Cole Smead — "We've Likely Greatly Overpriced the AI Trade"
A Thanksgiving-week CNBC hit: the AI-capex mania rhymes with the late-1990s telecom capex boom — the survivors of a capex mania compound only ~5%, "you don't want to own the people that do capex," and the small investor's edge is going to weird, unloved corners of the market.
One-line take: The Sam Altman–Satya Nadella interview "tipped the scale" — markets have "greatly overpriced" AI. Smead's paradigm is the late-90s telecom capex boom: everyone knew we'd use the internet; the unknown was the cost/price (just as everyone knows we'll use AI). The survivors of a capex mania — AT&T, Verizon after 2000 — compounded only ~5% for 25 years. The winners were the asset-light players who didn't do the capex: Google won in 2002 because it didn't have to build the internet (Amazon similar). "You don't want to own the people that do capex" — and hyperscalers are now turning from asset-light to the most capital-intensive businesses in the world. To make money now "you have to look weird": he owns mall REITs at 7–8% implied cap rates as short rates head toward 3%. The small investor has a big edge; a broadly-diversified trillion-dollar institution can't do this. (CNBC caption transcript; garbles mapped in the header. Only companies Smead names individually appear below — Meta/Microsoft are referenced only inside the "Mag-7"/hyperscaler group, so no separate rows.)
1. Stocks & names mentioned
Stance reflects how each is framed in this segment. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
| Ticker | Name | Research | View | What he said | At |
|---|
| GOOGL | Alphabet (Google) | QT · SA · STK · FA | Neutral | The historical asset-light winner — Brin & Page "didn't have to do the capex to build the internet," so Google won in 2002. Cole's point cuts the other way for today: "you don't want to own the people that do capex," and the hyperscalers (Google included) are now becoming capital-intensive. A cautionary reference, not a buy. | 3:11 |
| AMZN | Amazon | QT · SA · STK · FA | Neutral | Cited as another survivor born in the 90s that "didn't build the infrastructure" — an asset-light winner, like Google. Same caveat applies now that the hyperscalers are the ones doing the capex. | 3:11 |
| NVDA | NVIDIA | QT · SA · STK · FA | Negative | The face of the Mag-7 / AI trade Cole thinks is "greatly overpriced." Like the oil euphoria of the 2010s — where producers and servicers and industrials all got caught up — the AI mania sweeps in more than just the capex spenders. "We have to kill this fever." | 1:47 |
| T | AT&T | QT · SA · STK · FA | Neutral | Reference — one of the big survivors of the telecom capex bust (with Verizon), yet it compounded only ~5% for 25 years since 2000. The cautionary template even for the eventual AI "winners." | 2:29 |
| VZ | Verizon Communications | QT · SA · STK · FA | Neutral | Reference — the other telecom survivor; ~5% compounded since 2000 despite winning. History says even 1–2 dominant AI survivors make only mid-single-digit returns. | 2:29 |
Stance = how each name is framed in this segment, not a price rating. Macro substance feeds the master macro viewpoints: the AI-capex mania as a repeat of the late-90s telecom capex boom, the survivor-compounds-5% math, "don't own the capex spenders," and the small-investor edge in unloved (mall-REIT / rate-sensitive) corners.
2. Talking points
0:46 The Altman–Nadella interview tipped the scale
- Since the Sam Altman / Satya Nadella interview a few weeks ago, "things have just been different in markets." Andy Grove's line: "if everyone knows something is so, nobody knows nothing."
- Everyone knows we'll use AI; what they don't know is the cost and the future pricing.
1:28 The 2010s oil-capex paradigm — price was the unknown
- Like the 2010s oil boom: tons of investment, very exciting, Wall Street could sell it — and the only problem was the price (WTI at $57 today). The history of technology is that cheaper prices come.
- "The likelihood is we've greatly overpriced this."
2:07 The telecom-bust survivors compound ~5%
- The prior capex boom's players — Lucent, WorldCom, Nortel, Global Crossing — mostly died; AT&T and Verizon survived but compounded only ~5% for 25 years since 2000.
- Even a "winner-takes-all" outcome historically produces mid-single-digit returns. Same in oil since the 2000 peak.
3:11 Google & Amazon won by not building the infrastructure
- The 2002 winners (Google, Amazon) didn't do the capex to build the internet — they benefited off it cheaply, like the consumer did. "You don't want to own the people that do capex, because the winners will be the people that didn't."
- The market is pricing the capex spenders as the winners; "history argues directly against that time and time again."
4:22 Where to hide — weird, unloved corners
- In a prior mania you couldn't own much around it (producers, servicers, dot-coms, software all got swept up). "You have to look pretty weird right now" — go to totally under-appreciated corners.
- Owns mall REITs at 7–8% implied cap rates; short rates heading toward 3% (Trump wants it, and "as we've seen with oil, if he wants it he'll take it there"). Credit-sensitive value the crowd won't touch.
5:36 The small investor's big edge
- A broadly-diversified trillion-dollar institution "can't do that stuff." Smaller institutions and smaller investors have a big edge. "It is not a great time to be a big" allocator.
3. In plain English
A jargon-free summary of the thesis behind the argued names. (Plain-language companion to the table; renders on the consolidated ticker page.)
NVDA — NVIDIA Negative
NVIDIA is the poster child of the AI trade, and Smead thinks the whole thing is badly overpriced. His analogy is the late-1990s telecom boom: everyone knew the internet was coming, tons of money poured into building it, and the eventual survivors still made only tiny returns. He argues the same fate awaits the companies pouring capital into AI. NVIDIA sells the chips that fuel that spending, so in his view it's caught up in a "fever" the market eventually has to break — a caution, not a recommendation to own it.
GOOGL — Alphabet (Google) Neutral
Smead uses Google as his key historical example of the right way to win a technology boom: back in 2002, Google succeeded precisely because it didn't have to spend money building the internet — it just ran its software on top of what others had built. His lesson for today is the opposite of a buy signal: "you don't want to own the people that do capex," and the big tech companies (Google included) are now shifting from asset-light to spending enormous sums on AI infrastructure — which historically drags returns down. So he cites Google as a cautionary reference, not a pick.
Summary & timestamps derived from the public CNBC segment (transcript in transcript.txt) for personal study. Not investment advice. © CNBC / Smead Capital Management for source material.