AI, Superman, and Solar’s Kryptonite

Summary

Motley Fool Money Podcast Summary: "AI, Superman, and Solar’s Kryptonite" | July 11, 2025

Hosted by Dylan Lewis, Ricky Mulvey, and Mary Long, the Motley Fool Money podcast delves into the latest stock market trends, investment opportunities, and industry insights. In the episode titled "AI, Superman, and Solar’s Kryptonite," the hosts explore the intersections of artificial intelligence, renewable energy, and media intellectual property, offering listeners a comprehensive analysis of current market dynamics.

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1. AI Opportunities in Data Centers

The episode kicks off with a discussion on the burgeoning opportunities that artificial intelligence (AI) presents within the data center industry. Anand Chakabalu introduces the topic by highlighting CoreWeave's recent $9 billion acquisition of Core Scientific, aiming to vertically integrate and capture greater market share among AI and high-performance computing clients (00:40).

Key Points:

• CoreWeave's Strategy: The acquisition allows CoreWeave to enhance its infrastructure and better serve AI-focused customers.
• Market Expansion: CoreWeave is part of a larger trend where data centers are evolving to support the exponential growth in AI computing needs.

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2. Categories of Data Center Opportunities

Matt Frankel elaborates on the various segments within the data center market, categorizing them into hyperscalers, Real Estate Investment Trusts (REITs), and power generation.

Notable Quote:

“Hyperscalers like AWS and Microsoft Azure operate large-scale data centers offering computing and storage infrastructures to customers.” (01:28)

Key Points:

• Hyperscalers: Major players providing expansive computing resources.
• REITs: Companies like Digital Realty and Equinix that own and manage data center properties.
• Power Generation: Addressing the significant energy consumption of data centers, with a focus on nuclear and renewable energy sources as potential solutions.

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3. Energy Consumption and Sustainable Solutions

The conversation shifts to the critical issue of energy consumption in data centers. Jason Hall emphasizes the immense power demands of AI computing and the necessity for sustainable energy solutions.

Notable Quote:

“Data centers consume a lot of power and it's growing at an exponential pace. Nuclear especially could be a big part of the solution.” (02:29)

Key Points:

• Energy Challenges: AI chips, particularly those from Nvidia, are significant power consumers.
• Renewable Energy: Exploring nuclear and other renewable sources to meet the escalating energy needs of data centers.

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4. Investment Perspectives: Brookfield and REITs

The discussion transitions to investment opportunities within the energy and infrastructure sectors. Matt Frankel highlights Brookfield Renewable as a prime candidate for investment, citing its global footprint and attractive dividends.

Notable Quote:

“Brookfield Renewable is really in the driver's seat here as a global provider of renewable energy on multi-decade contracts. The dividend is really attractive too.” (04:20)

Key Points:

• Brookfield Renewable: Positioned strongly with long-term contracts and significant dividend yields.
• REIT Exposure: Matt underscores his existing investments in Digital Realty and the potential of companies like Brookfield Infrastructure.

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5. The Role of Chip Makers in AI Growth

Matt Frankel and Jason Hall delve into the pivotal role of chip manufacturers in the AI ecosystem. Nvidia is spotlighted for its substantial market capitalization and growth prospects, while AMD is noted as a formidable competitor.

Notable Quote:

“Nvidia just hit $4 trillion today as the day we're recording this. And Nvidia is an amazing business and it has more room to grow than people think...” (05:10)

Key Points:

• Nvidia's Dominance: Leading the charge in AI accelerators with a projected market size doubling in five years.
• AMD's Potential: Emerging as a strong alternative to Nvidia with robust management and strategic positioning.

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6. Salesforce and Enterprise AI Opportunities

Jason Hall introduces Salesforce (CRM) as an underappreciated winner in the AI space, leveraging its established enterprise relationships to monetize AI innovations effectively.

Notable Quote:

“Salesforce trades for about 21 times free cash flow and less than 7 times sales. That's a really good opportunity.” (06:00)

Key Points:

• Monetization Advantage: Salesforce's integrated platform allows for seamless adoption of AI agents at scale.
• Investment Potential: Attractive valuation metrics suggest significant long-term returns with steady revenue growth.

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7. Energy Sector Implications from the Big Beautiful Bill

The hosts analyze the recent "Big Beautiful Bill" and its impact on the energy sector, focusing on the reduction of incentives for renewable energy and electric vehicles (EVs).

Notable Quote:

“The incentives for renewables are getting gutted, really. There's a 30% investment tax credit for solar and wind projects now expiring...” (07:15)

Key Points:

• Expiration of Tax Credits: Residential solar and battery systems' credits end by 2032, with commercial ITC expiring by 2027.
• Impact on EVs: Termination of tax credits for new and used EVs, affecting manufacturers like Tesla.

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8. Winners and Losers in Solar and Renewables

Jason Hall and Matt Frankel debate the immediate and long-term effects of the bill on various companies within the solar and renewable energy sectors.

Notable Quotes:

“Canadian Solar... is definitely a loser here in the near term.” (08:52)

“Nuclear is really what I see as the big winner here.” (09:10)

Key Points:

• Losers: Companies like Canadian Solar, Sunrun, and First Solar face challenges due to reduced incentives.
• Potential Winners: Enphase and First Solar might weather the storm better, while wind energy companies like GE and Vernova continue to perform strongly.

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9. Insights on Nuclear Energy as a Winner

Contrary to the setbacks in solar, Matt Frankel points to nuclear energy as a significant beneficiary of the bill, highlighting companies focused on nuclear power generation.

Notable Quote:

“That's really what I see as the big winner here. I think I like some of the nuclear-focused utility providers.” (10:20)

Key Points:

• Constellation Energy: Aiming to establish the largest carbon-free nuclear fleet in the US by 2040.
• Jacob Solutions: Providing consulting and design services, benefiting from increased nuclear contracts.

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10. Intellectual Property Valuation of Media Giants

Switching gears to the media industry, the hosts assess the value of intellectual property (IP) among major companies like Warner Brothers Discovery, Comcast, Disney, and Netflix.

Notable Quotes:

“Disney has film franchises that are beyond compare... their film franchises are worth more than the rest.” (16:31)

“Netflix's ability to monetize IP more effectively all over the world is even better than Disney's.” (17:12)

Key Points:

• Disney: Boasts a rich history of enduring franchises, though some like Mickey Mouse may be nearing public domain status.
• Netflix: Excels in global content relevance and monetization, making it a formidable contender against traditional media giants.
• Warner Brothers Discovery & Comcast: Strong IP portfolios with valuable assets like HBO's "The Sopranos" and Universal’s extensive franchises.

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11. Amazon’s Prime Day Week and Retail Sales Strategies

The conversation moves to Amazon's "Prime Day Week," likened to "Christmas in July," and its impact on retail sales strategies.

Notable Quote:

“It's almost literally become Christmas in July for Amazon and to a lesser extent, all the imitating retailers.” (35:00)

Key Points:

• Marketing Prowess: Amazon's ability to create a massive mid-year sales event has set a benchmark for retailers.
• Historical Parallels: Comparisons drawn to traditional sales events like President's Day and Sears' historic catalog sales.

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12. Stocks on the Radar: Church & Dwight and SoFi

Towards the end of the episode, the hosts highlight specific stocks of interest.

Church & Dwight (CHD):

• Overview: Known for consumer brands like Arm & Hammer and OxiClean.
• Performance: Returned approximately 10.5% over the past decade.
• Discussion: Emphasized the company's resilience and essential consumer products that maintain steady demand.

Notable Quote:

“Over the past 10 years the stock's returned about 10.5% in total returns. That's underperformed the market but it's better than the market's long term average.” (39:32)

SoFi (SOFI):

• Overview: A fintech platform expanding into crypto, blockchain-facilitated transfers, and private equity investing.
• Growth Prospects: Ambitious plans to become a top 10 bank within the next decade.
• Discussion: Highlighted SoFi's innovative approaches and potential to tap into high-growth financial sectors.

Notable Quote:

“They recently started doing private equity investing for everybody. So guys like you and me can invest in companies like SpaceX and OpenAI that are pre-IPO through SoFi's platform.” (40:55)

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Conclusion

The "AI, Superman, and Solar’s Kryptonite" episode of Motley Fool Money offers a multifaceted exploration of current investment landscapes, from the explosive growth of AI in data centers to the shifting dynamics in the renewable energy sector due to legislative changes. Additionally, the valuation of media giants based on their intellectual property and the strategic maneuvers of major retailers like Amazon provide listeners with valuable insights for informed decision-making. The episode concludes with actionable stock recommendations, presenting both established consumer brands and innovative fintech firms as potential investment opportunities.

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Disclaimer: This summary is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult with a financial advisor before making investment decisions.

Transcript

[Anand Chakabalu]

Oh, yes, we're talking all kinds of stocks. This week's Motley Fool Money radio show starts now. Everybody needs money. That's why they call it money. But you can give them to the birds and bees.

[Jason Hall]

From Fool Global headquarters.

[Matt Frankel]

This is Motley Fool Money.

[Anand Chakabalu]

It's the Motley Fool Money radio show. I'm Anand Shockabaloo. Joining me are two of my favorite fools, Jason hall and Matt Frankel. Today we'll talk about stock market winners and losers from the big, beautiful bill. We'll pit Superman versus the Hulk, and we'll of course, debate stocks on our radar. But first, we'll discuss whether there's an AI opportunity in investing in data centers. Upstart Data center company CoreWeave again made news this week, this time for announcing the purchase of core scientific for $9 billion. This allows it to add infrastructure, to consolidate vertically as it seeks to gain market share among AI and high performance computing customers. Coreweave is just the tip of the data center iceberg. Matt, what categories of data center opportunities are out there?

[Matt Frankel]

Yeah, so first you have hyperscalers. These are companies like aws, Microsoft Azure. They're companies that operate large scale data centers. They offer computing and storage infrastructures to customers, as Anand put it. There's Coreweave, which is one of the least understood recent IPOs that I know. They rent out GPU data center infrastructures to customers. It's not always practical for companies to invest in all of Nvidia's latest chips on their own, for example, so that's really what they do. There's the reit, still Digital Realty and Equinix are the two big ones. They own the data centers. Core Weave is actually a big digital realty tenant. And then there's power generation. I know Jason's going to talk about this a little bit later in the show, but data centers consume a lot of power and it's growing at an exponential pace. These chips that Nvidia produces, they are power drains. Nuclear especially could be a big part of the solution. But solar and other renewables are also in there.

[Jason Hall]

Yeah, we're definitely in the land grab phase of the infrastructure build out for accelerated computing. And I think accelerated computing is maybe a better description than just AI. We talk about the cloud writ large, and as we see more of the companies involved start to monetize things like AI agents at scale, I think that's where these investments are going to pay off.

[Anand Chakabalu]

Big question. Do any of these categories interest you all for investing?

[Matt Frankel]

Yeah. Well, I mean, I'm well known as being the real estate guy at the Motley Fool. And so it shouldn't be a big surprise, but Digital Realty is my second largest and my second longest running REIT investment in my portfolio. I'm an Amazon shareholder and I know that's not their only business, but AWS is the primary reason I own it. I don't own Core Weave yet and I think the stock is a little bit pricey to say the least. But the more I read about it, the more I'm intrigued by the company. And as I mentioned, they're a big tenant of Digital Realty so I have some exposure already.

[Jason Hall]

Yeah, the things about coreweave that concern me is the stock is definitely expensive, but if the opportunity is even close to as large as we think, it could still work out. But they're going to need a lot of money to pay for what they're trying to do. And depending on how much of that is from raising debt versus secondary offerings of shares. There's still a lot of questions there. But anand, you've given me a chance to talk about Brookfield here. How do I not take that opportunity? But I do think that there's a couple of Brookfield entities that are positioned really well here. And I want to talk about the, the providing the energy part of it. Brookfield Renewable is, is really in the driver's seat here as a global provider of renewable energy on multi decade contracts. It is not just accelerated computing, it's the energy transition writ large. We've already seen it strike big deals with Microsoft and others to provide renewable power on those multi decade contracts. The dividend is really attractive too. So BEP, that's the partnership yields over 5%. The corporate shares BEPC the yields about 4.5%. And since mid 2020, that's when Brookfield Renewable rolled the corporation part out and kind of restructured its dividend. The payout's been increased almost 30% so there's a lot to like here. Beyond the yield. I think it's primed to be a total return Dynamo over the next decade. If you don't want to own a company that's in the energy part, you want to own the infrastructure. Just take a look at sister company Brookfield Infrastructure. The tickers there are BIP and BiPC.

[Anand Chakabalu]

Of course these aren't the only AI stocks out there. High Nvidia Tech do any other areas of AI kind of interest you guys?

[Matt Frankel]

I love that you can't talk about AI in data centers without talking about the chip makers. Nvidia just hit $4 trillion today as the day we're recording this. And Nvidia is an amazing business and it has more room to grow than people think just in the data center accelerator space, which is why they're getting so much attention for good reason. The market size is expected to roughly double over the next five years. And that's not even to mention the opportunities they have in chips for autonomous vehicles, chips for gaming and more. But I prefer AMD, which is often referred to as Nvidia Jr. But I don't think it should be. It's an incredibly well run company that's been a mistake to bet against in the past. And as intel found out the hard way, just having a dominant market share in an area of chip making is not always enough.

[Jason Hall]

An area of the market that I think could do really well. Some of the legacy enterprise software giants, I think there may be underappreciated winners from AI and I'll use Salesforce ticker CRM as an example. It's really starting to get traction with things like its data cloud and with AI agents. It's starting to sell. We're seeing really rapid uptake of those things and monetization. And it has a benefit, an advantage over a lot of these AI startups that are just kind of pure AI businesses. It's already a trusted integrated partner with hundreds of thousands of enterprises. It knows their business, it knows their challenges, regulations, opportunities. And that credibility, I think is an edge that we don't give enough credit to. We shouldn't underestimate switching costs, I guess is what I'm really getting at. And you look at Salesforce trades for about 21 times free cash flow and less than 7 times sales. That's a really good opportunity. And I think it equates to double digit returns if it can just grow revenue around 8 to 12% a year over the long term, which I think it can.

[Anand Chakabalu]

We started to talk a bit about energy and the need for it with all this AI. Let's talk about the energy industry implications of the big beautiful bill which was signed into law last week. Jason, can you give us the summary of the energy portions?

[Jason Hall]

Yeah, summarizing anything's hard for me, but I'll try. I think the short version is the incentives for renewables. They're getting gutted, really. There's a 30% investment tax credit, or ITC for short. The residential, solar and battery systems portion of that had been in place to run through 2032 before gradually declining for a few years after that. That now Expires, the systems have to be commissioned, fully installed and commissioned by the end of this year. The commercial ITC for solar and wind projects was kind of on a similar track, but now it expires at the end of 2027. But those projects must begin construction by July 4th of 2026 to qualify for that 30% tax credit. It also terminates the tax credit for new and used EVs. $7,500 for a new EV and up to 4,000 for a used EV. They have to. You have to. The purchase has to happen before September 30th of this year, so a couple of months. Lastly, it ends the US Regulatory credits around vehicle emissions that automakers buy largely from Tesla. This is a significant and profitable revenue stream for EV makers that essentially is going away.

[Matt Frankel]

Chase, when you say renewables are being gutted, you're essentially referring to solar and wind. If I'm not mistaken. It's not gutting nuclear. Anything for nuclear power, correct?

[Jason Hall]

Yeah, that's correct. These things again are kind of the pure renewables as we think of them.

[Anand Chakabalu]

Let's put a fine point on this with specifics. Who are the relative winners and losers?

[Jason Hall]

Jason, this could be an hour long show, but I'll try to summarize it here. Thinking about the companies that are most directly affected. I think Canadian Solar, which is a large manufacturer of solar panels and energy storage and they really largely target the utility market, but also residential, is definitely a loser here in the near term. Sunrun, its business model is tied to these tax credits as an installer and to some degree First Solar is also going to be affected. I don't think there's really any winners out of this when it comes to solar, but I think Enphase is probably still in a better position than the market may believe and maybe First Solar as well. It's been through these battles before and has been a winner over the long term. If you look at wind, ge, Vernova has been on a huge run. I love that business, but I don't love the stock right now. Tesla, I think is maybe one of the bigger losers that investors haven't really considered. Last fiscal year it earned 2.76 billion in revenue from regulatory credits and that's largely pure profit. And then there's also the loss of those EV tax credits for buyers that might be offset from some incentives for US made autos that are part of the bill now that were part of the law. But I think this puts Tesla in a tougher spot. The tailwinds are not favorable for fossil fuels before this. This doesn't really change any of that. I mean there's opportunities there, but not because of, because of the law.

[Matt Frankel]

So the reason I asked about nuclear a minute ago is because that's really what I see as the big winner here. I think I like some of the nuclear focused utility providers. Constellation Energy is one that comes to mind. One of their stated goals is to have the largest carbon free nuclear power fleet in the US by 2040. Jacob Solutions they provide consulting and design services to the industry ticker symbols J so it's really easy to remember and they recently had some really big nuclear contract wins. And I'm going to push back on Jason's Tesla as a big loser. One, they're American made cars, they qualify for that new auto loan interest deduction so that could help offset what they're losing from the EV tax credits. And they have a big energy storage business and AI has very, not only giant power demands but very variable power demands and it's going to create a lot of need for large scale energy storage. And Tesla does that. So I think they're worth watching.

[Jason Hall]

Yeah, that's the one part of Tesla's business that's done extraordinarily well over the past few years is the EV business has weakened, is that the battery business?

[Anand Chakabalu]

Now quickly the big question, is solar still investable? Jason?

[Jason Hall]

Yeah, I think so. We have a very US centric view obviously and the US is a massive important market for solar. But you look around the world and the regulatory environment is still largely favorable. And I think if you're willing to ride out plenty of volatility, that global opportunity is still really good. Businesses like Enphase, businesses like First Solar that have been through these battles before and even a Canadian solar where it has a ton of projects that it's been funding to build on its books, that the math just got kind of changed for them in some big ways. The valuation is so cheap that I think that there's some opportunity there.

[Matt Frankel]

Taking a step back, the reason you have incentives for solar energy for EVs for all this is because without them they're not price competitive with the existing technologies. The gap has narrowed significantly, especially in solar over the past say 10 years as to like the efficiency of the products themselves and just how much they cost. Eventually solar's gonna be able to stand on its own without incentives. But like Jason said, you have to be able to ride out some volatility because that could be five years, that could be 10 years, that could be 20 years. So eventually, it won't matter.

[Anand Chakabalu]

After the break, we'll move from solar to something else that gets its power from the yellow sun. Stay right here. This is Motley Fool Money.

[Dave Schaefer]

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[Anand Chakabalu]

Welcome back to Motley Fool Money. I'm Anand Chocolu here with Jason hall and Matt Frankel. Warner Brothers Discovery's much anticipated latest reboot of Superman hits theaters on Friday, hoping the Justice League can one day catch Disney's Marvel Cinematic Universe. And hot on the heels of last week's Jurassic World rebirth from Comcast. In honor of summer movies, we're going to rank those three companies based on the value of their intellectual property. We'll throw in Netflix for good measure. Its headline this week was stating that half of its global audience now watches anime chocolate. Household certainly does with one piece. My kids have gotten me into it. For those unfamiliar, they have more episodes than the Simpsons. Matt, once again, your four choices are Warner Brothers Discovery. That includes the DC Universe, Superman, Wonder Woman, Green Lantern, Harry Potter, the Matrix, Looney Tunes, all our favorite HBO shows. You got Comcast with Shrek, Minions, Kung Fu Panda. You got Disney with Marvel, Star Wars, Pixar and Mickey Mouse. And finally you got Netflix with things like Stranger Things, Bridgerton, Squid Game, newer Adam Sandler movies, and tons of niche content mentioned anime. You could argue whether that's niche content or not at this point. Whose intellectual property do you most value? Matt?

[Matt Frankel]

See, I said Disney. All four of these have excellent intellectual property. And I'll give you a kind of more elaborate description there. So in my household, you mentioned your household, how you have all these streaming things. We have a streaming service from all four of these. We have the Peacock service, which is a Comcast product. We have HBO Max, which is a Warner Brothers Discovery product. We have Disney and we have Netflix. Disney also has Hulu attached to it. And I asked myself which is the least dispensable. I could cancel all the other ones before I'd be allowed to cancel Disney by the other members of my household. It just has their film franchises are beyond compare. They have a much longer history of building intellectual property than all of these, especially in terms of valuable ones. Mickey Mouse is so old, it's not even intellectual property anymore. It's over 100 years old. So I think it's actually in the public domain now. So I have to say Disney, although it's a lot closer than I would have thought a few years ago.

[Jason Hall]

Yeah, if you had have asked me a few years ago, I absolutely would have said Disney. But I'm going to give the advantage to Netflix here. So let me contextualize that. I think the total value of Disney's IP is probably higher, but Netflix's ability to monetize it more effectively all over the world I think is even better than Disney's. I don't think any of these businesses in their studios have done a better job of making content that's relevant in more markets around the world than Netflix does. And let's be honest, I was able to watch Happy gilmore with my 8 year old son this weekend and I watched that on Netflix. I mean, that's bridging generations right there.

[Anand Chakabalu]

Three things. One, Chocolate Blue household's very excited for Happy Gilmore. Two, even my wife is in on it. Two, the Steamboat Willie era. Mickey Mouse is free to the world. The other ones aren't. And I'm glad I'm not the only one with way too many streaming services. Matt, let's talk about last place. Who are you cutting first, Matt?

[Matt Frankel]

Well, all those streaming services are still less than I was paying for DirecTV a few years ago, so I think I'm doing all right. So for me, the last place it was between Comcast and Warner Brothers Discovery, both of which have amazing intellectual property. Just to show you what a tight race this is. I mean, Comcast has Universal. I was just in Orlando and the Universal theme parks are massive down there. But I have to put Comcast in last place just because Warner Brothers, I think the HBO Max acquisition was such a big advantage for them. They have some of the most valuable television assets of all time. More people watch the Sopranos now than they did when it was originally on tv. It's a very, very valuable asset. Game of Thrones, all these HBO shows that have, you know, are among the highest rated shows of all time are part of their, their library in addition to their film studio and all the other assets that we can't name because it's not that long of a show. So I'd have to give Comcast last place. Although, like I said, it's, there's a good argument to be made for, for most of these to be in the top one or two.

[Jason Hall]

Yeah, I think that's, I think that's fair and, but I agree with Matt that Comcast is, is the number four here. But that's, I don't think that's a flaw. It's just the nature of its business. More about, about two thirds of its business comes from its cable subscriptions and high speed Internet. So it's built differently than these other companies. So I think it's fine that it, that it's a little bit smaller.

[Anand Chakabalu]

I, I will say, just to defend Comcast a little, I was thinking about my, my parents live in Florida and we're, we're, it's high time we bring my two boys to Disney World or something like that, honestly. The Universal theme park, the new one with Nintendo, you know, Mario and the Harry Potter realm. It's close. We might prefer that one. But just to give a little love to Comcast and Universal, Jason hall and Matt Frankel. We'll see you a little bit later in the show, but up next, we'll talk to the founder of one of the top five networks in the world. So stick around. This is Motley Fool.

[Jason Hall]

Money.

[Asit Sharma]

Is a curious thing.

[Jason Hall]

Make a one man weep make another.

[Asit Sharma]

Man sing Change your heart to a.

[Matt Frankel]

Little white dove More than a feeling.

[Anand Chakabalu]

That'S the power of love Tough with.

[Jason Hall]

Enamels Rich like cream Stronger and harder.

[Asit Sharma]

Than a bad girl.

[Anand Chakabalu]

This episode is sponsored by SoFi. With SoFi Active Invest, you can get in on IPOs prior to them being traded on the stock exchange. Access alternative investment funds that include venture capital, real estate and commodities, and trade stocks, ETFs and options, all on an intuitive platform that's easy to use. Plus, you'll even get a chance at up to $1,000 in stock when you fund a new Active Invest account with at least $50 brokerage and active investing products offered through SoFi Securities, LLC. Member FINRA, www.finra.org SIPC www.sipc.org For a full listing of the fees associated with SoFi Invest, please view our fee schedule. Investments are not FDIC insured, are not bank guaranteed. May lose value. Probability of member receiving $1,000 is a probability of 0.028%. For more information, including funds, investment objectives, risks, charges and expenses, please head on over to sofi.com invest. Welcome back to Motley Fool Money. I'm Anand Chocolu. Dave Schaefer is the founder and CEO of Internet service provider Cogent Communications. Believe it or not, Cogent's the seventh successful company Dave Schaefer is founded. Schaefer joined full analysts Asit Sharma and Sunmeet Dayo to discuss how its deals with customers like Netflix and Meta platforms work and what keeps him up at night.

[Sanmeet Deo]

Well, hello fools. I am Asit Sharma and I'm joined by fellow analyst Sanmeet Deo today. And our guest is Dave Schaefer. Dave is CEO of Cogent Communications. He's also the founder of this company. Founded in 1999, Dave has grown Cogent Communications into a global tier one Internet service provider. It's ranked as one of the top five networks in the world. Dave is also a serial entrepreneur. He's founded six successful businesses prior to Cogent and foolishly, he's also one of the longest serving founder CEOs in the public markets. We're delighted to have him with us today. Dave Schaefer, welcome.

[Asit Sharma]

Hey, well, thanks for that great introduction.

[Sanmeet Deo]

So to get started, let's jump in. Dave, for our members who might be unfamiliar with the ISP or Internet service provider industry, can you just explain explain what Cogent does and how it makes money?

[Asit Sharma]

Yeah, sure. So Cogent provides Internet access to customers and to other service providers. I think virtually everyone uses the Internet but rarely understands how it operates. Cogent has a network of approximately 99,000 route miles of inner city fiber that circumnavigates the globe and serves six continents. We then have an additional 34,000 route miles of fiber in 292 markets in 57 countries around the world. That network is solely built for the purpose of delivering Internet connectivity. So when a customer buys Internet access, what they are really buying are interfaced routed bit miles connected to other networks. If you tried to sell a customer that, they would have no idea what you're talking about. The average bit on the public Internet travels about 2,800 miles. It goes through eight and a half unique routers and 2.4 networks between origin and destination. Cogent carries approximately 25% of the world's Internet traffic on its network and has more other networks connected directly to it than any other network.

[Sanmeet Deo]

Yours is a primary network. Oftentimes we hear of sort of middlemen, carriers in between ourselves sending that bit, let's say I'm chatting with Sanmeet over Slack, sending him some bits as we have been exchanging through the day and him receiving that. But you are. I think we can think of Cogent as being sort of the primary fiber that is the backbone of this information communication network. Is that correct?

[Asit Sharma]

That is correct. So we operate two very different customer segments. Roughly 95% of our traffic, but only 37% of our revenue comes from selling to other service providers. So we provide Internet connectivity to 8,200 access networks around the world and about 7,000 content generating businesses. So whether it be Bell Canada, British Telecom, China Telecom, Comcast or Cox, they could be customers of Cogent on the access side where they aggregate literally billions of end users. And then on the other side we sell connectivity to large content generating companies like Google, Amazon, Microsoft and Meta, where they use us as their Internet provider. The second portion of Cogent's business is selling directly to end users. That represents about 63% of our revenues, but only approximately 5% of our total traffic. Cogent is an ISP primarily in North America where we connect to a billion square feet of office space where we sell directly to end users. And then globally we sell to multinational companies, oftentimes using last mile connections from third parties.

[Dan Boyd]

You know, I always like to understand, you know, how exactly the companies I'm looking at make money. So for example, for Netflix or Meta or you pick a content provider, whoever it might be, when they work with you. Explain that to me how they buy. Do they buy bandwidth in a package? Do they have a contract? How does that work when they look to you to say, hey, we want to buy some bandwidth?

[Asit Sharma]

Yeah. So typically we will provide them connections in multiple markets around the world. They will then have a minimum commitment level and then above that, they pay on a metered basis. The way in which we bill is megabits per second at peak load. Over the course of the month, we bill at the 95th percentile, which means if you have a very spiky event that lasts less than 18 hours in a month, you don't pay for that incremental bandwidth. But everything below that peak utilization, you pay a bill on a per megabit basis. That is the way in which any service provider, whether it be an access network like Telecom South Africa or a cable company like Rogers in Canada, would buy from us. But for Our corporate customers. The billing model is very different for corporate customers. They typically buy in end user locations, not in data centers. And they are paying us a flat monthly fee for a fixed connection that is unmetered. So think of it as an all you can eat model.

[Dan Boyd]

Yeah, so there is, there is a monthly kind of recurring revenue that you get. It's just that with your, your network or your, your content per customers, it could vary based on their usage. They could dial it up, dial it down based on kind of like next month Netflix is dropping a big or this week actually like they're dropping squid games. So they can anticipate they're going to need a lot of bandwidth versus maybe next month their content slate is a little lower. So they won't, they won't use up as much versus the corporate customers are, you know, paying kind of more of a recurring, not based on volume. Is that accurate?

[Asit Sharma]

That is correct. And virtually all of our revenue is predictable. Even for those variable usage customers. There is oftentimes a very consistent pattern to their usage and their bills do not vary by more than a couple percent month over month.

[Sanmeet Deo]

Dave, let's go on to looking at a review of recent performance. 2024 was a great year for Cogent. Crossed a billion dollars in annual revenue. Can you just walk us through the highlights of your key business segments? Wholesale, enterprise, Netcentric, what drove the performance? And also did anything about the year surprise you as you went through it?

[Asit Sharma]

Yes. So two things. First of all, you know our Internet based business represents 88% of our revenues across all three segments. We do derive about 12% of revenues from selling some adjacent services, those being colocation and our data center footprint, optical transport or wavelength services and the leasing out of IPv4 addresses. We did generate about $1 billion in revenue in 24 and 24 was a year of significant transition for Cogent. Cogent had organically grown between 2005 and 2020 as a public company with no MA at a compounded growth rate of 10.2% per year average over that period. We also were able to experience significant margin expansion during that period where our EBITDA margins expanded at roughly 220 basis points per year over that same 15 year measurement period. When Covid hit, our corporate segment slowed materially because people were not going to offices and as a result Cochin's total growth rate had decreased to about 5% and our rate of margin expansion slowed to about 100 basis points. In May of 23 we acquired the former Sprint long distance network is Sprint Global Markets Group business from T Mobile. That business was actually in decline and burning cash. In 2024, we significantly reduced that cash burn and we were able to begin to repurpose some of the fallow Sprint assets. In order to facilitate this transaction, T Mobile paid us in cash over a 54 month period beginning in May of 23, 700 million dollars. So in 2024, a significant milestone for Cogent was our ability to take out much of that burn from that business and to actually accelerate the decline in that acquired business as many of the products that were being sold were gross margin negative services.

[Anand Chakabalu]

As always, people on the program may have interest 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. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Up next, we've got stocks on our radar. Stay right here. You're listening to Motley Fool Money.

[Asit Sharma]

You think that we could that the chemistry's correct? Your words walk right through my ears? I like what I hear.

[Anand Chakabalu]

Now I'm stuck in the where you're spinning. You got me for your brain.

[Jason Hall]

Sorry, I'm not. Does it ever feel like you're a marketing professional just speaking into the boy? Well, with LinkedIn ads, you can know you're reaching the right decision makers. You can even target buyers by job title, industry, company seniority skills. Wait, did I say job title yet? Get started today and see how you can avoid the void and reach the right buyers with LinkedIn ads. We'll even give you a $100 credit on your next campaign. Get started at LinkedIn.com results, terms and conditions apply.

[Anand Chakabalu]

I'm Anand Chakabalu, joined again by Jason hall and Matt Frankel. This week's been Prime Day Week. Invented out of thin air in 2015 to boost sales. It's almost literally become Christmas in July for Amazon and to a lesser extent, all the imitating retailers. Got me wondering, is this the greatest feat of something from nothing marketing we've seen? If not, what's competing with it?

[Jason Hall]

Jason I think it's not even something from nothing. I think they stole this idea. Christmas in July has been around literally since the 1900s. So I think they're getting maybe a little bit too much credit for just being a really big retailer smart enough to say, hey, we're doing a sale. When There was nothing else going on. And people were like, oh, it's a big sale. And, well, people kept coming. So it just gets bigger every single year.

[Matt Frankel]

Yeah, I mean, before E Commerce. Jason's right. There was. Remember the Sunday paper that had all the little. The flyers from all the stores. They'd have their semiannual sales. The President's Day weekend sales were the ones I remember that were the biggest deals ever. That really were just meant to invigorate sales in a historically slow time of year. But really this concept has been applied over and over. I mean, think of how many tourist destinations create random festivals in the worst months to go, like weather wise. And I mean, I used to live in Key West, Florida, and the biggest party of the year is called Fantasy Festival, and it was created to invigorate tourism during a slow. During hurricane season. And it's a concept that's worked over and over. And this is a big one.

[Anand Chakabalu]

Dan.

[Unnamed Speaker]

Yeah, I just wanted to jump in here and mention Father's Day and Mother's Day. Surprised that you guys didn't mention those. I mean, we're all fathers here on the podcast, so I know that we enjoy Father's Day, but like, come on, they're nothing. They were just created to sell stuff.

[Anand Chakabalu]

You're not going to mention Valentine's Day, Mr. Grinch?

[Unnamed Speaker]

I mean, Valentine's Day has somewhat historical significance with all the St. Valentine stuff. I didn't want to go too far into it in my grumpiness. Anand but I guess we can throw that one on the fire.

[Anand Chakabalu]

Speaking of singles day in China, Alibaba kind of took that. It was invented in the 90s, I think more. Less commerce. Y but then it became more commerce. Yeah, Two other things, right. Sears catalog. Let's not forget, a lot of times Sears really is the Amazon. Before Amazon, we forget about it because we see it at its late phases. It wasn't the first catalog. Tiffany, Montgomery Ward, they beat it to the punch. But when it was going, it was called the consumer Bible. And then on a smaller scale, I'll give one more just shout out to Spotify wrapped up. They do a wonderful job kind of inventing a thing to get us more engaged. Let's get to the stocks on our radar. Our man behind the glass, who we heard from just recently, Dan Boyd, is going to hit you with a question. Or more likely, historically, an amusing comment. Jason, you're up first. What are you looking at this week?

[Jason Hall]

How about church and Dwight Ticker Chd? I don't know if we give Some of these legacy consumer brands, companies. Enough talk. All right, so what's Church and Dwight? You've probably heard of Armin Ham or baking soda but they also own a lot of other retail brands you might be familiar with Oragel. If you've ever had a sore tooth or you have a baby, you know that kind of thing comes up. They own Trojan which is another brand that people might be familiar with. But here's my personal I'm right now I have a cold. I'm living and functioning off of Zycam. That's a Church and Dwight product that's really getting me through and over the long term it's been a great investment. Over the past 10 years the stock's returned about 10.5% in total returns. That's underperformed the market but it's better than the market's long term average. So I think there might be something there.

[Anand Chakabalu]

Dan, a question about Church and Dwight.

[Unnamed Speaker]

Not really a question Anand, but more of a comment. Jason, you Forgot to mention OxiClean in the church and Dwight product catalog here. As a parent of a three year old and a nine month old laundry is a very important thing in our house and I don't think we could survive without that. OxiClean.

[Jason Hall]

I will raise your 3 year old and 9 month old with an 8 and a half year old who plays soccer. My house runs on that stuff. I'm with you there Matt.

[Anand Chakabalu]

What's on your radar?

[Matt Frankel]

Well now what's on my radar is the Oxiclean that I have in the closet right there. But as far as the stock, I'd have to say sofi ticker symbol S O F I Fantastic momentum. They've done a great job of creating capital light revenue streams in recent years. The growth is actually accelerating. They recently announced they're bringing crypto back to their platform. Now that banks are allowed to do so, that's going to be a big driver. Not only crypto, they're going a step further. They're going to start bringing blockchain facilitated money transfers across cross border for free. They have lots of big plans. They recently started doing private equity investing for everybody. So guys like you and me can invest in companies like SpaceX and OpenAI that are pre IPO through SoFi's platform through venture funds. There's a lot going on in this business and it's still a relatively small bank and they aim to be a top 10 bank within the next decade.

[Anand Chakabalu]

Dan, a question about SoFi.

[Unnamed Speaker]

Well, absolute F tier name SoFi. Just terrible. I feel like smart people like them could have come up with something better. But private equity investing is very interesting, Matt, though a little scary to me without the reporting regulations that public companies have to do.

[Matt Frankel]

Yeah, I do think it was a natural thing though, now that all these companies are waiting longer than ever to go public. I mean, SoFi's a SpaceX is a massive business. OpenAI has a hundred billion dollar plus valuation. There's a lot to like there and a lot of potential.

[Anand Chakabalu]

Dan, which company are you putting on your watch list? Oxiclean or private equity stuff?

[Unnamed Speaker]

I'm going to go with Church and Dwight for some of that beautiful oxiclean.

[Anand Chakabalu]

That's all for this week. See you next.

[Asit Sharma]

Sam.