C (3:32)

Yeah, so you mentioned that ChatGPT and Gemini are the industry leaders, and correctly so. But of the other major AI players, say Claude Grok, et cetera, do you see one in particular as like a sleeper that could eventually become a threat?

B (3:46)

Absolutely. I think that one to watch here is Xai's Grok, because it does have some advantages as well. Its owner, Elon Musk, is kind of similar to Alphabet, if you will, in a manner of speaking. Hear me out. Alphabet has all these different businesses and they do complement each other in the same way. Elon Musk has all of these different businesses that he's running and really he does make them complement each other and he does pull technology from one to the other. And so Musk has incredible incentive to build AI for autonomous vehicles, for robotics, for, or even his human computer interface company, Neuralink. So he needs AI. He will pursue it. He's the world's richest person. And so I wouldn't discount xai's ability to take some market share here.

A (4:31)

Well, we got a good start here in terms of bold predictions. And coming up after the break, I'll give one that maybe not as controversial.

D (4:37)

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A (5:33)

Back and giving predictions for 2026 and how we're thinking about investing for the coming year. So I'm going to go next and I've been hinting at this one for like several months now with our stocks on the radar and in our ending segment here. So I don't think it's going to be surprises to you two or to our listeners. I think the solar industry industry is going to double the performance of the market of 2026. I've kind of already shown my hand on this, but do I have either of you actually convinced of this idea?

C (5:58)

So I'm at about a 7 out of 10 on this one. I do think this is the year investors finally realize solar is going to be the short term solution to AI power consumption. But a double maybe?

B (6:09)

Yeah, I'm like a 8 out of 10 here. Tyler, you've talked about this before. I think you've made a good case.

A (6:14)

Yeah, look, like I said, I've probably actually given the spiel like four or five times now. So apologies for the regular listeners who check in all the time. But my whole argument on this is I think a lot of people are looking at things like subsidies going away for solar as like this death knell for the industry, when in reality there are so many other factors that go into play when you're actually making those capital allocation allocation decisions at a utility or if you're a hyperscaler that needs power today that you know just what type of source and you know, whether it's carbon free or the pricing and things like that, it's not all of the scope. And I think one of the most important factors that people are discounting these days is the speed to deploy new electrons to the grid. And when it comes to that, solar right now is the fastest to do it right, right around with natural gas turbines. But between those two, there is more than enough market in terms of increased demand to go around. Just to give an example of like what I'm talking about here, let me go to the example of natural gas. GE Vernova is probably America's largest, we'll say, a natural gas turbine manufacturer. And they actually said in their most recent conference call back in November that all of their new gas turbine equipment is sold out through 2028 and they have less than 10 gigawatts of production capacity left for to sale in 2029. So we're talking about three to four years. If anyone hasn't already ordered their gas turbines to deploy for their hypersenters and to increase our production at natural gas, it's going to take that much longer. GE Vernova saying that it will take until 2028 for them to increase their total production output from 20 gigawatts to 24 gigawatts per year. So it's relatively slow ramp up time. And all this points to solar, which on a deployment scale can deploy faster. The ramp up of production tends to be a little bit f First Solar has been building new facilities and their average turnaround time for a new facility has been something like 18 months to 24 months. So much faster than what GE Vernova is talking about here. And I think this is going to be a major capital decision for people who are desperate to add new electrons. Furthermore, the places where it's going to be more, I guess you could say favorable. Like if we're looking at a lot of these data center deployments, it's in places like Texas. And the Texas grid, which is called ERCOT, actually added the most solar in 2020 and the compared to any other state in America. And the project development costs there are some of the lowest in the nation compared to anywhere else because of relatively cheap land and a favorable regulatory environment. With the increasing deployment of AI hyperscalers there, I think solar is going to be an increasing part of the power supply. Just to make this happen. Despite all the talk of things like nuclear and all the other kind of things that I think we all admit are like 10 years down the road as far as the pricing and the subsidies thing, my kind of brief response to all of that is if the, if everyone's desperate for electrons like they say they are and the subsidies go away, I think that solar panel pricing is just going to reprice up to a profitable level such that it won't matter if subsidies are there or not. It's going to be very cost competitive for anybody trying to make Those sort of things. Not a perfect solution, but there are no perfect solutions. And I think this is going to be the solution for 2026 and possibly 2027.

B (9:47)

So in my understanding, solar needs batteries in order to do well. I see that Tesla is deploying battery storage like crazy. Tyler, I'm just curious, what do you think if solar really does take off here in the coming year, what do you think that means for the battery storage business?

A (10:02)

I think it's a given and I think they're going to walk hand in hand here. So just for example, I was looking up some, some work from the Berkeley. It's a Department of Energy lab that's run out of Berkeley, California and they do all their data studies in 2024 battery systems. So grid storage were the fourth largest source of added grid capacity and the only ones ahead of it were utility scale, solar distributed or what we call residential solar and wind power. Gas was, you know, a fraction of it. Coal was non existent. Smoothing out intermittency of, you know, when the sun doesn't shine and reducing grid strain that the kind of fluctuation of solar presents will be the key weaknesses for solar power as a long term energy option. So battery storage will kind of go hand in hand here to solve those key weaknesses in the solar power solution. So instead of going to break here, Matt, what do you have for us as the last prediction for 2026?

C (11:04)

Yeah, so it's no secret that you and I are both homebuilder investors. They've underperformed the market recently with the slow real estate marketing lasting far longer than experts thought it would. It's not a surprise, but I'm going to go out on a limb here and I'm going to say that the average home builder stock will rise by 30% in 2026.

A (11:22)

As much as I do like homebuilder companies, I was actually at a 4 out of 10 for this specific one. What about you, John?

B (11:28)

I'm at a 6 out of 10. I think I can get there. Tell me more, Matt.

C (11:33)

Yeah, so to be clear, it could be a lot more than 30% if things work out well for the industry. I mean, just look at what happened in 2022 when interest rates spiked and home builders plummeted, only to rise rapidly in 2023 when the industry really did a great job of adapting to the slow market. Tyler's favorite Greenbrick partners rose by 115% in 2023. And that wasn't even close to being the industry's best performer. So I have a few reasons beyond my behind, my bullish call here. For one thing, homebuilders have been beaten down to the point where they're priced essentially for negative growth, with many of them trading for single digit P E multiples. But looking ahead, the median expectation is for two or three more rate cuts this year. I believe this should help push mortgage rates down well below 6%. That would say like 6.2, 6.3 right now. That would likely bring more home buyers off the sidelines. And home builders don't have as much of a financing advantage as they did a couple years ago. You know, being able to offer rate buy downs when mortgages were 8%. But in many markets, including mine, it's cheaper to buy a new home than a comparable existing one. So it will be attractive to buyers. Home builder margins, they remain historically high and any market rebound could really result in massive bottom line growth.

A (12:46)

And this was my contention for this kind of call and specifically for 2026. Now I think we're kind of fighting the last battle when we look at interest rates as the big predictor for the housing market, at least at this point in our cycle, I think the more important metric for home sales will be unemployment and kind of the vibes of the job market. Right. Like, if we're all terrified that AI is going to take our job, who's willing to go out a limb and buy a house in 2026? And for that reason, I'm just skeptical that the rate cuts are going to have the impact on the housing market like they have in the past five years.

C (13:23)

Yeah, and that's a fair concern. And I will say if my prediction is wrong, it's more likely to be because of economic concerns than because of interest rate headwinds. But I still think there's enough pent up demand from people who would love to be homeowners who have been on the sidelines, or people who would love to be able to sell their house but are stuck into low mortgage rates, at least initially, this will produce a spike in buying activity that will surprise the market.

A (13:46)

So we got three predictions for the market. We got homebuilders outpacing the market, solar outpacing the market, and Alphabet basically taking ChatGPT crown. And after the break, we're going to get specifically into three stocks that are on our radar for the beginning here in 2026.

D (14:02)

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A (15:05)

So Matt, John, this was the first time that you and I get to do our stocks on the radar here in 2026. Matt, we're going to let you start off the year with our inaugural radar pick. What are you looking at?

C (15:16)

Yeah, I'm looking at Prologis ticker symbol PLD. It's close to a 52 week high but it's still way off its all time peak. Industrial real estate has just been kind of slow. Management has said that we're close to an inflection point forming and the recent results support that. And CEO Hamid Mogadam even said that market conditions for rent and occupancy growth are among the most compelling he's seen in 40 years. He's actually a co founder of the company by the way, the company, it's been quietly expanding into data centers. Its scale and financial flexibility give it a big advantage over rivals when it comes to being able to meet the demand of AI infrastructure. So prologis is one that I'm really watching closely as we head into 2026.

A (15:55)

E commerce and that has been something I've been interested in a long time as well. For mine I'm going to go with Array Technologies. The ticker is arry. I think three of us were joking before we recorded our show and as I mentioned here, basically I think for our listeners we're going to keep beating them over the head with solar and home building stocks until morale improves Here. What I'm thinking with Array Technologies and I just laid out the case for solar so I'm doubling down on this here is that they are a company that builds what are basically called trackers. This is a Device that allows a utility scale solar panel to track the trajectory of the sun throughout the day. And the idea here being is that a panel that follows a trajectory of sun is a much more efficient panel than one that is on a fixed kind of bracket, if you will, drastically reduces the amount of solar panels you need in a given space to produce similar amounts of power. And one of the things that is going to start to become one of the, I guess you could say most expensive components of a solar installation itself is actually going to be land acquisition. So if we can stuff more electron producing capacity out of any given like acre of land, that's going to come in a premium. And you actually see it in the numbers too when it comes to utility scale solar tracking based systems versus fixed bracket systems. They've been taking market share over and over and over again. And it's really hard to see us going back in any significant way because the costs have come down so much on a per watt basis. And so as a company similarly had some struggles during 2023, 2024 because of various reasons of interest rates or whatever, what have you. But to double down on my idea of solar stocks outperforming, I think this is a company that's been growing revenue incredibly fast. Its margins are improving, they are pulling in book to bill ratios that are incredibly strong right now. And overall I think this is just a time for solar. I know it's kind of a not the most conventional thought in power today, but it's where I want to be and I think there's a lot of value opportunities there. John, what do you got?

B (18:08)

I'm going to stick with homes and we're going to go with floor and decor holding stock ticker symbol fnd. This is a home improvement retailer, very large warehouse style stores so think look like kind of a Home Depot, except really specializing in flooring primarily. This business, it's loved by pros and homeowners. It's still small, a small chain with only around 260 stores, but it's looking to get to 500 within the next several years. Now I want to point out that floor and decor stock has performed terribly in recent years because this business thrives when sales of existing homes are doing well. And according to the national association of Realtors, existing home sales have been in the tank now for about two and a half years. So I'm actually hoping, going back to what Matt was talking about earlier, he thinks that new home sales are going to boom. I'm actually hoping that existing home sales do. But I think that they will eventually recover. I don't expect that these sales of existing homes will always be in the toilet. Hopefully in 2026 it'll get better and when they do improve, that will get people remodeling their floors again. The thing about floor and decor is even though the headwind has been blowing now for a few years, the business is still growing, it is still profitable, and right now it trades at its cheapest valuation ever at only one and a half times sales. So I think this is a low risk. Buy and hold today.

A (19:31)

More Solar, More Housing I think we're almost at a point where we might have to actually call this the Housing and Solar show for 2026. So we have Floor Decor, Array Technology Technologies and Prologis for this week and that is 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 stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisers are sponsored content and provide for informational purposes only. To see our full advertising disclosures, please check out our show notes. Thanks to our producer Dan Boyd and the rest of the Motley fool team. For Matt, John and myself, thanks for listening and we'll chat again.