Motley Fool Hidden Gems Investing - Open AI’s Worth Half a Trillion Dollars

Starting point is 00:00:00 Welcome to Motley Fool Money. My name is Tyler Crowe, and today I'm joined by longtime Fool contributors John Quast and Matt Frankel. We have a pretty busy slate today, and somehow the U.S. government shutdown isn't the biggest story we're going to be talking about. We have Fair Isaac throwing the credit score market into chaos. We've got Warren Buffett making big moves at Berkshire Hathaway. And we'll cover a couple of angles of the shutdown from a investing perspective and stocks on our radar. But first, we have our first half-trillion-dollar private company, that's OpenAI. OpenAI can now say it's the largest private company with a $500 billion valuation. The company announced that some current and former employees were allowed to sell some of

Starting point is 00:01:03 their shares and the price that was attached to them put the total valuation at about $500 billion. And that's up from, I think it was like $300 billion a few months ago when they actually did a capital raise. So John, it seems like every time we talk about OpenAI, we're using some seemingly ridiculously large numbers. I think a couple of weeks ago, we were talking about Oracle's massive backlog growth, and it was like $300 billion. And most of that was open AI. Yeah, we are talking about crazy numbers, Tyler. And I want to try to contextualize them a little bit here. So at a $500 billion valuation, let's use Microsoft. I think we can all agree that Microsoft was a transformational company. Founded in 1975, it did cross the $500 billion

Starting point is 00:01:51 mark during the dot-com bubble, but let's throw that out. It crossed it for the last time in 2017. Basically, it took 40 years for a transformational company such as Microsoft to reach the valuation that OpenAI has reached in 10 years. This is quite the story. I also think it's fair to say that the valuation for OpenAI is generous, but it is making some incredible projections for the future of the business and investors are forward-looking. So that is why it's getting that generous valuation. But let me dig into the projections here a little bit. So this is according to Fortune. Sam Altman, the founder of OpenAI, supposedly wants 250 gigawatts of electricity by 2033 to power data centers. Now, Tyler, you took me to school this morning before

Starting point is 00:02:44 the show. Do you remember in the best movie ever, Back to the Future, and I don't really think that that's up for debate, but Marty has no idea what a gigawatt is, and that's kind of me. 250 doesn't sound like that many, but that is actually quite a bit of power. So, recent IPO, Fermi, F-R-M-I, this company has a massively ambitious project aiming for 11 gigawatts of electricity by 2038 it's it's ambitious because that's nearly three times the largest nuclear power plant in the country right now which is palo verde in arizona and so open ai saying it needs 22 fermis and faster than fermi can get it there if it's going to reach its ambitions and that's just open ai we aren't even talking yet about anthropic meta alphabet perplexity elon musk xai ai is creating

Starting point is 00:03:38 a lot of power i don't tend to make many predictions here because i tend i mc a little bit but i'm gonna go out on a limb here and make a prediction and you guys can agree or disagree with me a lot but i don't think that they are going to get build that much in power or compute or anything in eight years i just don't see the possibility of it happening you mentioned the power side on how much it needs. But also, you have the data center and the compute side as well. 250 gigawatts of compute storage inference, that's like building 100 of digital realty trusts, one of the largest data center real estate investment trusts on the market. And you want to build 100 of them in eight years. Now look, Sam Altman, if you or anyone at OpenAI is hearing

Starting point is 00:04:27 this and you can tell us how you plan to build one-fourth of the nation's power generation capacity and the equivalent of 100 digital realty trusts in eight years, we would love to have you on the podcast and actually hash it out. Let's shift gears here because something that seems a little bit more grounded in reality is we had a Berkshire Hathaway move. Berkshire Hathaway announced that it would be buying all of Occidental Petroleum's petrochemical unit, OxyChem for about $9.7 billion. Now, Matt, I think it's fair to say that no one outside of Occidental knew this chemical division better than Berkshire and Buffett. Yeah, and you're right that this is down to earth. Generally, when you're talking about

Starting point is 00:05:10 Berkshire Hathaway and anything having to do with valuation, it's going to be more down to earth than anything in the tech space. But I think you're right. Berkshire owned about 27% of Occidental Before this, their biggest shareholder, it's a company Buffett knows very, very well. You can kind of make the argument that they're not really even spending $9.7 billion because they own over a quarter of the business, so they're essentially paying themselves for something they already own, to some degree. This doesn't really put a big dent in Berkshire's cash hoard, which is well over $300 billion. It's not a major needle mover.

Starting point is 00:05:44 represents roughly 1% of Berkshire's market cap right now. But it's nice to see Buffett and his team finding opportunities. CEO of Occidental, Vicki Holub, I think I'm saying her name correctly, is calling this the last step in Occidental's transformation that started 10 years ago. Now they'll be able to buy back stock, etc. So, it seems like more of a win for Occidental than the market seems to be letting on. Yeah, I love that, Matt. And as you point out, I think this is a can't-lose thing for Berkshire. Essentially, giving one of its biggest investments a ton of cash so it can pay down debt, it gets a business that it likes out of the deal, and now Occidental can repurchase more shares, which boosts Buffett's stake in the business. It's

Starting point is 00:06:27 really a can't-lose for Berkshire. I'll be genuinely curious to see what happens with this, because I think part of Buffett's investment thesis in Occidental was the petrochemical unit and has said historically, we don't really plan to sell or buy more of Occidental, but I wonder if this changes the dynamic about that a little bit. So we'll have to see how this kind of shakes out over time. Coming up next, investing in shutdowns and the fight for your credit score. 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

Starting point is 00:07:10 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 espresso.com now we started doing show prep a couple of days ago and we thought investor intention would really be on the government shutdown then the market ended the first day of the shutdown up, a little bit to our surprise. Today, as we tape, the NASDAQ is pretty much flat, and the S&P 500 is down just about one-tenth of a percent. We were planning on doing a no-need-to-panic-if-you're-a-long-term-investor type of segment with statistics about why this isn't that big of a deal. But apparently, Matt, the market already got the message already.

Starting point is 00:07:54 Matt Frankel. I remember back a few years ago when we all thought that a government shutdown was much more scary than we do today. You'd hear, the government's about to shut down, and everyone's, oh, no, how is this going to affect me? It's almost now like we're all conditioned to assume that Congress just isn't going to get it together, to one degree or another. It's much less scary than it used to be. As far as the market's concerned, one, the shutdown's not likely to last for very long. By nature, the stock market's made up of private companies. These aren't government enterprises. None of the companies you follow are shutting down. It's not surprising that most of the publicly traded companies are just shrugging this off.

Starting point is 00:08:33 One thing I will say is, a lot of businesses do depend on government spending, so those could be the ones to watch. For example, if a hotel chain gets a lot of business from government travel, a company like Lockheed Martin, maybe, that is essentially government contracts. If this lasts for more than a week or two, I'd say start paying attention to companies like that. But pretty much everyone's assuming this will be over before you know it and won't have any big lasting effects. So, I'm kind of shrugging it off as well. In all likelihood, it won't last very long. But to play devil's advocate, it is worth noting that the longest shutdown previously was 35 days, and that was during President Trump's first term. Maybe we'll

Starting point is 00:09:12 try to break our record again this time around. But in all seriousness, the average shutdown is only nine days long. So, normally, as you said, Matt, not a very big deal. What is interesting, though, is economic data could be impacted here. So the government agencies, such as the Bureau of Labor that puts out reports, those could be delayed during the shutdown. And there's already been a little bit of a problem with data. The Federal Reserve is trying to make decisions that are data-based. And there have been record revisions recently to some of the reports. So, that's complicating its job, making a very hard job harder, and now the job would be even harder than that if there is no data whatsoever. So, you would like to see this government shut

Starting point is 00:10:01 down and, if nothing else, for the data to come out and the Fed to have database decisions that it can make. Certainly, there's a good chance for, I guess, higher volatility with the lack of data and kind of just the general unease, I guess, would be the best word. But I think this is the most poignant statistic, and it came from a note from Saxo Bank, I think yesterday, when it comes to investors and government shutdowns. The average return of the S&P 500 12 months after a government shutdown is 12%. That's really more or less what we've seen from the long-term average of the S&P 500 over the past 15, 25 years. We're pretty much tracking, most government shutdowns a year later tend to track to what the long-term average of the market is anyways. So, kind of a little bit

Starting point is 00:10:51 of a don't panic, carry on, carry forward, do what we do as long-term investors. Now, shifting gears again, like we said at the top, shares of Fair Isaac Corp. And most people might know it better as FICO for their FICO scores. The stock is up 24% today as we were taping after the company announced that it's launching a direct license program. This new product would allow end customers like mortgage originators to directly calculate and distribute FICO scores instead of actually having to kind of do the traditional middleman thing where they would go through the traditional credit bureaus like Equifax, Transusion, and Experian to get the data and then calculate the FICO score. Unsurprisingly, with this news of Fair Isaac announcing this and their

Starting point is 00:11:38 stock is up, Equifax, TransUnion, and Experiences stocks are all down substantially on this news. Now, John, FICO stock was having a rough go of it in recent months after the head of the Federal Housing Authority was critiquing FICO's pricing models. This recent announcement seemed to have put a lot of investor jitters at ease. Yeah. As you point out, Tyler, this stock was down more than 40% earlier in 2025, which is actually the biggest pullback for FICO outside of the pandemic during the last decade. So this was unfamiliar territory for FICO's shareholders. In fact, FICO shareholders are used to incredible returns. So overall, if you zoom out a decade, Fair Isaac stock is up more than 2,000% over the last 10 years.

Starting point is 00:12:30 That compares to just 250% for the S&P 500. This is a long-term winning stock. It had pulled back here earlier in 2025, and dramatically so. It looks like the market is looking at FICO here and saying, maybe we should get back in. Matt, I think this is interesting because credit bureaus, like the experiences at Equifax and the world, were trying to actually stomp on FICO's turf with building VantageScore as a competitor. Now, it seems like FICO's flipping the script here and saying, well, if you're going to build a credit score, we're going to start selling directly to mortgage originators. Yeah. John correctly mentioned FICO's up 2,000% over the past decade. It's because they're really good at this stuff.

Starting point is 00:13:18 All things being equal, FICO holds the power. 90% of lenders still use its model, even with VantageScore trying to steal some of its thunder. This move can boost margins for FICO and increase price competitiveness, especially with newer options from companies like Upstart that aren't even in the conversation in a lot of ways. If FICO can effectively price compete, VantageScore isn't that much of a threat to it. I think one of the under-the-radar winners here are going to be mortgage companies. The other side of it, yes, FICO will make more money, But the other side of it is that lenders won't have to pay the credit bureau's markup for their FICO scores, which is about 100%, meaning that Equifax's inexperience will double

Starting point is 00:14:00 the price that they charge to mortgage lenders to make their profits. That's a big negative for those credit bureaus, but a big win for mortgage companies. Something we probably don't think about every day, but there is a lot going on in the credit score world, and this is clearly a sign that FICO wants to stay on top. After the break, we'll wrap up with stocks on our radar. great news the federal ev rebate is back eligible customers get up to five thousand dollars with the federal evap rebate on select 2027 volts and 2026 equinox ev models visit your local chevrolet dealer today for more details john what do you have on your radar for this week okay let's do it so mercato libre is what is on my radar that is symbol m e l i and this is a company that operates

Starting point is 00:14:45 in multiple countries in Latin America. But here's a statistic just for the sake of the podcast. So in Brazil, the company has around 40 million active buyers, give or take. Now, in Brazil, in urban areas alone, there are between four and five times that many people. And so right there, you can see there's a clear path to MercadoLibre expanding its user base just with the low-hanging fruit there in Brazil. And we're not even talking about the ongoing growth opportunities in other countries that it has and other parts of its business. So this is a long-term winner. It's down about 16% as of this taping, and it trades at less than five times sales. So I think this is a time where you say, if you've had MercadoLibre on your radar for a while, maybe now is the time

Starting point is 00:15:36 to pull the trigger, because it is on sale and the ongoing growth opportunities are still quite large. For me, it is my largest position in my portfolio by a mile. So, I don't have any intention to trim my flowers. And it's really already too big of a position for me to personally add more. But it is tempting here. Yeah, I would second that call. I'm going to add my own. But I would second that call because there is a lot of fear about Amazon, in particular, expanding into Brazil. Bloomberg just reported that recently. But I'm not too worried about it. It's one of my largest investments. People have tried to out-compete them before. It hasn't worked. One stock on my radar right now, in addition to MercadoLibre and the Trade Desk, which is what

Starting point is 00:16:16 I picked last week, is Etsy, E-T-S-Y. The company has, and for good reason, been largely ignored by investors for a few years. But lately, they are doing all the right things to boost customer engagement and drive sales. Continuing the OpenAI theme, just this past week, Etsy became the first major e-commerce company. Shopify is on deck, but Etsy got there first to partner with OpenAI for its instant checkout feature and chat GPT. If you just think about it for a little bit, there's a lot of potential when it comes to AI-powered shopping for a company that specializes in custom goods. I really, really like this move for Etsy. The market did too, but I think it could have a lot more to go. Well, all this talk about AI and AI infrastructure

Starting point is 00:17:05 Sure. As much as I thought the numbers that we were talking about at the top with OpenAI and the absurd power and compute numbers that they need to accomplish it, I still think directionally, this is going to be a major tailwind for a lot of electricity companies, especially with renewed interest in nuclear power meeting that demand. That's why the stock I'm actually looking at this week is Curtis Wright, and the ticker is CW. The company is a bit of a picks and shovels bet on the industry because it supplies equipment and components for just about every nuclear reactor design out there you know safety doors and kind of all the things that you need that are ancillary to the actual reactor itself it's does it for both conventional it

Starting point is 00:17:46 has an exclusive agreement with the most popular nuclear reactor design out there the westinghouse ap1000 and it's also working with several of the small modular reactor companies for you know accessories, components, equipment, all that other stuff. I think there's a lot of financial ink being spilled right now over the race to who's going to win with startup nuclear companies, small nuclear reactors, and things like that. And to be honest, I kind of think it's a silly argument. And I would much rather invest in the company that benefits from the whole rising tide of the industry. And there aren't a lot of companies out there that benefit from the entirety of nuclear, but I think Curtis Wright is. And, you know, yeah, 45 times earnings

Starting point is 00:18:26 is a little higher than expected for this type of company. But at the same time, like I said, I think there's going to be an acceleration in its growth because of this renewed interest in nuclear. So there you have it. MercadoLibre, Etsy, and Curtis Wright. And that's all the time we have for today. Matt, John, thanks for sharing your thoughts. As always, people on the program may have interests in the stock they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy, sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full

Starting point is 00:19:05 advertising disclosure, please check out our show notes. Tune in tomorrow where Travis Hoyum, Lou Whiteman, and Emily Flippen will be discussing their topics of the day. Thanks to our producer Dan Boy for keeping us on schedule. From Matt, John, and myself, thanks for listening, and we'll chat again soon.

Motley Fool Hidden Gems Investing - Open AI’s Worth Half a Trillion Dollars

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