6,000 customers are already like live in Gradient ai that's nearly a third of whom are like net new. I'm pretty sure just to digital Ocean. Like it's accelerating.

It's not just an add-on product. I think it's a full new customer acquisition challenge channel. And I think it's directly tied to the info base.

And I also want to call out, they sold 76 customers from Hyperscalers S quarter. It's not just for SMBs. Like there is a movement right now on inference when we talk about, I know I'm like, uh, dragging this along a little, but like inference is essentially letting the small guys compete with the big dogs now.

And I think that you're going to see that with a MD they're catching a win from that. You're going to see from a lot of these like companies who want the cheaper offering that has a similar-ish product. 'cause inference is all quantity.

It's a tax. You don't have to have the highest quality on paying your, uh, paying the tax on AI workloads. You don't.

It's just like an add-on. So you go for the cheapest offering. That's why I think this is a massive tailwind for Digital Ocean.

And uh, right now you're seeing the price act accordingly. So, uh, I don't know, what did I convince, uh, you to go back into a logical Sam? Are you, Sam you're in the tech space?

Like Yeah, what you just said. I'm like looking at the chart and I'm like, I think I blundered. It's, it's a $50 stock.

I think it's a $50 stock this year. It's the next couple. I think, I think what I would push back on is like a hundred percent growth sounds great on that AI side, but if it's only 10% of revenues right now, I mean you still need a lot more growth to make it more meaningful, right?

So it's still gonna be like at a hundred percent, you know what I mean? I don't know. I'd, I'd, I'd wanna see it.

I mean if they cont continue to go at that clip, then yeah, clearly that's gonna be huge. So I mean, my thoughts on Digital Ocean and I, maybe I'm just biased because I I've held a lot of like smaller midcap companies in the portfolio and of course larger cap or mid cap, large lar, larger size midcap companies and a lot of leaders as well. And I'm just so biased to owning the leader over anything.

Um, you know, when I think of like small SMB uh, companies that focus more on SMB versus the leaders, you know, I think of like CrowdStrike and SentinelOne. That's the first one that comes to mind. 'cause I've owned both.

Um, obviously crowd check is seen a lot more upside than sent one. In fact, I would say that in the last two years, crowd check is up basically like 300% while sent one is up like 10% max and has massively underperformed the market. That's 'cause seven one really focuses on smaller businesses and also smaller businesses can be very volatile in terms of their, uh, clientele in terms of revenue that they do project and everything.

It gets much harder for them to guide. I'm not gonna discount digital lotion. Uh, I mean I obviously need to look more into this.

I've always, whenever it comes to hyperscalers, I'm always more leaning toward owning the larger sets versus the smaller ones. Um, But it's such a, it's such a big pie though. That's the thing.

Like even if a sub big pie, 5% is a sub, 5% is massive's A Yeah, it's like nebulous versus uh, AWS or something, right? Like it's such a big pie to eat. Mm-hmm.

And the tam is growing very quickly. So the smaller place can, can make a lot of money. The risk reward is obviously the upside of digital lotion.

And I'm not saying that it wouldn't buy right now, like I'd have to do by due just to look into it. I've owned this in the past, probably like early this year and traded it per se, uh, got out of the right time, um, was considering getting back in, in the mid twenties as a trade. But I, I've never pulled the trigger as far as I thought about the basis.

But this is definitely something you need to look into and I really have no problem buying something after 30% do it, Do it, do it, do it tomorrow. It's, it's right now it's, I'm gonna pull you into it. It's like Ine like do it.

Um, But I mean, Hey, hey Pat, pat, Patty, if you're listening to this, we love you. Have you on? I know you follow me.

Yeah. I should probably DM you. Like that would be awesome.

I'm a big believer. Yeah, we should, we still swimming the pond that you're working on, right? That'd be really cool.

I mean, you're really coming head to head with a lot of the hyperscalers out there and I don't know if it's gonna happen, but it could be open acquisition at this point, like three, $4 billion company. And then you especially have these larger companies that have big valuations that could potentially be the aqui or whatever the hell it's called. Like who's, what's the, what's the, what's the name of the person that acquires the acquirer?

The acquirer? Yeah. Um, we were talking about this before and we were speculating on it.

I mean, what if it would make sense if CloudFlare did? Okay, I'm sorry, I'm looking at a chart right now. And Apple is just ripping to like the two twenties right now based on the news that just happened recently with, uh, Trump basically saying Apple is exempt from the, uh, semiconductor tariffs and so on.

That was Priced in though they're up 5%. Are they running out Hours? It's up 3% after hours, which brings it up to three.

I thought there was another piece of news. They're getting billion new manufacturer, GL What is it? Oh, you're talking about Corning lw, yeah.

Yeah. Corning. Corning, yeah.

They, they, they're, they're, uh, expanding their manufacturing create and not creating four to 50,000, but they basically support that many, no, they, they're getting a lot of positive news, but also you have like these laggards in the co in the market that, and I was just talking about it earlier, um, that are gonna make a comeback, right? And when you think of Apple, it's like, that's obviously a very well-known brand and it's gonna make a comeback as far as a narrative goes there. I don't think there's any reason why that Apple should not be going up to the market.

But anyways, um, going back to Digitale, like I, I definitely think they can make a comeback when it comes to that. They don't have to worry about open source software or anything. And I don't know, who knows?

It would make sense if CloudFlare acquired them. I don't see why that wouldn't happen, especially if CloudFlare did sell some or raise some money, you know, by, uh, diluting some shareholders recently at, at their crazy valuation right now. I mean, what's $4 billion of a $74 billion company?

Probably more than that today. Like seven, 6 billion. Like it could happen.

I could see Matt Prince doing it. Like it makes sense, right? If you wanna scale out your CDN, which is probably one of the most important things when it comes to the inference world.

Why not acquire all this free compute that you could use yourself, Millions of developers that would to get as well. But here's the caveat. I do wanna get to a next topic, but add color.

I don't think they're gonna sell out because they want an AI talent spree hiring spree a year or so ago before they had to pay up for it. The, their C-T-O-C-P-O, his previous role, they poached him. He ran a, the AI division from AWS before that VP of Nvidia.

They, and I forgot who they hired after that person. Like they, he Patty just wanted a hiring spring. There's talent around.

I don't think someone like that leaves running AI for AWS to work summer for two years and get sold. And maybe I'm a little naive, but either way, let's talk about a next hot topic. SaaS is dead.

And I think that's a fun one because I think SaaS is very dead. I talked, we talked to, um, bill McDermott that ServiceNow two weeks ago. We've talked to a couple people in that space where being a SaaS company is now having the nicest house in the worst neighborhood.

Nobody wants to know that you live in the SaaS zip code because that AI tsunami I'm talking about, it's coming for that whole space. I don't think people realize 75% of the SaaS companies will not be here publicly traded in 10 years. I think they're gonna go, it's gonna be a heavy cannibalization.

I think we saw signs of that with Confluent, but I think it's just more than a confluent issue. I think we're watching the SAT stream confront a quiet reality where great products don't always translate to great businesses, especially in the, in a world which we're in right now, the strongest products are open source and the smartest customers are AI native, open AI confluent, we just talked about it, but it's not just a confluent issue. Elastic, they have an incredible search products, but their managed services is disappointing.

Like everyone uses their open source search product, but they're growing the low teens. But let's talk about confluent for, for ex, uh, first because they just had their last, uh, their earnings last week. They're trading at $17.

They're just getting destroyed. They have an incredible management team as well. They have a phenomenal product.

I think we can all agree that streaming data is very important in the new digital economy. And Kafka is so good and so embedded and so widely understood, uh, that Fortune five hundreds, especially the AI native ones are saying that why should we pay for your managed services when we already have the talent in-house to run this ourselves by using Kafka? And OpenAI made that conclusion, uh, already, I think there's gonna be more bigger clients who are gonna follow suit.

And that single customer OpenAI forced a down revision to the back half of the year and undercut the entire cloud native consumption narrative. And now, although Confluent is this still this mission critical still foundational product via Kafka, it's in the hands of these elite technical teams and it's increasingly being treated as infrastructure to own and not rent. And I think this is really important to understand the difference.

I'm curious if you guys have any thoughts. I I just wanted To, can you just like explain a little bit more about data streaming? 'cause Yeah, So here, do you have the technical uh, answer to that, Sam?

I'm gonna bring up a DOMA five version. Okay. So of what it's, When you think of a database, it's data at rest, right?

The tables and whatever the values are. And every key, key value, if you think of an unstructured database, it sits in a table on a database, right? And it just sits there and, and applications hit these tables and they process them and everything, but the data is just sitting in the database, right?

It, it might be processed in application or script, whatever it is, but it's being put back into a static data database. What Confluence does, what con, sorry, what Confluent does is that it's taking data that's in flight, so data that you're sending from point A to point B, but it's processing that data while be, before it reaches its destination. So if you send over, um, if you send over two plus two over to a destination, confluent will say equals four and then send four over to the destination, right?

In a very basic sense, that's what confluent, that's What does, it does communication. It does the communication layer of the data. It's, It's more of a, it got really popular because of the live, uh, ride tracking and like the credit card fraud detection message Streaming as well.

Like All, all the streaming like that, it became like a niche that obviously grew because it became so reliable and so well known by the big companies that everyone just essentially used it. So how Are they able to phase them out then if it's like so important, like how is this such an easy product to replicate? So because they have an open source product, right?

So if you think of, uh, let's say databases as well, um, let's say MongoDB, right? MongoDB is open source. A company can either pay MongoDB the company, um, hey, I wanna use your product and I don't wanna host your infrastructure.

I wanna, I don't wanna host my own infrastructure or databases and maintain them. I wanna pay you and I'm just gonna use your service. That is SaaS.

That is software as a service. You're servicing software not in-house. You're just paying for the software to manage it externally, right?

It's kind of like your email. You use Gmail, you're not hosting a database server, you're not hosting an email server locally. You're not hosting the endpoints and creating APIs doing it.

You're literally paying Gmail to hold your email for you and just use Gmail for sending email, whatever it is. Confluent is the same thing where they're trying to push Confluent cloud, which is basically they're managing the infrastructure updates, upgrades, maintenance, whatever it is for you. You're just paying them for their service.

Kafka Open source is something that you take like an executable or zip file. You're installing an application or whatever, or Kafka locally. You're managing all the infrastructure, managing all the processes, whatever it is, the upgrades and everything locally.

You're literally spending your budget to pay people to manage this for you and to be the experts in configuring the entire application integrations, whatever that is. You're paying your own engineers to do it or rather you could pay Confluent to do it for you. That's where the benefit is.

The problem is that you have big conglomerates like Open AI where they have a billion dollar engineers who could figure all this out in their own by just forking a Kafka project for pennies on the dollar. It's, it's essentially everyone could, anyone and everyone can create their own lightweight versions of what Co Confluence managed Conf, confluent cloud is. And because Kafka's such an open source product that everyone can use, that what I'm referencing, like these bigger whales, they can create 70% of what this really great expensive product can do.

That 70% is usually good enough for them. And I think that's I, okay, so I just, 'cause we're on the topic of SaaS and I know that like Sam, and you kind of have different opinions on a lot of these names. 'cause I'm trying to get to the meat of the conversation, which is like, SaaS is dead.

That's, you know, your take, uh, Sam, uh, shy. But you know, Sam, I don't think you think that I'm kind of in the middle. I'm not sure what I believe.

I feel that there's still gonna be some SaaS and maybe not others. But I, I've always thought that software is becoming a commodity. Um, I think it just becomes later on about the integrations.

But seeing something like the Confluent get, you know, disintermediated, it does make me, you know, go a little bit on shy side the more I think about it. I mean, what are your thoughts? Because I know you like GitLab for example.

I mean, what are your thoughts there? Okay, so GitLab is also open source and that's the issue here, right? We're talking about GitLab Cloud or they, they just call it GitLab SaaS where they're hosting your entire infrastructure on their services.

And specifically they use AWS for most of their clients and then they offer it to people, right? That's their driving product. That's what all these companies are making higher margin on with their scalability is to host it themselves.

And since they're hosting it themselves, they can pay AWS or Azure, whatever it is. Like, hey, we have like 500 clients who are hosting stuff with like give us a discount, right? But if you host it yourself, you're just paying for a license.

So there isn't that recurring usage cost that I know Shy is more bullish on for consumption based companies versus license based or SaaS based. So the issue here with GitLab is that, well, what if people choose either GitHub, which is Microsoft offering for, uh, DevOps platform, or what if they just fork the project and just build their own right? Which a lot of people have done.

And also there's many other open source products out there and there's many other competitive co competitive products out there. Mm-hmm. My argument with GitLab per se is that if you think of a pure play in terms of DevOps, your choices in an enterprise environment are really just GitHub or GitLab, right?

Tho those are the two leading ones. Microsoft is very hard to compete with 'cause he had the bundling power. But also on top of that, GitLab's metrics really show that they're doing really good other than the fact that their net retention rates, they not, not the net retention rate, it was their, uh, clients under, um, $500,000 or 5,000, I forget the exact number, did not grow as quickly as the market expected and therefore they sold off in the last earnings.

Very volatile stock. Smaller cap as well under $10 billion. But at the same time, yes, there is a bear case about it.

I understand that and I am battling that with risk management with the position size. But go ahead, Shai. No, I mean, you did a great job.

I think, I just think for SaaS being dead, you have to ask yourself what's middleware and what's a actual infrastructure, data infrastructure. And that's a really important difference where middleware is gonna get replaced. I've already heard from like the, like bigger fish, like they're, these bigger companies are becoming more and more wanting to control everything in their stat vertical integration.

Like they wanna control everything in it. There is an opportunity now that AI is gonna be able to offer them that they can explore creating these competing products. They weren't able to before 'cause of cost efficiency issues or, uh, they didn't have enough headcount to do so.

But now these AI agents could help through that process. And I think that you need to own the data now or in some sort, like have data in your ecosystem that's protected in order to really survive like MongoDB. I, I, I think MongoDB is, uh, a name that I just think is a valuation play.

I don't know if they're gonna really do well. 'cause that open source theory had Snowflake, 40% of the Fortune two thou 2000 data is stored in the ecosystem. That's a huge lever.

But that's sa uh, that's SaaS is that conversation. We can probably, we circle back to that, uh, throughout the weeks, months. It's not just a one off.

This Conversation is dead. Yeah, we do want to talk about Amm D though before we do. Yeah, real quick.

Sorry, Just one one more thing real quick. Um, just because you know, confluence issue has been the OpenAI there was their customer, right? That's and they dropped them, right?

But does GitLab have a similar risk here of that They don't have a similar risk that's a Issue. They don't have concentration in client risk. They, they, so that's a Big deal, right?

I I mean I think that changes the calculus a bit. 'cause 'cause that's what the issue was with Confluent was they had, confluent Has always had that issue. They've had a, so there you back in 2023 with where they had two clients that one of them was dropping them, the other one was deciding, getting off.

That was 40% of the revenue that was the issue back then. Okay. So that posed the risk here and it was not good.

Well, Glab just has a GitHub issue. That's the primary thing. And I think Microsoft's gonna own a lot of the pie.

It's fine. It's a, it's a $7 billion company. Anyways.

I I do wanna add though, confluent is still trading at 40 times EBITDA multiple after this drop. So You're saying short it No, I'm just kidding. No, I I'm just saying like one customer flip a switch off and they're still not cheap even after going out 45 50 that If it's, oh yeah, but that's a big part of their volume of revenue.

That's how you get negative operating leverage at that point. The valuation actually goes up in that sense. Right?

Exactly. That's Why, that's why I'm bullish GitLab because they're not really in the same boat when it comes to that. Right?

Like obviously GitLab is not profitable on a gap basis, but like, dude, their metrics look great. Like it doesn't go Ahead. Here's the, here's the thing about GitLab though.

Like, everyone knows that AI tsunami is coming. It's the world's worst kept secret. They're gonna get acquired by Google.

They're not gonna survive in 5, 10, 10 years by itself. That's yes, please, no, but they're never gonna get a premium multiple that they deserve because of that. You're seeing like the proven winners, stage two AI winners, CloudFlare Axon, Palantir, ServiceNow, they're all maintaining their premium multiple.

The rest, there's a huge distance between tier one and tier two soft brands on what the multiple should be. There's a reason for that and I think it's going to continue widening and it's from the AI tsunami life. But again, that's enough SAS because we gotta talk a MD right now and I think that lo logical made a really interesting play.

That was AI a MD adjacent. So talk about a IP before we get into a MD. Yeah, so a IP is our terrace.

They're basically like a chip design company. Uh, and then they had this basically like a PR announcement where they're working with A-M-D-A-M-D has selected them, um, as basically a partner, uh, to design a lot of their chips that are gonna enable ai. Uh, basically they have like these, uh, network on chips things, which helps their infrastructure in terms of, you know, being faster at computing, more capable, et cetera.

Um, the stock popped 50% after hours, which was interesting. And that was getting a lot of like, uh, volume and the stock's been looking good, and then they had their earnings report and the stock gave back all of those gains. I'm glad I took some profits, uh, on a trim, but then I listened to the earnings call and they basically said, yeah, so people were like, you know, prodding and asking, Hey, what's going on with, you know, the a MD revenue?

What should we expect from guidance standpoint? And they're like, oh no, that's already been baked into guidance previously. So it's like, wait, what?

So they, that's why the stock did not hold any of those gains because while they have like this fluffy PR um, it's not really showing up in the revenue quite yet. Um, but it's, it's still validating the thesis. So I still like the stock I added more back, um, when it came back to reality.

Uh, it still shows that it has a very bright future and it can lend more of these contracts. It's more like partners end up like vetting their technology and stuff. So anyways, I'll pass it to you guys, but that was the small news on the A-M-D-A-I-P front Is Sam, is your, is your A MDA positive or negative take?

I think that negative should go first. No, I I am, I'm bullish. A-M-D-I-I just don't own the stock.

No, no, I meant, I meant earnings reaction. Oh, I mean what's your, what's your take from the earnings? You know, there are a lot of expectations when a stock, when a stock essentially doubles, you better show up, right?

Um, data center didn't do as well as Theria had hoped and it got hit. You know, when, if you take a lab for example, or stair labs, if they didn't hit on their analyst estimates, they'll get hit. Even if a lab was in line, they would still get hit because they came into the earnings with a crazy, well not crazy valuation, but with an elevated expectation of what the company was gonna perform.

People thought Lisa Sue was gonna come back hard, this earnings not saying that she won't. I think a MD is gonna be an amazing play for the next five years. Uh, that day just was not today.

They did attribute a lot of the reduction in growth for a data center to the chip restrictions, but at the same time, that literally was just lifted a month ago, right? Which didn't necessarily include most of the quarter at all. Also, on top of that, there was a bit of front loading in the first quarter, and then you came into the second quarter, which Ernis was part of.

You saw that hit with Nvidia. I kind of expected the same with a MD, but I didn't expect the company to be down 11% today. I don't know exactly what it was down today, so don't quote me on that, but it was down pretty big today.

Um, I think it deserved a little bit of a shakeout from a technical perspective, but also on top of that, a little bit of reality. Like, hey, you know, this is not the leader in the biggest wave we've ever seen in technology in our entire lifetime, so let's treat it like one. Right?

You saw Nvidia do the complete opposite. NVIDIA's up. I think that was basically the affirmation that Jensen Wong was like, Hey, you, you know that, uh, you know that meme from um, captain Phillips where he is like, look at me, look at me.

I'm the captain now. Well, basically Jensen Wong said that, Lisa Sue, but instead of saying, now I'm still the captain, all right, I feel pretty bad for a lot of people thinking that a MD was gonna pull in Nvidia. It's not going to, I'm sorry, but let's just say gaming comes back and PC comes back, all right?

A MD will see a massive tailwind if that happens. But until then, NVIDIA's still the leader. It is back.

That's the thing. I think that was the, that was the biggest hidden gem, not hidden, but it was the biggest gem that earnings report was CPUs and gaming. GPUs are carrying the story right now, but the issue was like what Sam was me mentioning.

It doubled. So the valuation was screaming A-I-G-P-U super cycle. It wasn't that narrative, the cycle.

It really wasn't. And we talked to Lisa actually before the earnings and got announced and we communicated that she had to be, they have to be overly communicative on what the inference tail one will be on their a i data center space. They can't just call out the A IDC.

They had to specifically say what inference is doing in that section and provide more layers of all everything that's happening under the hood on the data center front from ai. And I think that what's happening right now is justified for the stock price just because it's kind got ahead of itself. It happens all the time.

Like everyone thinks that a MD is going to be closing the delta with Nvidia, uh, but it's not trying to be the next Nvidia. It's trying to get that sub 10% share of the AI accelerator market, which is a huge opportunity. And to AMD's credit, their ex execution has been world-class.

Lisa is probably one of the best non founder led CEOs out there, especially in something as important as what a MD does in that semiconductor space. It's one of the few companies that actually mastered chip based design at scale, intelligent really do that. And I think that's, there is a world where AMD's TSM partnership is gonna be at a level where it essentially becomes a co-development thing.

Their roadmap aligns inference really does scale up. The China heartburn is gonna get digested, it's gonna move on. But for me, like I wanna see more from instinct.

I wanna see Oracle type wins with hyperscaler size, uh, numbers. I want visibility in the MI three 50 adoption beyond what they're saying on the conference call. If a MD has the second best inference platform in the world, which I believe that they do, then that $50 billion TAM by 2030 is up for grabs and stock might look a bit, uh, overvalued right now.

But if Amm D starts to prove again, like they get that sub 10% share of that AI accelerator market, I think it's gonna grow into that valuation some more. It's just, it feels like they kicked the can down the road for Q3. Like the burden of proof now shifts to Q3.

And I think the stock just ran up way ahead of its like what's was actually gonna get communicated and delivered. And it's nothing Lisa's fault. Stock moving is all based on retail, all these different dynamics.

That's not whatever she was saying. So, uh, yeah, It's not, it's not her fault at all. I think Lisa Sue's one of the best CEOs on the planet.

Um, yeah, a lot of people laugh at her because of the stock price, which is just stupid. You don't blame the CEO O for the way the market looks at your company. You, you, you determine A CEO based on the fundamentals of the company over years.

Not a quarter, not two quarters, not even two years or three years years. And she's been at the helm for a while. She turned their company.

Remember when, if they really wanna talk about stock price, do you remember when a MD was in the twenties? That, what was it like five, seven years ago? It was in the twenties and people thought a MD was over.

Look where it's today, it's eight times more that price even after this pullback, right? She's a great CEO. She deserves CEO over the year, uh, what was it last year?

2024. But, um, before we continue, actually, I wanted to step a bit into, uh, the medical AI space. Um, we have on Friday, Tempus AI's reporting, uh, the Nancy Pelosi bet, uh, which is actually pretty interesting because, um, I'm a holder of Tim.

Uh, not as big a position as I would want it to be. I want to get the opportunity to add to it, but there's also other small players in there like PSNL, uh, logical. Do you wanna talk about that one?

Yeah. And just to close that, a MD convo, two quick comments. One, I still can't believe Lisa, Sue and Jensen Wong are cousins.

That blows my mind. Um, and then two, uh, you know, while it was like a big dump today on a MD dude, I just looked at the chart, it's beautiful. I mean, it, it is, it held the 21 EMAA wick below it and held it and it's huge volume.

So people bought the dip today. Anyways, um, moving on to PSNL Personalis, um, Natera, who is another, uh, testing company and then Tempus ai. So Personalis reported yesterday, Natera reports tomorrow and Tempus reports on Friday.

These are probably the biggest, uh, players in like the AI healthcare detection test space, whatever. 5% or something. I never go too big on ideas that still have some binary risk.

They missed the mark, they lowered guidance. Um, they basically talked about how there was a decline in revenue for pharma tests and services. So I feel like that's gonna be a read through going into Natera tomorrow and Tempus AI on Friday.

Tempus AI stock has been extremely weak. Short interest has been ticking up even as the stock has been struggling. Um, and then Natera reports tomorrow and you know, personnel has some partnership revenues with them as well.

They partnership revenues with Tempus AI as well. So it's kind of like, I'm wondering if this is a readthrough. I almost wanna short these stocks seeing what happened to Personalis.

Uh, I'm, I feel like some of these reports are gonna be out by the time I, you know, you hear this, but I mean, I'm just talking, man, I got absolutely crushed. Personalis is a small cap. It, it requires insurance coverage to see those volumes and to be able to see that margin expansion opportunity.

Uh, management is kind of, I don't know, like they talked it up really confidently in the last call, this call. They're still confident. They're like, we've submitted three things now.

We expect two, you know, we have three shots on goal. We expect to get two coverages by the end of the year for two different indications. So, you know, personnel can turn it around For today, I did a tax loss harvesting and I'm selfishly hoping that, you know, that insurance news, you know, comes after my 30 day period when I can revisit the stock.

Obviously for patient's sake, I do hope it comes as soon as possible. Um, but you know, I, I'm wondering, you know, these stocks, these other stocks, Tempest and Natera have been weak. And yeah, there's been, they cited basically that pharma tests and maybe it has to do around these tariffs.

I, I listened to the call, but it kind of felt like vague commentary there and they just said, you know, volumes were down. So I'd imagine they're probably not the only ones feeling that. And we'll see in the next couple days with these other guys report.

But, uh, I also dumped my tempest position for now just 'cause I got, you know, hit on this PSNL and you know, I'm gonna wait and see what happens. But anyways, uh, let's just, I wanted to get those comments in, uh, just for what happened in this week. We can call it there.

Uh, yeah, it was a great show. Guys. Anything else, Shay Tune in next week for episode three of season two.

Can't we just end the earning season now? Like, this is just crazy, man. I know.

I want, I want sleep. I know I want sleep. Let's Take a break.

It's like this morning I was like, oh, great, I, I don't really have that much reporting tomorrow. And then I saw Oscar's report, I'm like, oh man, here we go. There's a lot more.

I woke, woke up, I woke up Tuesday morning thinking it was the weekend. Oh, what a nightmare. That's, That's how, that's how exhausted Monday was.

It's Dude, it's really good. Four Names today, man. Four names.

I feel like, you know, when you're in college and you had like three finals on the same day, that's exactly what I felt like. Yeah. Oh my goodness.

Don't remind me of those days. And then you had to, you had to study for one of them. You had to put all the time into one of them.

You couldn't do all of them. Anyway, guys, was a great episode. Caption up in episode two of season two.

Uh, definitely, uh, keep an eye out for episode three. Coming out next week, we have way more earnings coming out. We haven't even really crossed into the bulk of software earning season yet.

That is usually a follow-up of the, uh, major me mega cap earning season and maybe mid cap earning season, but it's not even close to being over. And also the fifth Super Bowl of the year, or in this case, this would be the third Super Bowl of the year. Nvidia earnings is coming later this month, so that's probably gonna be something of a discussion episode five.

We'll see. But, uh, I once again guys, thank for watching. Thank you to Rum Equities for sponsoring this video.

We're hosting this, producing this video as well. Appreciate you guys. See you guys in the next one.

Take care.