[SPEAKER_06]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.

[SPEAKER_06]: Here's your host, Luke Guerrero.

[SPEAKER_00]: Good afternoon, fellow investors, and welcome to the Tuesday June 23rd, 2026 edition of Invest Talk.

[SPEAKER_00]: I'm your host Lou Guerrero and I'll be with you over the next hour as we dissect the market today.

[SPEAKER_00]: Talk about all the stories that matter and answer your finance investment questions.

[SPEAKER_00]: But before we do all that,

[SPEAKER_00]: Because it is almost here because our newest wealth webinar is set for Tuesday, June 30th that is one week away from noon to one Pacific, I want to remind you that if you were interested in being a part of our webinar beyond the yield, how to invest for your income needs.

[SPEAKER_00]: You're going to need to head over to our website and register, as always, it is free, but you must register to attend at investock.com.

[SPEAKER_00]: Now, just a bit, we'll talk about today's market performance and run down those show topics.

[SPEAKER_00]: But why don't we start by tackling our first caller question now?

[SPEAKER_02]: Hi there.

[SPEAKER_02]: Just have a quick question about getting some exposure into utilities.

[SPEAKER_02]: And I wanted to see the ETFJXI was any good just for some broad exposure to utilities.

[SPEAKER_02]: I don't know what's on about specific individual utility companies, but I saw that this ETF has exposure to quite a few holdings and wanted to see it was a

[SPEAKER_02]: good runner for some utility exposure.

[SPEAKER_02]: Thanks so much.

[UNKNOWN]: Bye.

[SPEAKER_00]: Well, JXI is the I shares global utilities ETF.

[SPEAKER_00]: It is a passive ETF that tracks the S&P global 1200 utility sector capped index in invests in electric gas and water utilities across global developed and emerging markets.

[SPEAKER_00]: It is actually the only large capped global utilities ETF available to US retail investors from a major provider.

[SPEAKER_00]: Now, it is, as you would expect, pretty dominated by its top holdings.

[SPEAKER_00]: It's top 10 make up about 43% of its total assets.

[SPEAKER_00]: Next day, I withdraw a Southern company, Duke Energy constellation, those of the top five, they make up roughly, ooh, 35, 36% of the fund itself.

[SPEAKER_00]: In terms of expenses, I mean, it's about 39 basis points, which for a fund that is investing internationally in an emerging markets, as well, isn't really all that expensive compared to its peers, though, it is a bit more expensive XLU, which is the spider U.S. utility, so only U.S. not internationally emerging exposure, it's probably the largest utilities fund.

[SPEAKER_00]: I mean, that's much cheaper, that's nine basis points.

[SPEAKER_00]: But overall, if you're looking for global diversification because 55% of this is US and 35% of it is European utilities.

[SPEAKER_00]: And essentially what you're doing then versus the normal US only index is you're hedging against AI data center power demand in both the US and in Europe, which are two simultaneous secular tailwinds.

[SPEAKER_00]: Also, maybe you think the dollar is a bit weaker or is going to be a bit weaker.

[SPEAKER_00]: That would amplify European returns.

[SPEAKER_00]: and you're doing it for about a 2.5% dividend yield is where it currently sits.

[SPEAKER_00]: I think overall it is a well-constructed global utility wrapper for investors who want to own this AI power demand story and the European Energy Transition story.

[SPEAKER_00]: simultaneously.

[SPEAKER_00]: Morningstar gave it a bronze.

[SPEAKER_00]: I mean, it's up almost 19% over the past 52 weeks and you do get genuine geographic and market diversification offer a cost of about 40 basis points.

[SPEAKER_00]: Frankly, I think if you want that European exposure and you think the dollar weakness is going to be a tailwind and that's going to help it along, this is a perfectly good way to go about

[SPEAKER_00]: that is JXI, the I shares global utilities ETF.

[SPEAKER_00]: Next to the call.

[SPEAKER_00]: Well, we had another great show yesterday.

[SPEAKER_00]: We looked into how what is going on in 2026 looks a lot like 2022.

[SPEAKER_00]: And so we provided investors with a checklist to invest for the rest of the year.

[SPEAKER_00]: We also answered a listener question on Ethereum.

[SPEAKER_00]: It was submitted through our YouTube channel.

[SPEAKER_00]: If you have an omissate, go check it out.

[SPEAKER_00]: The best way, of course, to never miss an episode, is to follow and best talk wherever you get your podcasts.

[SPEAKER_00]: Now on to today, we have a lot to talk about, including a little bit of a paradox with AI spending, because hyper-scalers are being left behind as the trade evolves.

[SPEAKER_00]: The AI trade has dramatically outpaced the hyperscalors who are supposedly its biggest beneficiaries, even as Big Tech stocked by VX disappear under the weight of massive AI capex.

[SPEAKER_00]: Investors are now understandably asking whether the AI infrastructure build out, will ever translate into the returns that justify these sky-high valuations.

[SPEAKER_00]: Also, story about AI data centers and how really across the political spectrum, they are facing backlash in American communities.

[SPEAKER_00]: Another story on low cost loans from the U.S. government and how the government is hoping it will revive nuclear power and should we have time at the end of the show we'll touch a little bit on mortgage rates and where they stand.

[SPEAKER_00]: We also have some voice bank calls ready to play, including one on Apple,

[SPEAKER_00]: a hospitality reat, ticker APLE, and another on Bitcoin.

[SPEAKER_00]: As always, we've got some questions that came from the comments section of the Invest Talk at YouTube channel.

[SPEAKER_00]: I hope to hear from some of you live over the next 50 minutes.

[SPEAKER_00]: What we're going to do break it is a quick one, please remember.

[SPEAKER_00]: You can call any time and leave your questions on the Invest Talk voice bank.

[SPEAKER_00]: If you're listening via our live stream or possibly on AM1220 in the Bay Area, give me a call now at 88899 chart.

[SPEAKER_00]: When we come back, we'll talk about

[SPEAKER_06]: The Vestalk phone lines never close, and now Luke Guerrero is here, taking your calls live.

[SPEAKER_06]: In Vestalk, 888-99, chart.

[SPEAKER_00]: U.S. stocks finished lower yet again as this momentum unwind hit semis and memory pretty hard and that dragged the Nasdaq down 2.2% as the S&P was off 1.4.

[SPEAKER_00]: The Dow was essentially flat, Russell 2000 lost about 1 percentage point as well but the story underneath the surface.

[SPEAKER_00]: was different.

[SPEAKER_00]: Breath was slightly positive, an equal weight S&P outperformed.

[SPEAKER_00]: The cap weighted index by about 110 basis points.

[SPEAKER_00]: This isn't a broad-based risk off.

[SPEAKER_00]: This is more than anything a concentrated, unwanted.

[SPEAKER_00]: Now the selling in semis and memory appeared to be driven more by market structure than any fundamentals, though there's no shortage of AI scrutiny to attach to the move.

[SPEAKER_00]: I mean, you have open source competition, you've got capacity competition, frontier models, cost, capex ROI concerns.

[SPEAKER_00]: And a research note, flagging 2027 memory price weakness, all made the rounds today, potentially shifting this sell off into high gear.

[SPEAKER_00]: Nvidia Tesla led the mag 7 lower, though some of the other mega caps and SpaceX actually bounced, having recently served as funding sources.

[SPEAKER_00]: We saw some outperformance in defensive pockets of the market.

[SPEAKER_00]: You saw airlines, regional banks, tobacco, pharma, med tech, all in the green.

[SPEAKER_00]: The macro backdrop still remains solid, flash PMI's, surprised to the upside with manufacturing hitting a 49 month high in services at a four month high though employment fell for a second stray month and prices remained elevated.

[SPEAKER_00]: You had ADP weekly payrolls broke a four week streak of declines.

[SPEAKER_00]: You had a two-year auction that stopped through by three-tenths of a basis point of the yield of 4.189% was the highest since January of 2025 or a reminder of where rate-cut expectations really have shifted.

[SPEAKER_00]: The market is currently pricing about 40 basis points of hikes through your end.

[SPEAKER_00]: Hikes.

[SPEAKER_00]: Hikes.

[SPEAKER_00]: Concerns about the implications for bond volatility from the fed shift away from forward guidance.

[SPEAKER_00]: Also something that could continue to weigh on yields.

[SPEAKER_00]: That all being said, otherwise pretty quiet day, right?

[SPEAKER_00]: You didn't have much on the geopolitical front, though that is, I would say, fitting, given the market has a clear interest in moving past the Iran situation.

[SPEAKER_00]: But with that, crude oil did settle up 1% or rather settle down 1% after Monday's two and a half percent drop.

[SPEAKER_00]: Elsewhere the dollar hit its highest level since May of 2025 gold fell 1.3% silver dropped to 5.4% Bitcoin futures were off about 3.3% on the day and the big news again from SpaceX has been raising a bunch of capital recently.

[SPEAKER_00]: I think there is about 20 to 25 billion dollars in debt today.

[SPEAKER_00]: Looking ahead to the rest of the week, big earnings are micron at the close tomorrow.

[SPEAKER_00]: That'll be the next test of the AI-demand narrative.

[SPEAKER_00]: Thursday will bring us a PCE report.

[SPEAKER_00]: That is a week's main macro event alongside durable goods as well as claims.

[SPEAKER_00]: Now let's get back to answering your finance investment questions at this question.

[SPEAKER_00]: It's fresh question from the YouTube comment section.

[SPEAKER_00]: Question bank and it's about ticker LMT.

[SPEAKER_00]: It says have Lockheed Martin on my watch list.

[SPEAKER_00]: Wondering if it may be a good time to buy soon on its downtrend.

[SPEAKER_00]: But it's also missed it suspected earnings the last two quarters.

[SPEAKER_00]: What are your thoughts on this stock?

[SPEAKER_00]: Thanks for all that you do.

[SPEAKER_00]: Let's take a look at your LMT, which is Lockheed Martin Corporation.

[SPEAKER_00]: Of course, one of the big five global security and aerospace companies.

[SPEAKER_00]: They are the world's largest defense contractor.

[SPEAKER_00]: They have that crown jewel of their army fuel, the F-35 fighter, the F-16, the C-130 Black Hawk helicopters, that missile defense systems, space systems, hypersonic missiles.

[SPEAKER_00]: They actually have four segments, so they got their aeronautics, they got their missiles in fire control, they got their rotary and mission systems, and they have space.

[SPEAKER_00]: Now, recently,

[SPEAKER_00]: And you flagged it, Q4 2025 and Q1226 earnings have been that poor and Q4, you missed on both top and bottom lines.

[SPEAKER_00]: You know, in Q1 of this year, you saw zero revenue gross.

[SPEAKER_00]: You're over year earnings declined 11.5% free cash flow and negative.

[SPEAKER_00]: I mean, the stop dropped nearly 5%.

[SPEAKER_00]: On the report and for the most part has continued to fall, though it is up about 2% on the debt.

[SPEAKER_00]: Now, what really went wrong here is severe production bottlenecks.

[SPEAKER_00]: Lockheed is running years behind schedule on critical deliveries, and on top of that, you have these cost-over runs on legacy programs.

[SPEAKER_00]: What is going on with their F-16?

[SPEAKER_00]: What is going on with their C-130 is eating in two margins.

[SPEAKER_00]: And then you had to partner with GM Defense under a Defense Production Act mandate, just to address some of the munitions shortages in the U.S. Army.

[SPEAKER_00]: Then three days ago, I mean, dropped another 4% on news of potential Iran ceasefire in the straight reopening.

[SPEAKER_00]: you have institutional investors aggressively rotating out of defense and into growth cyclical sectors.

[SPEAKER_00]: And so that's the kind of the high risk here is a meaningful portion of LMT's recent valuation was conflict driven.

[SPEAKER_00]: It was a conflict driven premium and you can see how that can evaporate overnight.

[SPEAKER_00]: And right now I mean it's trading about the average of price to forward looking earnings.

[SPEAKER_00]: The bulk case here and it is compelling at these levels is that earnings misses may have actually reset a stock that had become too stretched, right?

[SPEAKER_00]: It's now trading at a 20 to 30% discount to its estimated intrinsic value for bootchip defense prime.

[SPEAKER_00]: I mean, that's pretty solid at the same time.

[SPEAKER_00]: They're five year shareholder returns to 54.42% and their backlog is absolutely massive.

[SPEAKER_00]: It is years of deliveries that are already contracted.

[SPEAKER_00]: So this is going to how I think about it.

[SPEAKER_00]: Right, the stock has pulled back about 27% it's deeply oversold technically, but oversold doesn't mean by immediately it means yeah stocks can stay oversold with this uncertainty that adds in your term wildcard related to Iran if he's holds defense stocks could have another leg down before stabilizing.

[SPEAKER_00]: upcoming earnings is the next major catalyst I would say July 28th, a beat may restore confidence, but a third miss, I mean it could send this thing well below the 500 level.

[SPEAKER_00]: So if you want to get into it, I mean I think it's a good name, I think it's it's valuation isn't as stretched as it has been, which is certainly good given the run-up even before the war.

[SPEAKER_00]: I would probably start with a small position here or there if you wanted to enter.

[SPEAKER_00]: I think the

[SPEAKER_00]: that all is standing there, the question is, you know, short-term executions, the problem, and that's what you really need to watch out for.

[SPEAKER_00]: That is LMT, Lockheed Martin.

[SPEAKER_00]: Thanks to the call.

[SPEAKER_00]: How did it do, New Break?

[SPEAKER_00]: When we come back, more to come, including my main focus point, and more answers to your finance and investigative questions, hear out in Vestock.

[SPEAKER_06]: It's coming up fast and all new in Vestock, wealth webinar beyond the yield, how to invest for your income needs.

[SPEAKER_06]: This coming Tuesday, June 30th, noon to 1 Pacific Time, online in free of charge, but you must free register at investock.com.

[SPEAKER_06]: And now the Invest Talk phone lines are open 88899 chart.

[SPEAKER_00]: The Department of Energy announced 17.5 billion in a low interest loans to finance equipment orders for 10 Westing House AP1000 nuclear reactors.

[SPEAKER_00]: 5 loans will be available for projects with 2 reactors each.

[SPEAKER_00]: 7 utilities have already signed formal letters of intent, energy secretary Chris Wright called at the beginning of the next American nuclear renaissance.

[SPEAKER_00]: Now, this significant, because nuclear power has been effectively paralyzed in the U.S. for decades.

[SPEAKER_00]: The only AP-1000s built domestically to units at Georgia's Volktole plant were originally budgeted at 14 billion, and ultimately exceeded 30.

[SPEAKER_00]: They were supposed to be completed in 2016 or 2017, and they didn't come online until 2023-2024.

[SPEAKER_00]: A similar project in South Carolina was abandoned in 2017 after cost spyrolled past 9 billion.

[SPEAKER_00]: After those disasters, no utility wanted to be next in line.

[SPEAKER_00]: The Dewey's approach is designed to break the cost spiral by making a steady series of bulk equipment purchases through government back loans.

[SPEAKER_00]: The nuclear supply chain gets supercharged, manufacturing starts while projects are still making their way through permitting and regulatory approval.

[SPEAKER_00]: Westinghouse has standardized the AP1000 design based on the last reactor-building vocal, so all parts, they are interchangeable.

[SPEAKER_00]: If one project falls behind, equipment can be redirected to others.

[SPEAKER_00]: And Westinghouse is offering fixed price contracts for equipment giving utilities stable pricing.

[SPEAKER_00]: Each AP1000 produces about 1100 megawatts enough to power a mid-sized city or a major AI data center.

[SPEAKER_00]: The new reactors could come online starting in 2035, no, it's a decade away, but for an industry that has built new capacity since the, there hasn't really built any capacity since their early 90s, it represents a genuine restart.

[SPEAKER_00]: The AI connection is direct.

[SPEAKER_00]: Data centers need reliable base load power that doesn't depend on weather or fuel price volatility.

[SPEAKER_00]: Nuclear provides a guy who that.

[SPEAKER_00]: Tech companies have been backing nuclear through long-term power purchase agreements, the kind of 20-year commitments that the DOE said would likely be needed to get these projects into construction.

[SPEAKER_00]: Outside the U.S. Westinghouse has built four if you 1000 China, which then licensed modified and mass produced the cap 1000 design.

[SPEAKER_00]: 11 more are under construction there.

[SPEAKER_00]: China has figured out how to build the nuclear at industrial scale.

[SPEAKER_00]: The U.S. were trying to catch up and the DOE loans are the first serious attempt to do so.

[SPEAKER_00]: So for investors, the nuclear theme plays across several instruments.

[SPEAKER_00]: The Iranian miners and enrichment companies benefit from going demand for fuel, western houses parent company that suppliers benefit from equipment orders, utilities, nuclear ambitions.

[SPEAKER_00]: They benefit from government financing that derisks their projects and the broader energy infrastructure theme, well it gets another catalyst.

[SPEAKER_00]: Nuclear power provides about one-fifth of U.S. electricity generation, with demand surging from AI, EVs and electrification, that shared needs to grow.

[SPEAKER_00]: And for the first time in decades, this is a credible path to making it happen.

[SPEAKER_00]: Let's keep things moving and drop in another listener question now.

[SPEAKER_03]: This is T.J. of College from the Desert Castle in Palm Desert.

[SPEAKER_03]: I meet every week with my colleague, and we discuss investments, and he's really

[SPEAKER_03]: My colleagues really push me on Bitcoin to diversify, says it's a piece of real estate you have to own, what is your perspective on Bitcoin and do I need to be in this asset?

[SPEAKER_03]: See, it's stuck with it to me, but I just want to know from your thoughts if it's an important asset to be in, if you think I should be in it for the long term.

[SPEAKER_03]: Thank you very much.

[SPEAKER_00]: Bitcoin is as speculative as it is volatile and we've seen as it marched from 16,000 to 120,000 and back down to where it stands today, that volatility can be painful and it can be dramatic.

[SPEAKER_00]: Now my problem with the

[SPEAKER_00]: Bitcoin evangelists generally is they take in all nothing approach.

[SPEAKER_00]: You need to own so much Bitcoin because it's going to be the money of the future.

[SPEAKER_00]: Is it probably not?

[SPEAKER_00]: I've stated the reasons why not the least of which is the fact that we still price Bitcoin and dollars and you still need to pay for things in the physical world by off ramping that Bitcoin and there is no incentive from the financial system and those that run it to allow an alternative source of capital and there's also no benefit to the US government for allowing an alternative source of payment, not capital of payment.

[SPEAKER_00]: Just because something is speculative and volatile doesn't mean it doesn't have a place in your portfolio.

[SPEAKER_00]: And so if you wanted to have 5% or less than 5% of your portfolio's Bitcoin exposure, it is a high risk thing.

[SPEAKER_00]: It could go to zero.

[SPEAKER_00]: Certainly could.

[SPEAKER_00]: Or it could not move at all.

[SPEAKER_00]: Returns could be flat.

[SPEAKER_00]: It could be negative over the next decade.

[SPEAKER_00]: But at a 5% or fewer allocation, I think the risk reward there can certainly be in your favor.

[SPEAKER_00]: So I don't know what your friend's telling you to do.

[SPEAKER_00]: I don't know if your friend is saying mortgage in the house, sell your car, sell your cat, sell your dog, and buy Bitcoin.

[SPEAKER_00]: But having it be a small portion of an overall holistically managed portfolio, I don't see anything wrong with that.

[SPEAKER_00]: Thanks for the call.

[SPEAKER_00]: On the next investor talk, we'll look into this story, FedSpeak vs Geopolitics, which force actually drives markets more.

[SPEAKER_00]: The past week delivered a rare national experiment, major Fed Communications and a historic Middle East ceasefire happened simultaneously, giving investors a live stress test, and what truly moves markets.

[SPEAKER_00]: Dissecting which force had more power over stock prices, bond yields, the dollar, can sharpen every investor's macro framework, going forward.

[SPEAKER_00]: That's tomorrow.

[SPEAKER_00]: I'm Luke Guerrero, and I'm ready to take your calls anytime at 888-99 chart.

[SPEAKER_05]: At KPP Financial, Accountability means more than advice.

[SPEAKER_05]: It means we invest alongside you through our parallel investing approach.

[SPEAKER_05]: When we recommend an investment for clients, one or more KPP principles invest their own capital at the same time, same day, same price, same percentage.

[SPEAKER_05]: If your portfolio moves, ours does too.

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[SPEAKER_05]: Visit investtalk.com to get your free portfolio review.

[SPEAKER_06]: In the early days, in Vestock was Jerry Klein and Steve Peasley.

[SPEAKER_06]: Now the torch has been passed, and a new generation of hosts is on the job.

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[SPEAKER_06]: 888-99-Chart.

[SPEAKER_00]: My main focus point today is about AI's spending paradox.

[SPEAKER_00]: So here is that paradox.

[SPEAKER_00]: And it really should make every tech investor, well, a bit uncomfortable.

[SPEAKER_00]: The PHLX, semi-conductor index, is up nearly 70% year-to-date.

[SPEAKER_00]: Memory stocks have tripled.

[SPEAKER_00]: The AI supply chain has been among the best performing trades in market history, but the hyperscalers.

[SPEAKER_00]: The company's actually building all the infrastructure.

[SPEAKER_00]: Well, they've collectively underperformed the broader market.

[SPEAKER_00]: Alphabet Amazon, Microsoft, Meta, Oracle.

[SPEAKER_00]: They're spending somewhere between $650 to $755 billion on capital expenditure in 2026, depending on which estimate you use.

[SPEAKER_00]: That's a 70 to 83% increase from last year.

[SPEAKER_00]: And roughly 200% more than 2024.

[SPEAKER_00]: And the market kind of stopped rewarding them for it.

[SPEAKER_00]: to put it bluntly, is math.

[SPEAKER_00]: Pimco reported that Kaffex is projected to absorb 94% of hyperscaler's operating cash flow in 2026.

[SPEAKER_00]: Two years ago, that figure was well below 50.

[SPEAKER_00]: Wouldn't nearly every dollar, a company generates.

[SPEAKER_00]: Goes back into building data centers, GPUs, networking equipment.

[SPEAKER_00]: There is nothing left for the thing that kept those stocks rising for the past decade.

[SPEAKER_00]: Bye-bye.

[SPEAKER_00]: Goldman Sachs warned that Bibax could fall from 34% of hyperscaler spending to just 20.

[SPEAKER_00]: Bloomberg reported that Big Tech's AI spending spree is literally making stock Bibax disappear.

[SPEAKER_00]: For years, Bibax were one of the most reliable support beams for those stocks.

[SPEAKER_00]: They reduced share counts, they boosted earnings per share, and created a persistent source of demand for the stock themselves.

[SPEAKER_00]: When that support beam weakens and it's weakening fast, the stocks need earnings growth alone to carry the burden and earnings growth while still strong at 17.4% percent that's what's expected in 2026 is decelerating from 18 and 24 to 14% revenue growth 2025 to 16.5% projected this year.

[SPEAKER_00]: CapX is growing at 40 to 83% while revenue grows, 16 and a half.

[SPEAKER_00]: That gap makes the market little anxious.

[SPEAKER_00]: The hyperscalers have also turned to the debt markets in a major way.

[SPEAKER_00]: Pimco noted that index eligible new debt issuance from hyperscalers has total approximately $136 billion a year to date.

[SPEAKER_00]: That already surpasses the full year 2025 figure.

[SPEAKER_00]: Burklee's, expects hybrid scalar dead issuance to exceed 200 billion this year.

[SPEAKER_00]: Climb even higher next year, Alphabet.

[SPEAKER_00]: They had a record 85 billion dollar equity race.

[SPEAKER_00]: Those they most dramatic example, but the pattern is across the board.

[SPEAKER_00]: These companies are issuing both that and equity to fund AI capex.

[SPEAKER_00]: Because operating cash full loan just can't cover it.

[SPEAKER_00]: Now the cautionary tale in a way is... Oracle.

[SPEAKER_00]: Which went furthest in leverage.

[SPEAKER_00]: in terms of its balance sheet for AI.

[SPEAKER_00]: It's five-year credit default swap spread, essentially the cost of ensuring against Oracle defaulting.

[SPEAKER_00]: Widen from 40 Bips, the start of 2025 to 2%.

[SPEAKER_00]: By March 2026, implying a 16% default probability, S&P and Moody's both move to a negative outlook, stock fell 60% from its September 2025 peak, the sequence matters.

[SPEAKER_00]: The equity market rewards ambition.

[SPEAKER_00]: The credit market reprises the risk,

[SPEAKER_00]: and the equity market eventually caught up to reality.

[SPEAKER_00]: In CapEx heavy regimes, credit spreads can be a more reliable early warning indicator than stock prices ever will be.

[SPEAKER_00]: Now the market is responded by becoming sharply selective.

[SPEAKER_00]: Goldman noted that the average stock price correlation across large AI hyper scalars has declined from about 80% just to just 20.

[SPEAKER_00]: Investors are no longer treating the group as a model if they are separating the companies that can demonstrate a clear link between CapEx and revenue.

[SPEAKER_00]: like some cloud platform operators for those where spending appears disconnected from near-term returns.

[SPEAKER_00]: The H.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.A.AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

[SPEAKER_00]: because supply can't keep up with demand.

[SPEAKER_00]: Memory Markets are training at 7 to 9 times for earnings despite 80 cent gross margins.

[SPEAKER_00]: The infrastructure services companies.

[SPEAKER_00]: They're monetizing GPU access, the application layer companies.

[SPEAKER_00]: We'll eventually capture the recurring revenue stream from AI deployment.

[SPEAKER_00]: Now, the hyperscaler position is complicated.

[SPEAKER_00]: They are simultaneously the primary funders of the AI revolution, the largest cloud platforms that will ultimately monetize it and increasingly leverage entities whose free cash flow is now consumed by the bill though.

[SPEAKER_00]: The next phase of the AI trade will involve platform stocks that can show revenue flowing from AI adoption and productivity beneficiaries, companies in health care, finance, legal, other industries where AI adoption drives measurable efficiency gains.

[SPEAKER_00]: At some point, CapEx becomes a red flag, rather than a gross signal.

[SPEAKER_00]: That point arrives when spending exceeds what the company can fund from operations and when the incremental return on invested capital declines.

[SPEAKER_00]: Now, we're approaching that, though, for at least some hyperscares.

[SPEAKER_00]: Markett's willingness to reward AI spending peaked when investors trusted that every dollar spent would generate more than a dollar in future revenue.

[SPEAKER_00]: Now, they're demanding proof and proof in the form of AI-driven revenue that scales faster than the capex needed to deliver it.

[SPEAKER_00]: That's been harder to find than the industry promised.

[SPEAKER_00]: Bottom line.

[SPEAKER_00]: And I build that as real, the demand is genuine, and the infrastructure is necessary.

[SPEAKER_00]: But the investment thesis has to evolve, from bet on the builders to bet on the companies that generate returns from what's being built.

[SPEAKER_00]: The hybrid scalars may eventually win.

[SPEAKER_00]: Their cloud platforms give them distribution advantages that startups just cannot match.

[SPEAKER_00]: But right now, they are spending too much money.

[SPEAKER_00]: They are issuing too much debt.

[SPEAKER_00]: They're issuing too much equity.

[SPEAKER_00]: And generating too little free cash flow for the market to reward them.

[SPEAKER_00]: depicts in shovels trade that worked in 2023 to 2025 is giving way to a more selective market the demand's cash flow not capex as the measure of AI success.

[SPEAKER_00]: This is in Vestock and you're in 63 million lifetime downloads and it's all thanks to you.

[SPEAKER_00]: Because of that, why don't we answer another one of your listener questions now?

[SPEAKER_01]: Hello, I'm just gonna loop this is Paul from

[SPEAKER_01]: I have a question about Apple hospitality or read for you guys to your symbol APLE.

[SPEAKER_01]: It has had quite the run lately and up about 10% I want to wait a little bit longer and then

[SPEAKER_01]: take some profits because it's been lately at the top of its price range, so I thought it might be a good time to take some profits and maybe get in later again because the volatility of the stock seems to be that it has a way to run down but also a way to run up again.

[SPEAKER_01]: I was curious what you guys think about that.

[SPEAKER_01]: Hope you have a great day.

[SPEAKER_01]: Thank you.

[SPEAKER_01]: Bye-bye.

[SPEAKER_00]: Apple, hospitality, reach, digger, A, P, L, E is a richman, Virginia based select service hotel rate.

[SPEAKER_00]: So, they own just over 200 hotels with almost 30,000 rooms and operate exclusively under Marriott, Hilton and Hyatt Brands across both urban, suburban, and developing U.S. markets.

[SPEAKER_00]: They are the largest, the largest, publicly traded, selected service hotel rate by

[SPEAKER_00]: focusing on upper mid scale and up scale segments.

[SPEAKER_00]: Now there is a notable rewriting here because you mentioned they've done really well and here today they're about 40% I mean they have searched from a 52 week low of roughly 1085.

[SPEAKER_00]: to about 16, 16 now, that is a 53% move, and that was driven by a guidance race, and also a bit of a catalyst from all this demand from the people world cup, so it's important to note that the analyst average price targets about 15, 50 now, and that sits below the current price.

[SPEAKER_00]: That is obviously not indicative of a rule that is set in stone about where things are going to move,

[SPEAKER_00]: Now, looking at the last quarter, it looks like revenue was up 3.1% year over year or not, dramatically higher, but certainly growth that it beat estimates by about 3.8% earnings for share came out at about 12 cents, which beat 11 cents, at the 9% and 9% beat on that side as well.

[SPEAKER_00]: In comparable hotel, rev par about,

[SPEAKER_00]: up about 2.2% year over year occupancy was up about 2.1 points year over year total debt looks like it decreased over the previous quarter as well and i mean it's pretty liquid

[SPEAKER_00]: Now, revenue guidance was raised by what 1%.

[SPEAKER_00]: Any time you get revenue guidance raised or any type of guidance raised, that is the type of catalyst that markets really like because it gets people to reprise expectations.

[SPEAKER_00]: And that kind of surprised consensus surprised moves things higher.

[SPEAKER_00]: And in turn, Barclays raised their price target, canter if it's Gerald raised their price target, BMO capital markets raised their price target after this guidance raised.

[SPEAKER_00]: One thing that I imagine you like is that for the past three years, this has had a pretty solid dividend, but that's only because of where the price has moved in the past two years, really.

[SPEAKER_00]: And the dividend yield is sitting at roughly...

[SPEAKER_00]: where we at right now, 5.8% right now, it's pretty juicy, juicy dividend at 1659, where this thing's currently trading, and they have 37% net leverage, they have a conservative balance sheet, right?

[SPEAKER_00]: They've got 559 million liquidity, about 73% occupancy with room to grow, and for them, you know, they operate their hotels under the most,

[SPEAKER_00]: some of the most trusted consumer brands in hospitality.

[SPEAKER_00]: I would say overall this is a well-run, read, that has staged a remarkable recovery from its lows.

[SPEAKER_00]: The where it is now?

[SPEAKER_00]: It's trading above every analyst price target, EBIT is contracting zero by ratings.

[SPEAKER_00]: You're essentially paying full price for a solid but pedestrian growth story.

[SPEAKER_00]: So I would consider trimming into this woke-up strength.

[SPEAKER_00]: I would consider taking some of my profits here and reallocating, because I think this is pretty stretched despite a lot of optimism from management and analysts.

[SPEAKER_00]: That is Apple Hospitality Read,

[SPEAKER_00]: From time to time, we at questions via web forms from invest.com.

[SPEAKER_00]: So here's one that came in on Tigger K, W-E-B.

[SPEAKER_00]: which is pause for dramatic effect.

[SPEAKER_00]: The cranshare CSI, China Internet ETF, it says K, W, E, B is trading at a good entry price right now.

[SPEAKER_00]: A rather question is, is it trading at a good entry price?

[SPEAKER_00]: Well, first off, what is this?

[SPEAKER_00]: Well, it's a pure play exposure to China's internet and tech sector.

[SPEAKER_00]: So it's essentially the,

[SPEAKER_00]: ETF that tracks the Chinese equivalence of your Google Amazon meta Netflix.

[SPEAKER_00]: They have communication services, they got cyclicals, health care, real estate, their top holdings are names I'm sure you're familiar with, Felly Bob, but Tencent PD Holdings, JD.com, by do, net ease.

[SPEAKER_00]: But is it a good entry?

[SPEAKER_00]: It's trading near the bottom of its 52-week range.

[SPEAKER_00]: There's a lot of bad news that has been priced in because of this.

[SPEAKER_00]: I mean, China's 15th five-year plan emphasizes technological self-reliance, so there's direct policy report support for the companies that KWB holds.

[SPEAKER_00]: Their annual data volumes grew by about 26%.

[SPEAKER_00]: on an analyzed rate from 2023 to 2026.

[SPEAKER_00]: It ranks first in the world.

[SPEAKER_00]: So the data feeds a model training for Alibaba for Baidu for Tencent.

[SPEAKER_00]: In their top 10 holdings, it looks like grown revenue by an average of 11% year over year.

[SPEAKER_00]: But at the same time, I mean, the 12 month price prediction based on historical seasonalities, only 25, 66.

[SPEAKER_00]: of an annual analyst consensus basis training about 25.05 right now the technical trend is absolutely horrendous and there's a lot of macro risks right US China trade tensions that can reignite at any time property delivering spillover is continuing Chinese GDP has been moderating and then there's that perennial hayway uh wildcard right that regulatory risk Beijing has a history

[SPEAKER_00]: You know, one other thing I want to point out is taking a look at a long track record.

[SPEAKER_00]: KWB looks like it was at 104 in February of 2021.

[SPEAKER_00]: It's really 25.

[SPEAKER_00]: Meaning it's down 76% from that peak.

[SPEAKER_00]: So investors who bought during the 2021 hype absolutely destroyed.

[SPEAKER_00]: The fund has essentially round-triped multiple times.

[SPEAKER_00]: It's surges on stimulus, on policy optimism,

[SPEAKER_00]: and absolutely crashes.

[SPEAKER_00]: So bottom line, I mean, the entry is cheap.

[SPEAKER_00]: It's near its 52 week lows, but cheap doesn't really mean safe.

[SPEAKER_00]: It's been cheap before and it's gotten cheaper.

[SPEAKER_00]: As a small allocation on potentially high growth, understanding the volatility, I think it's fine.

[SPEAKER_00]: As a core investment, I wouldn't put it there.

[SPEAKER_00]: And if you want to enter, I'd probably dollar cost average because how much this thing is whips on back and forth.

[SPEAKER_00]: I would say the callos to watch is US China trade relationships, right?

[SPEAKER_00]: That continues to stabilize, Beijing follows through on its tech support of policies.

[SPEAKER_00]: If it doesn't, it's then could be coming a bit cheaper pretty soon.

[SPEAKER_00]: That is KB, the cranshare CSI, China Internet, ETF.

[SPEAKER_00]: So it's KWEV.

[SPEAKER_00]: This is Invest Talk.

[SPEAKER_00]: I'm Lou Greer.

[SPEAKER_00]: We have one goal here, and it's to help you achieve your financial freedom.

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[SPEAKER_00]: While the AI spending debate has been about financials, there is a physical world constraint that's getting less attention but could matter just as much.

[SPEAKER_00]: Americans do not want data centers in their neighborhoods and they are increasingly succeeding in stopping them, at least 20 data center projects worth $42 billion and $3.5 gigawatts

[SPEAKER_00]: Over the past three years, 85 billion worth of projects have been scrapped, could excites proposed by Amazon and Meta.

[SPEAKER_00]: This is happening everywhere.

[SPEAKER_00]: Iowa, Michigan, Texas, Virginia.

[SPEAKER_00]: The opposition crosses party lines, three quarters, Ohio Democrats and two thirds of Ohio Republicans, oppose local data center development.

[SPEAKER_00]: The scale of what's being planned is staggering.

[SPEAKER_00]: An estimated $3 trillion will go into AI data centers globally between this year and 23rd, according to Moody's.

[SPEAKER_00]: Maricopa alone.

[SPEAKER_00]: Total AI computing capacities rejected to grow from just under 12 gigawatts to as much as 60 by the end of the decade.

[SPEAKER_00]: Currently, there are about a terawatt of large-load grid connection requests across American states nearly equal to the entire capacity of the American Electrical Grid.

[SPEAKER_00]: Meta's Prometheus Project in Ohio.

[SPEAKER_00]: will dedicate an entire gigawatt, enough to power a million homes to AI.

[SPEAKER_00]: Housed in a, in six giant military grade tense, on a site, the size of an airport terminal.

[SPEAKER_00]: Survey show Americans would sooner live next to a nuclear plant than a data center.

[SPEAKER_00]: The issue has surged in salience to the point where gubernatorial candidates are routinely quizzed on their positions.

[SPEAKER_00]: The Trump administration has circumvented some local opposition by building on federal lands.

[SPEAKER_00]: A 10 gigawatts soft bank funded project in Pigtano, Ohio was announced on federal property avoiding normal permitting processes.

[SPEAKER_00]: Energy Secretary Chris Wright told the economist that ensuring AI leadership is the overriding goal of his tenure and the data centers need to get

[SPEAKER_00]: It's real, and not only is it real.

[SPEAKER_00]: I would say it's a bit under-appreciated.

[SPEAKER_00]: If enough projects get blocked, or if enough projects get delayed, the compute shortage that's already throttling AI usage, I mean, look at it.

[SPEAKER_00]: And Thropic has throttled model usage.

[SPEAKER_00]: Obed AI is scrapping its video tool.

[SPEAKER_00]: Microsoft is repricing its coding assistant.

[SPEAKER_00]: Consumers, they don't get better, they are worse.

[SPEAKER_00]: Now that is bullish for companies that already have capacity.

[SPEAKER_00]: The hyper scalers that have operational data centers, and it's bearish for the timeline on which new capacity comes online.

[SPEAKER_00]: And this is kind of an important story, because oftentimes people talk about the money that's being spent,

[SPEAKER_00]: The AI built out doesn't just need capital.

[SPEAKER_00]: It needs permission.

[SPEAKER_00]: It needs permission from the communities in which this money is gonna be spent.

[SPEAKER_00]: And across the board, those communities, for the most part, are rejecting those projects.

[SPEAKER_00]: Because of that, permission is getting a bit harder to obtain and maybe the real constraint isn't in the financial economy but in the physical real world.

[SPEAKER_00]: Well, folks, that does it for another episode of Invest Talk.

[SPEAKER_00]: Justin and I thank you for listening and encourage you to tell your friends and family members about our free podcast downloads.

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