The Dean of Valuation Grades Nine Trillion Dollar Stocks #AAPL #GOOGL #AMZN #META #BRKB

Deep Values

The episode examines the massive $2.5 trillion capital expenditure in AI infrastructure through the valuation framework of Aswath Damodaran. The

Key takeaways

• The AI industry has deployed roughly $2.5 trillion into infrastructure, yet major players like OpenAI and Anthropic generate only about $250 billion in aggregate revenue.
• NVIDIA receives a B- grade because its 900% markups on chips are likely unsustainable as big tech companies develop custom silicon.

Main topics

• AI Infrastructure Investment
• Valuation Frameworks

Notable quotes

Are we building the future of human capability or, you know, are we just funding the most expensive financial bonfire in history?

Conclusion

Investors should practice radical humility and distinguish between lon

Transcript preview

Speaker 2 (0:00) Right now, the smartest, most sophisticated tech companies on Earth are pouring, I mean, two and a half trillion dollars into a factory that currently produces almost nothing. Speaker 1 (0:11) Yeah, it's honestly wild. The scale of capital being deployed here, it just defies any historical comparison. It Speaker 2 (0:18) really does. So today we're tearing down the invisible walls of this whole artificial intelligence boom to ask one, frankly, terrifying question. Are we building the future of human capability or, you know, are we just funding the most expensive financial bonfire in history? Speaker 1 (0:34) Right, because we're looking at a landscape running entirely on algorithms, aggressive promises and just unprecedented hype. It desperately needs a serious financial reality check. Speaker 2 (0:44) Exactly. And that is exactly what we're going to do. So welcome to this deep dive. Our mission today is to cut through the deafening noise surrounding the world's trillion dollar companies. Which Speaker 1 (0:53) is not easy to do, to be honest. Speaker 2 (0:54) No. Definitely not. But we're doing this by looking at these massive giants through the framework of a Wall Street legend, Aswath Damodaran. People call him the Dean of Valuation. Speaker 1 (1:04) And for good reason. Speaker 2 (1:05) Right. We're asking the uncomfortable question, you know, just because a stock commands a trillion dollar market cap, does that actually mean it deserves a place in your portfolio? Speaker 1 (1:14) Exactly. We need to unpack how to genuinely value a modern business. isolate the monumental risks baked into this AI boom and actually look at the letter grades the dean evaluation gives to nine of these massive companies. Before Speaker 2 (1:29) we start handing out those grades, a quick note to help you navigate this space on your own. To access more advanced researches, follow Guru's latest movement, and leverage our latest Deep Values agents, welcome to download Deep Values APP from App Store. Speaker 1 (1:44) Always good to have the right tools. Speaker 2 (1:46) Right. and to track stock market temperature, welcome to download iOS app Buffett Indicator from Apple App Store or Bubble Watch from Google Play. Links are in the description. Disclaimer. All analysis is based on publicly available sources and may be subject to revisions or differing interpretations. Speaker 1 (2:02) Yeah, things change fast. Speaker 2 (2:03) They really do. All contents from this channel is for research and entertainment purposes only and does not constitute any investment or financial advice or service. conduct your own due diligence before making investment or financial decisions. And, Speaker 1 (2:17) you know, due diligence is the perfect starting point here, because if we want to understand the modern tech landscape, we actually have to strip the technology out of the equation entirely. Speaker 2 (2:29) Entirely. Speaker 1 (2:29) Yeah, entirely. We have to return to the fundamental mechanics of valuation, which, fascinatingly enough, they just haven't changed in centuries. I Speaker 2 (2:38) always find it so wild when... Analysts apply centuries old logic to something like, I don't know, neural networks or space exploration. Yeah. It feels like trying to measure a rocket thrust with a wooden yardstick. Speaker 1 (2:49) I get that. But the output changes while the core financial philosophy is immutable. The Dean evaluation operates on a very strict law, which is that valuing a business is purely about cash flows. Just Speaker 2 (3:00) cash flows. Speaker 1 (3:01) Literally just cash flows. It doesn't matter if you're evaluating an A.I. startup building large language models today or if you were a Venetian glassmaker buying a competing furnace in the 1500s. A Speaker 2 (3:11) Venetian glassmaker. So like a guy in a gondola in the 16th century is running the exact same mental math as a venture capitalist on Sand Hill Road today. Speaker 1 (3:21) Precisely. Accountants can play endless games with the ledger, but ultimately it comes down to cash in versus cash out. That glassmaker had to ask himself three distinct questions, which are the exact same three questions you need to ask about your own portfolio today. Okay, Speaker 2 (3:39) what are the three questions? Speaker 1 (3:40) One, what are the actual cash flows? Two, how quickly are they expected to grow? And three, how uncertain is that growth? Speaker 2 (3:47) Wow, just those three. That Speaker 1 (3:48) is the absolute bedrock of true valuation, whether you're looking at meta. SpaceX or a furnace in Venice. Speaker 2 (3:54) Let me push back on that, though, because if you turn on any financial network or, you know, open a brokerage app, you rarely hear analysts talking about long term cash flow certainty. Oh, Speaker 1 (4:03) almost never. Speaker 2 (4:04) Right. You hear them using these highly specific, fast paced metrics. They talk about the rule of 40 for software companies or they justify a price by saying it's trading at 8 back EBITDA. Yeah. Speaker 1 (4:15) The shortcuts. Speaker 2 (4:16) Exactly. The shortcuts. And in a sector moving as fast as AI. Don't you have to use these shortcuts just to keep up with the speed of the market? Speaker 1 (4:23) I would actually argue that speed is exactly what gets investors slaughtered. Those shortcuts are what the dean of valuation warns against most heavily. He literally calls them intellectually lazy. Speaker 2 (4:35) Really? Lazy? Speaker 1 (4:36) Absolutely. Let's look at the mechanics of EBITDA, for example. Earnings before interest, taxes, depreciation, and amortization. When you use that metric for an AI company, you are actively choosing to ignore the D. The Speaker 2 (4:50) depreciation. Speaker 1 (4:51) You're ignoring depreciation. You are ignoring that a billion dollar data center filled with state-of-the-art processors becomes, well, functionally obsolete in three to four years. Speaker 2 (5:00) Oh, wow. So you're basically ignoring the cost of the factory itself. Speaker 1 (5:03) Exactly. You cannot just wave away depreciation when these companies are spending billions on hardware that degrades in value faster than a used car. That's not a shortcut. It's financial denial. Right. Speaker 2 (5:15) It's like a diet cheat code instead of actually going to the gym and doing the work. Speaker 1 (5:19) Perfect analogy. It just allows you to avoid confronting the message capital intensive reality of the business. Speaker 2 (5:25) But wait, if we throw out the