Wall Street Lunch: All About AI (undefined:CEG)

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Chris Ciaccia, Senior Editor of technology at Seeking Alpha, shares why today’s news out of Constellation Energy and Amazon is really all about AI (0:30) Oracle getting away from being incredibly reliant on OpenAI (2:25) Micron’s outstanding numbers (4:55)

Transcript

Rena Sherbill: Welcome to a new month. It is October 1st. Today I am with a very special guest, senior editor of technology on our news team. It’s Mr. Chris Ciaccia. And I am very happy to have him here as we go through all the news headlines that we have today and from our Wall Street Breakfast Podcast.

We have Constellation Energy (CEG) securing a 20 year power agreement with Amazon (AMZN), which supports investment in Calvert Cliffs nuclear plant expansion.

Chris, what would you say about this mega deal this morning?

Chris Ciaccia: So this is really all about AI, Rena. And I feel like that’s the theme of today. And that’s the theme of basically every day. This gives Amazon cost certainty over 20 years to build out its data centers and for AWS and for AI.

This gives Constellation another mega tenant, like they did the deal with Microsoft (MSFT) a few years ago. So this is all about AI and really the building out of nuclear power and that nuclear power renaissance that we’ve seen over the past few years.

Rena Sherbill: Anything you would say about constellation energy in particular as it pertains to the deal. If we look at the Seeking Alpha quant and factor grades, we see it has a hold.

Chris Ciaccia: So for Constellation, I think one thing that investors have to remember is that it is a utility, but it’s also an unregulated utility.

It’s allowed to do deals with companies like Amazon and Microsoft that it did with you know a couple of years ago at larger rates than your traditional utilities.

I think that’s one reason why investors may want to give Constellation a second look. You’ve seen the stock drop since the beginning of the year, but it’s up on this news.

And for Amazon, Amazon is just growing tremendously, especially when it comes to AWS. And even though it’s not being reflected in the stock right now, stock sold off a little bit after earnings, which were tremendous. you have to look at the long term.

And I think right now everybody is focused on rising yields from government bonds all around the world. the war in Iran, which is causing oil prices to rise.

When push comes to shove, you have to look at the long-term fundamentals of these companies, and both of them are tremendous.

Rena Sherbill: Tencent (TCEHY) is reportedly signing a $7 billion five-year AI chip lease with Oracle (ORCL), which diversifies Oracle’s AI customer base. We can see the downward slide for Oracle and a bit of upward movement for TCEHY.

And as we look at the chart, we can also see that TenCent is a hold. It’s had a bit of a slide. Chris, what would you offer contextually on this deal and these stocks?

Chris Ciaccia: This is a the start of Oracle slowly starting to get away from being incredibly reliant on OpenAI (OPENAI). You’ve seen that in the share price.

The numbers have been tremendous that Oracle is produced quarter after quarter, but it investors just aren’t reacting, and neither is the share price. This is the start of slowly diversifying away from OpenAI and hopefully this helps the credit default swaps spread which you’ve seen rise significantly since the start of the year.

And I think that’s being reflected negatively in the share price too. Oracle shares are down a little bit today.

I would expect them once investors were able to actually either confirm this deal, because right now it’s just reported, or Oracle gets another deal with, you know, a client in Asia or somebody else other than OpenAI, you’ll start to see that reflected in the share price.

And for Tencent, it gives them access to advanced AI chips that they can’t get in China. Presumably these are either NVIDIA’s (NVDA) chips or (AMD)’s chips that Oracle has access to.

And they can’t get access to in mainland China for a number of geopolitical reasons. So this helps them from that perspective too.

Rena Sherbill: Can you say a little bit more about the credit default situation and how that affects things?

Chris Ciaccia: Sure. So Oracle’s got a lot of debt on its books. and investors are wary for a number of different reasons, whether it’s just the customer concentration with OpenAI or the fact that maybe they think that this AI build out is not real.

Oracle’s put this massive amount of debt on its books. It hasn’t really seen the explosive revenue growth that some of the other companies like Microsoft and Google (GOOG) (GOOGL) and Amazon and even Meta (META) have seen thanks to AI.

So you’re seeing investors incredibly wary or cautious about Oracle’s long term prospects. And then you’ve seen that re resulted in the credit default swaps, which is essentially just like a form of insurance on Oracle’s debt.

Rena Sherbill: And last on our list of stocks to talk about and items to talk about is a stock that we’ve talked about on our Investing Experts Podcast for the past week.

We had Steve Cress come on and talk about his thoughts on earnings yesterday out of Micron (MU) and how the market may or may not react. Chris, what would you say about long time, strong buy Micron?

Chris Ciaccia: Micron is essentially the candy store and the AI industry is the kid. They’re just they’ve got their money out and they want to buy everything in the store and Micron is just reaping the benefits. Numbers this quarter and for going forward are just outstanding. They blow past Wall Street’s estimates by a wide margin. Next year, some estimates are thinking that the company could earn two hundred dollars over two hundred dollars a share.

Rena Sherbill (06:54.957)Mm-hmm.

Chris Ciaccia (07:15.236)And when you look at the share price today, about a f about a thousand dollars, that’s roughly five times earnings. And now we all know that Micron in the past has been a cyclical company, but that cycl cyclicality has stopped with the AI trade. And even though the stock’s down a little bit today, and there might be some profit taking because the stock’s been up tremendously over the past 12 months and over the past since the year to date, the story is not ending. And it’s just all cylinders go ahead for Micron.

Rena Sherbill (07:46.506)Any negativity that you would seed in investors’ minds or any other sides of the coin or anything to note for investors looking at this part of the tech space and or this stock in particular?

Chris Ciaccia (08:02.36)the the there’s always a neg there’s always two sides to the coin in investing and the negative here for micron and the other companies in the memory and storage space is that the slowdown occurs. all of a sudden, you know, whether it’s rising interest rates or a war in Iran or some other kind of event that causes a spending slowdown and that hits Micron.

Like I said before, Micron has historically been a cyclical company, and that’s why it doesn’t trade at 30, 20 times earnings or whatever the number for most tech companies are that are growing at these tremendous rates.

So that’s the big concern is that the spending slowdown happens and then Micron just goes back to being what it was before, which is a boom and bust. Right now we’re in the boom and the fear is that the bust happens sooner rather than later.

But it’s just it’s hard to see that happening given that they’ve signed all these long-term agreements with a number of different companies and they’ve given a number of measures of guidance going out for the rest of fiscal twenty twenty six and twenty twenty seven that are just surprising investors left and right.

So there is obviously concern that that can happen, but it just doesn’t seem to be on the horizon right now.

I think the thing right now is you’ve gotta focus on rising yields and how that’s impacting the AI industry. And it just doesn’t seem to be impacting right now.

We’ve seen yields on government debt over the past few months rise a hundred basis points, and the slowdown is not occurring.

And that’s not to say it may not happen, but it these numbers are just tremendous and these companies are giving forecasts going out to next year and they’re factoring the rising yields and geopolitical concerns and all those types of things and nothing seems to be impacting it.

So it seems like it’s full sail ahead for the tech industry and for AI in general.

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Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.