Amazon Wants More Power

In this podcast, Motley Fool analysts Jason Moser and Matt Argersinger join host Ricky Mulvey to discuss: The data center spending boom

Hims & Hers' messy breakup with Novo Nordisk

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Gyny CEO Peter Anevski joins Motley Fool analyst Tim Beyers and benefits Fool Holly Anderson to discuss the growth path ahead for the health benefits company

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A full transcript is below

Ricky Mulvey: Amazon needs more power

You're listening to Motley Fool Money

It's the Motley Fool Money Radio Show

I'm Ricky Mulvey joining me on the Internet today

It's Matt Argersinger and Jason Moser

Matt Argersinger and Jason Moser

Great to have you both here

There's a big and I'm going to call it a macro story going on that I think we should dig into at the top of the show

The amount of real estate and big spending going on here

We have someone who looks at, we have someone who looks at real estate, so we're going to get both sides of that story

McKinsey estimates, and let's take that estimate with a grain of salt from our friends at the consulting firm that global data center spend will require nearly seven trillion dollars in capital outlays

The New York Times recently reported on Amazon's ject Rainier and just the massive investment going on here

That's a lot of juice

JaMo, what does Amazon want from ject Rainier

Is it Rainier, Rainer

Ricky Mulvey: Rainier

Jason Moser: Let's just say ject Rainier

That's what I'm going to go with

But what is ject Rainier

It is a massive one of a kind machine

Ricky Mulvey: It's a mountain, JaMo

Jason Moser: It's a mountain

This is the ject, though. [laughs]This is the ject

It's this massive one of a kind machine, which is ultimately designed to bring in this next generation of AI

It's spread across multiple data centers here in the US, and this cluster ultimately will connect hundreds of thousands of Amazon's Trainium to chips across the US as well

Now, what is Trainium

Trainium is the family of machine learning chips designed by Amazon Web Services, specifically designed for AI training and inference

What this does, it takes you back to something Jensen Huang, CEO of NVIDIA said a little while back, where he envisions a future where data centers are AI factories, cessing massive amounts of data to train and refine AI models

This concept of the data center being the new unit of compute

I think we're seeing that play out

They Amazon's built seven data centers in Indiana alone

They're going to be 23 more

This is just a massive presence

Ricky Mulvey: This is also for one customer, this one, just for Anthropic, which has the LLM Cloud

When you think these AI factories that are being built at these data centers, it's impossible to imagine all of the use cases

But what do you think that Amazon is hoping that Anthropic and Amazon can achieve with these massive centers

Jason Moser: I know Anthropic is going to use this cluster, this new AI compute cluster to ultimately build and deploy future versions of its AI model Claude

Now, the ject is going to vide five times more computing power compared to Anthropic's current largest training cluster

That's obviously a big step up

When you consider Anthropic, they're trying to build an AI system that essentially matches the human brain, and then we'll go from there

Obviously, this is a big task

They have big ambitions

They plan to train and build AI systems with this complex, but then Amazon also notes that it should ultimately serve multiple needs

If when training becomes significantly more efficient or if AI development hits a wall, I can imagine at some point, we'll run into that situation

Then this facility, this ject could be used to der AI nologies to customers

There's a big focus on efficiency here as well

Ricky Mulvey: When we think Amazon as a whole is a company, from a buyer or from a retail perspective, most of your interactions with that company are buying things on the Internet and having them come to your door within the next two days

But if you own the stock, you really want to look at Amazon Web Services because that's where most of the operating fit comes from

You're looking at these big outlays of these massive data centers being built

Certainly Amazon's betting on that, but do you expect that to be true that Amazon's going to make most of its operating fit from Amazon Web Services

That's the fit driver for this company in the next 5-10 years

Jason Moser: I think that's more than ly the case

Now, obviously, they're making a lot of big investments

I would say, AWS is going to remain a very key driver

I think in time as investments are realized, we could certainly see that number go back up

My suspicion is it will

But again, as an investor, and I'm a holder of Amazon, a longtime holder of the beauty of Amazon is, it makes its money in a number of different ways

Now, I don't think it necessarily has the same market opportunity that AWS has, but it just goes to show that Amazon has a lot of different ways it can win

Ricky Mulvey: Lot to dig into in the New York Times story

It's titled at Amazon's biggest Data Center

Everything is super sized for AI

Just something to ruffle your feathers a little bit as we get to the real estate side of this story

Matt Argersinger we are not the first ones to notice the boom in spending and demand for artificial intelligence

There's a huge amount of interest among REIT investors, real estate investment trusts

You look at something Digital Realty trust

You see that for a growth stock sometimes, but not for a REIT, man

Matt Argersinger: Well, so on the surface, Ricky, that definitely appears an incredible valuation for Digital Realty

But you have to remember with REITs, particularly one that's completing a lot of developments, making a lot of acquisitions, they generate a lot of depreciation expense

When you value a REIT, you want to strip that out, as well as other nonrecurring expenses, and you get a what the read industry calls funds from operations or FFO

That's basically the cash flow to a REIT

If you look at management's guidance, Digital Realty is on track to generate around seven dollars and 10 cents in FFO per this year

I remember what happened, let's say peak COVID, when there was the real estate story of the great move to the Sun Belt, where people are going to work from and they're going to need apartments in the Sun Belt

It happened in Mid America apartments, and a lot of growth can get pulled forward, and then there's a leveling off sometimes for years at a time

Do you think could the REIT market specifically for these data centers, be a little frothy right now

Any hesitation for investors looking at this space

Matt Argersinger: I'd see it as a little frothy, Ricky

I think the apartment comfy make is a good one

Many developers rushed in to build apartment buildings in states Texas, Florida, Arizona, right after COVID

That led to a huge oversupply that has pressured rents on these buildings in those states

It's hard to say whether data centers are in that same bubble loop

But the sheer amount of spending to me is just extreme, and it's coming from so many different players, whether it's REITs Digital Realty, which we talked, you've got the hyperscalers Amazon, Meta, and you've even got private equity

In the New York Times report, as well, you've got Blackstone, BlackRock, KKR making huge investments

I think taken together, it feels a little frothy

You have to remember, to me, we're dealing with nology here

What if smaller, more powerful chips come out over the next decade that just don't require the same amount of space or the same amount of power

Could that render a lot of this buildout we're seeing obsolete

It's not an unreasonable question

You're listening to Motley Fool Money

Welcome back to Motley Fool Money

I'm Ricky Mulvey, joined by Matt Argersinger and Jason Moser

Listeners and Matt and Jason, before we get back into the show, I just want to note that next Friday will be my last time hosting Motley Fool Money

But for now, I just want to express my gratitude to this organization, to you the listener for making us a part of your daily routine in some cases, and just say that I will dearly miss working with the good people at the Fool every day and that I'm optimistic the future

I'm excited what's to come

No good way to get to the next story from that

Let's get to this Hims & Hers story

Hims and Hers CEO Andrew Dudum biting back, responding on X that, "Novo Nordisk's commercial team increasingly pressured us to control clinical standards and steer patients to Wegovy regardless of whether it was clinically best for patients"

This breakup comes shortly after the partnership was announced

JaMo, why was this partnership such a big deal for Hims & Hers in the first place

Jason Moser: It gave them access to a leading GLP-1 drug, which I think enhanced credibility, which I think could help the company achieve its long term growth plans

I think it was some validation of the model

Now, on the flip side, and Hims is certainly not the only company that does this, but, they have a focus as well on these compounded drugs, which serves a purpose for sure, particularly in shortages, but they're also not FDA apved

There are questions as to whether they're actually serving the patients best interests

I think when you put all of this together, it just gives investors at least a little pause

I'm not saying it's something fatal for the company, but I think it gives investors a little bit of pause there

Dave Moore, the EVP of Novo's US operations said as much regarding the decision he said, "We expected that the efforts toward compounding personalization would diminish over time

When we didn't see that, we had to make a choice on behalf of patients"

It's just very interesting to see Hims perspective there and Novo's perspective there

When it comes to the best interest of the patients, I guess we will see how this evolves, but it's worth noting

It's just been on fire

Ricky Mulvey: This is a company I've taken a look at

The bull case that I've heard, there's a lot of excitement

The bull case for Hims & Hers is that it could pull a Netflix or Spotify for direct to consumer healthcare with personalized treatments

You've also got an AI driven platform, we're redefining healthcare

Are you buying the bull case

Jason Moser: On the fence with this one, I think it's certainly possible, but they need to be careful how they go it

This is something that comes with some reputational risk

If they come this platform that just vides non-FDA apved, compounded drugs and utilizes questionable marketing tactics

That could absolutely scare people away

In the best look when it comes to healthcare

They'll just need to be very thoughtful, I think, their next steps and how they ultimately communicate with not only their spective customers, but also investors, because part of their growth strategy is explicitly stated in building partnerships and expanding globally

If they're not able to achieve that, that's going to be a big blem for the growth picture going forward

Ricky Mulvey: Matt, any concerns when you hear X stock is the next Netflix, the next Spotify

Matt Argersinger: You always have to be careful with those

It wasn't, I think, more than several years ago, when investors were calling Nikola

Remember Nikola, it demonstrated its electric trucks by rolling them down hills

There have been so many companies, I've fallen for this over the years that have compared themselves or called themselves the next Berkshire Hathaway

I have a long list here

But I've learned, and I think Jason has, as well

When you say XYZ is the next ABC, you're almost always better off holding or buying ABC

Jason Moser: I feel you were getting ready to say Big Lori Holdings

Matt Argersinger: I was. [laughs] By the way, when Edie Lamper was running it

Ricky Mulvey: Don't forget Boston Omaha had a guy running it who was, what was it Warren Buffett's great nephew

Jason Moser: I think he's still running it

Matt Argersinger: He's now the only CEO

But definitely not the next Berkshire Hathaway

Ricky Mulvey: That's a real stretch

I got to start publishing who my cousins are on the show

I want to do this story, and I'm stealing it from a podcast I really Matt Beland is the town

At the midpoint of year, which we're at at, they looked at the overrated and underrated stories of the year

I thought for entertainment for them, but I thought it would be fun to do it more holistically for stories

I'm going to stay on Matt with this

Matt, first up, what is your overrated story of the year so far

Matt Argersinger: I don't want to ruffle any political feathers here, but DOGE

Matt Argersinger: There was supposed t.