Misunderstood Stocks in Data Center Power, Cybersecurity, and Payments | Dean & Deiya Pernas

**Jack Farley** (0:00)
Today, I'm sitting down with Deiya and Dean Pernas of Pernas Research. We're gonna be talking about some of the most important themes and trends in investing, such as energy powering data centers, software, AI, cyber security, payments. The Pernas brothers are good not only at generating compelling investing ideas, they're also great investors. They have an audited track record, and their audited portfolio has returned double the S&P 500 since inception in 2017, over 1300% gross or 32% annualized. If you wanna actually make money in markets, it's really important to listen to and learn from successful investors who've actually done investing well, not just talking well or writing well. And this often means paying attention a lot, not just to macro-informatics, but also single stock fundamental analysis. I am a real believer in what I just said. Monetary Matters listeners can get discounted access to Pernas Research or 20% off for one year, billed quarterly, link in description. Let's get into it. I am joined today by Deiya and Dean Pernas of Pernas Research, which manages money and also has an investment research firm. Dean, Deiya, welcome to Monetary Matters. Good to see you.

**Deiya Pernas** (1:01)
Pleasure being here again.

**Dean Pernas** (1:02)
Thanks, Jack.

**Jack Farley** (1:03)
You guys have followed a lot of stocks, a lot of themes in the market. We're getting to cybersecurity, AI, the data center build out and single stocks that you've invested in, many of which successfully that I'll be honest, I consider myself who knows a lot of stocks.
I don't know these stocks well, so I think it's a very different perspective than most people will get on almost any other interview. But, gentlemen, how about we start off with a broad view of the hyperscaler spending on AI, the consequences and your thoughts? Because I know you really think this is a very big deal.

**Dean Pernas** (1:41)
Yeah, it's very timely. I think SanDisk, Eschionics, the entire memory complex and AI complex has been down, I think, 40-50% over the last month. And the market is really questioning if ROI is there anymore. And especially with open weight models coming into play. We believe open weights are bullish for the AI ecosystem.
If you think about the AI ecosystem, it's roughly about four different layers. So you have the chips layer, the infrastructure layer, who are the cloud providers. And then you have the frontier models, who are like ChatGBT and Anthropic.
And then you have the application layer. And so previously the frontier models were essentially capturing a lot of the economics of AI. And now with open weight, essentially, there's a theme called commoditize your complements. So if you're in a technology stack, and if your complement gets commoditized, a demand increases to all the other layers. And so if you're a cloud provider, for instance, enterprise are going to be using more AI, given the fact that it's cheaper to use. They don't have to pay $10 per million input tokens for Anthropic or Chad WT. So demand is going to increase, and if you're a GPU provider, that's going to translate to higher GPU prices, and the economics are going to increase for you. So we think that it's not as bullish for frontier models, but the argument can definitely be made that it's bullish for all the other layers in the ecosystem. And we can go on to whether the improvements that Kimi has made is due to distillation of Claude's models. We believe it is. It's not purely due to innovation, architectural improvements.
But yeah, we believe that there's still a case we've made for frontier models as well.

**Jack Farley** (3:24)
Right, so Kimi is the model, Kimi 3, that was released by Chinese AI startup Moonshot AI recently, which is now number three in the world. So it's kind of a fear that this open source model is going to severely reduce the pricing power of the AI labs and anthropic and open AI. So Dean, you said that it's bullish for the companies that are not the frontier labs, but what about just a layer directly above the frontier labs? So the hyperscalers who are spending it. So that's Oracle, Microsoft, Google, Amazon, and let's see who else am I missing, Meta, which Meta announced that they actually are going to sell their excess compute. So they may try and become some sort of cloud. So right now we are in a bear market panic in the semiconductor complex.
But what preceded that was a weakness in the hyperscalers themselves. So I want to start there just and can you link it to the general idea of why you think that this is the best time in history to beat the S&P 500?