Deepwater's Doug Clinton makes the bull case for Meta, says AI growth not overhyped

All right. Joining me now, Doug Clinton of Deepwater Asset Management. He is a Meta shareholder. What a difference a couple of years makes for this, for this company, right. You agree with what Mr. Gerstner has to say? I do, I do. I wouldn’t say that they are the biggest absolute beneficiary. We also own Google. I think you could make a case that Google, with all the things they’re doing in AI, maybe has an even better play to create AGI than Meta. So there’s certainly a big potential winner, but for all the reasons Brad talked about, I mean, AI enhancing ads, AI enhancing engagement, certainly those are things that work at Meta and I do think they are a leaner and most importantly, more hungry company than they were in 2022. Interesting when you hear big investors like Stan Druckenmiller talk about the hype around AI. Now he was referencing specifically NVIDIA, but others would suggest that the whole space has benefited from maybe too much hype. Do you have a comeback for that? Do you do you disagree? I think it’s an appropriate amount of hype actually. If you think about where we think we are in the cycle, we think we’re probably in inning 3 or 4 of what will be a multi year AI bull market and so should there be hype? Yes. Has there been hype? Yes. I think though that we still have a long way to go. There will inevitably be pull backs from here to the peak whenever that is. And I think Stan, I mean he’s the greatest trader ever and he’s probably better at me than me at calling when those little local peaks might be. But I think if you zoom out, there’s a lot more. Well, let me, I should ask you the question differently now that I think about it. So if you think the hype is in, you know, second, third or or 4th inning, maybe the multiples have gotten into the 8th inning pretty quickly. Is, is are you, are you comfortable with where the valuations of these stocks are? We are. I think you can find stocks in the AI hype space that still have reasonable valuations, particularly if you believe that there is more revenue coming from the AI boom. And if you look at just the Mag six, we’re still at about 28 times forward earnings. That’s right in the middle of the historical range over the last 10 years. So I don’t think that’s overly inflated. And then you look at some names that we own like Vertiv VRT, it’s a stock that’s an AI data center play. They specialize in liquid cooling. They trade about mid 30s forward EPS and we think that number is probably too low. I want to let’s circle back to Alphabet. How you know Brad Gerstner is also a believer in that, which is interesting because there was a point in time and it wasn’t that long ago where he wasn’t right where he famously sold the stock. He criticized management. He said they missed out to Microsoft. Now, more recently, you’ve got Daniel Loeb of Third Point saying, hey, for longer term investors, Alphabet that that whole mess and the noise created a buying opportunity. Gerstner himself bought it back and talks now about how they can get more fit. Listen, they’re still in a great position. There’s still a lot they could do to trim, you know, and get fit over at Google and get the flywheel going. But we were impressed by the AIAGI searches they they discussed in the quarter both the rate at which they’re moving to AI enhanced searching, but also the monetization of those searches which are coming in at basically the same monetization as they’re seeing in core search. They’re going to be a dog in the sun thoughts agreed 100%. And it’s something that we’ve been saying about Google since the beginning of the year actually is that we wish they would have a meta year of efficiency like we saw in 2022. And it’s not just about the leanness and and margin, that’s not actually what we care about the most as investors in Google. What we’re interested in is finding that hunger. We talked about the pace of innovation at meta that I think is really what’s driving the results of the company even more so than that better margin. Google has been I think hesitant to really push with the urgency that they need to push with to win the game of AI. Open AI has not been hesitant at all and I think that tells the story between you know why open an eye as as ahead and Google’s not. Well, do do you think now a, a fire, so to speak has been lit under that company and now they know they have no choice but to go full speed ahead. And and by the way, if you look at, I’ve been bringing this up of late because if you look at the performance of the stocks over the last 12 months, so Alphabet is up 62% over the last 12 and Microsoft’s up 32. Yeah, the, the, the narrative would have to believe otherwise. It doesn’t match. And I think if you actually rewound the clock to March when sentiment was super negative with Google that that may have been a little bit closer that delta that you’re talking about. So I was very close. It’s changed really in two months, I mean two months the narrative has shifted almost completely with Google to now. I think investors have come back and they’ve started to believe that they have found the fire. We’ve heard about efficiency on their earnings call and if you really back up, this is the reality for Google. They have all the pieces that you need to win in AI. That’s never changed. They have distribution, billions of users. They have data better than anybody and they have the engineering and infrastructure to do it. They just have to put it together.