Why Buffett Would Be Short the “AI Horses” Right Now

Apple

Across the shows: 9 speakers in other episodes, 2 bullish and 6 bearish calls, past 30 days

• Tim Travis · Value Options LetterBearish

  Apple looks expensive at 11-12 times sales despite not spending heavily on AI.

  Travis says Apple may be the best-performing of the big tech stocks, even though it has not spent the money on AI like the hyperscalers have. He says it trades at about 11 to 12 times sales, which looks expensive to him. His view is that the valuation is stretched relative to its AI spending.

  “Apple, which hasn't hasn't spent the money. And I think it's getting at, like, 11 or 12 times sales right now. They're expensive. It looks expensive to me.”at 5:49

Blue Owl Technology Finance

• Tim Travis · Value Options LetterBullish

  Blue Owl Technology's discount to NAV implies implausible defaults; valuation looks too low.

  Travis trades around the Blue Owl Technology discount to net asset value. He says that if 50% of defaults are recovered, 48% of the portfolio would have to default for the price to be justified. Average loan-to-value is roughly 40-70%, net charge-offs are about 0.1%, and the portfolio holds over 200 companies, so a single default is not material. He notes software has historically been the best-performing sector and the loans run off in about three years. He says these valuations truly do not make sense.

  “If you assume 50% recoveries on its defaults, 48% of the portfolio would have to default.”at 14:21

Agree Realty

• Tim Travis · Value Options LetterBullish

  Agree Realty is high quality and cheap at about 13 times cash flow with a 5% dividend.

  Travis says Agree Realty reported good earnings but trades at a large discount to where it has been, around $65 a share, roughly 13 times cash flow. It pays a monthly dividend yielding about 5%. He points to $2 billion of liquidity, occupancy above 99%, and high-quality tenants like Home Depot and Lowe's. He says it is small enough to grow at a good rate.

  “It's about 13 times cash flow, and it pays about a 5% dividend that's monthly. And it's just really high quality. They have $2,000,000,000 of liquidity. Occupancies over 99%.”at 19:08

AI: overall outlook

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  AI will be a huge winner, but picking which AI companies win is very hard.

  Carlisle says the AI improvement over the last twelve months is astonishing and will be a game changer. But he argues the question of which businesses profit from it is much harder than whether AI matters. His Buffett analogy: you can be sure the car will win without knowing which car company will win. He thinks picking the AI winners is a very tough ask.

  “I think AI is gonna be a huge winner, but picking AI companies that are going to be the winners is a very tough ask.”at 3:49

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  We may already be in the AI singularity, with recursive self-improvement near.

  Carlisle applies I.J. Good's and Vinge's definition of the singularity: a machine that makes a smarter machine, which recursively accelerates. He cites OpenAI and Anthropic saying they are doing this already or are very close, this year or imminently, so the machine will improve the model. He points to OpenAI solving long-standing math problems in unexpected ways and to progress in decoding the genome as evidence of accelerating breakthroughs. He hedges that the change may be absorbed like past technologies such as electricity.

  “I think we're getting close to this point where we may already be in the singularity right now where these things are happening.”at 9:18

• Tim Travis · Value Options Letter

  AI will ultimately be deflationary, but wartime and AI demand are inflating memory, compute and energy costs.

  Travis says he firmly believes AI will ultimately be deflationary. He argues the efficiency gains are being lost because the memory, compute and energy inputs are being pushed up sharply by wars and by AI demand.

  “I am a firm believer that AI ultimately will be deflationary. I think that it's a shame, honestly, that... Because the memory and the compute and the energy is being pushed so high through the wars and then through the AI demand.”at 20:32

US housing

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  US home prices must reset lower because mortgage activity is at a 25-year low.

  Carlisle cites mortgage originations falling to the lowest level in at least 25 years, below the 2008-09 lows. He attributes it to high rates or high house prices. Mortgage rates are in the high sevens, and house payments are about twice what they were five years ago, but prices have not corrected to match. This creates a transaction freeze with knock-on effects, such as no household formation and fewer appliance purchases.

  “House prices have to reset a little bit lower.”at 22:31

• Tim Travis · Value Options Letter

  US housing is weak because high rates and high prices are pulling homes off the market.

  Travis says the home-related sector, including builders, cabinet makers and appliance makers like Whirlpool, has been demolished. He attributes this to higher interest rates and prices that are too high. Buyers are not paying the prices, so sellers take their homes off the market. Homeowners with locked-in low mortgage rates have little reason to sell.

  “That whole sector is demolished... It's higher interest rates. It's too high of prices.”at 23:19

US stock market outlook

• Tim Travis · Value Options Letter

  AI megacap concentration in the S&P 500 could trigger a 50% decline if it breaks.

  Travis says the S&P 500 is about 50% AI-related and the top 15 companies are around 47% of the index, which is extremely concentrated. He argues that if that concentration breaks, the index could see a 50% decline. He describes this as a backed-in trade, though he remains bullish on America.

  “That's 50% AI right now. I think the top 15 companies are... It's like 47% at least. It's so concentrated now... If that damn breaks, man... You could see absolutely a 50% decline, in my opinion.”at 27:03

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Mid and small caps trade near record-low relative valuations versus an AI-heavy index.

  Carlisle tracks the S&P MidCap 400 (MDY), a profitable-company index, and the Russell 1000 stocks below the top 200. Both are at about their lowest relative levels in the data. Mid and small caps are a tiny share of the index because it is heavily weighted to AI megacaps, so the rest of the market is undervalued relative to the top. He says these companies are priced on very modest assumptions, and that it always takes a year or so, eighteen months, for value to work through.

  “I've had a look at that MDY, which is the mid cap 400... They're both at about as low as they've been in the data, on a relative basis.”at 27:53

AI infrastructure & data centers

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  AI compute firms are WeWork-like lessors that sublease capacity, and one struggled to list.

  Carlisle compares AI compute firms to WeWork: they do not own their data-center locations, they lease them and sublease to smaller players. He says an Australian compute firm chasing a huge valuation could not get it done in Australia and now faces problems. He implies this model is fragile and that the valuations are stretched.

  “They don't own the location. They just lease it, and then they sublease to smaller players... That's what these compute firms do.”at 3:29

Market sentiment, positioning & volatility

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  A speculative AI mania is driving selling of non-AI stocks that are not actually threatened by AI.

  Carlisle says there is a little bit of a mania going on. Other stocks are being sold off, not because AI will hurt them but because they have not gone up as much and are less interesting to speculators. Speculators fund purchases of AI stocks by shorting or not buying other parts of the market. He sees this as an opportunity for value and small and mid-cap investors.

  “We've got this little bit of a mania going on, and these other stocks are being sold off.”at 17:45

Commercial real estate

• Tim Travis · Value Options Letter

  Commercial real estate, excluding offices, is attractive now for a five-year horizon.

  Travis says that if you believe in commercial real estate, setting aside office space, and have a five-year horizon, now is a really attractive time. He notes that REITs are raising third-party capital at reasonable cap rates, which lowers their cost of capital and leverage. The caveat is a 1970s or 1980s scenario of persistent inflation and high interest rates.

  “And if you have a five year time horizon, now is a really attractive time unless you think that it's gonna be nineteen seventies, nineteen eighties...”at 20:17