The $2 Trillion Trapdoor | Tobias Carlisle on SpaceX, the AI Buildout, and the Rotation No One Sees
Tobias Carlisle discusses current market valuations, the impact of AI on business profitability, and the construction of his investment portfolios in the context of a potentially value-oriented market shift. He emphasizes the importance of recognizing market cycles and reversion to mean in investment strategies.
Summary
In this discussion, Tobias Carlisle examines the current state of the market, highlighting that many valuation metrics indicate a state of overvaluation, particularly in large cap growth stocks. He suggests that despite the tempting nature of these valuations, investors should not exit the market but should instead focus on areas like small and micro-cap value which may offer better forward returns as they are historically undervalued. He argues for the case of mean reversion in investment returns and highlights the opportunities present in deep value stocks. Carlisle delves into the role of AI, sharing his insights on how its benefits may not overwhelmingly accrue to the creators of AI technologies but rather to consumers. He expresses skepticism about the long-term profitability of firms investing heavily in AI, considering the high competition and potential returns. Carlisle details his investment approach with the Acquire Funds' ETFs, emphasizing using the acquirer's multiple to identify undervalued stocks while incorporating quality metrics. He concludes with thoughts on how current IPO trends, particularly among tech companies, may signal a market peak.
About this episode
Tobias Carlisle joins Excess Returns to discuss why today’s market may be setting up a major opportunity in value stocks, small caps and micro caps. We cover stretched market valuations, AI capex, SpaceX and other massive IPOs, the risk of speculative growth assumptions, and how Tobias builds systematic deep value portfolios in ZIG and DEEP. Tobias Carlisle on X https://x.com/Greenbackd Acquirers Funds https://acquirersfunds.com/ Topics covered: * Why elevated market valuations point to lower forward returns, not necessarily an immediate exit from stocks * The case for small value, micro-cap value and mid-cap value after a long large-cap growth cycle * Why equal-weight indexes and small caps may be signaling a market leadership shift * Whether AI capex will create lasting profits or mostly benefit consumers * The parallels and differences between AI, the dot-com boom, railroads and fiber optic buildouts * How AI spending is being financed and why the stock market may be demanding more compute investment * What the SpaceX IPO, OpenAI and Anthropic could mean for market supply and investor psychology * Why base rates are being challenged by the growth of major technology platforms * How disruption can create value traps and why traditional valuation metrics can struggle in disrupted industries * The energy demand implications of AI data centers and why nuclear and natural gas could matter * How Tobias combines valuation, quality, financial statements and portfolio construction in ZIG and DEEP * Why quarterly rebalancing may be a practical balance between timing luck, momentum and trading costs Timestamps: 00:00 Why AI value may accrue to consumers 04:00 What extreme market valuations say about future returns 08:22 Small caps, equal weight and the Mag Seven reversal 14:15 AI capex and lessons from past technology booms 19:47 Who gets the profits from AI? 23:00 Cash flow, debt and the AI spending race 28:06 SpaceX, giant IPOs and market supply 31:00 OpenAI, Anthropic and Mauboussin’s base rates 35:17 Is buying the S&P 500 more speculative than investors realize? 36:57 Value investing during disruptive technology cycles 41:07 War, energy prices and the broadening trade 45:32 Semiconductor valuations and aggressive growth assumptions 47:30 How Tobias builds the ZIG and DEEP portfolios 54:17 ETF rebalancing, timing luck and systematic value investing
Key Insights
- Carlisle claims that current valuations based on metrics like Schiller PE suggest an exceptionally overvalued market, comparable to the dot-com boom.
- He argues that the demand for compute capabilities is driven more by stock market pressures than by consumer actual demand.
- Carlisle suggests that there's a strong case for the mean reversion of market valuations, advocating for investments in small and micro-cap value stocks.
- He predicts that the transformational promise of AI might lead to a phase of disillusionment, similar to the dot-com bubble.
- Carlisle explains that his investment strategy focuses on financial statements, looking at returns on assets and reinvestment rates.
- He discusses how the investment landscape is characterized by a transition from cash flow financing to more reliance on debt, particularly among major tech firms.
- He notes a significant bifurcation in market performance, where large growth companies have thrived while small and mid-cap values have lagged.
- Carlisle indicates that the construction of his portfolios includes both deep value cyclicals and higher quality companies, equally weighted to manage different risk profiles.
Topics
Transcript
[0:00] It's entirely conceivable that all of this work goes into creating these incredible AI models. And all of the value accrues to the consumer and not to the people who create these models. Maybe there's unlimited demand for compute. But it's more the stock market that's demanding it rather than consumers demanding it. Ultimately, those multiples do. Mean revert growth rates. Mean revert. If you believe in mean reversion, then the smart bet is small and micro value, mid-cap value. [0:32] >> Toby, welcome back to Excess Returns. >> Thanks so much for having me, Justin. I'm I'm excited to be on the premier financial podcast currently on YouTube. >> It's our goal. Hopefully, we'll get there at some…
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