The OPEC of AI Stocks

In October 1973, Arab oil producers imposed an embargo.

Oil prices roughly quadrupled in the months that followed.

I was young...

But I can remember sitting in a long line in the back of Mom's Opel Kadett wagon.

You didn't need a seatbelt then. You could roll around back there with your Legos and your imagination...

While every US adult got a painful reminder of a very old lesson: When few control the supply of something critical, they can wield enormous power.

Fifty-three years later, a new critical resource is taking shape.

If you've ever opened your Nextdoor app, you know what I'm talking about.

Intelligence.

And the companies racing to produce machine intelligence (AI) all need access to the same thing: Computing power.

A lot of companies own the machinery behind the race to AGI...

Including Amazon (AMZN), Microsoft (MSFT), Alphabet (Google) (GOOGL), Oracle (ORCL), CoreWeave (CRWV), SpaceX/xAI (SPCX) and Nvidia (NVDA).

But which three benefit most from this new (and soon-to-be-tradable) intelligence as commodity?

Let's follow the money...

A Monopoly Position Costs $4 Billion

AGI is the technological Holy Grail: Machines capable of doing a broad range of human intellectual work.

Beyond it lies the dream of ASI: Intelligence surpassing our own.

Imagine what this means for scientific discoveries... education, medicine, the creative arts, military tech... and the country that gets there first.

DD has done a great job showing you the energy and raw materials behind the AI boom.

Let's go one step further upstream, where we have the next bottleneck: the equipment.

Chips. Servers. Cooling systems. Electricity around the clock. The processing work those chips perform is called "compute."

You'll soon be able to trade it like oil.

Yesterday, October 5th, the CME Group was set to launch H100 Rental Index futures (GPU1) and B200 Rental Index futures (GPU2). But regulators pushed it back. The CFTC extended its review by 45 days, so November 9 is now the earliest launch date.

(I'm keeping an eye on this for you because, while you do need a futures account, you can often find alpha in new markets.)

Now...

Training an AI model takes compute. Grok, Claude or ChatGPT answering your question takes compute. Sending an agent off to complete a job takes compute.

Electricity powers the chips; compute is the work they do.

Put the equipment together in a vast building, and you have a data center. And unless you have $4 billion, you can't build one of note.

So, as investors, we want to own the businesses supplying this new monopoly resource.

Seven Stocks. Three Different Ways To Collect.

I'm always reading the latest research on Amazon, Microsoft, Alphabet (Google), Oracle, Nvidia, CoreWeave and SpaceX.

Usually with my dog nearby.

He's wildly underqualified as a research assistant... but exceptional at spotting squirrels (And don't miss his photo in today's P.S.)

Today, let's look at those seven companies from a strict compute angle.

We will ask...

How directly does compute demand reach company revenue today, and how much of tomorrow's business is being built around it?

Here's what the latest results show:

• CoreWeave (CRWV): Its business is the AI cloud platform itself, renting computing infrastructure and providing the software to use it. This stock has the most direct rental exposure here.

• Nvidia (NVDA): Data Center supplied $89 billion of $96.2 billion in quarterly revenue. That's 92.5%, including processors and networking.

• Oracle (ORCL): Cloud infrastructure supplied $7.4 billion of $19.3 billion, about 38%. A substantial, fast-growing business alongside software and applications.

• Microsoft (MSFT): Intelligent Cloud supplied $39.3 billion of $90 billion, 44%. That segment also includes server products; it isn't a standalone AI-compute number.

• SpaceX (SPCX): AI supplied 32.8% of quarterly revenue. New compute agreements alone added $1.6 billion, equivalent to 20.5% of total company revenue.

• Amazon (AMZN): AWS supplied $42.2 billion of $200.6 billion, 21%. It also supplied about 60% of operating income. Compute is important to Amazon's profits.

• Alphabet (GOOGL): Google Cloud supplied $24.8 billion of $119.8 billion, 21%. Search remains the much larger revenue engine.
  From a compute perspective, these are not seven identical businesses...

So, my top three "compute picks" combine today's concentration with major growth in the future...

CoreWeave's (CRWV) dedicated platform, Nvidia's (NVDA) data-center dominance, and SpaceX's (SPCX) rapidly expanding compute business.

Oracle came in a close fourth place because it beats SpaceX on today's disclosed infrastructure share. But I prefer SpaceX for its future growth...

Because that's what the market cares about.

Nvidia: Sell The Machinery

Nvidia (NVDA) gets the nod over Amazon because we're focused on concentrated exposure to compute.

At Amazon, you're also buying stores, delivery networks and advertising. At Nvidia, more than nine dollars out of ten already come from the data-center business...

And Nvidia sells to the companies competing to rent us computing power.

Amazon. Microsoft. Google. Oracle. CoreWeave.

Think about that position. The landlords compete for tenants. Nvidia supplies their equipment. Its advantage goes beyond a fast chip.

CUDA, its software platform, locks in developers with tools and libraries for getting useful work out of those chips. Its networking connects processors into systems.

That makes the purchasing decision about a complete integrated system: hardware, software (and trained software talent) plus the time required to get a customer's AI running.

The financial result is striking: Nvidia generated $63.7 billion in operating income last quarter. Data-center revenue grew 117% from a year earlier.

This is already a profit machine.

I own Nvidia and will for the next few years. You should too.

CoreWeave: Rent The Machinery

CoreWeave (CRWV) gives investors the most direct exposure to customers buying access to AI infrastructure.

The platform is the business.

Its customers include OpenAI and Meta. It has also signed a multiyear agreement to supply Anthropic.

These companies will continue to compete over whose AI model wins.

With 51 active data centers and over 250,000 GPUs at last count (end of 2024)... CoreWeave delivers the compute all AI stocks need.

Second-quarter revenue reached $2.575 billion, up 112%.

Its revenue backlog reached roughly $104 billion: Contracted business scheduled to turn into sales over time.

And on September 17, CoreWeave said new computing capacity was commanding higher prices.

Some three-to-six-month contracts were priced at roughly $40 million in annualized revenue per megawatt of power required.

Customers need capacity now. The advantage belongs to the company with usable equipment, power and a customer ready to pay.

But (and there's a big but) we need to see profits.

CoreWeave reported a $626 million net loss in the quarter.

Debt costs money. Hardware wears out. New chips arrive.

My thesis is that rising AI use and stronger contract pricing will turn CoreWeave's enormous contracted demand into lasting earnings.

Especially because we are now seeing less commoditization of hardware than expected.

Meaning, compute may behave less like consumer electronics (short useful lifespan) and more like industrial equipment (long useful lifespan).

In fact, CoreWeave has older GPU (A100) contracts extending into 2029.

Still...

I'd put this in the high-risk, high-reward part of a portfolio... Because it's the most direct bet on the economics of compute.

SpaceX: Grok Is Only One Way To Get Paid

Elon Musk not only sees the future of technology... But he pursues it when everyone else says it's impossible... And then he builds it.

His xAI built Colossus, a massive AI data center that supplies the computing power behind Grok, his competitor to ChatGPT and Claude.

SpaceX (SPCX) acquired xAI in February, bringing that infrastructure alongside rockets and Starlink.

Then he started collecting checks from AI rivals.

In May, Anthropic agreed to use all the compute capacity at Colossus 1: more than 220,000 Nvidia GPUs.

Claude can win a customer... and SpaceX still gets paid.

New compute agreements contributed $1.6 billion in incremental infrastructure revenue in Q2.

The entire AI segment generated $2.561 billion of SpaceX's $7.814 billion in sales. That's 32.8% of the business, up from 17.4% in Q1.

The segment does include advertising and subscriptions...

But this $1.6 billion compute contribution is the clear evidence of the transformation taking place...

And analysts are modeling a much bigger shift.

TD Cowen projects compute sales reaching 35% of SpaceX revenue in 2026, 58% in 2027 and 65% in 2028.

That is the forward-looking reason SpaceX makes my top three over Oracle.

The AI segment recorded a $1.26 billion operating loss last quarter... But turning those new contracts into lasting profits is the next financial goalpost.

I have a small long-term position.

But I'm not opposed to buying out-of-the-money puts in advance of major rocket launches as short-term insurance...

Because just one incident could create a massive down day for the stock.

So, buying the AI opportunity means owning and waiting out any spaceflight risk, too.

Own The Work Behind The Answer

Here's my longer-term bet...

The price of intelligence falls. More businesses find tasks and jobs worth handing to AI. Each completed job consumes compute.

Even if you cut the price per task in half and triple the number of paid tasks...

Customer spending still rises 50%.

In short: Compute use will go up exponentially... while compute costs come down linearly.

That's the demand engine I'm investing in...

AI is moving from a chat window into software... into voice chat... and into agents powering everyday software and business operations.

In fact, humans are already the minority users of compute.

Have a look:

I like Buffett's discipline for roughly 80% of my portfolio, with a SPY position plus stocks with a focus on what I understand: technology.

I reserve 20% or less for other ideas.

These three names belong in different places within that framework.

Nvidia is an investment alongside SPY.

CoreWeave is an "other ideas" bet on direct exposure to compute rentals. SpaceX is an "other ideas" bet on a dramatic change in what drives the company.

Investors shouldn't sit on the sidelines of the race to AGI...

Intelligent investors should be following the invoices of those who have the monopoly on intelligence.

Always be prospering,

Harry Seldon
Moonshot Minute

P.S. #1 of 3: If you haven’t already, check out DD’s sell and buy alert below for Premium. It’s a 150% winner and a fresh new buy alert he sent out on Friday.

P.S. #2 of 3: Meet my research assistant. That's his photo below.

His primary responsibilities are sleeping through earnings calls... alerting me to squirrels... and reminding me when I've been staring at a screen too long.

DD and I would love to meet yours.

Hit reply and send us a photo of your pet... and tell us a little about them.

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