Some of your favorite stocks could be going to zero. And another area of the market many investors are sleeping on right now could be the next biggest growth area of the market. Joining me today is Gabe Marshank with Stanbury Research. Thanks so much for being here. It's we love having first time guests on the show. Thanks so much for having me. Gabe's going to be diving into four energy stocks that are all down quite a bit right now. But he says longterm these stocks could all three to 5x in just a couple of years. So, we're going to get to those names in a minute, but I want to start the conversation about AI and the massive growth that we're seeing there and your take on some stocks in that area. So, this is going to be hard news for some of our viewers who really like to talk about AI stocks. And there's some names that we cover a lot on this channel that you have a different perspective on. So, let's start out with that AI data center story. Yeah, I mean, look, I think that AI is for many people kind of a matter of faith, right? There's just this magical belief that all this spending will result in this incredible thing. And it is an incredible product. There's no doubt. I love AI. I use it every day. Um the question is not whether it's going to be an extinction event for humanity. I just think it might be an extinction event for your portfolio if you buy the wrong names. Because the reality is there's trillions and trillions of dollars of capital getting thrown in the ground with very unclear returns. What is happening right now is the data center buildout which is going to be $4.5 trillion let's say by 2030. It needs to earn a return on that capital right this is just basic economics and on my numbers to earn an adequate return on that capital the compute layer that is all of the data centers will need to generate about a trillion7 in revenues okay that compares to the platform economy today so Google Meta Oracle Microsoft Amazon excluding kind of the consumer products business they're at about a trillion dollars in revenue so you're going to have to go from essentially a standing start to $1.7 trillion in revenues by 2030 just to earn earn an adequate return on the capital that's being spent on data centers. And I say there's no way. I've seen this movie before. This reminds me of, for example, like biodeiesel, right? When biodeiesel became um uh regulated and allowed and all this money went into building all these biodeiesel plants in the Midwest. And guess what? People were initially valuing these companies as a multiple of their capex. The money they put in the ground, $100 million, suddenly worth $200 million. It wasn't. They all went bust. They were commodity businesses. And so what I'm saying is that data centers produce a commodity. It's called AI compute or tokens. And that the supply of that commodity is going to go up by 150 fold. And capitalism is going to do exactly what it does. Supply goes up, price goes down. And that's how you clear demand. This is so fascinating to hear because right now there is so much demand and not enough supply. So everybody's in this race to to get that supply there. But what you're saying is eventually the supply is going to be too plentiful. I'm saying something slightly different, which is that demand equals supply. Every piece of compute is running. Okay? It's it's like an airline. If there's an empty seat, they're going to sell it for whatever the price is. They're not going to sit around and wait to fill that seat and keep the plane on the tarmac. So supply equals demand. Pricing is the clearing mechanism. Okay? So it's not like a mine where when prices go down, you turn it off. The operating costs of a data center are very low, 3% of the total capital cost of a data center. It runs no matter what. So when things were really tight, pricing and we can measure this. This is not a mystery. There's price cards for Amazon and Corewave and other cloud providers of AI compute and we can track what's happened to pricing and in 2022 it was about three and a half bucks per kilowatt. That's kind of the the standard because dollars and kilowatts are the same no matter what. Tokens can be used differently. And then when it went up to four and four and a quarter and now pricing is already starting to decline. So people say, oh, you know, demand is is too high. Pricing is already starting to correct. And that's because supply is coming on in a major way. And I estimate that pricing is going to do exactly what had happened during the bandwidth bubble in 96 to 2001. Right. All the money went in the ground. Supply came on and pricing collapsed by 90%. Yeah. This is not great news for companies that are banking on AI paying off long term. And like you said, the trillions of dollars going into building out this AI data centers. And I want to talk about those NEA clouds that the companies that are kind of doing the data center space for rent in the future. What's your take on those? These are the stocks that a lot of our viewers very interested in. They've done fairly well for them so far this year. What do you think about these companies? Look, I think that returns are going negative and I think the stocks probably won't go negative, but they have strong support at zero. I really I just don't see a future for Cororeweave or Nebius or Iron. I fail to see what differentiates them as a business model. Their business model is kind of uh hold my beer, watch me spend, right? It doesn't differentiate you. If you can spend 50 billion and the next guy is Google and they can spend 150 billion, what makes you any different? And we actually got a peak into some of the pricing data. Uh iron and and Microsoft uh signed a contract with the SEC and this is in the hottest market of all time and the returns were kind of adequate. So it's my contention that pricing and this is you don't hear anybody in AI talk about pricing but it's really easy to see what pricing is. There's token pricing, which is kind of a derivative of the compute, and then there's compute pricing, and these come out on rate cards. Now, the tricky part is that long-term contracts are getting signed, and they have deescalators in them. They have discounts to to list pricing. So, we don't always know, but as far as we can gather, pricing has already been meaningfully declining for the past year, and it's going to continue to decline in my estimation. And when that happens, the returns are going to be very disappointing. The capex was all spent on this belief that if volume went up that revenues would go up. But if volume goes up and pricing goes down, your revenues don't match your expenses. You never earn a return and that's how you go to zero. Yeah, I think you're killing some darlings out here for some viewers who are really bullish on these stocks. I also think my favorite thing about this show is we hear from tons of different analysts all the time and you hear lots of different opinions and this is one bearish take on the NEO clouds and what's going to happen. I think you debated somebody who had more of a a bull a bullish take on them, right? I'm debating everybody because everyone's a bull and that's part of the problem. You know, in general on Wall Street, you don't want to do the thing that everybody on Wall Street is telling you to do. Guess who's making money off at Wall Street? Trading all these stocks, listing all these SpaceX IPO half billion in in revenues. They have no interest in telling you the bare case. But I lived through the bandwidth bubble and I remember when Level 3 and Global Crossing and WorldCom all blew up and it was the exact same story. They built these investment models based on demand increasing which is really their supply would get filled and it did. They just missed on the pricing element and as a result they missed revenues by 90%. This is such a fascinating story. I want to hear from viewers in the comments what you think about his take on what's going to happen to some of these NeoCloud companies. Nabius is a stock that so many of you have really loved for a long time. So let me hear your thoughts in the comments. And I also love that you started this out by saying you're not anti-A. You're actually pretty bullish on the future of AI. It's really just these companies not understanding that pricing power. AI is a brilliant product. I used to fly between New York and London a lot. I lived in London and I worked in New York. So, I go back and forth. There was an airline called EOS and they sold business class seats at economycl class prices. It was great. I loved it. They went bankrupt. It was a terrible business model. That's all I'm saying. The product is great. The business model for building it out is the one that's problematic. Oh, so fascinating to hear. And in fact, you're so bullish on the future of AI that you and Stanbury Research, you've come up with your own AI tool for investing. I know many investors are using AI to help their own portfolios. And Stansbury Research has an option for you to really improve your portfolio using AI. They have their own AI tool that you can try out now at a very special discount just for our YouTube viewers today. If you want to check out their system, you can scan the QR code or click the link in the description and try out that special offer for Stanbury's own AI tool to help you invest better and help grow your portfolio using AI. So again, a bullish story today on the future of AI. And one of those bullish elements of AI having a huge future is energy. This is a bottleneck for the AI buildout. And we're going to cover four different energy stocks today that you are very bullish on. And it is more of that take that you said of not doing everything that Wall Street is doing. All four of these stocks are down quite a bit right now. And I think that's something our investors really like to see is buying a stock when the rest of the market is it's not at its top. And all four of these are absolutely that case. So let's get to the first company. What's the first thing you're looking at? So there's actually two and they're both uh companies that come out of the oil patch. And they started essentially servicing uh oil field companies. So servicing the drillers, but they moved into what is known as behind the meter energy. Uh and so it's Atlas Energy Solutions, AESI, uh and Liberty, LBRT. Now both of them are providing uh bespoke uh behind the meter which means off-grid power services. So basically you can go and contract with them. They will provide the diesel reciprocating engine. They will provide you the infrastructure. So essentially it is an on-site power facility. And what that means is you're not trapped in the 5 to sevenyear delay for getting into the interconnect queue because um I don't know how much you know about the utility grid but it's antiquated and it's slow. Every time you put a new power source onto the grid, you have to balance the entire grid because if you uh come out of hertz, uh you will have a grid failure and that's no good for anybody. The process is slow and cumbersome and so the way to sidestep it is to get your own power behind the meter. Uh both of these companies started by providing power for pressure pumping which is uh commonly known as fracking. It's putting a lot of pressure down the hole. It requires a ton of horsepower and they realize how we can repurpose that power instead of jamming a bunch of water down a down a drill hole. we can use it to fire up a data center. Yeah, this is so interesting because it's an immediate solution instead of having to wait for that power grid and and that's a whole another discussion on what data centers are doing right now, what the hyperschoolers are doing to try to get into the power grid as soon as they can. So, any of these companies that have that solution to energy that's immediate are doing well. Well, and the interesting one to me is also uh Liberty LBRT because uh their former CEO is the secretary of energy now. Um, and while he was CEO, they did a sideway step into geothermal. And I think geothermal is probably the most slept on energy source in the world. Um, it's been around for millennia. The Roman baths were funded by geothermal. But up until recently, we had to depend on the geothermal that was already available uh on Earth. But with the technology that they use for onore oil, for fracking, they can actually use that to create closed loops for hot water. And so they can make their own geothermal systems. And so, uh, I'm also super excited about two companies that are doing what's called enhanced geothermal, and those are Ormat and FVO. Ormat has been in geothermal a lot longer. They've got, uh, a lot more historical geothermal assets. Um, but they're moving forward into this enhanced geothermal. Fervo is a pure play. They're working with Google. They have a massive contract to build a 2.4 gawatt facility at Cape Station, Utah. It's just absolutely enormous. And the thing about geothermal, as far as I can tell, it works. The stocks have been weak because there's been some delays in interconnect and grid connection because for the data centers they still want backup grid connection power. So it pushed revenues out uh to the right after Furvo's IPO. The stock is trading below its IPO price. I think that's probably my most interesting speculation. Um I think geothermal will go on to be an extremely meaningful part of our electricity stack. It's always on. It costs virtually nothing to operate. It has no emissions. It kind of ticks all the boxes. And so when everyone else is running around trying to chase these uh gas turbines from GE Renova, that stock is up a zillion percent. I think that there is this other great energy source that's a lot easier to do. Uh that's just right here in front of us. Vervo is a name that has come up on our show before. We have had people come on and talk about geothermal before and very bullish on it. But I think there's some investors who maybe got burned a little bit on that IPO where they were really excited like you about the future of geothermal and then they watched the stock price continue to go down. When is that turnaround and what will it take to see a turnaround not only in FVO but these other geothermal companies? The problem is an engineering one not a revenue one and right now the people are reacting to revenues and you know the revenue recognition got pushed to the right and people are all freaking out about it and I I have nothing to say about that. The revenues will be what they will be the problem is really an engineering one. If they can create a closed loop system that holds onto the water that they pump down they will have created truly enhanced geothermal and the sky's is the limit. if they aren't able to do that and the early returns are good on that, but they're still working on. So, to me, the risk is is an engineering issue rather than um you know, I I don't know when the socket is going to start going up again. I really don't. Uh I just know that if they are able to get this 2 and 12 gig generation source up and running, it is worth a multiple of today's price. And so, I don't want to be too cute about it. Yeah, I think that's great. It's a problem that needs to be solved and once it is, the stock could be doing well. I I'm wondering about timeline because I you think about other energy things. We we didn't mention any nuclear stocks which is interesting to hear but one argument I've heard about uh nuclear as a solution to the energy crisis. It's just the timeline is too long. The timeline to actual profitability into figuring out those engineering solutions, they're just not there yet. Is geothermal timeline sooner? Much sooner. You know, I think we're going to have uh proof here within the next two years if not sooner. Uh a new takes what 5 to seven years to build minimum. that's optimistic. You know, in the US it's going to be longer. I mean, we're talking in China, you can go a little faster, but unless you get, you know, some complete tone shift in the regulatory fiat, it's not coming for nuke. Uh geothermal, you know, it it is a very simple process. You drill down, you drill sideways, you drill up, you inject water down there. It's not that difficult to do. It doesn't have uh the same sort of local regulatory uh resistance. there's you're not putting chemicals down uh in the earth as you are with with fracking and even that onore oil has been wildly successful. The amount of wells that are needed to drill uh don't even come close to touching. So it's just it's just a smaller lower footprint. I just think the market is just whistling right by it. I think the market's just overlooking what could go on to become the most and mind you I I've spent 25 years looking at energy and I was very bullish on nuke about four or five years ago because the market looked at it the exact same way, right? I remember looking uh at Talon coming out of bankruptcy and it traded by appointment and I you know I was trying to buy a 100 shares at a time at 50 bucks and I sort of said look either rates are going to come down and people are going to value this higher because the discounted cash flow rates go up and prices go up because there's inflation but either way people just aren't and in the end people are like oh this is always on energy it's worth a whole lot. I think the same thing is happening right now. People are just not paying attention and I think once they do these stocks are going to absolutely explode. When's it going to happen? I don't know. That timing piece is what everyone always wants to know about when is this going to happen. But I want to talk about at least like the risk and reward when you're looking at stocks when they're on the downtrend when they are I mean all of these stocks are down about 30% the last three months. The fear of catching a falling knife. Is this a bottom? Could it go even lower? What kind of success have you had getting stocks whenever they're on this kind of a downtrend? Betting on a long-term payoff down the road. You know, I don't think that stock prices carry a whole lot of information. They carry some information, but usually the information is somebody got bored or a portfolio manager got blown up and needed to liquidate his portfolio. They don't always tell you what is happening fundamentally. And I think that's the problem. If you get pushed around by a stock price, you're just not going to play offense. And if you don't play offense, you're not going to be an investor. I think the key is knowing what you're there for. So that's why I said it's not a revenue problem for it's an engineering problem. I know if they get the revenue wrong and water starts to leak out of their wells, then it's time to sell. Not if the stock goes from 14 14 to 12 or 18. It doesn't that doesn't change the fundamentals, right? The stock price over time will respond to fundamentals. And so I never use stop losses. I think that they're just a way to lose money. Listen, if you're going to be actively trading, if you are day trading and you want to use stop- losses, by all means. But if you're investing in a fundamental story, invest in the fundamentals. Figure out what it would take to make you say, "I don't want to own this anymore." Right? But if the answer is, if the stock goes down 50%, I'm going to sell it. Well, if you're going to panic lower later, panic now. I think that's great advice. Also different advice. I think this is great to hear a different perspective on investing. I love the contrarian view on how to invest in some of these stocks too. Another piece of advice I'd love to hear is what is your time horizon? Especially on the geothermal stocks that you mentioned today. Are you investing for 5 years or 10 years? How long do you buy and hold? Yeah, I in general the stuff that works tends to be I think people are going to talk about it in 2 to 3 years and tell me my story back to me when the stock is up by 3 to 5x. In general, my time frame is three to five years. I look for three to fivex. The ones that actually work that it tends to get pulled forward. You tend to know a little bit quicker if you're if you're on the right track, but I'm I'm definitely long-term focused certainly in the fundamentals. What I find is the stock price when the fundamentals are that good tends to start to incorporate them ahead of time. All right. Really interesting advice for viewers today. I love the time horizon. I think that's important for people. And again, if you're looking for more ways to invest and grow your own portfolio, again, those three to 5xing over the next couple of years, which is what everyone wants to find, make sure to check out that Stansbury Research AI tool for investors. This is a great way to find some of these stocks that are on the downtrend right now and have that really strong fundamental story. And AI can help you get there, especially this tool that Stanbury has created. You can get that special offer for that tool today by scanning the QR code or clicking the link in the description. It's something that Gabe and his team at Stanbury Research has spent a lot of time developing just for you and you can take advantage of that offer today. All right, Gabe, I've got one more question for you and that's when it comes to these more risky kinds of investments. Do you pay attention to what's happening in the headlines? Do you pay attention to what's happening in the economy? How much do those kind of factors impact something like geothermal? Yeah, you know, look, I think that one of the mistakes a lot of investors make is reading too much of the newspaper. You know, people say, "Oh, I'm worried about rates or I'm bullish on oil." If you're worried about rates, then go put a bet on rates. Go become a rates trader. If you're bullish on oil, become an oil trader. The macro inputs are the most well-priced inputs in the world. And they tell you the collective wisdom of the market at any given time. And the heart of investing is saying that you have a contrarian or or differentiated opinion on an individual price. It's much easier to have that on an individual company or security than it is on the world's deepest, most liquid market like the bond market. So, I always take those as an input and I try not to make a bet that either explicitly or even implicitly is a bet on rates or energy or anything else because I think that's a real um it's a real trap for a lot of investors that people want to have an opinion and I think the less opinions you are forced to have um the sharper your your focus can be on what your real differentiation is. Yeah. As a former journalist, it hurts me to say don't read the headlines, but as someone who spent the last couple of years in the market and investing, I think that's very sound advice. I think the more you spend reacting to every little headline, the worse your portfolio performs. So, great advice for investors today. Thank you for coming on the show, Gabe. We love having new guests. If you want to learn more about uh geothermal energy, we had another guest on the show just last month who was talking about these geothermal stocks. You can check out that full interview here and look at some other names in the geothermal story to see what kind of long-term future this could
