Motley Fool Hidden Gems Investing - Cancer Vaccines & Data Center Drama

Episode Date: August 21, 2026

The market is fixated on interest rates and data centers this week. Rates continue to rise along with the U.S. debt, which may ultimately put pressure on companies across the market. Data centers have had their own drama with public pushback against the AI buildout at a high. We discuss this and more this week. Travis Hoium, Lou Whiteman, and Jim Gillies discuss: - Why Interest Rates Matter- The Bond Market Wins- Moderna’s Big Week- Take My Money!- Data Center PR Problem- Stocks On Our Radar Companies discussed: NVIDIA (NVDA), Peloton (PTON), Moderna (MRNA), Union Pacific (UNP), Apple (AAPL). Host: Travis HoiumGuests: Lou Whiteman, Jim GilliesEngineer: Bart Shannon Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

This week, data centers became the enemy. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Holm. I'm joined today by Lou Whiteman and all the way from Canada, which ironically is he's south of me, so we can have a geography discussion if you want, but Jim Gillies. Jim, welcome to the show. Thank you. It's been a while, Travis. We've got a lot to talk about. There's a lot going on in the market. We do want to get to the news on data centers, but this is sort of a quiet time for earnings. So it's an opportunity to kind of take some bigger picture looks. And one of the interesting things this week

was what's going on with interest rates. And I want to start before we get into kind of some of the drama. Lou, why do interest rates matter, particularly for investors in the economy? Wow. Big question, Travis. Is that the only one you're going to say? I'll just lob that one over to you. So why do interest rates matter or why do the current heights? Interest rates matter because, look, interest money is the lubricant of the economy. And what you pay for money at the end of the day determines what you can how much you can do with the money. So that's why we follow this stuff. Look, right now, there's a lot being made about interest rates being higher than they were. They are higher than they have been, yes, for a while. But look, they're still way below where they were in the 70s, the 80s and 90s. And somehow companies and consumers went found a way. I think some of the current panic about current rates is overdone because money should cost something. Money shouldn't be free.

You mean the 2010s and early 2020s was not normal? Well, and as an investor, I think we I found out or we collectively found out the problems of what happens when money is free. A lot of bad ideas get going. So in a way, you know, a nice four or five percent rate does provide you some sort of I don't want to say BS filter, but I think I just did. But look, right now, everything's going on. There's kind of an audience of one here that needs to see everybody trying to bring rates down. And so we're kind of going through serious things. We should discuss what all this means, but a lot of it is just panicking over a line and not zooming the line out enough, I think. Yeah, Jim, it seems like interest rates are like an easy topic to talk about, but they do flow down into the economy in a very real way. If you get a mortgage, it is tied to interest rates, typically the 10-year. When companies raise money, they have to pay interest on that debt if they're taking out debt. Stocks are valued, at least in part, based on what those interest rates are, the risk-free rate if you're doing modeling. so there is a reason if you are you know the president or if you're running the fed you would maybe want lower interest rates to help the economy um so how do you think about that as an investor i mean does that something that that plays into your modeling or is this just sort of noise in the ecosystem oh boy can't open worms everywhere um so a couple of things first off

people who have seen my prior work we've probably heard a varied version of this uh what i'm about to say but i'll say it again because you know just hit the hit play the hits right um most people ask most people what your largest lifetime cumulative expenses okay i when i've when i've done little talks in public or i've occasionally talk at high schools or universities or even on fool live um we fool 24 sorry uh ask that question most people say well house or education or kids And I'm like, no, most people's largest lifetime cumulative expense is actually interest. Interest on your house, interest on your student loans, on your car loans, on your credit cards, pay off your credit cards, kids, and so on and so forth. And when you realize that, you can start doing things differently because it's within your ken to not pay high interest. You can buy a smaller house, you pay your mortgage down, you could buy a used car, blah, blah, blah. Okay. So, you know, this is a way you can avoid paying interest in your personal life. That's number one. And I would encourage most people to do that because I don't like throwing money away. The idea of where interest is going, though, is because, you know, as Lou mentioned, it's a lot cheaper. But as I understand what's going on from this move, and I, by the way, may very well not understand fully. Okay. I want that out there.

The US Treasury, and again, Canadian here, so I'm, you know, not my country, not our fiscal policy or monetary policy, I should say. But, you know, we are keen observers. They are upping the sales of short-term debt, using the extra proceeds to buy down the long-term debt and tamp down rates at the longer end of the curve. right and uh doesn't that suggest a little bit of risky behavior like if if the whole game which i've been told by multiple smart fools and people not employed by us has been to hey look government debts large federal government debt in the u.s just past the 40 trillion dollar mark um sounds like a lot uh interest on that debt is already sucking up about 20 cents of every federal tax dollar coming in. Sounds bad. And now we're going to issue more short-term debt, which comes with a lower coupon. Isn't that maybe going to require more refinancing fairly near term? What guarantee is it that that works? And far be it from me to suggest that the bond market might be able to see

through that collectively and go, hmm, tariffs are inflationary, debts elevated and growing and the present government is you know kind of and this is not an america quote i mean you know i could point you to a few other governments not living within their means including my own um you know but like sometimes eventually things break and so here in in in canada as i call it the land of the frozen chosen or as travis as you pointed out i am a little south of you actually um which is kind of uh fun fact don't look this up fools how many u.s states have territory above the most southernmost point of canada most people the answer will surprise you the answer will surprise you um but you know like canada in the mid 90s got up to like almost like 80 percent

debt to gdp and they kind of went austerity you know they off they they cut a bunch of services they offloaded a bunch of services to the provinces um you know and uh today i think we're running at about 60, 65. And I'm just going to point that the U.S. is kind of running at 120, I think. So, I mean, now you guys have something we don't have, which is, you know... Yeah, reserve currency.

The global reserve currency. Yeah, that feels important for now. So, what is the market trying to say about that debt, though? Because what I think is so interesting with this is... So, the short-term, what has happened this week is the Treasury is buying back some long-term debt because they want to reduce those interest rates on the long end of the curve

as well, so 30-year bonds. But the Treasury does not, or even the Federal Reserve, does not set interest rates. The market does. No, the bond market does. That's why I say the bond market's going to see through this.

Right, so the bond market is, the way I always think about it is they're communicating with you. If you're a company and you're going to look for debt, of course you would love to have a lower-cost debt. But the market is communicating to you,

no, I want a 10% interest rate. to take that risk. I want a 12% interest rate. And then you have to adjust to that and adapt to that. And so what is the communication that's happening from the bond market, which, by the way,

is 10 times the size of the equity market. So the bond market really runs the world. Yeah, the bond market doesn't like the state of debt, I think, in general, in terms of like the rates will go up as they start to perceive that there's a bad situation.

And I'm not smart enough to know if there's a bad situation in the US or Canada or anywhere else right now. I just, you know, can say, well, on a relative basis, this is getting worse in terms of the amount of debt, in terms of the ratio of debt to GDP. Can it be reversed? Of course it could be reversed. But right now, the bond market's going, eh, we're not really sure about this.

The other thing that's going on, and this is just true of every market is, is that all prices are just a simple measure of supply and demand. And there is just a lot of supply of debt right now. We've talked about the hyperscalers and everything they're doing. This is hardly a U.S. thing, too. As Jim said, there's a lot of countries, Germany, all over the world, we are running budget deficits. So there is just a lot of paper out there. You have to make yours pretty. And you do that with rates. So, you know, I mean, that's just kind of how rates work, uh, to Jim's point. And I said, I think it's for an audience one, but buying back 4 billion in bonds when your deficit is $2 trillion is like switching to low fat milk and saying, okay, I can still eat 8,000 calories a day. It's just, I saw a video of somebody using a squirt gun to try to put out a house fire.

I think that is another, yeah, it's, it's just not going to work, but I think someone was told to do something. And so they wanted to show they're doing something that said, look, this is a lot more sustainable than we like to admit. At some point, the government is going to have to do something about it. But we do print our own money. We are, at least for now, we might be doing our best to try to ruin that. But we are the reserve currency. There is a stable market. This makes everything harder and it sticks future generations with the bill. So I am not saying it's a good thing. Every dollar the government has to spend on interest is a dollar that could be going.

The obvious ones is sell defense stocks because, I mean, they'll afford that. But think about everywhere the government invests, from healthcare to infrastructure to just all over the world. Every dollar for interest is a dollar they can't spend there. This is a serious problem, but it is a long-term problem as an investor. I don't worry about everything going flipsy now, but it does make just everything harder as an investor. And just as an investor, because this was – I don't like talking macroeconomics because I'm dumb and going to be wrong, right? Okay, that's the general – like, you know, I'm not an economist. But as an investor, Travis, you talked earlier about, you know, investment models may be based off of the interest rate, usually the 10-year, the so-called risk-free rate. And the higher, you know, the higher that goes, it should impact. you know the basic way you do a a discount rate for a for a model is the risk-free rate plus some sort of a risk premium five or six percent and historically you know like or more recently you know like if you you follow any kind of evaluation gurus uh out there you know aswath the motor and

a few others we could name um you're seeing discount rates in the eight nine percent range in some of the models and um i i personally have never agreed with that i've never agreed with you know, you know, kind of like take your cue from there. My whole thing is always when I build a model, my default assumption is, look, I know historically the stock market has returned with dividends included about 11% annualized. Okay. So that's my opportunity cost, if you will. I can go out and buy an S&P 500 index traded ETF, index ETF. And over the long term, assuming that the future looks a lot like the past, I'm going to make about 11% annualized. So I had the lazy insight that, well, if that's my opportunity costs, I want to discount the cash flows of any

company I'm looking at, at my opportunity cost. I don't particularly care if the capital asset pricing model tells me I should be using 8.25%, which is what Demodaran valued the recent SpaceX IPO at. I think that's insane, frankly, but he's Athwath Demoder and I'm not. And so I just run with 11%. And then in my modeling, if an 11% model when, say, interest rates and finance theory should tell me, oh, you should be closer to nine, if I'd still think it's a bargain at 11%, at 11% discount rate- Then you're going to be a winner. Yeah, because if you don't know, the higher the discount rate, the lower the present valuation

will be um and so yeah so that's how that's one reason i get around this and why you know this is interesting news we can talk about it but to your point or your question earlier travis doesn't really impact my process because i have my process and i understand why i have my process well this is something that's going to get a lot of headlines uh in it i think at the end of the day the companies that are taking out debt are going to have to think about this the most because if interest rates do continue to go up those debt costs are going to continue to go up when we come back, we were going to talk about maybe the most exciting healthcare news in the last couple of decades. You're listening to Motley Fool Hidden Gems Invest.

You gotta try breakfast at A&W at participating A&W locations in Ontario. Espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Espresso.com. Welcome back to Motley Fool and Jim's Investing. We do have to touch on maybe the most important news of the week, maybe of the year.

Moderna and Merck released results of a phase three trial for a cancer vaccine. This is something, Lou, I don't think I'd ever thought that I would say a vaccine for cancer. But the market had a phenomenal reaction. Moderna stocks up about 140% this week. I just looked. My returns on Moderna is now about 13% to show you how much I was holding the bag. That's total. That's total.

But this seems like, and we're not doctors or pharmacists, but this seems like one of those announcements that could be really, really big news over the course of the next decade or two. Right. Exactly. And we don't know. And I'm glad you said could because, you know, medicine headlines on medicine never work out. But potentially this isn't just great news from Moderna shareholders. This is great news for humanity. It is early, though, as you say, I'm not inclined to rush in here. I wish I would have bought it 30 or whatever, but I do think it's kind of quote unquote priced in. This is just an amazing stock, guys. I mean, look, if you bought on, I think it was what, May 24th, 2024, you're still underwater here. And by the

way, if you bought during COVID, you're still way underwater. Jim, we talk about biotech being hard and we talk about just, it's a crazy market, but this doesn't even like, this is just its special loan case. It lingered for years with potential, got an amazing boost because it was able to end a plague, lost momentum when investors realized that hopefully new plagues don't come around every so often, ended up a political target, like a political whipping boy, which where it got honestly really, really stupid cheap in hindsight. And now here we are. This is just, they don't make them like this.

Forget biotech. This is just different. Yeah. I mean, I like to say biotech is hard as we've hit a couple of times. And I am certainly not smart enough to call winners and losers in this space. well actually i am smart enough to call losers uh as in every time i've played in this space i've ended up with a loser um you know and but yeah i want to i want to go in on what you're talking about uh with moderna itself like you know like the problem with biotech whether you call moderna

i'm gonna stay away from the politics stuff because again canadian what do i know if you bought with the hype this is a hype story during covid right because it's going to as you say end a plague or at least that was that was the marketing it was hype but there was to be clear there was real revenue and profit there for a short period of time absolutely and so but the problem is if you were if you bought moderna during the last big hype cycle even after the big run-up this week you're still down probably 50 to 70 percent okay you don't even get travis's 13 percent over how many years and the the meanwhile the s like over the last five years Okay, like I'm just pull up the five-year chart on my screen here. Last five years, Moderna is down 60%. The market is up 73% before dividends. If you are inclined to play in the biotech space, the advice I receive, the advice I will pass along is that maybe seek out a broad sector ETF focused on biotech.

And I'm just going to pick one randomly here. The State Street Spider S&P Biotech ETF. There's a bunch of these out there. You can go look at them up, fools. But this one, State Street Spider S&P Biotech, it is up 36.5% over that same five years. So you didn't match the market. And if you want to play in biotech, maybe it's best to spread your bets around because you don't know when a good news story, like, I mean, like, like we can all agree a cancer vaccine is amazing. If this works, it's still time to come to market. If this works, I mean, it's, it's, it's a net positive for humanity, obviously. But you, by the time you can't predict, unless you're a biotech expert, and I am certainly not, you really can't predict which companies and which molecules are going to strike. And you really can't predict when they're going to strike. And so spread your bets around. And we live in an era when you can spread your bets around by just simply buying an exchange traded ETF that focuses on that sector. So anyway. Lou, really quick, do you think that we're entering with AI, with data, with all these sort of advancements, are we entering a new era in healthcare where these kind of huge, seemingly huge things are coming more regularly than they did in the last hundred years? I wish. I don't think so. I think we're always improving, but AI knows English. AI doesn't know biology. That's going to take some time. So I think we're just to be grateful for what we get and hope it continues. Yeah. This will be fascinating to watch, and hopefully it works well for investors and for humanity like we talked about. We'll be back in a moment. You're listening to Motley Fool Hidden Gems Investing. Better way than with the delicious Pret Organic Coffee.

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moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on espresso.com welcome back to molly fool hidden gems investing in this segment we like to have a little bit of fun with investing and i wanted to jim is a value investor famed for buying gamestop before everyone else knew that gamestop the gamestop was i hope i've known more than that that's gonna be that's gonna be your he's also canadian those are the two things that's it gamestop canadian uh but so we're gonna play a game that i like to call take my money so if you've seen the meme

at what price does a stock or a company need to be where you go take my money this is so cheap i'm i have got to get as much as i can but we're going to start with the anthropic ipo the anthropic is the date keeps keeps moving up i've now heard that they may release some of their documents this month so in the next week and a half uh they seem to be running rushing towards public markets at what market cap would anthropic be incredibly compelling to you as an investor Yeah. Did you blame them for rushing to the markets, by the way? I mean, look. You can get $2 trillion. Yeah. Hard to say no. The best time for them to have done it was probably six months ago. So look, I honestly don't know, but I want sub-trillion definitely. Maybe, maybe with hype, $600, $700 billion market cap, I might at least have to give it a look.

But here's the thing. They're winning right now. We're too early to know. I mean, a year and a half ago, it was open AI was was just going to rule the world. I think the lesson is we don't really know which one of these businesses is sustainable long term. So I would be very gun shy almost at any valuation, if I'm honest. Jim, any any valuation that is compelling for you for Anthropic? I'm tempted just to say two votes and point to what Lou said. I'm going to give a standard answer for what I do in any valuation situation. When the sum of future cash flows discount back to the present at an appropriate rate, when that is higher than the then current market cap, the calculated value of the company. And I also, I have this weird habit where I insist on valuing things like options and restricted stock and warrants and all these things that, you know, sees value leak out to insiders. I was told that's not real money. Yeah. You know, yeah. Well, they're just wrong, but I respect their right to be wrong, which is my favorite line when my wife and I are having elevated discussions.

I respect your right to be wrong. um but uh yeah i you know when when it makes sense from a from a valuation perspective conservatively calculated and so assuming they're they're losing money and there is no i i think the hard thing with some of these companies is there is no necessarily projected time that they're going to turn profitable but if they turn profitable and they become google they become you know even an uber there is value there somewhere so sure but google came out wildly profitable right right right they did but they were nowhere near who they are yeah and an anthropic and and an open ai i guess i mean they're not going to and um you know and and

even uber had to go through the wilderness frankly before they could put all the taxi companies effectively out of business and steal their share so you know uh and also too just the general warning with ipos is um there's a lot of hype obviously people get very very excited and uh the academic literature, the academic finance literature is pretty unequivocal on this thing that most IPOs underperform for the first couple of years of going public. I realize that's a very state and boring answer. You probably want to avoid playing an IPO space until there is cash flows and there is profitability and the hype goes away. Well, I'm going to assume your answer is the same with OpenAI. Correct. Lou, do you have a similar number with OpenAI? I was hoping

Jim was going to go first and I was going to do the price is right thing and say $1. Honestly, guys, I don't know if they'll, I mean, I'm guessing they will because they have to, but I am not 100% convinced there will ever be an OpenAI IPO at this point. Would you be more interested in Anthropic or OpenAI at the same price? At the same price right now, Anthropic. Okay. That's probably my answer too, actually. All right. Let's go to the hottest asset on the market.

Jim, I'm going to start with you. Any price that you're interested in Bitcoin? No. Lou? Look, I'd probably take a flyer at lower just because I wouldn't put much strength into it. My problem with Bitcoin is, is that it doesn't do anything. The bull case for Bitcoin is, we've played whack-a-mole with the use case for a decade now, and they're still coming up with some, which does speak to its pliability. So maybe one of these hits.

So, it's probably a price, but it's a quarter, if not more of, you know, maybe in the 15s or so, I'd probably just throw money at it. How much money laundering do you want to do? Well, that's true. That's a use case. Yeah, yeah. I think I'd probably be compelled at that point, too. Okay, this is where things get a little more interesting. Disney stock.

Disney has been, has gone nowhere for, what, a decade, 15 years at this point. But there is a business there. there is a there there people do pay real money to go to the parks lou at what price or what price earnings multiple it would maybe be another way to put it are you interested in disney stock i and its current form i don't know if i can be talked to that i am i am convinced myself that they need to just spin out the parks and the experiences all of that the cruise ships as an independent company sign a perpetual license forever to keep the ip but just get all of the media off the books i love my idea of like just merge with netflix but i i don't think this

business works guys i i was actually kicking the tires on comcast not because i like it better but just because at least it was cheaper and then they had to go do that split and made it too but uh disney i i don't think i just don't think the collection of assets as stated works the way they hoped it would and i don't think spinning off the legacy things will work for what will save them any more than it saved comcast jim 14 and a half times forward earnings is there a price bob eiger's gone by the way i brought this up because jim has strong opinions on disney and bob eiger and is a star wars super fan uh so maybe not you can't tell with some of the stuff behind me maybe not uh the biggest fan of the way the company has handled the last decade or so but

is there a price where it becomes compelling sure there's a price where every asset becomes compelling i'm not sure it's now i mean disney yeah yeah travis is right i'm i i'm a known bob eiger skeptic because disney has been used as a bob eiger enrichment scheme for much of the last two decades um you know and i i do not have a high opinion of mr eiger and or his management style but we'll leave it that um the problem with disney as i see it is cut something of a what more worlds to conquer problem you know they already own childhood okay pixar star wars marvel marvel's on the the the lag if you ever look up at uh uh you know you can find this stuff it's out there the inflation the the the pace at which going to disney parks has outpaced the rate of inflation

by about 10 percentage points for something like 33 decades um you know there there is a what more world's to conquer problem here and and so where can they go with that i'm not sure 14 times earnings forward earnings really matters all that much to me um you know in the last uh like the most recent fiscal year they did about 10 billion dollars in in free cash flow okay but they spent about 6 billion of that on buybacks and dividends so that's money that's lost it's not money that's not going to go back into the company um in all over the past 12 trailing months they're actually at about nine billion dollars in free cash flow most of that's gone to accelerated buybacks generally i like buybacks if they're done at a decent enough price um i'm

not sure disney's there and uh i i floated i think i first wrote this about 12 or 13 years ago it was the washington post asked the motley fool bunch of analysts to you know come up with a wacky uh acquisition prediction and a bunch of us had little write-ups and my write-up was that i think apple should buy disney because it's content for their army of uh of devices that people are increasingly staring at you know rather than interacting with their fellow humans and i thought that would be a pretty great thing and then you could you know to lose point you could off gas the parks to something else and just take content but uh yeah i mean again it's going to be the same i know i'm not playing the game right i know but you know at at evaluation where it

makes sense probably not at this level um you know i think it's what 30 times 25 times free cash flow that's that seems a little excessive to me today i i've got to say as as the one here who has young kids in the house we went to disney last year it is incredible how institutionalized disney is as a brand for for parents and we went to the universal theme parks as well and they're just not the same they're they're just not they're not done as well they're not nearly The Harry Potter land would argue that point. Well, our kids aren't quite that old, so we didn't go to the Harry Potter. But Nintendo was well done, but even that was, you know, that's a couple hours.

That's not an entire day. Trev, the thing about that is that's been true for a long time. And you already mentioned the stock price over the last 15 years. So, like, two things can be true. The brands are great, and it's just, it hasn't worked for a long time. I will remind investors, too, that Disney goes through these decade-long cycles of being in the abyss in the early 80s, and then having a massive comeback, and then another abyss in the late 90s, and then a massive comeback, and now we've had an abyss. Maybe we're ready for a comeback, but that's probably a topic for another show. All right, quickly, I wanted to get a quick idea if there is a price, Jim, that you are interested in Tesla stock. We currently have a $1.4 trillion market cap. Price earnings multiple on a forward basis to be the most generous is $190. Is there a price that you would buy? There is a price for any asset. I really do believe that. The price that I would pay for Tesla, and most people don't know this. I am a former Tesla shareholder, and I'm probably one of the larger bearers of Tesla at The Motley Fool. I'm a former shareholder. Made money on it. Didn't make enough money on it, apparently.

but um yeah with tesla the growth is gone elon is distracted by some other companies just recently taken public um the operating margins the profitability margins have cratered they've gone from 19 a couple years ago to i think the most recent quarter is 1.4 you know most auto companies with margins at that level trade for seven to ten times earnings not 300 um my price where i would buy tesla because i think it offers a an above market return going forward uh the the price probably starts with a three or a four and there's only two digits on it lou quickly what's your answer here so i'm i'm gonna be the bull here just for fun and we'll still get letters okay i am gonna say that tesla is so much more than general motors and so as there deserves let's say

six a 6x premium on valuation of general motors general motors trades for about 0.4 times sales So we'll give them 2.6 times sales. And my market cap is at 275, 275 billion would be my fair value. I don't know if I really mean that, but it's a way to say lower than here. I will also offer the clarification. I have a, I'm a big index fund guy as well. And about half of our personal money in my family is index funds and the other half is individual stocks.

I own a lot of the S&P 500. So on a look through basis, I actually ironically own a lot of Tesla. I will also note that they shut down their solar roof, which was one of the big reasons that they bought SolarCity, one of the things that drove me crazy more than a decade ago. But when we come back, we are going to get to the stocks on our radar. You're listening to Motley Fool Hidden Gems Invest. Breakfast at A&W. And what better way than with a delicious Pret Organic coffee? Starting at just $1 all day, every day, now until December 31st.

You gotta try Breakfast at A&W. At participating A&W locations in Ontario. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range. Infused with functional benefits. Choose the coffee you love with added B vitamins like Coffee Plus B12 to help support immune function and Coffee Plus B6 to keep your day moving. Or go with the flow and choose Ginseng Delight, our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning.

Let your morning change you. Discover Coffee Plus on Nespresso.com. As always, people on the program may have interest in the stocks they talk about, The Motley Fool may have four more recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. All right, Lou, I wanted to get to some of the drama

around data centers that we've seen really take off over the last week or so, but there's been some new polling about how unpopular data centers are. The reason that this is so important is I could make the argument that the AI build out is both holding up the market and the economy at this point. So has the tech world just gone too far with this build out and just wanting to build anything anywhere? Is this a political problem? Where does your head go with the risk factors with this becoming now a political football. Yeah, this is a bipartisan, just nobody likes this, right?

I think there's a ton of things going on here and none of it's really great for AI. I do think, you know, look, there's been a lot of promises on economic development, that Foxconn Apple plant that never got built. There's just a lot of like recent examples. And these are ugly, big, just humming centers.

They're not pretty, but look, there's two big things I think that the AI industry has to confront. arrogance and a lack of just usefulness right now for their products. When arrogance, this is a big one. The messaging has been far too dismissive of complaints. Maybe they are water neutral, but to laugh at someone who's asking the question and say, you must be an imbecile, that's not a way to win hearts and minds on a local level, okay? Big tech has a messaging problem. It's basically the message on this is, if you're too stupid to understand we're saving

the world. That shouldn't keep me back. You should do better. OK, somewhat related, though, if the Apple plant was coming near me, I could say, oh, I like iPhones and same with an auto plan or whatever. For now, for most of us normals living in flyover country, AI is just fancy search. And if you want, you know, for all the back padding in Silicon Valley, AI has done a terrible job of convincing consumers this is something that's necessary, interesting, world changing, whatever it is. I think it's just a simple problem of why me? And yeah, it's most of it's just arrogance and messaging. Is there a solution here? Is paying, you know, I've heard about replacing property taxes with revenue that comes from the data center. Is there sort of like

a bribe that is going to work for some of these? Or is this just, is this just so unpopular that it's going to become nuclear? Put them in space. Yeah. There you go, Jim. I can't say it better. Maybe that is the solution. Maybe Elon Musk is ahead of the game already. As always. It is fascinating because it does seem like one of those times where the conversation on Twitter, the conversation in Silicon Valley is very different than the conversation that we have. I'm living in the Midwest in that flyover country.

And, you know, we don't talk about AI. It just doesn't come up. So something that I think Silicon Valley needs to get their head around. Okay, let's get to the StocksCenter radar and bring in Bart for his thoughts from behind the glass. Jim, you're up first. What are you looking at this week? I'm going to go to a COVID era darling throwback. It's a stock that's down 95% from its COVID area time. Most people assume it's a dead business and why would you ever want to go here? And they have completely missed what's going on under the hood. And I am talking about Peloton. Yes.

okay so peloton it's a razor and blade model right you know it's like we're going to sell you an expensive treadmill or expensive uh bike with an ipad strapped to it's a little more involved in that of course but you know that was always the dismissal and uh you know during covid uh the very very smart people running it said you know hey it's a razor and blade model the the razor is the the equipment and the blade is the subscription and if you know anything about razor and blade models, you sell the razor for as cheap as possible because you're going to get that sweet, sweet stream of blades always sold on top of it. They said, but what if we focused on the razor instead and spent $3 billion on inventory and blowing ourselves up because

we're geniuses and everyone's going to flock to us? Spoiler, it didn't happen. They paid with their jobs. The business nearly went bankrupt. They had to save the company via a really expensive financing they had a few years ago, replaced the executive suite, and a funny thing happened along the way. The CEO came over from Apple and Ford, where he'd worked on subscription businesses before, the new CEO, Peter Stern. They turned from a cash furnace into a cash gushing. Does anyone know that Peloton, in their most recent fiscal year, produced $378 million in free cash flow, which was on top of the $324 million they did the year before. Those two years, Peter Stern's been there for about, I think, 18 months. And all they've done is they

piled that cash up on the balance sheet. They paid a little bit of debt off. But as of the most recent quarter, they have $1.2 and change billion dollars in cash and $1.3 billion in debt. They have screamed from the pulpit, we are going to do a mass refinancing, probably in September because no investment banker wants to work in August. They're almost debt neutral guys, and it's going to go away. They're promising at quote unquote, at least $350 million in cash flow this year. You're going to see a refinancing probably within the next month or two. And the stock today is trading for less than seven times trailing free cash flow. You don't need a lot of growth at seven times free cash flow, and it's about to

clean up their balance sheet for good. So Peloton is my horse. All right, we got to jump to Lou. Lou, what do you got this week? Bart, real quick, I'm looking at Union Pacific. UNP is the ticker, best known as one half of the U.S. West Coast duopoly. It's also the train set I had as a kid. But Union Pacific is trying to buy Norfolk Southern, establish the first U.S. coast-to-coast. This week, the Surface Transportation Board kind of kicked off the clock.

The good news here for Union Pacific is it means it probably could get done by the end of 2027. For political reasons, that's good. The bad news is that's a long ways away. Done right, this deal could really change the economics. I'm on the sidelines here, but I'm watching close. All right, Bart, you have stationary bikes that act as clothes hangers or model trains. Which stock's going on your watch list this week? Trains, I know not.

I think Peloton is still an innovative company, and I think there's a lot of room for growth. But I can't help but think their board meetings always center around, And guys, if we could just hang on until the next pandemic, we'll be good. All right. I like it. That's all the time we have for today. Thanks for listening. We'll see you here tomorrow.