Episode summary
AI is in a Mania... But Value is Finally Waking Up
The Acquirers Podcast
· · 28 min · Hosts: Tobias Carlisle, Jake Taylor
Summary
The conversation argues that the market is unusually split between a narrow, AI-driven leadership group and a much cheaper rest of market. The host says breadth has improved a bit, but the index is still heavily weighted toward the biggest AI beneficiaries, while value, cyclicals, small caps, and mid caps look much better underneath. A guest agrees that this has created an opportunity set, especially where prices have fallen for reasons unrelated to the long-term business outlook.
They spend a lot of time on the AI boom itself. The host is highly optimistic about the technology’s impact, but says it is very hard to know which companies will capture the profits, and that valuations in parts of the AI complex look stretched. He also argues that the speed of progress could amount to a kind of singularity, with recursive model improvement and rapid scientific breakthroughs.
From an investing standpoint, the guest says real estate, business development companies, and other lower-profile parts of the market look unusually cheap. He argues that current prices already imply severe default or recovery assumptions in some cases, while the market’s concentration creates both risk and opportunity for investors who are willing to look outside the major indexes.
Key takeaways
- The host says market breadth has improved, but the S&P is still dominated by AI beneficiaries, leaving value, cyclicals, and small caps relatively attractive.
- The guest argues that many business development companies are priced as if severe defaults were likely, even though current charge-offs remain very low.
- The guest thinks commercial real estate looks attractive over a five-year horizon if AI proves deflationary and rates stop rising.
- The host warns that AI may be transformative, but the winners are much harder to identify than the technology’s overall direction.
- Both speakers say investors may need to accept looking wrong for a while if they want to avoid crowded, expensive parts of the market.
Notable quotes
“market breadth has improved. Basically, that means for folks at home that the stocks uh relative the underlying stocks relative to the index”
“I think AI is going to be a huge winner, but picking AI companies that are going to be the winners is a that's a very tough ask”
“the market trading at, you know, one of the highest cape ratios in history”
“if you assume 50% recoveries on its defaults, 48% of the portfolio would have to default”
“It's a good time to be a value guy, good time to be an intelligent investor”
How the episode opens
This is the Value Options Letter podcast. I'm Tobias Carlisle, joined as always by Tim Travis. How are you, Tim? — I'm good, my friend. How are you?
I can't complain. The I I tweeted this out yesterday. Um market breadth has improved.
Basically, that means for folks at home that the stocks uh relative the underlying stocks relative to the index. So, because the index is so heavily weighted towards the big end of town, which is all of the the AI stocks, the AI beneficiaries, which are a huge part of the index. It's been racing ahead, and the rest of the index has sort of been suffering uh relatively.
And um that seems to have turned the corner a little bit. Breadth looks a little bit more healthy. That means all of the other equal weight looks a little bit better against market cap weight, which in turn means value looks a little bit better, cyclicals look a little bit better, small and mid look a little bit better, all of the areas of the market that I'm interested in.
So, yeah, I I like seeing those things happen. How's uh How's your part of the world?
Well, it's the same. I mean, I think we're similarly positioned in that sense. Uh it's you know, it's it's an interesting kind of the news that that prompts that.
I I mean, I think What What What was it in South Korea? Or it was one of those um It was one of those uh data center companies that was doing the IPO. And it it came out at the high end, and then it it fell like 34% the first day.
I I forget. I think it was South Korea. I forget.
It was definitely a foreign one.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai mania
- value investing
- cash-secured puts
- covered calls
- chip industry cycles
Companies and tickers mentioned
- MU
- Micron Technology
Watch the episode
Watch “AI is in a Mania... But Value is Finally Waking Up” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Acquirers Podcast, this episode and its artwork belong to Tobias Carlisle. Octagon is not affiliated with the show; this page is an independent summary.
