Today I'm sitting down with Dea and Dean

Perus of Peros Research. We're going to

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 Peris brothers are good not only at

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Link in description. Let's get into it.

I am joined today by Dea and Dean Pernas

of Pernas Research which manages money

and also has an investment research

firm. Dean Dea, welcome to Monetary

Matters. Good to see you.

>> Pleasure being here again.

>> Thanks Jack. You guys have followed a

lot of stocks, a lot of themes in the

market. We're get into cyber security,

AI, the data center buildout, and single

stocks that you've invested in, many of

which successfully that I'll be honest,

I I consider myself who knows a lot of

stocks. You know, I I don't know these

stocks well. So, I think it's a very

different perspective than most people

will get on, you know, almost any any

other interview. But gentlemen, how

about we start off with a broad view of

the hyperscaler spending on AI, the

consequences and and your thoughts cuz I

I know you you really think this is this

is a this is a very big deal.

>> Yeah, it's it's very timely. Um I think

SanDisk, Skhinx, that entire memory

complex and AI complex has been down I

think 40 50% over the last month and uh

the market's really questioning if ROI

is there anymore. And uh especially with

with openw weight models coming coming

into play uh we believe open weights are

bullish for the AI ecosystem

uh 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 chatbt and anthropic

and then you have the application layer.

And so previously the frontier models

were uh essentially capturing a lot of

the unit economics of AI and now with

openw weight essentially there's a theme

called commoditize your compliment. So

if you're in a technology stack and if

your compliment gets commoditized a

demand increases to all the other

layers. And so if you're a cloud

provider for instance um enterprise are

going to be using more AI given uh the

fact that it's cheaper to use. they

don't have to pay $10 per million input

tokens for anthropic or chatbt. 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 uh it's not as bullish

for Frontier models but the argument can

definitely made that it's bullish for

all the other layers in in the

ecosystem. And we can go into whether

that uh whether the the improvements

that Kimmy has made is due to uh

distillation of clouds models. We we

believe it is. It's not purely due to

innovation architectural improvements.

Um u but yeah we we believe that um

there's still a case to be made for

bunch of models as well.

>> Right. So Kimmy is the model Kimmy 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 opensource 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 the layer

directly above the frontier lab? So the

hyperscalers who are spending it. So

that's Oracle, Microsoft, Google, Amazon

and uh let's see who who else am I

missing? Meta which uh you know Meta

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 bare

market panic in the semiconductor

complex. But what preceded that was a

weakness in the hyperscalers themselves.

So, I want to start there just um and

can can you link it to the general idea

of why you think that this is the best

time in history to to beat the S&P 500?

Yeah. The uh essentially we believe this

is bullish for enterprises because they

can now uh spend a lot more with AI. You

already heard talks about companies like

Uber and whatnot and Amazon pulling back

on AI spending because it was it was

getting too pricey. people are blowing

through uh their budgets in a span of a

month and that's because they had to pay

anthropic or chad

significant amounts of capital to use

their uh to use their models. So if

those can get reduced 90% or so Jeb

Jevans paradox is still in effect um and

that benefits cloud providers because

now um the economics translates to

whoever controls the GPU. So GPU rental

prices are going to increase as a

result. So we think overall

>> sorry aren't aren't the the main

customers of GPUs are open anthropic and

is is there pricing power that could be

probably will be hurt by by open models

how does that help the hyperscalers so

if if we go with uh number one that open

weight models are going to uh

essentially compete in lock step with

frontier models which I think a case can

be made against that because because of

anthropic accused openweight models of

of distilling fable etc. they they said

that about four million messages were

exchanged which Kimmy can then use to

train their model. So leaving that

leaving that aside um there would be an

air pocket demand for the frontier

models because they make make up such a

large bulk but um that would be replaced

with enterprises using these openweight

models who would and the people that

would host that or the companies that

would host that would be these

hyperscalers um leaving aside meta it

would be Microsoft Google AWS the the

usual suspects that okay and that's a

good point and it's really important

that openweight models have a far

cheaper cost to actually you use, but

you have to use your own cloud. And it's

it's not like the open weight models are

so much drastically cheaper in terms of

how much cloud how much compute they

use. They're just cheaper on in terms of

the the weights are open.

>> Exactly. Which leaves more uh pi for the

hyperscalers to absorb.

>> That makes sense. Dea, uh you have any

any thoughts here? Yeah, I think that um

it's a special time if you're an active

manager and you're you know, let's say

you're bogeies and you're trying to

outform in the SP. It's it's a very top

weighted index obviously uh you have you

know the top 10 names make up uh close

to 30 40% of the index weight and a lot

of these names that are hyperscalers you

mentioned are have it there's a step

function change in capital spend and for

the foreseeable future they're

essentially existentially forced to to

make these outlays with uncertain ROI

profiles. So you have a situation where

the leaders of the index are being

forced to kind of subsidize this spend

for the rest of the economy. Uh and you

could find other companies that benefit.

Um so uh yeah it's a very it's a special

time to be an active manager. And not to

mention most of these hypers scales we

mentioned are trading at significantly

high valuations roughly 10x EV to sales

if you if you average across all of them

which definitely isn't cheap if you ask

me. So uh I think there's a lot of

vulnerability in the index right now and

it's a pretty exciting time to be a

stock picker.

>> So a lot of mainstream thinking goes

where the hyperscalers go that's where

the suppliers to the hyperscalers so the

semiconductors the powers many of the

names that you're involved with and

we'll talk about that that's where those

go as well. But you you're saying that

you could see a world where actually the

hyperscalers burn a ton of money and

they burn on it spending on on on chips

and all all of these uh power stuff and

that's just a huge beneficiary to to the

the companies who are receiving the

money.

>> Yeah. At the end of the day the uh the

demand for compute is going to continue

to to be unlimited for the foreseeable

future. every actor in the economy right

now, every every business is trying to

figure out how to use AI. So, you're

going to need compute and all that is

backs stopped by hyperscaler spend. Um I

from what we're seeing is that there's

there's companies that are figuring out

best ways to convert that compute into

economics and a lot of these companies

are trading at reasonable valuations.

They're not having to spend a ton uh in

order to uh in order to receive

attractive economics and that's kind of

where we're looking. it it just you know

if if something's trading at 10x EV to

sales and there's a huge step function

in capex and have to spend all their

free cash flow and more a lot is going

to have to go right for uh that multiple

to be you know roughly correct so um

yeah I I think it's it's a lot easier to

look elsewhere

>> we will get into the elsewhere so Da I

know you've tracking a lot of software

stocks many of which uh you know you

talked about with my partner Maxi

recently and those have done well many

of them but we're going to start with

the hardware. So Dean tell us about the

the sort of thematic overview of the

port the stocks in in your guys's

portfolio

um allocated towards the data center and

almost none I think I think literally

none are semiconductor companies but

they are involved in various ways. So,

uh, Dean, start off with your holistic

approach, the theme that you see that's

benefiting all these various companies,

and then we'll get into what drew you to

to the individual stocks. Sure. So, uh,

the largest theme is energy. So, um,

especially bring your own power. Um, the

infrastructure in the United States is a

very aged and antiquated thing and for a

good reason. for the last 20 years or so

um essentially the amount the energy

demand of the United States has been

roughly the same around 4,000 terowatt

hours because appliances have been

getting more efficient and even though

the population has been growing they've

kind of counted each other and now you

have um AI which is poised to take 20%

of the entire US energy grid demand by

2030 roughly 100 gigawatts or so and the

the the infrastructure the grid can't

can't do that uh primarily because of

two two reasons the transmission lines

are just it's akin to a two-lane

highway, which should be like an eight

eight uh lane highway. And the power

fluctuation of these data centers simply

the transmission lines can't can't do

it. And so there's these massive cues to

to get power from the grid. And it's

extending 18 to 24 months. And so all

these companies, these hyperscalers have

to bring their own power. And the uh

United States is very fortunate that

they have natural gas pipelines almost

everywhere. And so they can plug in and

uh if they have turbines they can

utilize the natural gas to create

energy. And so that that theme we

believe is going to continue to sustain

itself for the next 3 to 5 years um uh

until more alternatives can be bought

can be brought to the market. So we

believe that's that's still the

strongest theme out there. Um and open

weight open weight models only

accelerate that. Um another theme is um

data data bandwidth between data

centers. So you've been seeing these

massive data centers being built on the

scale of 1 to 3 gawatt and we believe

that's going to be topping out soon

primarily because of two reasons. Number

one, you just can't bring that much

energy into a site. And number two, um

you're seeing a lot of push back from

cities and communities that don't like

these massive data centers. They think

there's emissions and water

contaminations. And so you see these

moratoriums cropping up in different

states. And um as a result uh these

hyperscalers are going to have to now

bridge data centers in different

geographic locations together. So

bandwidth needs are going to have to

expand almost 15 times to accommodate

that. And we believe that that is

another theme that that uh we believe is

very attractive.

>> So exactly what do you mean by by

bandwidth needs going up?

>> So essentially um you can think about

these data centers as monolithic. they

kind of operate as standalone silos and

now instead of say uh a 10 gigawatt site

you're going to have 10 different 1

gawatt sites and they all have to be

communicating with one another to to be

creating to do trading runs or to be

running inference etc.

>> Okay, that's interesting. So let's let's

talk about the first theme which

specifically is electricity power energy

and is it specifically behind the meter

or is it just broadly?

>> Specifically uh bring your own energy.

Yes.

>> Okay. So bring your own energy.

You know, Dean Dea, I associate with

bring your own energy

names like Bloom Energy, names like

Constellation Energy, GE Vernova, many

names that people um you know, if they

listen to other financial podcasts or

television programs will like hear all

all the time. Again, you've got some

stuff that not almost no one else has.

Exactly. Why do you own what you own? um

as opposed to the more mainstream kind

of behind the meter names.

>> Yeah, you you named the largest players.

Bloom Energy is is a massive one. Um we

have a company called Capstone Energy in

which they produce small microurbons. Um

think 50 kilowatts to two to three

megawws. And simply it's it's also

valuation. Um Bloom Energy is trading at

I think the last time I looked at 15 20

times revenue and capstone is trading on

the scale of three times. And so

valuation is is a huge driver in in our

stock picks and we believe the tailwinds

are just as strong. Bloom Energy

produces fuel cells roughly on the same

dimensions as Capstone. They're a bit

more efficient. Um however capstone

micro turbines are less costly. Um and

so we just think that the the trends are

the trends are just as strong with with

Capstone. However, the valuation is much

more attractive.

>> So Capstone produces turbines that are

smaller than Bloom Energy. who would buy

these turbines as opposed to, you know,

the the biggest data centers in the

world if they're doing behind the meter,

I imagine they want to go to Bloom. Uh

what yeah, what's going on with

capstone? And also, just step back, what

is a what what is a a turbine? What is a

fuel cell? What are we talking about

here? A micro turbine is essentially

just a large turbine shrunken down. So,

you could think about these massive

turbines that GE Vernova makes that are

on the scale of 200 to 300 megawatts. um

why someone would pick Capstone or a

Bloom Energy is time to market. So

there's massive lead times with these

larger turbines um stretching on the

order of 18 to 24 months. And it's

crucial if you don't have energy, you

don't have anything. And so you need

energy however you however you can find

it. Um and so uh that's one of

Capstone's biggest assets. It time to

market is on the scale of one to three

months and it has sign significant

capacity left. That that that is the

large driver. So, energy energy uh as

soon as you can as soon as you can find

it, you you want it.

>> Okay. And so, Capstone Energy from when

you initiated on August 5th, 2025 to its

peak in May 29th, 2026 was up uh 1,131%

roughly. Now, with the almost 50%

decline, it's been cut in half. It is

still up 545%.

How do you think about valuation here?

And just how significant do you think

the the growth in its you know revenues

and potentially profits are are going to

be going forward?

>> It's uh it's roughly operating about 10%

capacity. So it can produce roughly a

gigawatt uh per year uh running three

shifts. Right now it's it's 90% less

than that. Um if and what we like about

caps is there's multiple ways to win. So

number one they can be a certain data

hall for hyperscaler. We we don't expect

it to to be producing or supplying 300

megawatts to hyperscaler. you think

that's a bit excessive but certain data

halls 20 30 megawatts at a time um

certainly reasonable um and then there's

edge data centers so edge data centers

are just small very small data centers

roughly on the scale 1 to four megawatts

and there's thousands of them in the

United States those have yet to go from

CPUs to GPUs we think as uh image and

audio modalities become more of a thing

video modalities that's latency is going

to play much more of a role and so these

edge data centers are going to take

center stage that that that's coming

down the pipeline And third, you have

all these other manufacturing facilities

that can't rely on the grid as much

because of all this demand that's being

imposed on it. And so, um, we think

those three avenues are are very

lucrative for Capstone.

>> Okay. And would I be right in that it's

basically made no money at all. Right.

>> Over the last So, the company's been

around for over the last 40 years. They

just came out of prepackaged bankruptcy

about three years ago. They hit their

first year of profitability last year.

Say yes.

>> Okay. Wait. Sorry. I uh Oh,

okay. Sorry. You know what I have? I

literally was looking at it in billions.

So, I'm like, "Oh, only 0.1 billion."

Okay. Yeah. Okay. Okay. Sorry. I I

>> It's a very small company. It's about uh

300 million $350 million fully diluted.

>> So, what else other than uh Capstone?

So, this the second theme uh well, I

guess still tied to natural gas is a

company called Stabilist Solutions. We

just uh initiated this position

recently. Um essentially uh you have for

for data centers that don't have access

to a pipeline, you need portable natural

gas. So you need a company that can

liqufide the natural gas that can

transport it via cryogenic trucks, store

in a tank, then have vapor vaporizers so

that you can be able to use it. And so

establish really operates in this space.

Um it it's been consolidating now over

the last couple decades. It hasn't been

a large space uh historically.

Establish is now one of the few few uh

solution providers in it and it couldn't

be the environment couldn't be better

for it. Primarily driven by two things.

Number one, they just signed a large

contract with a data center. I believe

it was a couple hundred million dollars

over two years to provide uh these

portable natural gas solutions to it. Um

and number two uh via SpaceX. So SpaceX

is one of its large customers and uh

space shuttle has used LG's as fuel and

essentially SpaceX launches are going to

go from I think 50 or so to 20x that in

5 years time. And so those are two

massive trends that we think are going

to drive uh favorable unit economics for

establish.

>> So this company supplies natural gas to

data centers and also to SpaceX.

>> Yes, you can think about it. It's called

a virtual pipeline. So, if you don't

have access to a pipeline, you need

these guys to uh provide natural gas to

you via via tanks or via via trucks.

>> Interesting. Um, this is a small cap

stock. So, that's a it's an interesting

name and it's it's a recent addition.

You have it, I believe, as a quote

unquote speculative holding in your

portfolio for for Peros Research. You

got three ratings going from speculative

at, you know, 1 to 3%, starter 3 to 5%,

and core 5 to 15%. So, Stabilus is a

spec in the speculative category. Yes,

it's it's a very small company. It's

around a $75 million market cap and so

uh the sizing uh sizing is smaller with

with those companies.

>> Okay, so we talked behind the meter. Now

tell us about bandwidth.

>> Yes, absolutely. So uh like we were

saying data bandwidth needs uh between

data centers going to increase

significantly and uh this company called

Smart Optics located out of Sweden

essentially plays directly into that

space. Um everyone in Silicon Valley

knows them. They have they've uh

essentially their hardware they modify

it to be able to uh to be able to

communicate with other providers in that

space whether it be Broadcom or Cisco or

RITA and their software is also

bestin-class and so um also a smaller

company but we believe their solutions

are pretty much tailor made for uh the

the rise of scale across and data

centers

>> and sorry what do they do they they like

control the amount of bandwidth going

between different data centers.

>> Yes. So it's it's it's only the hardware

to be able to essentially convert data

into light to be able to send across

fiber to other data centers and software

to be able to modulate that and make

sure that's extremely accurate.

>> That's uh that's interesting. And

interestingly this this stock I guess

did it did it recently IPO

>> Smart Optics? No, it's uh it's I think

listed

>> recently recently got listed in the US.

Okay. It's been trading for

>> Yeah. on Oslo Exchange. Um their

headquarters I think they just relocated

to Sweden. Yeah. It's It's been listed

now for about I think uh close to four

years.

>> Okay. So So Dean, I I think you know

you're kind of the hardware guy. Dea is

the the software guy of the the family.

Another hardware name you have uh looked

at is Viche.

>> Tell us about that. You first uh talked

about that in June of 2025. Uh the stock

tripled uh to June of 2026, but then it

is down significantly from its highs.

It's basically down been cut in half

over the past month. What is Viche?

What's it exposure to this this trend?

>> Yeah. So, Vich is a play on robotics and

so we think that the next step with AI

is robotics. So, essentially we have the

hardware solutions built out but the

brain isn't isn't really there. And we

believe um given high fidelity physics

physics simulations um AI can

essentially uh create the brain needed

to operate robotics. And so we believe

that um if that's the case then humanoid

robotics might be the largest

industry in in 10 years time. And so uh

Vich essentially makes these strains and

sensors strain gauges and sensors that

go into the hands of uh of humanoid

robotics. And um we believe they're they

they already have three large customers

in that space. It's still in prototype

mode. I think Tesla, Figure, and and uh

one other one. Um and essentially it's

it's a play on that. If AI can create

the brain for robotics, um given that

the hardware is is there, it's that

hockey stick growth um is is pretty much

incalculable over the next several

years. But to be clear, this is Vich

precision group VPG. This is not

Vshology, which is a producer of passive

components. And I myself got confused.

So, uh people people should be aware of

of that. Da you do you have anything to

add here? just as far as the uh like you

know a lot of these companies some of

these companies that we've owned we've

continue to own because we think the

upside potential is significant

especially when you look out at some of

the trends that Dean mentioned I mean

who know who quite knows how big the

robotics trend is going to be in the

next 10 years but you know it's it's

very uh clear to see the durable

momentum just going forward and owning

these names um for a period of time I

think that even if you're paying up in

multiple slightly. Uh there there's just

the opportunity set is just too enormous

not to have exposure.

>> Tell us about another theme cyber

security which at a time was grouped in

with software. So all these stocks sold

off now the conversation is evolving to

something a little bit different. tell

us your view on cyber security in the

age of AI DEA and how you and your

brother have chosen to to to play this

in the markets. Yeah, I think what's

going on in cyber is really interesting

and we were headed ahead of this a

little bit and now it's just continuing

to gain momentum and you see the

narrative of this growing uh and really

cyber and is is we're on the precipice

of a of a new chapter in cyber and one

of the reasons why a lot of CTOs and

CISOs like really the uh the positions

the the people in companies that are

responsible for tech and cyber why

they're freaking account is that you're

seeing this huge shift from really like

identity based attacks. If you look at

the majority of attacks in the recent

years, there like 80% or so are from I

you know identity uh based attacks like

everybody's familiar with fishing

attempts and so on. For bad actors, it's

been a lot easier to try to finagle or

steal your identity somehow and walk

through the front door with the keys

rather than try to find vulnerabilities

in the structure of your house and, you

know, trying to find a way to to

penetrate uh to to penetrate your home

that way. So what we're seeing now is

with the uh with the influx of these

frontier models and their ability to go

through thousands of lines of code and

find vulnerabilities is that it it's

allowing uh bad actors to find and

exploit vulnerabilities a lot easier. So

the cost of finding vulnerabilities in

code has gone down significantly. So

really it's like oh my god we actually

have to worry about traditional hacking

again. Um you know as opposed to just oh

let's just try to make sure let let's

Let let's hire Crowd Strike. Let's get

their Falcon agent. Make sure that all

our all the you know all our actors all

you know all their uh their activities

are being tracked by Falcon and you know

nothing uh disruptive identity wise is

happening. Now we're having to worry

about a whole new other thing which is

really exposures. Where are

vulnerabilities are like where are all

our assets? Where are the

vulnerabilities? Which vulnerabilities

matter? and what is the potential

consequence if somebody were to exploit

these vulnerabilities which is a whole

different question that's being asked in

cyber over over recent versus versus

recent years. So, you're saying like

over the past 10 years or so, the main

cyber security threat was like you have

an employee, let's call him Jeremy, and

he gets called by a scammer who says,

"Hello, I need your thing, blah, blah,

blah." And he says gives the social

security, gives the bank information,

all that stuff. And cyber security was

trying to contain that risk of human

error. And now the risk going forward is

is not so much that it is literally the

computer system itself has been hacked

by this extremely powerful AI, which

has, you know, has happened.

>> Exactly. Well said. We're still going to

have to worry about the identity stuff.

That isn't going away obviously. But

yes, it's uh the so on the software

side, the vulnerabilities on getting

hacked in general uh is a lot is

significantly more poignant now and is

going to continue to gain momentum,

especially as uh really the obstacle has

been cost, but as some of these models

start to become lower cost and some of

these bad actors can use these models to

find these vulnerabilities and exploit

them, uh it's going to become more and

more of a problem. And uh when I say

CISOs and CTOs are freaking out about

it, it's an understatement like they're

losing their minds about what like are

they prepared for the next shift in

cyber security.

>> So CO's chief technology officer, CCO is

what? Chief compliance officer or

>> chief information security offic. Yeah.

So really the person responsible for pro

protecting the company from uh cyber

attacks and stuff like that.

>> Yes. And so these stocks alongside

software have sold off because oh my god

AI is going to make this software and

disrupt it. You think that's an

opportunity?

>> So it's a huge opportunity for companies

that are able to provide solutions

around hey where I'm a company. Let's

say I'm a large company. I have assets.

I have servers. I have you know AI

solutions. I have I don't even know all

the applications that I'm using. Uh I

need a solution that is going to tell me

where all my assets are. that's going to

be able to scan them, tell me where all

the vulnerabilities are, and there's

going to be hundreds of them, but then

only tell me the ones that really,

really matter, and then be able to fix

them for me. Like, that's where it's

headed. Um, so the company that we're

really interested in is a company called

Tennal that is ahead of the game here.

They're uh the leaders in something

called exposure management, which is

where the space is heading. uh they

started this in 2022 and it's really

about taking their previous solution

which was kind of a vulnerability

scanning software that uh that has

tended to kind of move to a more

commoditized direction and really

building out a platform uh behind

exposure management getting using some

of the they have a partnership with

Anthropic using some of these frontier

models to be able to go through all your

assets being able to go through your

code find the vulnerabilities and help

you fix them. So they're the leaders in

that space. They have a incredible

opportunity to upsell all their uh

previous vulnerability scanners into

this new platform and uh the tailwinds

um are quite durable for this company

for a long time. And keep in mind that

versus um some of the larger competitors

in space, I mean Teneal trades at four

times EV to sales and Crowd Strike and

Palo Alto are both north of 20 times EV

to sales. So you're getting a huge

discount on on a player that uh may be

better positioned than some of these

larger rivals to to do very very well

given this uh given this platform shift

and it is just starting to make money on

an operating profit gap basis. So maybe

those other cyber security companies are

you know making uh you know much more

much more money in terms of gap

earnings. That is an issue with software

is that some software stocks have sold

off so much but they're still not at the

level where you know deep value

investors would would buy them even if

some of these stocks are literally down

80%. Um you know DEA broadly thinking

about this SAS apocalypse you know the

apocalypse of software as a service

stocks

how do you assess the threat of soft of

AI to software stocks? How do you think

about the bare case? What is the bear

case as you and your your brother

perceive it? What percentage accurate is

is it where where is it correct? Where

is it not correct?

>> Totally. And there's two things here.

The first one I want to address is that

some of these companies don't scan well.

Like if you look at the tenable, if you

look at some of the other SAS companies,

um some of the other ones, their growth

has come down significantly, but their

stockbased compensation is still

extraordinarily high. Uh which is one of

the re like a company we own named

Sprout, which is one of the reasons why

it screens quite poorly. But I would uh

>> by the way, Sprout, you talked about it

with Max in April. It's up like 50 or

60% since then. So,

>> it was so beaten up. It was It was such

an easy call to make. I mean, this

thing, everybody is pricing this thing

for uh complete, you know, complete

decapitation. And it was very clear

that, you know, the market was wrong on

the probabilities. Um but these

companies, yes, you're right. they

screen bad on a gap basis, but a lot of

that is due to SBC and because some of

these growth rates have come down. You

know, SBC is just like any other

variable expense is how we believe

investors should view SBC. And if you

think that there's reason to believe

that SBC SBC as a percentage of revenue

should come down quite rapidly over the

future, that's an opportunity to get in

front of some uh very, you know, very

attractively enhanced gap earnings just

as a result of SBC normalizing. Uh so um

that that's one thing. Uh secondly, I

think the market was correct to assess

vulnerability. A lot has changed in

software. You know, if agents can use

software and of the cost of producing

production ready code has has come down

by an order of magnitude of 90 to 95%.

Yeah, it clearly requires a

re-evaluation of uh some of the software

companies and what does it mean to have

staying staying power as a software

company? Where does the actual moat come

from? Um and I think the market is just

starting to figure out you know okay

which software companies are vulnerable.

Well well you know none of these

software none of these big software

companies have actually seen any sort of

uh any sort of supplanting of their

products or services yet. None of that

has happened. I mean obviously some soft

small software tools are very easily

replaced but you know if you're a

fullthroated kind of software company uh

enterprise company there's still it's

still very very difficult to replace and

you know which ones are have the

defensibility um and for us it's really

around uh you know do they have any sort

of um any sort of unique data do they

collect their own data do they provide

you know security compliance um you know

enterprisegrade features How deep are

their integrations? Um, is there a real

world component to it? Are they helping

the company solve logistics issues or

are they helping the company with uh

giant construction projects like a

company like a Procore for instance? Uh,

or is it just a purely a digital tool?

So, uh, for us it's really the

evaluation is an end of one. You have to

look at each each of them as a casebyase

deal and not just a broad blanketed uh,

okay, well software is going to get

destroyed. And I I think the market's

getting better at better at some of the

nuance around some of these software

names.

>> What are some software stocks where

you've looked at them and you think,

man, the sell-off is warranted. And if

anything, I think that it's going to go

down a lot more. Like this has just been

one-shotted by AI, destroyed by AI.

>> Um, as far as the bigger names go, not

really any. Although, what I will say is

I think the sell-off uh is rational. Not

exactly from the uh you know this thing

has no terminal value not from that

perspective but really that I don't

think you know most of these companies

should have been trading at some of the

levels they were trading at start the

year anyway.

>> Why do you think a sell-off is is

merited in the sales forces of the

world?

>> Well it's it's also the uh growth rate

if most of these SAS companies their

growth rate is also come down a bit.

It's not due to um the AI threat. just

due to the nature that they were uh fast

growing names and this kind of slowed

down. So the opportunity in front of

them where's the ne next leg uh growth

where's the next leg of growth going to

come from is difficult to answer. Um you

know these companies are going to I

their their fundamentals are going to

continue to improve and we've seen that

this earning season. um you know but

like it's hard to get investors excited

about a larger growth story where with

teneable uh you know we think it's a

completely different situation given

given what's happening in cyber

security.

>> Yeah. So obviously you are very

forwardlooking which is how you make

money in in markets actually but just

looking like optically at the revenue

growth rate they both are you know used

to be growing at very high rates and now

we're growing at like 10%. So you I

expect you you think growth for tenable

is going to accelerate. We think growth

retainable is going to accelerate given

the opportunity. Exactly. Like you said

um we don't you know our perspective is

that uh investing is all about

anticipating the future. Uh and if you

have a variant perception uh to the

prevailing market and you're right more

often than you're wrong, you're going to

make a lot of money in this business. So

it's all about uh forward looking and

how you see the future contours of a

business evolving. Um and yeah for us we

think uh tenable is moving quite fast.

There's a uh there's a significant

urgency to that culture to take

advantage of this uh of this struct of

this structural shift in cyber to get

ahead of the next chapter in cyber and

we think they're going to be um they're

positioned to benefit from that. We're

already seeing that in their data their

upsell uh rates and uh customers that

are moving to their uh to their exposure

management platform which is which is

the opportunity.

>> Okay. What what other names in the cyber

security or software world are are you

invested in and why?

>> Um I think one that's a pretty easy uh

it's pretty easy to own is a company

called Upwork. Um it's not really a a

SAS name. It's a software uh company. Um

and

I think we've forgotten how special

marketplace businesses are and how

difficult marketplace businesses are to

build. uh you know the network effects

that are involved and just how you know

impossible it is to replace this type of

business. But Upwork is its own little

economy that connects uh you know

businesses to freelancers. Uh freelance

you know think of highv value

freelancers. This isn't like a fiverr

where you just need you know a quick

logo created or something. There is part

of the Upwork platform that does that

and that's being competed away by AI

which has caused a lot of investors to

aggressively sell off upwork stock in

fears that oh my god a lot of these uh

freelancers are going to be replaced by

AI. connects um businesses who need uh

support whether you know think about oh

my god I I need help with shoring up my

cyber security or I need help with uh

creating uh a marketing solution for my

business or I need help with you know

customer service whatever your needs are

uh as a business and Upwork is is there

the freelancer is there to be able to

serve those needs and it's a platform

that's it's not static it's not like uh

just like any other economy

there's creative destruction. So if a

certain substrata of freelancers is no

longer being used, that's going to be

replaced by whatever fe needs are in the

future. Um, so we're, you know, we're

highly bullish on Upwork staying power

and especially if you look at it from

the perspective of valuation. This thing

trades at a little over one times EV to

sales. It's trading about six a little

over six times EV to free cash flow, you

know, even after taking into account

SBC. So, unbelievably cheap business

that's impossible to replicate that's

growing. Uh, I don't know where you find

a better bargain that in this market.

Uh, so yeah, we're very very happy to

have exposure there. So D, I I do

project some people listening to this

and thinking, man, he's talking about

Upwork. Like that company's going to be

totally dead because there are companies

that they offer consulting services that

now really like can be done by AI

software development advice, that kind

of stuff. Why isn't what Up Upwork going

to die? and talk about the business that

you think it's being competed away

versus the broader business that you

think is is going to be totally fine in

this era and and the difference between

that.

>> Well, you you you don't even have to

take my word for it. You can just look

at their data. The the jobs that are

underneath 500 or more as as far as job

goes, which are low value work, they're

seeing some weakness there. So, they're

very uh transparent about the weakness

you're seeing in that that lower kind.

>> What do you mean 500 or more? 500.

>> You know, I need a I need a logo

created. I'm gonna get you're a

freelancer. Uh I'm a small business. I

need a logo created. I'm gonna give you

$300 for it. That kind of those kind of

jobs.

>> So 500 or $500 or less for the entire

task that is seeing uh strong weakness

whereas the other part is not.

>> Exactly. Um so which is a lot of

Fiverr's business. Fiverr is a competing

kind of freelancer platform that has

really kind of you know productized a

lot of these kind of lower value jobs

and they're and I think they're going to

have a much tougher time but Upwork um

you know most of the overwhelming uh

jobs on their platform tasks on their

platform are higher value jobs. You know

I need somebody to kind of maintain my

website uh make the proper updates. I

need somebody to uh you know I need some

consultative help around my you know my

marketing solutions you know stuff like

that higher value uh services um yeah so

I I disagree strongly as the market I

don't think that's going away I think

small businesses at the end they want to

talk to people uh a lot of times they

don't even know what questions to ask so

how is an AI going to be that useful for

you if you don't know what the right

questions to ask somebody who really

understands your problems and is an

expert in that space u you know that's

not going away your way you're going to

need uh you're going to need experts in

certain areas. AI can help you and and

keep in mind AI [clears throat] is also

helping the expert that you're talking

to. So, it's making them a whole lot

more efficient. Uh and at the end of the

day, look look, it's a whole lot easier

to just talk to somebody who understands

what you're doing and have them do

everything instead of having to prompt

AI 18 million times to get some

iteration of something exactly right. Uh

so yeah for us we think that freelancers

especially uh powered by AI are going to

be incredibly valuable. You know uh we

are big users of the Upwork platform and

our spend on that platform has continued

to grow over the years. It has hasn't

declined. So um yeah I mean obviously

we're an end of one but you know there's

a lot of the reasons why we we think

that the the Upwork has staying there.

>> That's interesting. I think that could

be your most contrarian take so so far.

I'm excited. uh to see if it works out.

I I think would you guys say in your

portfolio you do have a blend of things

that are against the tide versus with

the tide. So, you know, some of the

names that Dean was talking about

earlier probably you know people have

never heard of them but they do similar

things to the stocks that are up a ton

and you know they're up the ton whereas

Sprouo you know it's it's up a lot from

when you talked about it with with Max

Da but that was a software name that was

totally in the line of fire. So are you

guys aware of that in terms of managing

your portfolio of you want to have some

positive momentum and some negative

momentum names?

>> Really it comes around just having a

variant view. So a lot of the names you

mentioned uh with Dean like you know you

can be with the momentum but if you

think somehow the trend is even stronger

than the current momentum suggests and

that that's a variant uh perspective

that qualifies. you know, there's

usually opportunities to make a lot more

money the more variant your perception

is. So, we're just kind of more

attracted to contrarian takes. That

being said, they don't all, you know,

it, you know, the markets may be right

on a lot of them a lot of times. Uh, but

yeah, for some of these software names,

you know, it is a heavily contrarian

take and that's why there's an

opportunity to make excess returns is

because, you know, you think the

market's wrong and you're willing to uh

place a significant amount of capital on

your conviction. D, you've got several

other software names obviously available

to Parinus Research clients. I want to

take a step back and get your story. So,

the model portfolio or the portfolio

that that you guys have been managing

since 2017,

um, it's, you know, outperformed the S&P

since then and actually done double the

S&P. tell us the story of managing that

that money your guys' investment journey

and then we'll get into the philosophy

and when you you know why you started

PRA research. So the the the whole

concept of pronounc research is really

around how uh we think cellside research

has a lot to be uh you know there's a

lot there's a lot there to be desired uh

you know there's a lot of biases there's

no real conviction it's more coverage

than anything and you know bodyside

research when done right you know with

with that alignment is just better these

are people uh they have skin in the game

they're they're invested [clears throat]

alongside of their ideas they just care

more and it It reads with more

conviction. Yeah. So, uh, for us, it

just seems it just seemed like a

no-brainer, uh, easier business model

than sellside research. Obviously,

there's still place for sellside

research, but, um, we we just don't

really like any of it to be honest. So,

we decided to kind of create our own

research firm around the concept of buy

research. Uh, none of these none of

these other research providers really

have a track record. uh a lot of these

you know sellside research firms that I

talk about they've made some

recommendation or whatever a year ago

and whether it worked out or not nobody

seems to care nobody has a record of

anything and yeah for us you know track

records are important like how has your

portfolio done like are you any good at

what you do if you're not you should

just go home is how we think about it so

for us track record is everything and um

we've structured the entire uh research

around that and I can get into the

portfolio in a second but that's really

the genesis around um you

uh on why we decided to start our

research business.

>> That that makes sense. Yeah. Let's keep

keep it coming on the portfolio.

>> Yeah. Go ahead, Dean.

>> No, you that younger younger brother

showing respect. Nice. [laughter]

>> Um so yeah, the portfolio is really

structured. There's three different

sleeves. There's a core uh bucket and

those are really names that we have uh

strong conviction in over the next

couple years. They tend to have longer

time horizons. we they tend to have

higher our our our picks in that bucket

tend to have higher batting averages.

Usually it's around 70%. Um and we tend

to weight those more in the portfolio.

So if you think about I hate the word

compounder, but if you think about

compounders, it's kind of like that

companies we have more conviction in uh

in their their growth profile, in their

financial profile, so on and so forth.

More established type companies. Uh and

then we have another bucket which is

starter positions. In this modern

market, things can kind of move so fast,

you maybe don't have the time to do, you

know, the the three months of research

you wish you could do in a name or an

industry and you kind of just have to do

the

appropriate amount of research and take

a position because the the idea is

interesting and it could potentially

graduate into a core position. So,

that's really our starter bucket um

which is weighted around 3%. Each of

those is weighted around 3%. And then

you have our speculative sleeve where a

lot of the names in there have very

little downside protection, but the

upside, it's really about slugging

percentage. It's not about batting

percentage. You're really trying to take

small positions in a name. And you think

that there's opportunity for multiples

of returns in a short period of time.

And that's kind of how we structure uh

our portfolio.

>> Tell us what's available to your clients

of Perinas Research. So you've got the

research vault, your your pieces on your

open positions, your closed positions,

pieces you're neutral on. You have your

active active portfolio and you're uh

tracking that on whether it's a core

position, etc. whether you're trimming

it. Um you got the the performance and

then stock, sonar, and theme. So just

tell us kind of uh what what people get.

>> So really the first thing they get is

access to the portfolio and all the

research uh you know all the research

according to every single name. So we

have an every single name that we uh

that we put in the portfolio there's an

initiation report on and then there's

updates we provide on the name and you

know updates on certain actions we're

taking if we're taking any actions at

all like maybe we trim something maybe

we add something on some weakness you

know a lot of times if uh if you own a

name and the fundamentals keep doing

what you think they're going to doing

and and the price is going the other way

you have to add to that position. Over

the years, we found out that that makes

up about 20 to 30% of our alpha is being

able to uh to kind of average down when

it's appropriate. So, you know, uh any

any of those actions in the portfolio,

there's always research communications

associated with it. But that's the first

thing they get is the portfolio and then

regularized research around each of

those names, any new ideas and so on.

And we have a regular cadence of the

research that we produce. Every month we

come out with a report on something uh

and weekly we talk about all the types

of ideas we're looking at. That's the

stock sonar that you mentioned. There'll

be three names we thought were

interesting. Maybe we passed on them.

Maybe we think there's more research

needed on them. But we try to give uh

our members like kind of a an inside

view into the research process and where

we're looking.

>> Right. Just looking through you talk

about not just the stocks that you like

but the stocks that you passed on. So

you for example uh TIC solutions

actually I know that stock you say pass

uh Back Blaze pass. You say okay it's a

it's a fine company but here's why I

didn't own that. That's important. Also

I think it's you're got your work is

really short. There's like no fat at all

and some of the work is literally like

two to three paragraphs and it's I think

that's uh may seem like people are

getting less well they're getting fewer

words but they're actually getting a lot

more and it's saving time.

>> Yeah, I think it's I think it's both. I

think uh it's bite-sized when it's you

know like like you said we we do publish

on when we pass on certain ideas which

we think is important it gives an gives

people an uh a deep understanding into

our filter process and uh you know it it

and it also helps um what we found this

feedback we got but we didn't know at

the time that for our members it gives

them more conviction in the ideas where

we where we do flag is like something

that's really interesting given than all

the stocks we've passed on. So, they

kind of already understand our thought

process and they're they're bought in to

our philosophy just just through uh you

know the different companies that we

passed on.

>> I think it's also it's like people may

have lived and listened to Dean say he

loves this robotics company like it's

important context. Well, there's five

other robotics companies that Dean and

Da looked at and they didn't like it and

here's why.

>> Yeah. Exactly. So, and I think it it uh

it's what every stock breaker should be

doing anyway. They should be going, they

should be turning over rocks. And if

you're not looking at many different

companies, you know, all the time and

trying to evaluate, uh, getting your

reps in, uh, it's very difficult to, uh,

outperform in our opinion. We don't,

we're not believers in the, you know,

buy and hold forever, uh, philosophy for

a number of reasons. Uh, you know, you

got to be constantly looking at new

ideas and, uh, making evaluations in

your portfolio.

>> Dean, anything to add?

>> The hit rate for us is roughly like one

in a 100. So, we pass on a lot more

companies, but companies that involve

some some research, we yeah, we're

generally around a 1% hit rate with

those. So, yeah, we we turn over a ton

of rocks and it also informs our

portfolio construction because if we're

not finding a lot of opportunities

um at company level, it's it we we're

going to have a higher cash waiting in

the portfolio. So, just it it informs

both.

>> And you're mostly um in the small and

midcap space.

>> Yes, exactly. But but like they likes to

mention, it's incidental. Um there's

just a lot more companies in that space.

Um uh however we we do dabble in med

caps if if the opportunity calls for. So

for instance, Meta was one of our large

positions. I think back in 2022 or so

when it sold off I think 70 or so

percent uh on fears that uh essentially

uh ad tracking transparency was going to

ruin their ad targeting abilities. Tik

Tok was going to uh essentially

monopolize Gen Z and Instagram didn't

have a rebuttal. Um, on top of that,

there was the metaverse that Zuck

Zuckerberg was plying 40 $50 billion a

year into. And um, uh, we thought that

the self, I think at at its bottom is

around $90 a share from 300 something

was was just just throwing throwing

everything out, throwing the baby out

the bath water. Essentially, we we think

Zuckerberg is one of the more talented

CEOs. He he's had a couple missteps with

Meta and AI. I'm actually a bit

disappointed. We sold we sold out of

meta I think la last year um just as

their AI open source llama was not at

the level that we thought it would be

and we believe that had to do with

several things like Yan Lun was was head

of AI research there and he he's been a

massive opponent against LMS he thinks

it's kind of a a localized a local

maximum as opposed to kind of global

maximum he thinks it's a it's a

culde-sac for AI and so I think there's

been some cultural uh mishaps there

that's that's slowed the progression AI,

but we do think we we look we look up on

him very very favorably as a CEO. I

mean, he's he's uh take Facebook from

what it was. He was able to monetize at

at uh on mobile when it was was very

hard to do so and he's able to copy uh

Snapchat and take that take market share

there. So, we we believe that the

sell-off was was uh drastic. However,

when it recovered to 700 plus, we we got

out of it given the valuation along with

progression AI.

>> That is interesting. That is um so so

monetary matters listeners can get a 20%

discount to subscription to PNAS

research and uh that the subscription is

a quarterly

subscription. The link is in the

description. There's no code. All you

have to do is click the link. Tell us

more about Meta. This stock is probably

the biggest spender relative to the

revenue that it's actually generating

from this the spending on AI capex. Like

they're basically just spending for

themselves. They've announced they're

going to sell it sell into the compute.

What are you guys thoughts on on Meta

now? I I admit that I'm uh like pretty

bearish on on Meta because to me it's

kind of seems like they don't really

have a plan or they're very bad at um

communicating their plan. But I'm

curious uh what what you guys think. you

guys know it way better than I have and

have uh done tremendously well in stock.

>> Yeah, Meta. So, the first strategy of

Meta was open source and so Meta is not

in the cloud business. It wasn't in the

cloud business. Um that might change in

the future, but they're they're in the

the content business. So, if they could

make AI open source, make it cheap,

people would produce more AI content

which would benefit them directly having

largest uh network in the world. Um, so

that was that was the strategy that uh

that we we thought they were going after

and we thought it was the right

strategy. Um, now it seems like they're

just floundering and trying to find uh

the best uh use of just the the

thousands of GPUs they've acquired.

Cloud could be could be uh very

profitable for them given if especially

if there's a an in acceleration demand

given open weight models and enterprise

using them. But yeah, seems like they're

they're floundering. um they they did a

lot of head-h hunting and poached Jagu

and Anthropic employees for hundreds of

millions of dollars and we that didn't

really yield anything. Um so unless they

came out with a an amazing model, it's

it's hard to see where where they're

going from here as opposed to uh just

being a cloud a cloud provider. So yeah,

at the beginning we liked we like their

strategy, we like where the puck was

going, but um that that seems to have

been a lot more murky now.

If you don't like the strategy,

how are you not bearish on the stock or

quite negative on the stock given that

like if they're literally just wasting

hundreds of millions of dollars, how is

that not going to be really bad and

this, you know, is going to end in

tears, not for the entire AI, I think,

but just just for Meta just it sounds

like you you're a little bit measured.

Um, and I and I want to know just just

the scale of your skepticism.

>> Yeah, we no longer have a position in

Meta. Uh, just just to be clear, we sold

out of Ethic last year. Um yeah, at the

moment we are more bearish on Meta for

sure. It's it's we we don't have a

bullish uh view on it.

>> And does it give you concern for the

broader space if one of the players is

spending so willy-nilly with so little

of an idea of how to make money? And I'm

sure they would say they do have an

idea, but um you know, we'll see. We

believe uh capital allocation with Meta

is a bit different than Microsoft and

Google who who are in the cloud

business. So that that spending is a lot

more uh measured and a lot more

rational. Um and you could say for

instance Meta is doing it as a defensive

measure against Tik Tok and other

incumbents that could build out GPUs and

then they hit some type of app where

it's it's magical and AI is being

produced on there and it it attracts

people's attention which directly hurts

Meta. So you you could say that it's

it's somewhat defensive along with along

with other hyperscalers of course. Um,

but yeah, I would say Meta outlook for

Meta is is definitely negative going

forward.

>> Have you guys looked at semiconductor

companies, I can't help but notice it's

their absence broadly in in the

portfolio with semis. It's it's a lot

harder to to play. Um, especially given

China. Um, we we've learned that quite

the hard way. China China is very

competitive and they're no longer just a

producer of uh $1 widgets. They they

they're very technical. Um they already

have uh monopoly pretty much in EVs and

and drones and essentially they're going

after ASML. They're going after uh

memory memory uh providers. CXML just

IPOed. I think it has a half trillion

dollar market cap now. Um, so, uh, the

just the threat of China in there and

and their ability to produce whether it

be DRAM or CPUs or lithography machines

for much lower cost definitely gives us

pause regardless of how bullish the

overall industry looks.

>> Now, let's go on to payments. Deo, what

is going on in payments? You got several

holdings in payments. It is a space

where there's been a massacre in many

names. names like PayPal come to mind

that actually, you know, I got I got

mixed up on it. It was bad. You passed

on PayPal. So, congratulations on that.

But the the pricing power and the

perceived pricing power that investors

see has just really gone down to

multiples have gone down. I say, you

know, the only stocks that are uh have

not seen a huge huge multiple

compression are Visa and Mastercard,

which kind of, you know, the king and

queen of the of the space. What are your

overall broad thoughts, DEA? And then

we'll get into stocks. Yeah. So payments

is a pretty um that's a pretty broad

term. The part of I guess payments that

we are interested in we like is money

movement cross border. So uh if you look

at just

if you just look at banking in general

uh if you look at the history of banking

really banking is a national enterprise.

If you're you know you're you're the

government you're trying to set up a

banking infrastructure you're not

thinking about in any international

transfers you're just trying to create a

banking industry. So traditionally like

banking systems are heavily nationalized

and the whole international transfers is

an afterthought or how to move money

across borders and then you have this

whole like very clunky correspondent

banking system that has been developed

and swift and so on. Uh all of this is

pretty esoteric but all people need to

know is that it's very antiquated and it

costs a lot of money to move money

across borders using the traditional

banking system. One of the areas where

fintexs have been so incent uh so uh

impactful is driving down cost of

international transfers. Um so if you

look at the companies that we really

like are Wise and Veritly they've

created the infrastructure to come to

circumn correspondent banking to deliver

um crossber transactions a lot more

cheaply. Uh one of the so that that's

that's really a huge part of it.

Correspondent banking really expensive.

If you look at the average cost is about

$5 or sorry 5% or so. Using some of

these fintexs it's a lot closer to 2%.

So, they've really improved not only the

cost, but the experience as well. Being

able to track your transaction, being

able to gain confidence that it's

arrived where you need to arrive as

opposed to just like, you know, here's a

bank, it sent it, and let me call

whoever's supposed to receive it to see

if they got it. Um, so, uh, so, and then

the second part of it is that, you know,

if you look at M2 growth in general, uh,

M2, you know, uh, central banks are

going to continue to print more and more

money. It's a train that's never going

[clears throat] to stop. Whether or not

we're in recession, whether we're good

times, M2 growth is going to continue to

grow. Uh, you know, traditionally, it's

grown at around five or six% a year. And

if you could find a company that has

kind of a a scrape on that growth and is

a able to defend their take rates, uh,

the economics are very very powerful,

especially if you consider how that

scales and that how how that drops down

the bottom line. So, payment companies

are very very special if you can find

the right payment company. Like think

about if you got into a Visa or

Mastercard early or a or a Stripe if

you're an early investor on Stripe or

something like that. Extraordinarily or

Adian another one

>> extraordinarily powerful businesses the

competition is fierce and you got to

pick the right one.

>> You see so much hinged on the phrase if

they can defend their take rate which

you know how much they are they are paid

as a percentage of the the transaction

value. Why do you think that these

companies can defend their take rate and

they won't go down the the way of oh my

god I mean there's so you world pay

ferve why can these companies are

defensible what is their mode

>> I'll take uh remittly and wise those are

very different businesses but

functionally they do a lot of the same

thing which is helping move money across

borders like remittly is a purely

um a migrant remittance provider so air

hole. It It's really uh

um a Western Union killer is what you

how you can think about uh Remilli like

a digital digitally native uh player uh

you know much more enhanced experience

cheaper cheaper fees and has really just

kind of really eroded Western Union's

business model and they really uh have

buil mind share with migrants. So

migrants um you know they're not like

your typical customer. They really

understand that market well. They're not

just going to try to find lowcost

solution. Trust is a huge deal for them.

Branding is a huge deal for them. So

having that mind share in the migrant

community is a is is going to help

defend their take rate. Their take rate

is going to naturally come down. It's

going to come down very very slowly like

and you see that like you know a bip

here, a bip there. Uh but you know their

send volume is growing you know 30 40%

annually. Um so you know send volume is

growing 30 40% annually and revenue is

growing 25%. So that's really kind of

the structure and if you look at the

durability of that growth uh you could

see that out you know the next five or

10 years you know the more and more

money that goes through kind of these

fintex as opposed to correspondent

banking. Not to mention there's still a

lot of money that you know just moves

from cash. People there's you know

there's still significant room for

digitization as people go from moving

you know people walk into your Western

Union uh uh with you know a bunch of

money to kind of send to their kind of

grandma in Mexico or something that that

that kind of electrification

electronification of cash is still

happening. So you have several trends

that are uh kind of working in the same

direction. Um, what wise is another one

where, you know, they're going to

continue to defend their take rate

because they have the best

infrastructure around and nobody

nobody's done the work that Wise has

done to build out their infrastructure

to plug into kind of different nation

central banks and be able to move money

as fast as they can. Um, and they're

more, you know, they're more aggressive

about taking down their whole thing is

like loss, like I'm going to be the loss

leader. I'm going to take down my rate

very, very fast. It's not due to

competition. It's more uh it's more

aggressiveness. It's not defense. Um

yeah. So they're contin

>> they're the one causing the storm.

They're not being disrupted. Yeah.

>> Exactly. So um yeah, I think those two

players the durability of those two

players growth profiles um is is very

very very strong, you know. So like

there's so many tailwinds that they're

benefiting from that we feel very

comfortable owning those companies for a

long period of time.

>> Who are their competitors in the

crossber movement? you know, Visa

reported today. I always see Visa and

Mastercard say crossber volume, crossber

volume. Um, so it sounds like they are a

competitor and then you know, you have

the traditional banks competing. Uh, who

who who competes with Wise and Riley?

>> So you have a lot of uh you you could

say that Riley and Wise are competitors.

There are they are competitors for a

certain segment, but Wise's market is so

much bigger and they're really going

after uh businesses. They're going after

uh bank. They're trying to help banks

with their infrastructure to move money.

So, they're Wise is really trying to

take down uh

it's really about debanking and trying

to take down correspondent banking and

even uh Visa and Mastercard. Um you

know, Wise is bad for Visa and

Mastercard. Wise isn't bad for remitty

because a lot of you or 90% uh plus of

transactions of remitty move through the

visa visa or masterard platform they

they move across visa rails as opposed

to wise where wise has built out their

own infrastructure uh to move you know

where it's more like a a global a system

um so you know a lot of player you know

banks are a competitor um you have a lot

of regional players that focus on

certain corridors

um you know focus on moving money let's

say from US to to Europe. Uh I mean

there's tons of different players out

there but none of them at the same scale

as a wise or

>> it's interesting. Yeah. So so many times

investors have been bearish on Visa and

Mastercard. The bearish is these fintexs

are going to compete with Visa and

Mastercard where almost inevitably they

fintex have used the Visa and Mastercard

rails. Tell me about Payafe.

>> Payafe is uh is an interesting company.

Um it's it's more your typical kind of

process. You talk about PayPal, it's

more a kind of competitor to PayPal. So

now we're talking about more traditional

payments as opposed to crossber money

movement where they're they're help you

know doing the processing for you know a

different company's payment needs and

really they're uh they have an

orientation in gaming. The company's you

know we really like the company although

it is significantly overleveraged.

They're paying down debt. uh that

continue to grow that there's really

been a a late CEO there's really been a

turnaround trying to get things

operationally tight uh while continuing

to grow but the biggest uh thesis behind

uh Payafe is that they have u uh a

digital wallet subsidiary that is you

know if you look at the if you look at

the value of that um it makes up you

know 60 70% of the enterprise value of

the whole company if they were to just

sell that off at 9 10 times uh earnings

which is it's a very portable business

as well. So they own an asset which uh

makes up a huge portion of the EV uh EV

to say like or of the value of the

company. Not a lot has to go right for

there to be rerating, but there is some

hair on it with the leverage.

>> Yeah, they do uh they do owe $2.5

billion

um relative to their book value of $600

million.

Their their revenues have not grown

nearly as much as the other companies

you said. So, are they more of a stable

player?

>> Yes, single digits. They've also sold

off some assets. Uh, so organically,

it's it's better than it screens. Uh,

and it's really around, you know, high

single digit growth.

>> So, you sound like you really like this

business because it's exceptionally

cheap. What other What else do you like

about it other than it's cheap?

>> I like the play on uh gaming prediction

markets. You know, a huge there's a lot

there's a lot of business growth there

and there's a lot of payment processing

that needs to be done there. It's not

stripe, the stripes of the world, the

addins of the world typically stay away

from that kind of business. Um, and you

have the a specialized processor that

can focus on that segment of the economy

and you know there's just a lot of

growth and uh growth to to participate

in there.

>> How do you assess the threats to the

payment world specifically cross border

of crypto and stable coins? So stable

coins, oh I'm going to go to Europe. I'm

just going to transfer it on stable

coins. You hear that all the time and

stable coins transaction volumes are

growing ridicul at ridiculously high

rate admittedly from super small levels

and a large percent of that is just

cryptocurrency speculation. But like you

know theoretically like a company could

move millions of dollars from the US to

Europe on a very cheap mechanism not

using wise not using remittly. What's

your reaction to that? you have seen a

lot of announcements around companies

using stable coins in a treasury

function. Um and again this gets around

correspondent banking which I think is

really going to be the loser of all

that. Um that being said um that isn't

really where wise or at least use case

anyway is not really helping companies

with their treasury function. It's at

the end of the day is about uh consumers

and small businesses and what they're

doing to move money and you know to make

payments and so on. Uh again like like

you had mentioned uh stable coins is

being used primarily in a crypto

function. Overwhelmingly it's being used

in a crypto function until we actually

start to see people use stable coins in

their local economies to make payments

for goods and services. Uh I'm not

worried about it at all. The data is

does not I mean there's some there's

some examples where uh you know in

Africa or something where the banking

system is completely broken down. people

are using stable coins to pay for

things, but other than that, there's

absolutely zero there's zero cases of

people people actually using stable

coins like they're using fiat. It just

isn't happening at all. Um, you know,

there was a lot of fear of it. I know

circles come down significantly as a

result of kind of this narrative fading,

but yeah, it's just it's just not a

thing.

>> One thing.

>> Yeah.

>> Yeah. Uh, that's that's funny. Any other

views on other payment stocks?

Interesting. I pulled up a uh fintech

ETF. The biggest holding is actually

Robin Hood, which is now. So yeah, Robin

Hood, Block, Vice, Global Payments,

Affirm,

uh Toast. Any any thoughts? The big

trend there is a lot of it is moving

towards um you know like that you know a

lot of to that are providing this kind

of verti verticalized software solution

that includes payments you know they'll

do your you know inventory management

they'll do your you know everything you

that's like the nervous system of your

entire uh enterprise and it also has

payments kind of built in. Um so like

the processing part is becoming

commoditized and the value seems to be

uh acrewing to you know the application

layer to the kind of toasts in the

world. Um so that's why you know if

you're investing in one of these

companies they have to do more than just

processing. There has to be something

special about what they're doing. They

got to be able to defend their mode. Um

yeah that would be my only take there.

We did stay away from PayPal. Uh we

actually like uh Brainree. We like their

processing segment. What we didn't like

was their brand payments. Uh, we just

>> really Okay. So, you you didn't like the

part of PayPal that was making the most

money. You liked the part that wasn't

making that much money, which actually

does kind of make sense to me because

what was growing was the unprofitable

part, Brainree. What was not growing was

the branded checkout because, you know,

people aren't using that anymore,

>> right? Is high margin business. Um, and

it it there's just a lot of

vulnerability there because it's hard to

see the the the future growth. Um, so

there's there's just a lot of

vulnerability in the brand and payment

side, the Brainree side, you know,

volumes are growing like crazy. I I I

don't remember exactly the profitability

profile of that business, but there were

scale economics to be had. And um, yeah,

put it all together, we can like it just

given how profitability the branded side

of things were.

>> That makes sense. Fun fact for people is

that Brainree, which was sold to PayPal,

the founder is Brian Johnson, the guy

who's trying to live forever, who posted

on Twitter all the time.

>> Yeah. He used to go kind of door too and

uh sell kind of you know processing

solutions to you know small like you

know convenience stores and stuff like

that. Yeah. So start off as really a

salesman.

>> That is that is interesting stuff. Well

I mean I know we've covered a lot of

ground. Um there's well there's a lot of

a lot of health stuff health stocks you

follow. Obviously we want to leave some

stuff uh for for the subscribers but

behind your payw wall. People got to

people got to subscribe. Um, but I mean,