AI trade is back on given magnitude of upside at Micron, says Silvant Capital's Sansoterra

? (Host) 00:00.350

let's turn to our next guest who isn't worried and says the magnitude of upside and micron today shows the AI trade is back on michael sansa terra is CIO at sylvan capital management michael it's good to see you this will have some people shaking their head heads others

? (Host) 00:14.110

breathing a huge sigh of relief what do you see happening here yeah

Michael Sansoterra (CIO) 00:19.030

this is a great measure of actual demand again when this is important to remember there's not a lot of those left for this year but micron 's demand and and really what they're seeing from a contraction obligation going forward tells you that that the fundamentals of the AI

Michael Sansoterra (CIO) 00:33.590

trade is very much alive short term it was getting a little nerve wracking there for some folks who are traders we're investors at sylvan cap but traders were nervous and that makes sense but the fundamental like christina said seventy five percent of a EPS guidance range

Michael Sansoterra (CIO) 00:48.070

pulling the tam forward a couple of years you've got you've got north of forty percent cagr for the next couple of years that's unheard of in memory that tells you demand is off the charts so

? (Host) 00:57.510

pull this together for me it's like if i were asking BTS say i want one sentence that brings together what's happening with oracle what's happening with micron and what you presume to happen with the rest of the AI trade you know all at once

Michael Sansoterra (CIO) 01:10.550

OK that's a big sentence i would say that with with micron we are getting a solid read that demand for chipsets continues with oracle we are being reminded that free cash flow is the most important way to fund capex and as the rest of the space can is looked at for the next next

Michael Sansoterra (CIO) 01:27.630

year the next two years i think you want to stay with the you want to be in the large cap names that are executing that are paying the eighty ninety percent of the capex that they keep increasing with free cash flow and not debt yeah

? (Host) 01:38.950

our guest yesterday even was kind of bullish on oracle in the long run and said look they're the ones who have the proprietary enterprise data and as the models move in that direction they think ultimately that that's going to pay off that's up to investors whether they want to

? (Host) 01:50.590

make that bet right now but i like your summary so if free cash flow is the most important thing what's that setup look like going into next year are they an outlier or do we have to worry about the rest of the mega caps starting to face those problems

Michael Sansoterra (CIO) 02:02.190

yeah the mega caps look fine literally eighty to ninety percent of capex is fully covered by cash flow from operations across the board so that that looks great the question really is oracle we don't own oracle in the vertice sylvan focus growth fund but we can see that the

Michael Sansoterra (CIO) 02:16.310

market doesn't want to see the debt and and the amount of debt that that's being required right so i think there's i think there's a tale of two cities here there's the folks that are paying it with free cash flow and they get a multiple and there's the folks that have to borrow

Michael Sansoterra (CIO) 02:29.190

you know if you look around even even outside oracle but some the smaller players that are growing very fast but also have to go to the market for debt it's it's a different valuation it doesn't mean it can't work it doesn't mean the demands not there it just means that that the

Michael Sansoterra (CIO) 02:42.830

market right now doesn't want to pay for that incremental risk enough risk in AI in general

? (Host) 02:47.390

i think so you guys are laying your bets with those who are you know have plenty of cash to fund these expenditures and have no reason otherwise to worry about this trade stumbling in twenty twenty six

Michael Sansoterra (CIO) 02:59.390

yes exactly right it's the it's it's the hyperscalers you know it's the same story we've been hearing for a while i know it gets old but it is the googles slash alphabets it's it is the amazons and microsofts it is absolutely nvidia which we have a lot there's it makes perfect

Michael Sansoterra (CIO) 03:14.270

sense that those guys would continue to see a massive demand they've got the capital to to pay for it and the growth continues