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Moody's has lowered the United States credit rating because of an increase of government debt. What's your hunch? Is the US going to go into a recession or not? We may be entering a period of more frequent and potentially more persistent supply shocks. Our credit just got downgraded and it could lead to a credit shock.
Powell tells us how much rates are going to get cut in recession and we're going to snack up Corre versus Palanteer. Who will win in the AI war? Top of that, the Supreme Court blocks Donald Trump's next round of deportations. We've got a lot to talk about. I'm meet Kevin Jet Pilot, CEO of real estate startup Data 7.
Let's get right into the data. First things first, a lot of folks are freaking out over the Moody's credit downgrade. Historically, these are great buy the dip opportunities, but will this time be different? People on the left say this is all Donald Trump's fault. And even though he's trying to blame Joe Biden, he tweeted in 2012 that you get what you vote for and the US credit rating is about to be downgraded once again.
That was Donald Trump in 2012 following the 2011 credit downgrade that the United States had. Of course, now folks on the right are saying, "But this is Moody's. These are the same people who gave AAA ratings to things that ended up collapsing during the 2008 financial crisis. Why would we believe them?
And the reality is it doesn't matter what or who issues the downgrade. What matters is what ends up happening in the financial system. And here's just what happened in the last events. In 2011, we had a downgrade by the S&P signaling concerns over fiscal management. And we ended up seeing markets fall about 6.59% the day after the following Monday.
Now, that also came during a time of the double dip recession fears. And because those double dip recession fears were unfounded, it really just made for another buy the dip opportunity. You could say the same thing about 2023 where in 2023 when Fitch downgraded our credit rating, the S&P 500 fell 1.55%.
Uh that was the day after the the downgrade. So significantly of a smaller impact than what we saw in 2011. However, the S&P 500 did go on to fall another 10% over the next three months and the Russell fell 17% over the next uh seven uh three months. So that's the Russell Small Caps Index 2000. So obviously the the base scenario here is going to be down and then thereafter up.
That's at least based on history. The bigger problem is what could be different this time? Well, the only thing that's really different this time is we are more sensitive to a shock today since we didn't just go through a recession like we did in the 2011 downgrade. And we're at a much more sensitive position in our yield curve already than where we were in 2023.
See, in 2023, our yield curve was still mostly inverted, which generally means you're not close to a recession yet. Whereas today we're sitting much closer to that shock level of an uninverted curve of that two and 10 spread sitting right around that 50 basis point shock level. Could this be the credit shock that pushes us over the edge?
Nobody knows. Like I said, historically these are buy the dip opportunities, but there are going to be some financial instruments that just get dislocated because of this downgrade. It's just algorithms and the way financial instruments and risk hedging works. You're going to see some more volatility because of this downgrade.
And again, historically, it's a buy the dip opportunity. And if you don't see a recession coming, it's a buy the dip opportunity. Now, that said, obviously, we'll see what happens when it comes to this upcoming week. If we can get through this upcoming week without any kind of major problems, hey, maybe it's a big nothing burger.
After all, this is just Moody's catching up to what the other credit downgrades have done. So, to me, I don't really see this in isolation as that big of a deal. Here's a picture from the Kobesci uh letter where where they show you these sort of credit downgrades over time where we've historically maintained a AAA rating, but now because all three rating agencies have given us a lower rating, you can now get a higher AAA rating on corporate bonds like Microsoft bonds.
And it's kind of sad that US treasuries are now underrated compared to just regular corporates that you could buy in America. Uh, however, this timing is interesting because it also aligns with the Michael Bur disclosures we got that as of March 31st, right before Liberation Day, Michael Bur sold all of his stock positions except for Estee Lauder and loaded up on puts with Nvidia and Baba and other put options.
Now, what's fascinating here is those are based off of March 31st disclosures. So, we don't actually know if he is still bearish or still has these positions, but what we do know is that Michael Bur this Friday tweeted sell once again. Now, he tried doing that at the beginning of 2023 and stocks are basically straight up from that point.
So, I'm not sure how reliable some of these tweets are from Michael Bur or these position signals. In fact, if anything, Michael Bur might just be that perma bear who's looking to be right just one more time, riding that high of 2008. Anyway, with that said, obviously, uh, markets right now have unpriced a lot of the uncertainty that was priced in in April.
So, it could make us more sensitive to a correction. Uh there is also a lack of guidance that we're getting from corporations which kind of makes it a little harder to know exactly what's going on. We'll talk about Walmart later, but just use Walmart as an example. Oh yeah, we still feel good about the entire year, but we're going to remove our Q2 guidance because we're not really sure how the second quarter is going to shake out yet.
Now, their earnings call was after the May 12th removal of the most extreme tariffs against China, and so not providing guidance left some folks scratching their head, but it aligns with what we're seeing broadly. A measure of the S&P 500's guidance momentum shows the lowest guidance momentum in the last 15 years, and that's a pretty shocking number.
Now the way they calculate that is they just take the proportion of companies that raised their earnings guidance basically compared to those who held or reduced profit guidance. And so when you take this as a proportion you get what they call guidance momentum. And so far that guidance momentum is lower, the lowest we've seen in the last 15 years.
and markets just don't really have a lot of room to price in uh any kind of risk because we've just been unpricing it mostly because markets have been going straight up since about the middle of April. And the question now is could this credit downgrade trigger those trailing stops that people have set and trigger some diversification away from the stock market?
Again, again, my opinion is that in isolation, credit downgrades are just a buy the dip opportunity. Who cares about the credit downgrades? We know that at some point we're going to hit some form of a reckoning because of the debt that we have. We already know that it's old news. I just don't think that credit reckoning is coming soon.
It'll happen. It might happen in the 2030s or 2040s, but I don't think it's what we got to worry about in this decade. But then again, that's my opinion and I could be wrong. So again, in isolation, it's a brand of the dip opportunity. In the broader scheme of could this create some kind of unforeseen black swan?
Who knows? Maybe what's going to happen with the rest of the consumer, right? This is where we also don't just worry about guidance momentum. But we also worry about consumer momentum. That is, I like to use Newton's law. An object in motion stays in motion. An object at rest remains at rest. I kind of think consumers are like that.
And once you start getting into the mindset of saving and being more careful with your spending because you're worried about a recession or you're worried about whatever, then we kind of self-induce a recession because everybody gets into that mindset and doesn't immediately go back to spending unless they're comfortable in their jobs and they're, you know, maybe a little more complacent like what we saw in 2021.
Anyway, we'll see. We'll see what happens. But for now, we've got to talk about Powell right after. Of course, I mention if you are looking to diversify. Do consider investing . You get a 5% yield on top of whatever gain we could return on the stock. My goal is to IPO this between 2028 and 2030. Obviously, no guarantees, but you could get in.
You get the yield until your stock converts. and it only converts if the valuation goes up from where we are today. I personally think e richer stock market valuations. If you're trailing stops get hit this week because of these credit downgrades, go to houseack.com, check out the nonacredited invest.
If you're accredited, that's available as well. And diversify into some discounted fixer uppers. And we're going to keep buying fixer uppers, especially later this year when it's winter time again. And I love buying real estate when winter time is around because nobody else wants to buy. Anyway, go check that out.
You can see some of the work we're doing at househack.com. We also just had our earnings call on Sunday. Really exciting to be even profitable for the first quarter as a startup. It's great news. So, go check that out over at houseack.com. Now, we've got to talk about Powell because while Donald Trump just reiterated on social that is the consensus of almost everybody that the Federal Reserve should cut rates sooner rather than later, we heard Powell this week give us his framework for what's going on.
We've got to break this down because this is absolutely insane. So, in the 2010s, we had a principle called flexible average inflation targeting. This was basically the Federal Reserve saying, "Look, we'll tolerate inflation undershooting our 2% goal for a while because it could be higher in the future." And so, we'll just keep rates lower for longer and we'll tolerate lower inflation without injecting too much money into the economy.
Mind you, where we're injecting insane amounts of money and we'll just tolerate 1.7% inflation because we we'll just average it out to 2% over the long run. Okay, so that was a way for the Fed to actually keep a steady flow of money pumped into the economy but not overdoing the amount of money they were flooding into the economy.
That obviously changed during co and we overpumped money into the economy because of the pandemic and the shutdown of the economy and the 30 days to slow the spread. Fine. Now inflation is running higher. And what we heard about a year and a half ago was Jerome Powell tell us, "Oh, flexible average inflation targeting.
Oh yeah, you know, we only use that as a tool to justify why inflation was running lower in the 2010s, but that was a different time. And now we just want to focus on getting back to 2% inflation." And so flexible average inflation targeting is dead. So, first when it was convenient, it was, "Oh, yeah, we're going to use fate flexible average inflation targeting." Then when it was inconvenient, ah, we're not going to use flexible average inflation targeting.
What did we get this week, boys and girls? Oh, yeah. We're going to go back to flexible average inflation targeting. The credibility here is getting a little shaky. And when I say getting, I mean maybe it already is. But what does this practically mean for us? Right? This is what's important. Why does it matter that the Fed would consider flexible average inflation targeting again now?
Well, what it means is that the Fed might be willing to tolerate slightly higher inflation now because it'll average to 2%. Reflecting these concerns, we adopted a policy to make up for persistent shortfalls from the inflation target. Given the downside risks to employment and inflation from proximity to the lower bound and the need to anchor longerterm inflation expectations at 2%, we said that following periods in which inflation has been running persistently below 2%, we would likely aim to achieve inflation moderately above 2% for some time.
Okay, interesting. So, what does that mean? Well, it actually is a good thing. It potentially opens the door to Powell being willing to lower rates sooner rather than later because if the Fed is willing to tolerate inflation slightly above 2% for some time then it could actually imply that the Fed is willing to loosen sooner if we start seeing shaker you know shakier reactions in the labor market which might be coming.
We're already seeing a disaster in the 27 weeks unemployed number rising, which is usually an indicator of a recession. That's a six months or more unemployed level. We're seeing plenty of softening in jolts and quits, which are indicators of a potential recession coming or at least indicators of a weaker job market.
And hopefully those numbers stabilize. Too soon to tell right now. It'll probably take another 3 months to tell. But what I'm seeing, and this is I think the part that matters to you, is I'm actually starting to see a Powell that's warming up to the idea of cutting rates because not only is he sort of reviving flexible average inflation targeting, but he's also telling us that in past situation, we ended up cutting rates by 500 basis points when our economy is in recession.
While our policy rate is currently well above the lower bound, in recent decades, we have cut the rate by about 500 basis points when the economy is in recession. Now, this is really interesting because you kind of have two messages that come from this Fed meeting where, you know, where the Fed just discussed, hey, we're willing to tolerate slightly higher inflation.
Oh, by the way, when we've had to cut rates in the past substantially, we did so by 500 basis points. Now, let me translate that to English. Right now, we've cut from about a high end of 5.5% to 4.5%. Cutting 500 basis points isn't possible anymore. We can only cut 4.5%. But we already cut by a percent.
So, basically, go from that high, 5.5%. Assume recession hits, the Fed just told you at the high end they will cut rates to 0.5%. So high-end 5.5 minus 5%.5. So we'll be somewhere between zero and half a percentage point of rates if we go back to recession and the Fed would be willing to tolerate slightly higher inflation essentially to bail out the labor market.
So in other words, if you're waiting for rates to come down, this is, you know, you don't want to cheer for this because it causes a lot of pain, but let's just be clear. if you're like when rates gonna come down because I want to refinance my house uh when a bunch of people lose their jobs. So, in other words, when everybody else is suffering, the rich who are able to go refinance, who have access to bank debt, who will qualify for bank debt and who haven't lost their jobs, they'll be able to go tee up a bunch of cheap debt again.
And JPAL basically just rolled out the red carpet for massive money printing again. So think about that. The red carpet is out for massive money printing again because JPAL is now willing to go back to flexible average inflation targeting which suggests he's more interested in being concerned about the labor market.
Less interested in inflation at 2 and a half% being willing to accept that and teeing up 500 basis points of cuts. basically 5% of rate cuts to try to protect the economy, which is potentially exactly what Donald Trump wants. Who knows, maybe Donald Trump is teeing up just enough unemployment to cause JPAL to fold and bring rates right back down to zero.
Or maybe JPAL just doesn't want to lose his own job, even though Donald Trump says, "I could fire him if I want to, but I'm not going to. Of course, there are whole legal precedents around whether or not this could actually happen. The technical legal answer is no, JPL can't be fired. But let's be clear, Donald Trump has ways of uh doing things and then asking for forgiveness later.
So, I have a feeling if Donald Trump really wanted to get rid of JPEL, it would happen. By the way, there are also some headlines circulating about the Federal Reserve cutting uh you know, a certain percentage of their staff, 10% over the next few years. This isn't like immediate sort of Fed laying off.
It's just a reduction in hiring and then attrition. You know, people who sort of retire or move on over time. The Fed's just not going to replace them. The Fed has over 2,000 different economists and somehow we still missed that, you know, inflation would go up substantially more after all the money printing we did postco, but whatever.
So, anyway, that gives you a little bit of a breakdown of what the heck the Fed is thinking. Now, also worth noting that that University of Michigan survey that we got on Friday had a little note in it. Even though the actual University of Michigan consumer sentiment report was bad, it was, you know, one of the worst we'd seen in a very long time with near-term consumer inflation expectations crossing the seven handle.
Crazy. There was little note that consumers showed some signs of improvement after the May 12th announcement where they still had two survey days left, the 13th and the 14th to finish out their survey. So, we could see better consumer sentiment data going forward now that we had that May 12th China US deal, which is exciting.
That said, you still have bankers like Jamie Diamond, who I do respect substantially. You know, I I we'll see how my uh my opinions of JPM play out. I used to have a lot of respect for him. Uh but u more on that in the future. But Jamie Diamond right now suggests about a 50% chance of recession. and he basically says, "No idea, uh, but just don't take recession off the table at the moment." Which sort of lines up with, uh, Jerome Powell's skittishness around the labor markets.
All right, now let's move on to the next topic. Now, this is an interesting one. This is the AI debate. Barclays referencing delays in AI models. And I want to use that as the perfect setup for comparing Coreweave to Palunteer. Now, this is an insane setup because you have two stocks that have absolutely been killing it.
Nvidia has been your built-in put option for Coreeave. Every time that sucker goes under $40, I send an alert to my course members in our alpha report. I'm like, Cororeweave under 40. Nvidia is going to be buying this sucker. It's going to skyrocket. and it just keeps doing it over and over and over again.
It's one of the easiest trades. Mind you, if you want to be part of the alpha report, you could join over at meetke.com. Uh, and you can try it for 30 days, see if you like it, see how it works for you, or you can sign up for longer if you want to. The price will be going up this month. Go check it out and lock in your price before the price goes up.
So when it comes to this AI battle, Barclays has a new piece out where they suggest that artificial intelligence progress is slowing at the same time as hallucinations are increasing. They reference the delayed AI model releases from Meta and OpenAI as potentially impeding return on invested capital and ultimately slowing the pace of data center demand.
Now, they remain cautious on AI data center buildout. And again, we're going to be talking about how this affects Coreweave and Palanteer, but it's worth noting why Barclay started talking about this. Barclay started talking about this because they referenced the Wall Street Journal piece on Meta delaying their flagship AI.
In the Wall Street Journal piece, we had a quote that says, "Comp engineers are struggling to significantly improve the capabilities of Meta's behemoth large language model, leading to staff questions about whether improvements over prior versions are significant enough to justify public release. Mind you, this aligns with the theory that I've discussed on the channel since 2023, that we're seeing the first major exponential step up in neural nets.
But mind you, we've been using neural nets in in our real estate business since 2018 and sort of our wedge finder. And yeah, neural nets have gotten better, but they really went mainstream as AI in an encyclopedic manner through GPT. The problem was, and I mentioned this, is that in 2023, is that we might end up hitting a plateau very soon, a lot sooner than people think, because what we've done is we've created this really cool encyclopedic AI, but are we really going to go exponentially to AGI, artificial general intelligence, thereafter?
Like, are we on this exponential explosion of AI? In my opinion, no. We've taken a huge step forward, but now I think we kind of rest at that encyclopedic data stage and so far these delays of models from OpenAI, the Barclays piece, the meta delays, they kind of align with my thesis. This isn't me trying to confirmation bias here.
It's just trying to say I had a thesis and it appears to be playing out right now. Now, does that mean bearishness on Coree or Palier? No, it actually might mean bullishness. And I'm going to break down the benefits and risks to this in just a moment. And that's exactly why we're going to talk Palunteer uh versus Corey, but you've got to have a little bit more of a background here.
So Barclays argues that one of the reasons we're seeing Microsoft shift their data centers to leasing data centers is because Microsoft wants to derisk from exactly what Meta and OpenAI are potentially seeing as well. And so if Microsoft builds fewer data centers, guess where that business goes? Goes to businesses like Coreweave.
Microsoft now also laying off about 3% of their staff. Now they're branding this as middle level managers getting fired, but at least based on what I'm hearing on the ground, just could be wrong, but what I'm hearing on the ground is that that is false. That middle level managers aren't getting laid off.
That may maybe some of them are, but it's not just exclusively middle level managers. That a lot of other people who aren't in management positions are getting laid off. And this is just Microsoft's way of trying to save face as they pull back from some of their broader expansionary bets maybe because they're starting to see some of the softness in how rapidly things are progressing.
So we kind of put together what's happening at Microsoft with what Barclays is seeing in Meta uh in OpenAI. All of this sort of align with a slowing in that AI curve. Also worth noting that Barclays not only is a little bit bearish or cautious, they say it on the space, but they also say it's quote reasonable to question whether Meta's recent increase to their 2025 capex guidance was because there's more opportunity or because AI developers are struggling and therefore you need more investment into capex to try to help those developers.
But then comes the question of are you throwing more good money after progress that just isn't being made. So in the near term if like how this actually affects your money which I always like getting to that bottom line is in the near term that actually sounds really good for like Coreweave and Nvidia, right?
Because it's like all right y'all need more chips to kind of get where you're going. Cool. Nvidia will supply them. AMD will supply them. Super Micro will help build the Rex. Del will help build the racks and Core Weave will lease them to you. This sounds bullish, but what does it mean in the longer term if we get a substantially lower return on invested capital and eventually some of those investments end up being either fruitless or cut?
Something to pay attention to. So, this is a great setup for getting into Coreweave and Palunteer. So understand these companies are very very different but they're both related substantially to artificial intelligence. Coreweave right now sits at about $3.1 billion in current assets including restricted of about $600 million of cash that they probably have allocated for construction.
The problem with Coree is they have about $6.5 billion of current liabilities as of March 31st. Their IPO raised them about $1.5 billion. So that raises them, you know, to current capital of around 4.6. and they're trying to raise more debt, another one and a half billion dollars of debt, which makes sense because right now Coree does not have enough money to pay its bills.
That doesn't make Cororeweave a bad stock. And there's a reason the stock is actually going up. And the stock going up is the perfect opportunity for Cororeweave to honestly sell some shares so they can clean up their balance sheet. Their balance sheet has some nearterm problems. Now, that's not to say again it's a bad company.
It's simply to say that right now they don't have enough money to cover their bills. Okay, that said, Cororeweave's business model is one that depreciates a lot of their assets. So, when they go build a server rack, they take massive depreciation. So, when you look at their actual numbers and their actual earnings, it looks like they're operating at a loss.
They have very little sales and marketing expenses, which is, you know, both a good and a bad situation. Usually, when you have really low sales and marketing, it means you just you don't really have to market yourself, like you've got business coming to you, uh, which is great, but what happens when that business stops showing up?
Are you going to have to really ramp up your sales and marketing expenses because all of a sudden you're not able to attract business like you were? So that's a potential downside in the future as well is that if they have to pick up marketing expenses, their losses, you know, might actually be substantially larger than what they are today.
Right now they've got so much business, they don't have to market themselves, which makes their margins look better, especially when you add back in depreciation. So without depreciation operating, you know, back in their operating profit is about $27.4 million. But when you add in depreciation of $443 million, technically they had profits of about $415 million.
That's based on them depreciating 14.2 billion of plant property and equipment. It's actually not bad because if you think about it, that's $415 million on 14.2 bill. That's like a return of 11.6%. That's like nice rental yield if you think about it. Right? Now, if you subtract the interest they're spending, about $263 million, you're only down to about a $4.2% return on on your investment, uh, you know, on their yields from their server stack.
Not bad. It's a new company. They're growing like crazy because they're building infrastructure, building, building, building, taking more depreciation. Everything from their earnings call very bullish. Okay. They've got so many people lined up to rent more business from Coreweave. All of that very good.
So, I actually really like the Core numbers outside their balance sheet and outside the sales and marketing risk of the future. I really like their numbers. I think they are very profitable and I think they're killing it in terms of pipeline and I think they'll solve their balance sheet issue, especially with how high the stock has run now recently.
That said, the biggest risk to Cororeweave is actually the opposite risk that Palunteer has. We'll talk Palunteer in just a sec, but listen to this. Coreweave's biggest risk is becoming the industry bag holder. See, think about them as the person that everybody dumps the assets on. Let me explain this a little differently.
Nvidia sells a lot of their hardware to companies like Coreweave, which now it makes sense why Nvidia wants to prop up Core Weave and disclosed over a 6% stake in the business because as long as Cororeweave keeps buying, Nvidia can keep selling, which bodess well for Nvidia earnings coming up. Obviously, this bag is really, really profitable right now.
But is it potentially a ticking time bomb if companies like Meta go, "Damn, bro. Everybody's got a commoditized ML LLM. We're not making progress on like the GPT50 levels. We're kind of stuck in agentic AI, you know, agent style AI or self querying AI, which is what we call reasoning, but let's be real.
It's basically just trying to do the prompting work for you, right? It's like, okay, I think they want this. Let's prompt like this. This, you know, the new versions of GPT and and other LLMs do this very well for you and certainly demand a lot more inference compute and this is hopefully what keeps core we've propped up.
But when it comes to training, if we see a capex slowdown in training or just a shutting down of some models in favor of others, we're really going to be left with a whole lot less compute than maybe what we're building out for. Now, of course, that could end up hurting Nvidia in terms of chip sales in the future, but it also hurts a company like Coreweave.
I mean, we saw Jensen himself say, "Hey, you know, I can't even give away some of my older chips anymore. they're basically worthless. He kind of caught himself on that. He's like, "Ah, maybe I shouldn't say that." But it's true. When you come out with new chips, but then there's potentially less demand for as rapid of growth as we're seeing now.
You know, some of that growth slows down in the future. Core might end up having assets that are worth substantially less than what they're worth today. So there are risks that core becomes that industry bag holder of lower grade chips or of chips that are worth less in the future because Nvidia starts dropping prices for their product.
Uh or there's just not as much demand and that growth curve starts slowing down a lot for Coree where companies like Microsoft say, "Hey, we just don't need to lease as much from you anymore." Now all of a sudden Coree's built out the infrastructure for companies that aren't necessarily using it anymore.
We'll see. For now, I like the numbers and things are looking great and I love the earnings call, but I do see risks here. Now, this is why I like comparing though to Palunteer. See, Cory is great. Very capital intensive though. 33 AI data centers in the US and Europe contracted out to probably about 4x the buildout which means they're purposefully taking it in the margin right now to expand faster which is dangerous because you're burning more margin right now to overbuild because everybody wants your building.
People are like, "Please, Cororey, 4X." They have contracts signed for Forex. This is why they don't have any sales and marketing. But what happens when you build it all and then demand shrinks and now you're like, "Crap, now we got to market, right?" Okay, you get the idea. I just wanted to give you some of those numbers.
Now, so far the total addressable market TAM is that these server centers, you know, data centers could be somewhere uh around a $399 billion a year total addressable market by 2028. Coreweave sits only at about 4 billion per year, which is really just about 1% of that total addressable market. So, this is why people are really enthusiastic about Coree.
Like, yes, Kevin, what you're saying is logical, but even if we have a fraction of that total addressable market that's being projected now, there should still be plenty of business for Coreef. Worth knowing. And this is why I want to give you the pros and the cons. But this explains why there's so much enthusiasm for Cororeweave right now, because their first earnings as a public company were good.
And what they're saying in the earnings call reiterates why they're doing so well, why they have so much profit. When you add back in depreciation, which a lot of people who take a first look at the earnings for Coree don't see the depreciation expenses, which are really write downs to the IRS of paper write downs.
We don't necessarily have to see that decline in value of their assets. It's more of a tax play. People who understand depreciation know what I'm talking about. And of course, there's competition. you know, Amazon competing through AWS, Nvidia, DGX, you know, they've got their own cloud service as well, Lambda Labs, Google Cloud, Microsoft Meta, even XAI, right?
There's a lot of competition here. So, we'll see. But this is where I like Palunteer because, see, Palunteer could actually benefit from where AI is today. You don't actually need the latest and greatest models for Palunteer because Palanteer uses what's known as ontological AI. This is a fancy way of saying Palanteer organizes big data into ways that today's levels of AI can actually make sense of it.
In their earnings call, for example, they give uh a description of a Walmart or sorry, a Walgreens executive recently highlighting that Foundry and AI Palunteer allowed them to play AI powered end-to-end workflows in 4,000 stores within 8 months, automating what amounted to 384 billion decisions every day if you were relying on humans.
In other words, Palunteer has this really beautiful positioning where you could take today's level of neural nets organize data in a structured way and help AI at today's levels analyze the information. This is why Palunteer has gotten so exciting as a stock. Now, the valuation is high. We know that this is not a video to bag on the Palunteer valuation.
And yes, there could be a lot of stock volatility both to the upside and the downside. But one of the reasons that I talked about uh part of the Palunteer is being real AI like I did not only on the you know YouTube channel here but also here in November of 2023 as an example in this tweet I wrote C3 AI dumping on news that employees were fired across departments last week.
Whatever I the the comment I had on this is in my opinion Palanteer is a much better play than C3 AI. full transparency, I have long positions in Palanteer in my ETF, but I don't in C3AI. So, basically, I was saying like, hey, Palanteer is is your real AI, and like I'm putting my money where my mouth is on this.
Big fan of that. Now, that said, again, valuation a little stretchy right now on Palunteer, but we see Palanteer still as a real AI player today, but also a long-term beneficiary. Think about this, and I love this. AI agents are processing vast volumes of intelligence reports in the Department of Defense, finding things humans miss, and AI agents are monitoring for sepsis at Tampa General Hospital, for example.
Now, these are great deployments of artificial intelligence that don't rely on insane capital expenditures like what you're seeing by companies less so now at Microsoft, but still at Amazon and Meta and even XAI to some extent where are those really going to return investors capital? The question there I think is valid and I think it's reasonable why we've seen Palanteer skyrocket so much because you have a company that's not blowing a bunch of money trying to come up with the next greatest model.
Instead, you have a company that's benefiting from what they've always done. Take big data at companies and make it more accessible. Now, one of the big things that's happened at Palanteer, which I love from their last earnings call, is what I call the unlocking of artificial intelligence on a big data level.
Now, let me explain what that means. Take a look at this screenshot here from their earnings call. And then I would say culturally, we just don't see the resistance to the way we roll that we did in the past. We would show up in the past, the freak show, trying to get things to work, not with the wrong access to the wrong people at the wrong time.
Uh, well, I I I basic I think I this might be a improper translation here. I forget the word not there. I just read it as with the wrong access to the wrong people at the wrong time. And that was by intent. People were very uncomfortable at all levels of enterprise working with us. basically Palanteers describing that in the past people didn't like handing over all their big data.
Department of Defense may not have been as comfortable. Uh hospitals may not have been as comfortable with their HIPPA protected, you know, customer data basically. Now listen to this. Now we have full stack engaged with us inside the government, outside the government on most critical issues. I'm on the front line with everyone.
two two years ago we might get a CEO we might get a CIO we might get someone in marketing but they had no power today everyone wants to work with Palanteer and they're like please it's like they're opening up their legs going please take what you want have all of me and if you think about that transformation it shows you that when it comes to AI we don't actually maybe need all of this exponential artificial general intelligence AI to make money with AI.
We actually have this incredible growth that we have access to in encyclopedic AI that now is just a matter of putting that encyclopedic AI to use and that's what companies like Palanteer are doing. Now, of course, when we compare the profits that Palanteer generates compared to Salesforce, which has a similar valuer, but the valuations are insanely different.
You know, Palanteer is trading for over a seven to nine peg, depending on what kind of forecast you give them, price to earnings growth multiple, right? It makes Palanteer very rich and likely also the beneficiary of stock market momentum. But who says that stops anytime soon? I'm not making a projection on the price of pounder.
I'll tell you that I think it is actually fairly priced closer to 40 bucks. Uh but that's just based on today's growth numbers. My bullishness for the company though says that this is the kind of company that I have less risks of being a sort of a coreweave bag holder with Palunteer in terms of where the industry is going in the longer term.
Although those risks could also be misplaced for Coree because again Core is only addressing $4 billion of what's projected to be a $400 billion total addressable market in the long term. I also think Palanteer's valuation is just undesirable at these levels. But in the long term, both of these plays could be really exciting investments.
Who knows if we go through some kind of Moody's downgrade credit shock or if we go through a recession or whatever. I'm going to be paying attention to both of these companies. And if I had to pick one of the two to fundamentally just like blindly believe in in the long term in terms of which company's going to have more success for the long term, I'll take the Fortress balance sheet and what Palanteer is doing any day over the broken balance sheet at Cororeweave, which is fixable, but they'll probably get themselves into the same situation again because of how fast they want to expand.
Very, very capital intensive business. Palanteer on the other hand again we're working with the data that we have available today and the levels of AI that we have today not necessarily relying on those next levels just making use of what we have today and I love that I think it's less of a bet on future growth and more of a bet on hey we're really good at what we're doing and we actually don't need technology to improve we just want to expand how great we are at what we're doing to more businesses more parts of the government and Otherwise, it's one of the reasons why I also said I thought Palanteer would be a beneficiary of Doge.
And so far, it seems like they have been because the government realizes Palanteer actually makes you more efficient. This is where in their earnings call, Palunteer tells us, hey, you make money when you spend money on Palunteer. This is kind of cool. Now, in fairness, one of the downsides that you have for Palanteer is I don't know how much markets are pricing in that Palanteer is going to take over Europe in the future.
Westpak actually had a little piece out where they say given the recent behavior of the Trump administration on the USMCA deal, the rule of law and defense issues, plenty of European and Canadian companies and governments may well be coming to the view that they do not want to be quite so dependent on US providers of defense systems, cloud computing services, and other specialized exports that the US has dominated up until now.
Okay, that could be a little bit of a downside for Palanteer because see Karp says that Europe just doesn't get AI yet and at some point in the future they will and basically we'll open up our market to Europe. Keeping in mind that international commercial revenue declined 5% year-over-year at Palanteer.
Now it's a smaller portion of the business. The US commercial side is 5.7 times the size of the international commercial side for Palanteer. But it is worth paying attention that potentially Europe could be a little bit behind and that people are excited about Europe getting involved. But then you also have this sort of international risk that maybe people won't want an American company.
Who knows? I think in the long term people will come back to America uh that might be post Trump but you know a decade from now as a very very long-term investor. I kind of look forward to the opportunity. I could get a really good buy the dip opportunity on Palantia. Okay, so I'm not saying that to be bearish.
I'm just saying that valuation gets cleaned up a little bit and there's some shock in the market. This is a pretty juiced company to invest in. Okay, it's great cuz we're not making crazy capex bets. And assuming that Meta is going to continue to throw $60 billion a year on AI data centers, you just don't have as much of that risk.
My take. Anyway, there you have it for Balloter versus Corweave. Now, let's quickly touch on what's going on with this Supreme Court decision. So, at 1:00 a.m., the Supreme Court blocked Donald Trump from allowing detainees who are being loaded up on buses. 176 Venezuelans. They were going to be the next batch to get sent to El Salvadorian prisons.
The Supreme Court just blocked the use of the Alien Enemies Act for these individuals. Now, I'll tell you why. First, they're not confident that Donald Trump is actually giving these individuals the right to due process. This gets touchy because a lot of people will say, "Oh, well, you don't need due process.
You could just get kicked out of the United States." And other people say, "No, we need due process." And then other people will not say, "Well, they had due process. Look at Garcia. He had due process in 2019. Why does he need it again? Let's unpackage this with logic and fact rather than emotion. First, yes, the United States does benefit from the right to use what's called expeditious removal.
Obama used it. Trump used it. And usually this is only used for migrants who were found close to the border and can't prove that they've been in inside the United States for at least 2 years. In this case, an ICE officer could literally just kick you out of the country. You're gone and they don't have to allow you to go in front of a judge or some form of due process.
You just don't get that unless you can prove you've been here for at least 2 years. Donald Trump has expanded the expedited removal process to basically not just limit it to border areas, but say anywhere in the United States, if ICE picks you up and you can't prove you've been in the US for less than two or for more than two years, for at least 2 years, you can get kicked out with no due process.
That's expeditious removal. That is different from the Alien Enemies Act tool that Donald Trump is trying to use. Donald Trump is trying to use the Alien Enemies Act to deport, of course, what he calls criminals and murderers, which in many cases this may indeed be true, but he's trying to use the Alien Enemies Act to say, "Hey, you've been here for more than 2 years.
We don't care. We're sending you out of here." Now, a lot of people are very supportive of this because obviously we don't want gang members or murderers in the country. Totally understandable. However, the Supreme Court is saying, "Look, if you're going to use the aliens en Alien Enemies Act, you must prove that you have given these folks the opportunity in front of a judge to say, "Look, I've been here for more than 2 years, so this is not an expeditious removal situation, but I am actually not a murderer or a gang member." And so, because they've been here for more than two years, they are entitled to the right to due process.
And that's what the Supreme Court wants to ensure is happening. Now, the Supreme Court recognizes that the last boatload that got flown over to El Salvador did not get their right to due process. The order was announced at about 2:00 p.m. Eastern time. And by 700 p.m., the 238 individuals, including Abrego Garcia, were on a plane to an El Salvadorian prison.
And Donald Trump was asked by courts to bring Abrego Garcia back to facilitate his return to which of course Trump says he's El Salvador's problem now. Okay. That actually played into the Supreme Court saying no. We see right now you are literally loading up detainees onto buses to send the next 176 uh you know Venezuelans that you're alleging are gang members to El Salvador.
But we are halting that to this. Donald Trump's administration says, "Hey, but we gave them more notice this time. We gave them up to 24-hour no hours of notice to, you know, contest their deportations and we gave them an English document." To which, of course, a lot of Americans are like, "Ha, that's right.
Make them speak English and read English." But the court is like, "H, is 24 hours really enough time? And what if they're not proficient in English and don't actually know how to contest that they are not an alien? Is this enough due process for somebody who has been here for more than, you know, 2 years?
We don't know. So the pre Supreme Court is saying, "Stop. Don't send them there. And now we're just going to kick this to a lower court, the fifth US Circuit Court of Appeals to work on how much notice is actually appropriate." The Supreme Court did not say that Donald Trump cannot use the Alien Enemies Act.
The Supreme Court simply said, "We don't know if you're giving enough due process notice here. So, let's just just hold up. Wait a minute. And let's think about this a little bit because the last time you screwed up and you didn't give them due process, you basically washed your hands of the mistake and said, "Oh, sorry.
Can't bring him back." And that kind of pissed off the Supreme Court. So, I think the Supreme Court is somewhat coming back here saying, "Hey, man. You know, you got you didn't follow the rules last time. So, now we're gonna take our time on this one." Kind of interesting, but it breaks down what just happened with the Supreme Court and Donald Trump and it gives you some facts to consider.
Now, uh with that, uh some other small things to talk about. We got to hit Walmart briefly. So, here's some crazy stats about Walmart. Walmart's e-commerce, their online business grew at 20%. Which is really impressive. And they say that soon 95% of the population will be reachable within 3 hours or less by Walmart delivery services.
Currently that already sits at over 91% of Americans who can be reached within 3 hours or less. Walmart also says that some price increases will be necessary even at reduced levels of trade or margins. And while they will do their best to keep prices as low as possible, even with the reduced China US tariffs, some prices are going to have to go up because they're not going to be able to raise or they're not going to be able to absorb all of it in their margins.
To this, Donald Trump says, "No, Walmart, you should eat all of it." And to this, Walmart says, "Well, keep this in mind." And this was a shocker to me. 60% of suppliers to Walmart are US small businesses. That was mind-blowing to me. US small businesses are the ones who are most damaged by high rates, by a credit shock from a potential Moody's downgrade, and who are suffering the most with the smallest margins because of broad tariffs on every trading partner that we have.
China, yes, is a huge source of electronics and toys for Walmart, but it was mind-blowing to me that 60% of the suppliers are actually US businesses. Now they believe that we're going to start seeing accelerated and delayed impacts of tariffs in May and June. So this sort of sets up that h what's going to happen to the economy and that's exactly what Walmart is saying.
Walmart is already seeing worse situations in Mexico, but so far much better expected situations in the United States and that's why they're maintaining their fullear guide, which Goldman agrees with. Goldman Sachs is actually impressed with them maintaining their fullear guide and they support Walmart's fullear guide.
But by removing their Q2 guide, Walmart is kind of saying, "Yeah, we just don't know how all this is going to play out yet. So, we'll let you know when we figure it out." And I think, frankly, that's just where a lot of US businesses are today in the good old wait and see. So, anyway, there you have it for today's entire report on your roundup of news.
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