Cancer Vaccines & Data Center Drama

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Travis Hoium, Lou Whiteman, and Jim Gillies discuss:

• Why interest rates matter.
• The bond market wins.
• Moderna's big week.
• Take my money!
• Data center PR problem.
• Stocks on our radar.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Aug. 21, 2026.

Travis Hoium: This week, data centers became the enemy. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, I'm joined today by Lou Whiteman, and all the way from Canada, which ironically is, he's south of me, so we can have a geography discussion, if you want, but Jim Gillies. Jim, welcome to the show.

Jim Gillies: Thank you. It's been a while, Travis.

Travis Hoium: We've got a lot to talk about. There's a lot going on in the market. We do want to get to the news on data centers but this is a quiet time for earnings. It's an opportunity to take some bigger picture looks. One of the interesting things this week was what's going on with interest rates, and I want to start before we get into some of the drama. Lou, why do interest rates matter, particularly for investors in the economy?

Lou Whiteman: Wow. Big question, Travis. Is that the only question?

Travis Hoium: I'll just lob that one over to you.

Lou Whiteman: Why do interest rates matter, or why do the current heights? Interest rates matter because, look, interest money is the lubricant of the economy, and what you pay for money at the end of the day determines how much you can do with the money, so that's why we follow this stuff. Look, right now, there's a lot being made about interest rates being higher than they were. They are higher than they have been, yes, for a while, but look, they're still way below where they were in the ‘70s, the ‘80s, and ‘90s, and somehow companies and consumers have found a way. I think some of the current panic about current rates is overdone because money should cost something. Money shouldn't be free.

Travis Hoium: You mean the 2010 and early 2020s was not normal?

Lou Whiteman: Well, as an investor, I think we collectively found out the problems of what happens when money is free, a lot of bad ideas get going. In a way, a nice 4% or 5% rate does provide you some I don't want to say BS filter, but I think I just did. But look, right now, everything's going on. There's an audience of one here that needs to see everybody trying to bring rates down. There's serious things. We should discuss what all this means, but a lot of it is just panicking over a line and not zooming the line out enough, I think.

Travis Hoium: Jim, it seems like interest rates are an easy topic to talk about, but they do flow down into the economy in a very real way. If you get a mortgage, it is tied to interest rates, typically the 10-year. When companies raise money, they have to pay interest on that debt if they're taking out debt. Stocks are valued, at least in part, based on what those interest rates are, the risk-free rate, if you're doing modeling. There is a reason if you are the president or if you're running the Fed, you would maybe want lower interest rates to help the economy. How do you think about that as an investor? Is that something that plays into your modeling or is this just noise in the ecosystem?

Jim Gillies: Oh, boy, a can of open worms everywhere. A couple of things. First off, people who have seen my prior work, we've probably heard a version of this, what I'm about to say, but I'll say it again because, just play the hits. Ask most people what your largest lifetime cumulative expenses. When I've done little talks in public, or I occasionally talk at high schools or universities, or even on Fool Live, Fool24, sorry, ask that question. Most people say, “Well, house, or education, or kids,” and I’m like, “No, most people’s largest lifetime cumulative expense is actually interest.” Interest on your house, interest on your student loans, on your car loans, on your credit cards, pay off your credit cards, kids, and so on and so forth. When you realize that, you can start doing things differently because it's within your ken to not pay high interest. You can buy a smaller house; you pay your mortgage down. You can buy a used car, blah blah blah. This is a way you can avoid paying interest in your personal life. That's number one. I would encourage most people to do that because I don't like throwing money away.

The idea of where interest is going, though, is because, as Lou mentioned, it's a lot cheaper. But as I understand what's going on from this move, and I, by the way, may very well not understand fully, I want that out there. The U.S. Treasury, and again, Canadian here. Not my country, not our fiscal policy or monetary policy, I should say, but we are keen observers. They are upping the sales of short-term debt using the extra proceeds to buy down the long-term debt and tamp down rates at the longer end of the curve. Doesn't that suggest a little bit of risky behavior? If the whole game, which I've been told by multiple smart Fools and people not employed by us, has been to, hey, look, government debts large. Federal government debt in the U.S. just passed the $40 trillion mark.

Sounds like a lot. Interest on that debt is already sucking up about 20 cents of every federal tax dollar coming in, sounds bad. Now we're going to issue more short-term debt, which comes with a lower coupon. Isn't that maybe going to require more refinancing fairly near term? What guarantee is it that that works? Far be it from me to suggest that the bond market might be able to see through that collectively and go, tariffs are inflationary, debts elevated and growing, and the present government is, and this is not America, quote. I could point you to a few other governments not living within their means, including my own but sometimes eventually things break. Here in Canada, as I call it, the land of the frozen chosen or as Travis, as you pointed out, I am a little south of you, actually, which is cool. Fun fact, don't look this up Fools. How many U.S. states have territory above the most southernmost point of Canada? The answer will surprise you. But Canada in the mid ‘90s got up to almost 80% debt to GDP, and they went austerity. They cut a bunch of services. They offloaded a bunch of services to the provinces, and today, I think we're running at about 60, 65. I'm just going to point that the U.S. is running at 120, I think. Now, you guys have something we don't have, which is.

Travis Hoium: The reserve currency.

Jim Gillies: The global reserve currency. That feels important for now.

Travis Hoium: What is the market trying to say about that debt, though? Because what I think is so interesting with this is the short-term, what has happened this week is the Treasury is buying back some long-term debt because they want to reduce those interest rates on the long end of the curve, as 30-year bonds. But the Treasury does not or even the Federal Reserve does not set interest rates, the market does.

Jim Gillies: No, the bond market does. That's why I say the bond market's going to see through this.

Travis Hoium: The bond market is, the way I was thinking about it is they're communicating with you. If you’re a company and you’re going to look for debt, of course, you would love to have a lower-cost debt, but the market is communicating to you. No, I want a 10% interest rate to take that risk. I want a 12% interest rate, and then you have to adjust to that and adapt to that. What is the communication that's happening from the bond market, which, by the way, is 10 times the size of the equity market? The bond market really runs the world.

Jim Gillies: The bond market doesn't like the state of debt, I think, in general, in terms of rates will go up as they start to perceive if there's a bad situation. I'm not smart enough to know if there's a bad situation in the U.S. or Canada or anywhere else right now. I just can say, well, on a relative basis, this is getting worse in terms of the amount of debt, in terms of the ratio of debt to GDP. Can it be reversed? Of course, it can be reversed but right now, the bond markets going, we're not really sure about this.

Lou Whiteman: The other thing that's going on, and this is just true of every market is that all prices are just a simple measure of supply and demand. There is just a lot of supply of debt right now. We've talked about the hyperscalers and everything they're doing. This is hardly a U.S. thing, too, as Jim said, there's a lot of countries, Germany, all over the world, we are running budget deficits, and so there is just a lot of paper out there. You have to make yours pretty, and you do that with rates. That's just how rates work. To Jim's point, and I said, I think it's for an audience one, buying back four billion in bonds when your deficit is $2 trillion is like switching to low-fat milk and saying, I can still eat 8,000 calories a day.

Travis Hoium: I saw a video of somebody using a squirt gun to try to put out a house fire. I think that is another line of check.

Lou Whiteman: It's just not going to work, but I think someone was told to do something, and so they wanted to show they're doing something. That said, look, this is a lot more sustainable than we like to admit. At some point, the government is going to have to do something about it, but we do print our own money. We are at least for now. We might be doing our best to try to ruin that, but we are the reserve currency. There is a stable market. This makes everything harder, and it sticks future generations with the bill. I'm not saying it's a good thing. Every dollar the government has to spend on interest is a dollar that could be going, the obvious one is self-defense stocks because they'll afford that. But think about everywhere the government invests from healthcare to infrastructure to just all over the world. Every dollar for interest is a dollar they can't spend there. This is a serious problem, but it is a long-term problem as an investor. I don't worry about everything going flipsy now, but it does make just everything harder as an investor.

Jim Gillies: Just as an investor, this is why I don't like talking macroeconomics because I'm dumb and going to be wrong, that's the general like, I'm not an economist. But as an investor, Travis, you talked earlier about investment models may be based off of the interest rate. Usually, the 10-year, the so-called risk-free rate. The higher that goes, it should impact. The basic way you do a discount rate for a model is the risk free rate plus some risk premium, 5 or 6%. More recently if you follow any the valuation gurus out there you are asked what the motoring, a few others we could name. You're seeing discount rates in the 8, 9% range in some of the models, and I personally have never agreed with that. I've never agreed with take your cue from there.

My whole thing is always when I build a model, my default assumption is, look, I know, historically, the stock market has returned with dividends included, about 11% annualized. That's my opportunity cost, if you will. I can go out and buy an S&P 500 index ETF, and over the long-term, assuming that the future looks a lot like the past, I'm going to make about 11% annualized. I had the lazy insight that, well, if that's my opportunity cost, I want to discount the cash flows of any company I'm looking at at my opportunity cost. I don't particularly care if the capital asset pricing model tells me, I should be using 8.25%, which is what Damodaran valued the recent SpaceX IPO at. I think that's insane, frankly, but he's Aswath Damodaran and I'm not. I just run with 11%, and then in my modeling, if an 11% model, when, say interest rates and finance theory should tell me you should be closer to nine. If I still think it's a bargain at 11% discount rate then it's false.

Travis Hoium: Then you're going to be a winner.

Jim Gillies: Yeah, because Fools, if you don't know, the higher the discount rate, the lower the present valuation will be. That's one reason I get around this and why this is interesting news when you talk about it. But to your point or your question earlier, Travis, does it really impact my process, because I have my process and I understand why I have my process.

Travis Hoium: Well, this is something that's going to get a lot of headlines, and I think at the end of the day, the companies that are taking out debt are going to have to think about this the most because if interest rates do continue to go up, those debt costs are going to continue to go up. When we come back, we're going to talk about maybe the most exciting healthcare news in the last couple of decades. You're listening to Motley Fool Hidden Gems Investing.

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Travis Hoium: Welcome back to Motley Fool Hidden Gems Investing. We do have to touch on maybe the most important news of the week, maybe of the year, Moderna and Merck released results of a Phase 3 trial for a cancer vaccine. This is something, Lou, I don't think I ever thought that I would say a vaccine for cancer. But the market had a phenomenal reaction. Moderna stocks up about 140% this week. I just looked my returns on Moderna is now about 13% to show you how much I was hoping to buy.

Lou Whiteman: Total or annual?

Travis Hoium: That's total. We're not doctors or pharmacists, but this seems like one of those announcements that could be really big news over the course of the next decade or two.

Lou Whiteman: Exactly. We don't know, and I'm glad you said could, because headlines on medicine never work out, but potentially this isn't great news for Moderna shareholders. This is great news for humanity. It is early, though, as you say. I'm not inclined to rush in here. I wish I would have bought at 30 or whatever, but I do think it's "priced in.'' This is an amazing stock, guys. If you bought on, I think it was what, May 24, 2024, you're still underwater here. By the way, if you bought during COVID, you're still way underwater. Jim, we talk about biotech being hard, and we talk about it's a crazy market, but this is a special case. It lingered for years with potential. Got an amazing boost because it was able to end a plague. Lost momentum when investors realized that, hopefully, new plagues don't come around every so often, ended up a political target, like a political whipping boy, where it got, honestly, really stupid cheap in hindsight. Now here we are. They don't make them like this. Forget biotech: This is different.

Jim Gillies: I like to say biotech is hard, as we've hit a couple of times. I am certainly not smart enough to call winners and losers in this space. Well, actually, I am smart enough to call losers. As in every time I've played in this space, I've ended up with a loser. But I want to go in on what you're talking about with Moderna itself. Like the problem with biotech, whether you call it Moderna. I may stay away from the politics stuff because, again, Canadian. What do I know? If you bought with the hype, this is a hype story during COVID because it's going to, as you say, end a plague, or at least that was the marketing.

Lou Whiteman: To be clear, there was real revenue and profit there for a short period.

Jim Gillies: Yes, absolutely. But the problem is if you bought Moderna during the last big hype cycle, even after the big run-up this week, you're still down probably 50% to 70%. You don't even get Travis' 13% over how many years. Meanwhile, over the last five years, I'm pulling at the five-year chart on the screen here. Last five years, Moderna is down 60%. The market is up 73% before dividends. If you are inclined to play in the biotech space, the advice I receive, the advice I will pass along, is that maybe seek out a broad sector ETF focused on biotech, and I'm going to pick one randomly here: The State Street SPDR S&P Biotech ETF. There's a bunch of these out there. You can go look at them all, Fools. But this one, State Street SPDR S&P Biotech, it is up 36.5% over that same five years. You didn't match the market, and if you want to play in biotech, maybe it's best to spread your bets around because you don't know when a good news story. We could all agree a cancer vaccine is amazing. If this works, it's still time to come to market. If it works, it's a net positive for humanity, obviously. But you can't predict unless you're a biotech expert, and I am certainly not. You really can't predict which companies and which molecules are going to strike, and you really can't predict when they're going to strike. Spread your bets around, and we live in an era when you can spread your bets around by simply buying an exchange-traded ETF that focuses on that sector.

Travis Hoium: Lou, really quick, do you think that we are entering with AI, with data, with all these advancements? Are we entering a new era in healthcare where these seemingly huge things are coming more regularly than they did in the last hundred years?

Lou Whiteman: I wish. I don't think so. I think we're always improving, but AI knows English. AI doesn't know biology. That's going to take some time. I think we're to be grateful for what we get and hope it continues.

Travis Hoium: This will be fascinating to watch, and hopefully it works well for investors and for humanity, like we talked about. We'll be back in a moment. You're listening to Motley Fool Hidden Gems Investing. Welcome back to Motley Fool Hidden Gems Investing. In this segment, we like to have a little bit of fun with investing. Jim is a value investor, famed for buying GameStop stock before everyone else knew what GameStop stock was.

Jim Gillies: I hope I would go trade more of them back.

Lou Whiteman: It's also Canadian. Those are the two things.

Travis Hoium: That's it. GameStop Canadian. We're going to play a game, and I like to call Take My Money. If you've seen the meme, at what price does a stock or a company need to be where you go, take my money? This is so cheap. I have got to get as much as I can. Lou, we're going to start with the Anthropic IPO. Anthropic, the date keeps moving up. I have now heard that they may release some of their documents this month, so in the next week and a half, they seem to be rushing towards public markets. At what market cap would Anthropic be incredibly compelling to you as an investor?

Lou Whiteman: Did you blame them for rushing to the markets, by the way?

Travis Hoium: They get $2 trillion. Hard to say no.

Lou Whiteman: The best time for them to have done it was probably six months ago. Look, I honestly don't know, but I want sub-trillion, definitely. Maybe with hype, $600, $700 billion market cap, I might at least have to give it a look. But here's the thing, they're winning right now. We're too early to know. I mean, a year and a half ago, OpenAI was just going to rule the world. I think the lesson is, we don't really know which one of these businesses is sustainable long term. I would be very gun-shy, almost at any valuation, if I'm honest.

Travis Hoium: Jim, any valuation that is compelling for you for Anthropic?

Jim Gillies: I'm tempted to say two votes and point to what Lou said. I'm going to give a standard answer for what I do in any valuation situation. When the sum of future cash flows discounted back to the present at an appropriate rate, when that is higher than the then current market cap, the calculated value of the company. I have this weird habit where I insist on valuing things like options and restricted stock and warrants and all these things that sees value leak out to insiders.

Travis Hoium: I was told that's not real money.

Jim Gillies: Yeah. Well, they're just wrong, but I respect their right to be wrong, which is my favorite line when my wife and I are having elevated discussions. I respect your right to be wrong. But when it makes sense from a valuation perspective, conservatively calculated.

Travis Hoium: Assuming they're losing money, and I think the hard thing with some of these companies is there is no necessarily projected time that they're going to turn profitable. But if they turn profitable and they become Google, they become even an Uber, there is value there somewhere.

Jim Gillies: Sure, but Google came out wildly profitable.

Travis Hoium: They did. But they were nowhere near who they are.

Jim Gillies: Anthropic and OpenAI, I guess they're not going to. Even Uber had to go through the wilderness, frankly, before they could put all the taxi companies effectively out of business and steal their share. Also, the general warning with IPOs is there's a lot of hype, obviously, people get very excited. The academic finance literature is pretty unequivocal on this thing that most IPOs underperformed for the first couple of years of going public. I realize that's a very stale and boring answer. You probably want to avoid playing an IPO space until there is cash flows, and there is a possibility and the hype goes away.

Travis Hoium: Well, I'm going to assume your answer is the same with OpenAI.

Jim Gillies: Correct.

Travis Hoium: Lou, do you have a similar number with OpenAI.

Lou Whiteman: I was hoping Jim was going to go first, and I was going to do the price this right thing and say $1. Honestly, guys, I don't know if they'll, I mean, I'm guessing they will because they have to, but I am not 100% convinced there will ever be an OpenAI IPO at this point.

Travis Hoium: Would you be more interested in Anthropic or OpenAI at the same price?

Lou Whiteman: At the same price right now, Anthropic.

Jim Gillies: That's probably my answer, too, actually.

Travis Hoium: Let's go to the hottest asset on the market. Jim, I'm going to start with you. Any price that you're interested in Bitcoin?

Jim Gillies: No.

Travis Hoium: Lou?

Lou Whiteman: Look, I'd probably take a flyer at lower just because I wouldn't put much strength into it. My problem with Bitcoin is that it doesn't do anything. We've played whack-a-mole with the use case for a decade now, and they're still coming up with sums, which does speak to its pliability. Maybe one of these hits. It's probably a price, but it's a quarter if not more of maybe in the fifteens or so. I'd probably just throw money.

Travis Hoium: How much money laundering do you want to do?

Lou Whiteman: That's true.

Travis Hoium: I mean that is a used case. I think I'd probably be compelled at that point, too. This is where things get a little more interesting. Disney stock. Disney has gone nowhere for, what? A decade, 15 years at this point. But there is a business there. People do pay real money to go to the parks. Lou? At what price, or what price-earnings multiple would maybe be another way to put it. Are you interested in Disney stock?

Lou Whiteman: In its current form, I don't know if I can be talked to. But I am convinced myself that they need to just spin out the parks and the experiences, all of that, the cruise ships as an independent company, sign a perpetual license forever to keep the IP, but just get all of the media off the books. I love my idea of, like, just merge with Netflix, but I don't think this business works. Guys, I was actually kicking the tires on Comcast, not because I like it better, but because at least it was cheaper, and then they had to go do that split and made it too. But Disney, I just don't think the collection of assets, as dated, works the way they hoped it would. I don't think spinning off the legacy things will save them any more than it saved Comcast.

Travis Hoium: Jim 14.5 times forward earnings. Is there a price? Bob Iger is gone. By the way, I brought this up because Jim has strong opinions on Disney and Bob Iger and is a Star Wars super fan.

Jim Gillies: You can't tell with some of the stuff behind in here.

Travis Hoium: Maybe not the biggest fan of the way the company has handled the last decade or so. But is there a price where it becomes compelling?

Jim Gillies: Sure. This price where every asset becomes compelling. I'm not sure it's now. I mean, Travis is right. I'm a known Bob Iger skeptic because Disney has been used as a Bob Iger Richmond scheme for much of the last two decades. I do not have a high opinion of Mr. Iger or his management style, but we'll leave it at that. The problem with Disney, as I see it, is it's cut something of a what more worlds to conquer problem. They already own childhood. Pixar, Star Wars, Marvel. Marvel's on the lag. If you ever look up, you can find this stuff, it's out there. The pace at which going to Disney Parks has outpaced the rate of inflation by about 10 percentage points for something like three decades. There is a what more worlds to conquer problem here. Where can they go with that? I'm not sure 14 times forward earnings really matters all that much to me. Like the most recent fiscal year, they did about $10 billion in free cash flow. But they spent about $6 billion of that on buybacks and dividends. That's money that's lost. It's just not money that's not going to go back into the company. Over the past 12 trailing months, they're actually at about $9 billion in free cash flow. Most of that's gone to accelerated buybacks. Generally, I like buybacks if they're done at a decent enough price.

I'm not sure Disney's there. I floated, I think I first wrote this about 12 or 13 years ago. It was The Washington Post, ask The Motley Fool bunch of analysts to come up with a wacky acquisition prediction and a bunch of little write-ups. My write-up was that I think Apple should buy Disney because it's content for their army of devices that people are increasingly staring at rather than interacting with their fellow humans. I thought that would be a pretty great thing, and then to lose point, you could off-gas the parts to something else and just take content. But again, it's going to be the same. I'm not playing a game right, but at a valuation where it makes sense, probably not at this level. I think it's what? Thirty times, 25 times free cash flow. That seems a little excessive to me today.

Travis Hoium: I've got to say, as the one here who has young kids in the house, we went to Disney last year. It is incredible how institutionalized Disney is as a brand for parents. We went to the Universal theme parks as well, and they're just not the same. They're just not, they're not done as well. They're not nearly as bad.

Jim Gillies: Harry Potter land would argue that point. Well, my kids aren't quite that old.

Travis Hoium: But Nintendo was well done, but that's a couple hours. That's not an entire day.

Lou Whiteman: Travis, the thing about that is that's been true for a long time and you already mentioned the stock price over the last 15 years. Two things can be true. The brands are great, and it hasn't worked for a long time.

Travis Hoium: I will remind investors, too, that Disney goes through these decade long cycles of being in the abyss in the early 80s and then having a massive comeback and then another abyss in the late 90s and then a massive comeback. Now we've had an abyss. Maybe we're ready for a comeback, but that's probably a topic for another show. Quickly, I wanted to get a quick idea if there is a price Jim that you are interested in Tesla stock, we currently have $1.4 trillion market cap. Price earnings multiple on a forward basis to be the most generous is $190, is there a price that you would buy?

Jim Gillies: There is a price for any asset. I really do believe that. The price that I would pay for Tesla and most people don't know this. I am a former Tesla shareholder, and I'm probably one of the larger bears of Tesla at The Motley Fool. I'm a former shareholder, made money on it, didn't make enough money on it, apparently, but with Tesla, the growth has gone. Elon is distracted by some other company he's just recently taken public. The operating margins, the profitability margins have cratered. They've gone from 19% a couple years ago to, I think the most recent quarter is 1.4. Most auto companies with margins at that level trade for 7-10 times earnings, not 300. My price where I would buy Tesla because I think it offers an above market return going forward. The price probably starts with a 3 or 4, and there's only two digits in it.

Travis Hoium: Lou, quickly, what's your answer here?

Lou Whiteman: I'm going to be the bull here just for fun, and we'll still get letters. I am going to say that Tesla is so much more than General Motors. As the reserves, let's say, a 6x premium on valuation of General Motors. General Motors trades for about 0.4 times sales. We'll give them 2.6 times sales, and my market cap is at 275 billion would be my fair value. I don't know if I really mean that, but it's a way to say lower than here.

Jim Gillies: I will also offer the clarification. I'm a big index fund guy as well, and about half of our personal money in my family is index funds and the other half is individual stocks. I own a lot of the S&P 500. On a look-through basis, I actually ironically own a lot of Tesla.

Travis Hoium: I will also note that they shut down their solar roof, which is one of the big reasons that they bought Solar City, one of the things shocking me crazy more than a decade ago. But when we come back, we're going to get to the stocks on our radar. You're listening to Motley Fool Hidden Gems Investing.

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Lou, I wanted to get to some of the drama around data centers that we've seen really take off over the last week or so, but there's been some new polling about how unpopular data centers are. The reason that this is so important is I could make the argument that the AI build-out is both holding up the market and the economy at this point. Has the tech world just gone too far with this build-out and just wanting to build anything anywhere? Is this a political problem? Where does your head go with the risk factors with this becoming now a political football?

Lou Whiteman: This is a bipartisan, just nobody likes this. I think there's a ton of things going on here, and none of it's really great for AI. I do think, look, there's been a lot of promises on economic development, that Foxconn, Apple plant that never got built. There's just a lot of recent examples. These are ugly, big, just humming centers. They're not pretty. But look, there's two big things, I think that the AI industry has to confront. Arrogance and a lack of just usefulness right now for their products. On arrogance, this is a big one. The messaging has been far too dismissive of complaints. Maybe they are water-neutral, but to laugh at someone who's asking the question and say, you must be an imbecile, that's not a way to win hearts and minds on a local level.

Big tech has a messaging problem. Basically the message on this is, if you're too stupid to understand we're saving the world, that shouldn't keep me back. You should do better. Somewhat related, though. If the Apple plant was coming near me, I could say, I like iPhones and same with an auto plant or whatever. For now, for most of us normals living in flyover country, AI is just fancy search. For all the back patting in Silicon Valley, AI has done a terrible job of convincing consumers this is something that's necessary, interesting, world changing, whatever it is. I think it's just a simple problem of why me? Most of it's just arrogance and message.

Travis Hoium: Is there a solution here? I've heard about replacing property taxes with revenue that comes from the data center. Is there a bribe that is going to work for some of these, or is this just so unpopular that it's going to become nuclear?

Jim Gillies: Put them in space.

Lou Whiteman: There you go, Jim. I can't say it better.

Travis Hoium: Maybe that is the solution. Maybe Elon Musk is ahead of the game already.

Lou Whiteman: As always.

Travis Hoium: It is fascinating because it does seem like one of those times where the conversation on Twitter, the conversation in Silicon Valley is very different than the conversation that we have. I'm living in the Midwest in that flyover country, and we don't talk about AI. It doesn't come up. Something that I think Silicon Valley needs to get their head around. Let's get to the stocks on the radar and bring in Bart for his thoughts from behind the glass. Jim, you're up first. What are you looking at this week?

Jim Gillies: I'm going to go to a COVID-era darling throwback. A stock that's down 95% from its COVID-era time. Most people assume it's a dead business, and why would you ever want to go here? They have completely missed what's going on under the hood. I am talking about Peloton.

Travis Hoium: Yes.

Jim Gillies: Peloton, it's a razor and blade model. It's like we're going to sell you an expensive treadmill or an expensive bike with an iPad strap to it a little more involved in that, of course, but that was always the dismissal. During COVID, the very smart people running it said hey, it's a razor and blade model. The razor is the equipment, and the blade is the subscription. If you know anything about razor and blade model, you sell the razor for as cheap as possible because you're going to get that sweet stream of blades always sold on top of it. They said, but what if we focused on the razor instead and spent $3 billion on inventory and blowing ourselves up because we're geniuses, and everyone's going to flock to us? Spoiler didn't happen. They paid with their job. The business nearly went bankrupt. Had to save the company via a really expensive financing they had a few years ago, replace the executive suite, and a funny thing happened along the way.

The CEO came over from Apple and Ford, where he'd worked on subscription businesses before the new CEO Peter Stern. They turned from a cash furnace into a cash gushing. Does anyone know that Peloton, in their most recent fiscal year, produced $378 million in free cash flow, which was on top of the 324 million they did the year before. Those two years, Peter Stern has been there for about, I think, 18 months, and all they've done is they piled that cash up on the balance sheet. They paid a little bit of debt off. But as of the most recent quarter, they have 1.2 and change billion dollar in cash and $1.3 billion in debt. They have screamed from the pulpit. We are going to do a mass refinancing probably in September because no investment banker wants to work in August. They're almost debt neutral guys, and it's good to go away. They're promising "At least $350 million in cash flow." This year, you're going to see a refinancing probably within the next month or two, and the stock today is trading for less than seven times trailing free cash flow. You don't need a lot of growth. It's seven times free cash flow, and it's about to clean up their balance sheet for good. Peloton is my horse.

Travis Hoium: We got to jump to Lou. Lou, what do you got this week?

Lou Whiteman: [inaudible] real quick. I'm looking at Union Pacific. UNP is the ticker, best known as one half of the U.S. West Coast duopoly. It's also the train set I had as a kid, but Union Pacific is trying to buy Norfolk Southern, established the first U.S. coast to coast. This week, the Surface Transportation Board kicked off the clock. The good news here for Union Pacific is it means it probably could get done by the end of 2027. For political reasons, that's good. The bad news is that's a long ways away. Done right, this deal could really change the economics. I'm on the sidelines here, but I'm watching close.

Travis Hoium: Bart, you have stationary bikes that act as clothes hangers or model trains. Which stock is going on your watch list this week?

Bart Shannon: Trains, I know not. I think Peloton is still an innovative company, and I think there's a lot of room for growth, but I can't help but think their board meetings always center around. Guys, if we could just hang on till the next pandemic, we'll be good.

Travis Hoium: I like it. That's all the time we have for today. Thanks for listening. We'll see you here tomorrow.

Jim Gillies has positions in Apple and Peloton Interactive and has the following options: long December 2028 $90 puts on Space Exploration Technologies, short December 2028 $70 puts on Space Exploration Technologies, and short October 2026 $6 puts on Peloton Interactive. Lou Whiteman has no position in any of the stocks mentioned. Travis Hoium has positions in Alphabet, Moderna, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Apple, Bitcoin, Merck, Moderna, Netflix, Nintendo, Peloton Interactive, Tesla, and Walt Disney. The Motley Fool recommends Comcast, General Motors, SPDR Series Trust - SPDR S&P Biotech ETF, and Union Pacific. The Motley Fool has a disclosure policy.