Chapter 1: What is the significance of owning the operating system in business?
The edge in the stock market may be increasingly going to the companies that own the operating layer, not the brand. We're reflecting on three examples of this today on Motley Fool Money. Today is Tuesday, January 27th. Welcome to Motley Fool Money.
I'm your host, Emily Flippen, and today I'm joined by Fool analyst Jason Hall and Asit Sharma to discuss the power of owning the operating system underlying our everyday lives.
Today, we'll be discussing how restaurants are integrating tech improvements to improve throughput, as well as a unique deal between USA Rare Earth and the government, and how that shows the strategic importance of resources.
Chapter 2: How is Nvidia's $2 billion investment impacting CoreWeave?
But first, we have to start with the recent but arguably not surprising news out yesterday that CoreWeave is getting yet even more support from Nvidia via a $2 billion infrastructure investment. Now, CoreWeave shares were up more than 10% yesterday after Nvidia bought $2 billion worth of stock at a share price of around $87, a discount of around 6.5% compared to Friday's closing price.
Now, this isn't really a big surprise. I mean, NVIDIA has already been backing CoreWeave because CoreWeave does build and rent the data centers for AI usage that obviously uses NVIDIA chips to run. And NVIDIA does have agreements with CoreWeave to buy unsold data center capacity over the course of the next six or so years.
But Jason, when you look at this deal, is NVIDIA justified by the investment?
Chapter 3: What challenges are companies like CoreWeave facing in the AI infrastructure market?
I mean, they said they're working with CoreWeave to, quote, meet extraordinary demand for NVIDIA AI factories. and that the investment will help accelerate its build-out of five gigawatts of AI factories by 2030. But critics obviously were concerned. Some noted that it felt like NVIDIA was bailing out CoreWeave because they're arguably running out of cash and saddled with debt.
Chapter 4: How is restaurant technology enhancing throughput and efficiency?
What's your read of this deal?
This can be both, investing in the company and propping it up. I'll talk about that why, but before I get to it, I just want to point out that it's important as individual investors, we shouldn't conflate our goals and incentives with Nvidia's incentive to either invest in or prop up CoreWeave, whichever it proves to be down the road. Two things can be true.
If AI expansion and proliferation does continue to happen,
Chapter 5: What role does Toast play in restaurant tech innovation?
to be a need for this infrastructure. The build-out is going to need to continue. Companies like CoreWeave are really facing serious liquidity crises in the meantime. I've spent 15 years following big trends in energy and housing. If there's an important phrase that I think investors should absolutely sear into their psyches, it's this, secular trend, cyclical demand.
A company has to survive weakening near-term stuff to profit from a decade of massive growth.
Chapter 6: How are companies like Kava and Wingstop leveraging technology?
And we're going to see ups and downs for demand across the AI cycle. It is a reality. Now, does that mean Nvidia is putting good money after bad with CoreWeave right now? I think that almost doesn't matter to a large degree, because Nvidia is so critical. It's the hub, and there's all these spokes coming off of it on the wheel of the AI build-out that's happening right now.
And it is a provider of capital in this current space.
Chapter 7: What recent government investment highlights the importance of rare earth materials?
whether it turns out to be a profitable deal, has a lot less to do with CoreWeave and its execution with some really big things that are happening more broadly. CoreWeave just has to survive, and maybe it has to stay on the NVIDIA purse strings for a little bit longer to get there.
I think that's a fair point. I don't know if I fully agree with the concept, though, that they can't invest too much in this space. I mean, I look at a business, a stock advisor recommendation, Ferrari, the ticker is race. It's a lovely ticker.
Chapter 8: How should investors approach opportunities in the rare earth sector?
I always loved that. And one of the things I always admired, despite the fact that the stock has been challenged recently, is that the management team at Ferrari invested pretty heavily into electric vehicles, but recently actually kind of pulled back on a lot of their loftier goals.
It's not that they don't believe in the future of electric vehicles, but they said, all these targets that we set out initially, we just don't think they're as achievable in the near term as we set them out to be. We're still going to be investing, but we're not going to be investing as heavily. To your point, they don't want to throw good money after bad, so to speak.
They see the future in electric vehicles, but they're not going to overinvest in this space. And I think the question becomes, in the case of Nvidia, can Nvidia overinvest in AI? And I think a lot of listeners probably say, no, I don't think that's possible. I actually think that it is possible for Nvidia to overinvest in AI.
We've seen the cycles happen to Nvidia in the past, whether that be cryptocurrency or gaming. The demand for chips is cyclical in nature. And I worry a little bit about Nvidia getting a little too caught up in its own narrative and investing so much money into something that ultimately ends up being a slower cycle than they initially maybe expected it to be.
But Asit, I guess I want to, I've been talking too much. I want to pass that question off to you. Nobody wants to hear my opinion here. What's your take on the investment? Do you think it's a proactive or maybe a reactive move?
Well, first, I want to say, listening to Jason, it occurs to me the difference between Jason and myself, which I rue, is that Jason can do something for 15 years. I've not in my life been able to do something, anything for the course of more than a couple of years.
Austin, I didn't say I did it well for 15 years.
I didn't say that either, buddy. No, all jokes aside, I really respect Jason's long experience looking at markets and how long they can persist. I want to come back to your point, Emily. I think I slightly disagree with you. Let's start with Nvidia. I understand the Nvidia side of it much more than the Coreweave side. I have trouble understanding Coreweave as a business.
I'll get to that in a moment. Nvidia is a business that is going to soon be the biggest free cash flow generator on the planet. I think by 2029, 2030, it will be way ahead of anyone else who produces appreciable operating and free cash flow. We're using very rough numbers here. This year, NVIDIA should generate in free cash flow. By 2030, it will be close to $300 billion in free cash flow.
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