What ORCL Project Jupiter Says About AI Bottlenecks, Small Cap Beneficiaries

about that later on. And there you have it. Time to turn our attention and go deep on Oracle in our th spotlight. Joining me right now Mario Tufano is with me seniortfolio manager at C. S McKee. And I'm so glad that you are with us. Wh the big picture on Oracle. What do you think here. Well first othank you for having me out here. It's a pleasure to be here at the ange.t cover Oracle at C s McKee. I'm . But there is implications within the entire AI infrastructurend what happened with Project Jupiter s t the issue. It's the bottlenecks in the infrastruct of itself. When you think about it, there was a permitting issue with the pe that they needed Nat gas to power some of the fuel cells, and witho that permit, it kind of delays things. So for us, we're very constructive on the potential of smaller and mid-cap companies t a pivotal role in building that infrastructure. And it's not only the actual buildi of it, but it's the powering of it through the Nat gas. And I want to get to some of those small and mid-cap companies and those themes as well. But when you have a force majeure related to something like this, is it okay or not? Okay. Do you know what I mean? Like, when you have that kind of action o Street with a big company to sort of lay it out in the way that the delays are needed, but we'll get, you know, we're getting there. What did younk of something like that? Well, I think you have to look at the reason why the it. And the reason why they did it was so they can delay any paymhen it comes to any, any delays happening with getting the data center up and running. Tthe main reason why Oracle did it. It was more of a financial decision, based upon of demand, based on getting the thing up and running on time an schedule. that's what makes me feel a little bit more comfortable that it's not t they're overbuilding or capacity is becoming too big. It's literally a bottlen withegards to the infrastructure that is needed to get all these data centers al eventually in time. But going to take time and it's going to take resources to do such a thing. mething like Blue Owl, which is part of the private credit of this story, and private credi equity have been always front and center, but that's been hit hard. And we need sort of that part of the financing to grow. I mean, we've seen a lot of companies that are private versus being public. They go to the pri lenders and such. Any thoughts on that part of stg but we got to recognize a loti of these technology companies sit with exorbitant of cash, and their balance sheets are relatively clean when it comes, especially to the large peers. I think they won't have an issue funding it. It'll be a question of hckly they can implement that funding and get past the logis and issut themselves. When you're trying to really rewire ane grid and build an infrastructure and things matter more thanose actually getting the financing. There is money out there that people are willing deploy now blue owl, private, private equity, they have issues onto themselves with rising rates, and that may change the math to a certain extent, but money isae ideas. I don't think that will ever be an issue. let's get to some of the investment themes. I mean, something like infrastructure is front and center on your mind. I know you're looking at some different strategies, particularly with the s and mid-cap names. Tell me a little bit about that. Sure. If you think abouthe data centers are being built, they're going to need energy engineering, construction compano do thing. And they're going to need people that know how to build these things toring them up from something of infancy to a largerture. And Emcor is one of them. There are $33 billion market cap company. Th tradingund 22 times, and they have a strong cash flow return of about 30%. Emcor Emcor yeah, yeah. Trading around 22 times. And they're and center going to be the players building those data centers. But not only that, you're going to actually need just the, the rope stuff like routers and switches that all go into kind of connecting data cente and allowing the cloud infrastructure to take place. And one of them that sits at crossroad of that is Belden. It's a smaller cap company, around 4 billion, but trading at 12 times and its book to bills above one and and s north of 15 to 20%. So as we continue to about, you know, this connectivity, we're talking about switches and the infrastructurehe industrials that, you know, the bigger players, the maybe the heavy part of the story too, and energy. I mean, let's get intoaybe more about the industrials and the energy side, because we think aboutre we powering all this. Right. statistic out there that that a shows that in 2027, commercial consumption nat gas is going to surpass residential. And that's the first time that's happened in quite some time. So and the reason being is because of all these data centers that arg built and, and people consuming AI. And you're right, Nat gas is pbly the most cl way and efficient way to get that done. And one of the compahat I think could potentially benefit is it's, it's categorized the utility company, but itlly is an E&P Nat gas company, an exploration production company called Nfg. National Fuel Gas has a 3% yield trading at ten times. And it's probably growing earnings around that. And again, not onl is is Nat gas being drawn to consumers data cenbut we're exporting it more than we ever have liquid natural gas going out to, whether it Japan or Europe, in places where the price of gas is exorbitantly higher than it is here in the U.S. I thought it was interesting how you talked about the energy bottleneck in your notes, and you actually said, there's a battle going on because Onshoring and AI are competing for the same infrasre resources, right? Yes, absolutely. Yeah. It's a good point. Post Covid, I think there was a recognition for onalo bring a lot of the manufacturing facilities back here within the US as it pertains to semiconductor chips coming out of Taiwan or medical devices coming out of C So with with that regard, we've we've also been putting a lotoft infrastructure here in the US. And these facilities are going to be consuming a lot of energy. That's why I think the combinof the two, the AI build, combined with the onset of the on si of manufactured building here in the US, is going to consume a lot of energy, at gas is going to be one that's going to be powering it all on top of that battery storages, because some of the stuff we want to go in on, the alive electric grid is, is intermittent. So it's going to require some type t consistency over time and reliability. And when you tnk about the big picture, you said it doesn't matter. You know how fast or not fast.ou don't need to predict the AI winners. It's going. Is that the point? It's. I mean, where are we in this build out? Well, the early stages of it. I mean, if you look at. So there's so much more opportunity. Well, assumit the math doesn't change with rates going where they are now at 5.25%, as l as w of get some type of limit on that rise. I think this AI machine is in the early innings, especially when you think about the penetrationamonf itself and what is needed to kind of support all that processing of that big data and information. We are just gettingtarted. You think about the top seven within the S&P 500. They're spending $1 trillion estimating CapEx 2027. If you take all of the n of the S&P 500, that's what they're spending X financials on.o you have seven companies that are still massively spending, that are that are th are not levered, are generating a ton of cash. And I think this is going to continue for quite some time now. Who the winners are in t iris. Your guess is as good as mine. But but I do want to own the picks and shovels. And that's where I've been spending a lot of my time. Yeah, it makes a lo of sense, you know, and supporting our GDP and our whole nation. Ait probably brings people a little nice feeling to hear that it's still underway. It's going. And we're only in the early innings. Thank you so much. It's great to see you.