FOMO Is Real Risk in AI Investing: Grenadilla's Rathbun

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00:00You think this is smart, the way in which they're tapping debt markets or depending on their own

00:04cash flow? Good morning. I do think it's smart. I mean, sometimes cash on hand is the most powerful

00:11thing. And so it doesn't make sense to spend all of your cash and put it into the future

00:17investment in AI. Sometimes it makes sense to borrow from the debt market and to finance it

00:22so that you have some leeway and some flexibility in what you want to do with the assets that you

00:28have. And what about even more creative financing such as these private credit deals in the way in

00:33which we see Blue Owl be Meta's partner of choice here? Is that what you're likely to see more of,

00:39not just ever more debt being tapped, but just off balance sheet? Yeah, I think so. You know,

00:45private credit market is constantly looking for ways to deploy their capital that they're getting

00:51from the investors. And right now, the investment that seems the most exciting seems to be this

00:57data center and AI play. And if we heard from Microsoft and others last week during the earnings

01:04call, the demand is just out of this world and they're having a hard time supplying that demand.

01:11And therefore, I think you're going to see more of it. And by the way, people are worried about this

01:16off balance sheet financing. In my opinion, it's dangerous if you don't know about it, but everyone

01:22knows about it. So you can definitely put that into your calculation for, you know, the valuations

01:27of these companies. OK, that's really interesting, because in many ways, Meta has led the way in that

01:32creativity. And Meta got beaten up last week because of their capital expenditure. And perhaps it coming

01:37in a more rapid clip than the revenue growth that we're seeing. And how do you make the discernment

01:42that's currently happening among the AI players? Yeah, with regards to Meta, I think there were a

01:49lot of things that were idiosyncratic. I mean, if we were to think about the cap stack, if debt is

01:54issued, equity investors don't like it. Right. But if you look at the debt market, a lot of investors

02:00in the debt market actually liked it. And there was a lot of demand for it. But there was also the deal

02:05about Meta not being a hyperscaler. Investors wondering where all of the investments are going and they're

02:10going to invest more of it. So that's Meta. But everyone else, I think there is a race here and

02:17there's a bit of a FOMO in all of the AI players. And there's a higher risk to missing out than to

02:24spend today and to see where we are tomorrow, because I think that demand is still going to be

02:29high tomorrow. But is that FOMO leeching into the investment community? And is that a good way in

02:36which to invest one's money? Right. So here are a few things. I think people thinking about

02:43valuations and that's myself included. It's very, very high compared to historical norms. It's

02:48nerve wracking, but it's a short term sentiment driven play. Beta is subject to a lot of noise and

02:55it's going to happen. There may be a correction or people are going to get nervous. However, if you're a

03:00long term investor, like a lot of our clients are, you're going to take a look at the fundamental

03:05value add of these data center build outs and AI moves. And I do think that there is something

03:11there. If you look at the S&P 500 index and the companies in there, how many can actually

03:18do the AI play? How many of them have the expertise, the vision, the balance sheet capacity to do all of

03:25this? And there are just a few. And that's one of the reasons why investors who want to put capital

03:30into the AI play have no choice but to go into it in the public markets. Right. So I think the

03:34valuations, although they are high, they're telling us something about the future growth of these

03:40companies and AI in general. And that can withstand what has been a torrid time of geopolitics, of angst,

03:47of trade. And Anna, I think it's interesting that you said it's noisy. It's been really noisy in other

03:52players like rare earth stocks, for example, tumbling today because, well, maybe China will continue to

03:57export and many had run up MP materials and other players thinking that we would be cut off more

04:02significantly from rare earth materials that were necessary for this whole AI trade. What do you make

04:07of some of the highs and the lows in ultimately a geopolitical war? Yeah. You know, if we think back

04:14to the Xi Trump meeting from last week, in my mind, I think saying that it's a one year truce is a little

04:22bit misleading. Right. So it might not be fully one year. We might have a surprise even next month.

04:27Who knows? And the truce part is also misleading because what I think is we just deescalated. We

04:34just went back to where we were about two months ago. So it means that we're going to continue to

04:38negotiate. But behind the scenes, we're going to continue to push this forward in terms of actually

04:43racing each other. What happened after that meeting was that Mr. Trump came back to the United States,

04:49but Mr. Xi stayed and talked about having like an international body that governs AI. There is a lot

04:56of push here to having more power in AI and also in national security. This is just going to get

05:04more heated as we turn into 2026.

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