The AI Capex Bubble, Gold & Silver on the Rise, and Signs of Market Froth | Jack & Max
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode, Jack and Max analyze current market conditions with the government shutdown delaying job reports, while expressing bullish views on AI infrastructure spending and data center buildout. (01:50) They discuss the ongoing artificial intelligence capital expenditure boom, with companies like BlackRock announcing $40 billion data center investments and Microsoft inking $33 billion in deals with cloud providers. (02:17) The conversation covers their positions in Chinese stocks, semiconductors, and precious metals streaming companies, while also exploring potential short positions including insurance companies and dividend-paying stocks with unsustainable payouts.
- Main Theme: Navigating market opportunities in an AI-driven bull market while identifying potential short opportunities and hedging strategies
Speakers
Jack
Jack is an experienced investor and content creator who focuses on macro investing themes, particularly AI infrastructure, Chinese fintech, and precious metals. He demonstrates a willingness to adapt his views based on market conditions and has previously been vocal about being too bearish on certain market calls, showing intellectual honesty in his investment approach.
Max Weethy
Max is Jack's business partner at Other People's Money and brings expertise in activist short selling and credit analysis. He has experience working with Real Vision and focuses on following smart money flows, particularly in identifying overvalued companies and unsustainable business models for short opportunities.
Key Takeaways
AI Infrastructure Spending Creates Durable Investment Theme
The buildout of artificial intelligence infrastructure represents an unprecedented capital expenditure cycle, with tech giants spending massive amounts on next-generation data centers. (01:50) BlackRock announced a $40 billion data center investment, while Microsoft has committed $33 billion to cloud provider deals. These investments are coming from the most profitable companies in history, suggesting sustainability. The key insight is that this isn't just speculation - it's an industrial transformation with real fundamentals backing massive infrastructure development that will generate revenues and profits for years to come.
Intellectual Honesty Beats Being Right
Jack emphasizes the importance of changing your mind when market conditions shift rather than stubbornly sticking to previous positions. (06:30) He admits to being too bearish in April around Trump tariff concerns and has since adjusted his positioning to be more bullish. The lesson is that successful investing requires constant adaptation and willingness to admit when you're wrong, rather than doubling down on failing positions for the sake of consistency.
Follow Smart Money in Short Selling
Max advocates following experienced activist short sellers rather than trying to identify short opportunities independently. (24:50) He mentions following short reports from former Hindenberg Research members and emphasizes that companies don't typically end up on short sellers' radars because they're great businesses. However, timing is critical - don't jump in immediately after a report is published, as these become battleground stocks with high volatility and borrowing costs.
Silver Offers Industrial and Monetary Upside
Silver presents a unique investment opportunity as both an industrial and monetary metal, with over half of demand now coming from industrial uses including AI and chip manufacturing. (18:00) Supply has been flat to declining over the past decade, while industrial demand continues growing. Unlike gold, most silver production comes as a byproduct of other mining operations, creating supply constraints. This dual nature gives silver "bipolar moves" where it can rally both as a store of value and for industrial demand.
Dividend Sustainability Analysis Reveals Short Opportunities
Companies paying unsustainable dividends present compelling short opportunities, particularly when combined with declining businesses and limited cash reserves. (29:00) Smith & Wesson exemplifies this with a 193% payout ratio, declining revenues, negative net income, and only $18 million in cash while paying $5.9 million quarterly in dividends. The company benefited from COVID-era gun purchases that are unlikely to repeat, making the dividend cut inevitable and creating a fundamental short thesis.
Statistics & Facts
- Technology sector is up 23% year-to-date, making it the best performing sector in the S&P 500, followed by Communication Services at 21%. (04:11) This demonstrates the strength of the AI-driven bull market theme.
- Nvidia's median profit expectations for fiscal 2027 are $154 billion, with fiscal 2028 expectations at $182 billion. (03:18) Many experts believe these numbers may actually be too conservative given current AI spending trends.
- Smith & Wesson has a 193% payout ratio with only $18 million in cash while paying $5.9 million per quarter in dividends. (30:31) This makes it the highest payout ratio of any non-REIT company with declining revenues and limited cash reserves.
