Deep Dive
Shownotes Transcript
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How about nothing? I mean, that's how I felt today when the world of artificial intelligence was upended by a Chinese company that claims to have a solution to the colossal toll that NVIDIA exacts on anyone who wants a piece of the AI action. Chinese outfit, deep seat.
apparently has figured out a way to get much more of each NVIDIA chip, get much more out of them, much more than anyone thought possible. And that news crushed the NASDAQ, which plundered 3.07%. Dow advanced 2.89%. S&P lost 1.46%. Now, we really don't know how deep-seated it is.
We do know that many big companies have ordered a huge amount of chips from Nvidia, and there could be some serious buyers remorse now. Maybe all the spending going to Nvidia was needless overpay. Maybe the gigantic number of data centers are being built. Huge driver of growth in our country simply aren't needed. Maybe all the cooling process expenses are a big mistake.
Maybe the rush to reopen old nuclear plants and put up more renewable generation and even bring back coal? Totally unnecessary? Today, the air went out of every one of these balloons. NVIDIA's decline was the biggest shock, with the stock plummeting 17%. It was breathtaking. The single largest loss in a day of market capitalization in history.
Wait a second, the second largest single dealer was? Well, that was also Nvidia. Milk's like it has a habit of getting clobbered. But then there's also a habit of people coming in and buying the dip. What happened again? If there are more revelations about DeepSeek doing much more with less, fewer Nvidia chips, more compute, then Nvidia's stock is unfortunately not done going down. Though, I will say the pin action off this Chinese outfit did more than just knock over Nvidia.
We saw stocks like G.E. Brnova, the builder of so many power plants that are needed for these big data centers, just get hammered, falling nearly 22%. We saw a huge collapse in the merchant utilities, the ones with clean nuclear power, like Vistra Energy, Constellation, which dropped 28%, 21% respectively. So buying opportunity, selling opportunity? How about a do-nothing opportunity? Because I just don't know.
As always, I told Investor Club open hand, right, what I'd be doing with the Travel Trust, but I didn't really have all that much to say because NVIDIA didn't have much to say. Now, NVIDIA, in a way, tried to help out in a positive, I guess, way, where the releases said, quote, DeepSeek is an excellent AI advancement and perfect example of test time scaling, end quote. They also said that you still need significant numbers of NVIDIA GPUs and high-performance networking to make it happen. Reassuring? I don't know. Certainly not enough to get in front of this speeding freight train. All aboard!
We do know one thing. Every time anything bad happens to NVIDIA, you can bet all the negatives will be out there in full force, along with those who think that the benefit from DeepSeek's open source AI offering are going to move away or don't need as much NVIDIA power. Salesforce, for example, has pretty much called this a tectonic shift in the AI world from hardware, which CEO Mark Bennett now calls a bit of a commodity, to software as a service company's
like Salesforce, which are proprietary, can interrogate the data and create real value. Hey, the market ate it up. Salesforce word today, almost 4%. And a lot of it was the stuff that Mark was tweeting.
I wasn't alone. Excellent. I wasn't alone in feeling a little lost here. Apple stock rallied. I mean, essentially because they can now buy cheaper, cheaper AI. Meta platforms, even as they're already spent billions on NVIDIA chips, took off because of a belief that it won't need to spend that much more money in the future. But Oracle, Microsoft and Alphabet, they got crushed. And yet they're also gigantic buyers of NVIDIA chips. So they've all gone up like Meta or down. I don't know. It's part of the confusion.
And the real quandary is, why didn't Nvidia say that it's become much more of a software company and that you need the hardware to run their software? It also would have been good to find out how many chips DeepSeq is really using.
But it isn't. Think about it. If it was a lot, right, then our government would simply ban all NVIDIA exports to China. What a high-risk situation. If you're NVIDIA, you're really in a jam here. See, if DeepSeek really didn't need many chips to make its center of AI platform work, that could be very negative for the NVIDIA story because then you don't have to order as many chips. But if it turns out that DeepSeek had hundreds of thousands of chips, like the American hyperscalers, then you'd have to believe the new president would make it much harder for Chinese companies to buy anything else.
Now, how about all these energy and data center stories? Well, these were overheated stocks like Constellation, CEG, not the SDG kind, or Vistar, or Vertiv, the power system creator, or the data center, or G.E. Vranova, which makes the turbines. These are all part of the quandary because their stocks were up so much going into today that you could argue that today's hideous declines are barely even meaningful. Sure, Vistar was down almost 30% today, but that just means it's back to trading where it was in mid-December.
I don't know. When something is that hard, when you really don't know the answer, you've got to do something that's very alien. You have to sit on your hands and you have to say, that one is too hard for me to figure out right now. For example, not that long ago, we sold some Broadcom for the Travel Trust, much higher than where it went out today. If this one stabilizes, I think it might be a buy because they have a ton of business away from the data center. And after this decline, the stock's no longer expensive. However, I don't know. I mean, it could be a freight train.
How about the world of Ariston, Eberks, and Marvell Technologies? They fell 22% in 19 years, respectively. They're very good companies. But again, they're up so much that I don't know where the owners, what are they going to do tomorrow? Maybe the owners, maybe a group of analysts downgrade all these stocks. These deep-seek revelations happen so quickly that many analysts didn't even have time to assess the situation. Of course, the money that streams out of these hot stocks has to go somewhere, right? And today it was, well,
Well, and something that had been pretty cold. So we got these absurd moves into the consumer packaged goods place like Procter & Gamble or the retailers like Walmart and Costco. I mean, I like Costco, but come on. These kinds of explosive moves are totally mystifying to me, even as they were terrific for my travel trust. Nothing's happening to these companies. Nothing. It's just sector rotation. So what are we supposed to do here? Take some Costco stock and sell it because of rational exuberance? Just enjoy the win? I don't know.
Believe me, it is tough enough to figure out whether to say to people, okay, Apple's up huge and that's a big overreaction. I don't need to opine on Costco. All that said, the real issue is the former largest company in the world, Nvidia, and whether numbers now have to come down because there will be a freeze in spending as clients reassess those multi-billion dollar orders. Maybe it'll be like the pause in the internet built out of 2000 that turned out not to be a pause at all, but a collapse.
At what point is that loss built in? Honestly, we don't even know if there'll be a loss. But there have been so many people saying that NVIDIA run is too much. It's over. It was all about momentum, perfection and dominance. But the momentum, perfection and dominance have now been called into question.
Bottom line, I have no view on deep seek yet because we just don't know enough. Sometimes you have to do the hardest thing in the world. And we play with an open hand on this show. We got to wait. We got to wait until we know more rather than taking knee jerk action and pretending that we know the answers. How about we go to Ian in Florida, please? Ian. Jim, booyah. How you doing? Not bad, Ian. How are you? I'm doing okay. Doing all right here in sunny Florida. Nice to play center here.
Yeah, actually, you know, investment in the club, of course. Yes. Very happy about it. Thank you. Second time caller. Oh, excellent. Jim, I wanted to ask you, today was kind of crazy with this DeepSeek AI. And I've been looking at a stock that kind of goes hand-in-hand with NVIDIA. It's a data center, and it got really whacked today, to be honest with you. I think it's down in the low 104s. It's...
It's a data center play, and it's called a VRT. What do you think about it? Yeah, it's a Ganner Plumbing Invertive. It's Dave Cody's chairman. He's my next-door neighbor. He used to be my next-door neighbor from Honeywell. I have to tell you that that stock fell so much that here's what's going to happen. When you see stocks fall $43 on a $150 basis, that means the sellers are not done. They will come back again tomorrow. They will break the chart. They will make things happen that will issue that you bought this stock at $80, not $100. That's typically what has happened.
I need to go to Jack in Ohio. Jack! Hi, Jim. How are you? Big fan. Thank you, Jack. Thanks for calling. What's happening? Well, I got an RMD I'm going to have to take this year, and I'm trying to figure out what stock to go with in my portfolio. Okay. I've got a big position in Ford, and I'd like your opinion on should I hang on to it for a while. I am up to it. I'm sorry?
All right, well, here's the problem with Ford is they have big warranty issues. They're all coming back to haunt them because it costs so much to fix a car. Now, we have GM tomorrow, Mary Barra. I think she might report a good number, but I got to tell you, the auto's a part of the economy that people are saying, we need rate cut, we need rate cut, we need rate cut. And Ford in particular, five times earnings, tells me that something is wrong there. Oh, hold it. You know what we got to do? We got to go to Corcor in Illinois. Corcor. Hey, Jim.
Go Eagles, go Eagles, go Eagles. How are you? Go Birds, go Birds, man. We were all over the Birds this week. I picked my wife there with the dogs and everything. It was really something. Go ahead. Yeah, first time caller and also a member of the club. My question to you is CMG Chipotle.
What do you think? What's going on? Somebody came out today and said that they think that the growth rate for next year is not going to be that high. That was a devastating call. And what did the stock do? It went up anyway.
So my take is, look, I think Scott Boatwright's doing a good job. I have no desire to trade Chipotle. That's been a sucker's game. Let's just own it. If it comes down, we'll buy a little more. There, that's the Chipotle story. It's not a trade. It's an investment. All right, look, the decline in some of the market leaders today, I have to admit, was what I have to say, which is breathtaking. That's the wrong house you're paying.
And I'm not willing to take either side of this trade until we know more about the impact from DeepSeek. I wish I could. Everyone seemed to know so much today. I'm making millions of calls and I didn't find out anything. Well, may I tell you, how is the fear of missing out shaping today's tape? I'm telling you where I stand on the latest parabolic moves and how diversification comes in a black.
Then could the prices of corn, cattle, and oil keep heading higher together? What is that about? Scroll up the charts on the rally in these commodities. And later, I'm sitting down with a very controversial, the CEO of Beacon Roofing, as the company responds to a takeover, a hostile takeover bid from QXO. So stay with Kramer.
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What happens when you let FOMO, fear of missing out, control your portfolio? You get a viscerate on days like today where everything AI related gets crushed thanks to some headlines from China. On the other hand, if you maintain a diversified portfolio, you can save your neck. For weeks now, we've been gripped by FOMO at the CNBC Investing Club. When there's FOMO, we often go the other way and sell into a parabolic move like we saw in so many data centers related tech stocks today. Now, we trim back a bunch of Magnificent Seven stocks.
as they skyrocketed, and we know these moves can give up their gains in a second. It's been painful, as some of these positions, like Alphabet, have dwindled to the point where they're almost purely symbolic. But today shows you why parabolic moves are dangerous. There's no telling what can wreck a turbocharged rally. They just always seem to end badly. This time, it was Nvidia's stock that got laid to waste. Good thing we sold some Nvidia for the Chapel Trust, a right-sized position that had grown too large.
I always say own it, don't trade it. But you have to sell something on the way or else your portfolio will become the NVIDIA fund. And you don't want to be the NVIDIA fund as we saw today. You don't want to be the Apple fund either, even as one came roaring back today. That was something. Discipline must always trump conviction. Discipline, conviction, go with discipline. At the end of the day, you always want a diversified portfolio because that's what saves you whatever's been working stops working.
We went after the J.P. Morgan Healthcare Conference two weeks ago, and it was a nightmare of negativity because most healthcare stocks have been left by the wayside, and even the winners in the group, like Lilly, had recently given up the ghost. Kate Kramer, fan of Abbott Labs, that's a great company that's had a very underwhelming stock, who we spoke to in San Francisco. Before the interview, CEO Robert Ford and I talked about how undervalued Abbott was versus its growth rate. What we
Couldn't think of anything that might change investors' minds, save a big win, maybe an important series of lawsuits involving special infant formula. I was also marveling at all the good things Procter & Gamble had to say about packaged goods when they reported. But it meant as little as Abbott's accomplishments. Next thing you know, though, these two stocks are off like Musk's spaceships. Abbott and Procter both rallied more than 3% just today. Abbott's now up 19 points to 129 since that conference.
And weirdly, I bet they've got more room to run. Yeah. The fallout from this tech fall could be that dynamic. You rarely have a one-day buyer strike. They tend to last for ages. And the money that comes out of tech has got to go somewhere. Look, phone
Look, FOMO is an insidious force. Very few people actually end up making money when they join a parabolic move based on price earnings multiple expansion, meaning paying more for the same set of earnings. When something goes wrong, the stock goes back to where the parabolic move started or even lower. That's what I think could be happening right now with the data center stocks. If you chase them in the last few weeks, you're kicking yourself today. Now that the Chinese may have come up with a way to use generative AI with a lot less harbor, a lot less heat.
We're seeing the same thing in the nuclear power stocks as their tangential data center plays, too. Right now, you can see that they've the hardest hit because they have the least earnings from what could turn out to be the slowed build out. Remember this day. It's a perfect explainer for why you can't lose your discipline and you must always be seeking diversification, even if it hurts you short term. Longer term, better.
In this case, probably two weeks' time. It's worth it. Mad Money is back to get to the break. Coming up, from commodities to crude to currencies, Kramer spotted correlations across the market. But what does the threat connecting the assets mean for where they're headed next? Kramer going off the charts next.
What's at stake when administrations change? From the first 100 days and beyond, EY brings insights on the issues that matter. Executive orders, regulation of AI, the fate of billions in tax credit, global trade and workforce stability. No matter the policy shifts, EY helps business and government leaders remain resilient and seize dynamic growth. EY, navigate the geopolitical and economic landscape with confidence.
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I know we saw a lot of crazy action today, but here's some really crazy action. Gotta go to the commodity space. Just huge rallies in corn and cattle and oil. You can think of it maybe as the Trump trade because this started not long after he won the election. Or you can think of it as the commodity traders collectively trying to hedge their inflation risk. Either way, these various different commodities are moving in lockstep. You know, it's actually rarely a good sign for the commodities. Maybe not for you, but for commodities.
All right, that's why tonight we're going off the charts with the help of Carly Garner, a terrific technician who's the co-founder of DeGarli Trading, the author of Higher Probability Commodity Trading, and our resident commodities expert. She gives us a lot of perspective. Also, we try to figure out what's good for you, what's bad for you, what's good for the traders, what's bad for them. I want you to take a look at this daily chart of crude oil futures in black, live cattle futures in red, and corn futures in yellow. Well, look at this. You can see that all three of these commodities have caught fire together, and although oil started to pull back, corn and cattle remained red hot.
What's weird about this is before the election, each of these commodities got traded pretty separately, right? Which is what you'd expect because they all have their own supply and demand situations. In the last few months, though, they've been trading in the same direction, nonstop. Garner says this looks very similar to the commodity rallies we saw in 2022. Okay, we're going to see those later on, but that's taken from me. Inflation was rampant. I don't know if you remember that period. I do. Traders didn't want to miss out on a big move. As she sees it, we're now witnessing the same dynamic.
Now, some of these correlations are nuts. Over the last 30 trading days, West Texas Intermediate and Crude Oil futures, they've settled in the same direction as natural gas, 87% of the time. Corn, 88% of the time. Live cattle, 90% of the time. Gold and soybeans are more reasonable, 75% and 79% of the time, respectively. For the most part, they've been trading in lockstep. But now oil's broken down. Garner thinks that oil's probably the leader.
which leaves all these other commodities vulnerable in the coming weeks. She's also betting that the oil downturn will be persistent. We've got a strong dollar, high interest rates, lackluster demand from China, bearish seasonality, and economic weakness from the rest of the world. There it goes, right? At the same time, OPEC hasn't been able to stabilize prices with its production cuts, and no amount of violence in the Middle East has been able to truly prop up the price of crude. Plus, we've now got a Joe Baby's Joe White House, which tends to push down the price of oil.
I want you to take a look at the weekly chart of the West Texas intermediate crude is really compelling here. Since peaking in March of 22, that's that that's the spike that I was mentioning. Garner notes that oil has consistently made lower highs. The recent value was stopped in its tracks by the 200 day moving average at eighty dollars. All right.
The previous downtrend line from which oil broke out earlier this month will now become the floor of support at $73. Right about where it settled today. If we can't hold this level, Garner suspects that we will see oil fall to the mid to low 60s in short order. The next floor of support at 65 has managed to reject each sell-off since the peak in March of 2022. But the more times we knock on the door, the more likely it is to open.
Put it all together, and Garner wouldn't be surprised if oil ends up sliding all the way down to its motor year pivot line at 51 bucks. Hey, that'd be great news for us, wouldn't it? All right, now what about cattle?
When you just single out the live cattle futures, you see a market that's fueling unsustainable inflation. And we know that when we go to buy beef, right? It's a nightmare. Live cattle futures are now trading over $200, which is $2 per pound. OK, makes it like a great deal for beef. But keep in mind, that's the price of the live cow and not the final stake.
Garner points out that there's a reason the cattle futures have been roaring. In this country, we're currently facing the lowest per head cattle inventory since 1951, thanks to perpetual droughts and a few years of obscenely high feed costs. Like coffee, high beef prices happen to deter consumers, even if people prefer to go to places that offer relative markets like Longhorn Steakhouse. According to Garner, the bullish narrative for cattle is deafening. As a result, we are getting a word of an uncivilized cash market
where buyers are willing to acquire beef at any cost. You know what? That kind of situation rarely ends well. When you look at the chart, Garner points out that the last time cattle supply was similarly tight and managed commodity futures were this aggressively positioned on the long side of cattle futures. That was all the way back in 2014. The result wasn't permanently higher prices. Instead, we got a market top.
They took an entire decade to regain. Even so, many believers, the tight supplies are distinct and tight supplies are deceptive and that the markets focused on the headcount. But individual cattle are coming in at higher weights than ever. So the seemingly low numbers might not result in a meat shortage.
Garner points out that cattle prices are bumping against a monthly trend line, the monthly relative strength index right here. OK, it has started making lower highs. See, that's a little bit lower than there. See that? That's like that. You got to pay attention to that. And they keep doing that. She thinks cattle can still go higher, but the gains would likely be temporary. On the other hand, the downside risk she thinks is big. The line separating the bull and bear.
150 or a dollar 50 per pound. And if high prices are the cure for high prices, so to speak, as we've seen in the past, and she thinks that 90 cent live cattle is
Well, isn't an impossible expectation? Wow. We're all going to need to go to Longwood. It would be great for your grocery bills, too. Of course, it's not just commodities that are trading in lockstep. For example, the British pound, the euro, they're running a negative correlation of over 90 percent. This is beyond my ken, but I'm a big believer in Garner. So let's go over to the currencies here.
At the same time, the Japanese yen and the U.S. 10-year Treasury note have been settling in the same direction 93% of the time. Now, the yen has also been settling opposite the dollar index 91% of the time. According to Garner, such aggressive correlations are rare and generally unsustainable. This is actually pretty incredible, isn't it?
Further, she believes that there's a sign that many of the trends we've grown to accept in recent months could be in the final innings of the game. If something surprises or disrupts one asset, volatility will be in the other, and things can quickly become very chaotic. Just look at this daily chart of the 10-year note in green and the yen in blue, okay? This is because the yen suffers from a massive interest rate differential versus the dollar. A few days ago, the Bank of Japan raised their equivalent of the Fed funds rate to 0.5%. That's the highest it's been in 17 years. Even
If the Fed cuts again at the next meeting, though, we'll still be above 4%. Here's what people do. Rich people, typically. Big hedge funds. People borrow in yen, then buy dollars and invest in the 10-year. But as Garner sees it, something's going wrong here. Like we saw when the yen carry trade imploded in August. Things are getting very ugly. In the end, Garner's adamant that these obsessively close correlations are always temporary, especially in the commodity space, where she thinks a breakdown is inevitable.
Bottom line, the charts as interpreted by Carly Garner aren't obscenely high when we're talking oil or corn. But oil could be vulnerable. Hey, by the way, she does think cattle prices are an accident waiting to happen. Now, I hope she's right. Why? Because this is all hedging and creating inflation risk. Traders have been directly causing inflation. That's what's really happening. And sooner or later, that has to stop. And it could be very good news for you, the consumer, very bad news for the traders.
who own these contracts. I'm going to Tyler in Texas. Tyler! Hey, Jim. Love the show. Watch it every day. Great. Thank you, Tyler. It's great to have you on the show. Just wanted to get your thoughts on the executive order for the wind generation and how you thought it might affect NextEra going forward. I know they were talking a lot about natural gas on the earnings call. Right. Well, you know, look, we did buy NextEra as a trade contract.
as a hedge trade on Vice President Harris, former Vice President Harris winning. It did spike oddly. But the wind stuff is very different from solar. Solar is something that the president has said he likes. Wind is something that offshore he doesn't like. And by the way, nor does GE Vinova. So I'm not that worried. NextEra is a very cheap stock. Let's hope that somebody realizes that they're 100% sourced in America and does a good job. Let's go to Stafford in California. Stafford.
Hey, Jim, how you doing? I'm doing fine. How are you? Good, thanks. Hey, I wanted to get your thoughts on J-D-T-M. J-D-P-M? P-M, yes.
Okay, let me get that. JBTM. All right, I'm looking it up. JBTM. Yeah, that would say it was in the Barron's Roundtable this weekend. Oh, JBTM. Okay, sure. And, you know, look, this is one of those companies I don't really understand. It's a consistent gainer. To me, I've liked...
You know, we ought to look into this. I mean, this is kind of stuck to be it's food processing automation, which is kind of like IFF, but in a different way. I think we should look into this. This is the kind of company that I don't understand why it isn't dramatically higher because it's been so consistent. So let's do that rather than cuff it and say, hey, I like you, JBTM. That's not good enough for you. We're going to do better for you. And if that's Stafford in California and it's the Stafford that we beat, I just want to say thank you.
The charts interpreted by Carly Garner point to some pretty close correlations of the commodity and currency space, and she thinks a breakdown is inevitable in these areas. Now, much more mad money yet. QXO is aiming to acquire a beacon roofing supply with an $11 billion tender offer. I'm learning
learning the latest with the roofing company's top brass plus a major lng player venture global went public last week but with a much lower valuation than versus expected i'm gonna take a close look at the market's newest energy name and of course all your calls rapid fire tonight's edition of the lightning round so stay wet kramer
On a crazy day for the market with some huge headlines on the AI front, I've been keeping a close eye on a hostile takeover bid that might have flown under the radar for you. This morning, QXO launched a tender offer to buy Beacon Roofing Supply for about $11 billion, $124.25 per share. Stock closed today at $119.58, up $1.16.
Now, there's been an ongoing saga starting November when The Wall Street Journal published an article stating that an acquisition offer had been made by QXO. But Beacon's management team wasn't receptive. Well, it's not receptive. Believing the company will ultimately be worth substantially more than what QXO is willing to pay. Now, last week, Bloomberg reported that they're soliciting takeover bids from rivals. We've got to find out if that's true. Could be rival suitors. Who knows? But what does it all mean for the building supply company that, you know, I have liked for many, many years?
Let's check in with Julian Francis, the president and CEO of Beacon Roofing Supply, to find out. Mr. Francis, welcome to Mad Money. Thanks, William. Great to be here. All right, so Julian, I've always admired your company because you are the dominant company, 50 states. You do incredible work. Everybody knows that when we think of roofing in our business, we always think of Beacon. So how is business?
So, Jim, you know, it's been a terrific run for us. I mean, this company's in great shape. We've transformed the business over the last several years. Since you came in, frankly. Since I joined the company, yeah. The stock's performed. You know, we've done that transformation. The stock's performed. We're up 300% since I joined the company. That's about $4.5 billion of value created over that period of time. So, incredibly proud of that.
We navigated the pandemic. We focused the portfolio on our core business. We brought in some great talent and we launched our ambition 2025 plan, which was to grow top line, grow bottom line. And we've been continuing to do that. And that's been an environment where the macro has not been the kindest to us. I mean, we've had rising rates in environments. We've had very low housing starts on a historic basis. You know about the underbuilding situation.
And the commercial sentiment on the non-residential construction has also been a little bit soft and choppy post-pandemic. So we think we've been doing great, created a lot of value in a tough environment. Well, now, Julian, I've got to tell you, my colleague David Faber this morning said a couple of things that really kind of astonished me. He said, look, in this new regulatory regime, they can make this offer. Brad Jacobs is behind it.
And it can get done in as little as 20 days. Is that possible? Well, possible? You know, I'm not sure that that's possible, Jim. But look, we are where we are. Obviously, we got the news this morning. It's going to be, you know, it's an exciting time for the company. We've been trying to get the news out. We wanted to share the news. Sure.
that we had with QXO. But we're excited to get our investor day, which is March 13th. So we're looking forward to getting to that. Yeah. I hope that if David's wrong, then you get a chance. Oh, no. It's fluid. There may be things going on. Yeah, absolutely.
did some back-to-the-envelope work here. There was a company that we own for my child trust called Home Depot, and we were really thrilled that they bought this company called SRS. Now, I know they paid a lot for it, but it's worked out really well. If we use the same EBITDA multiple, we'd get on your stock, the
You get $204. So I'm trying to figure out how they came up with $125. Now, of course, I could go to Brad for that. I've known Brad for a long time. But what is the price that you think, you know what, I think we've done a great job, but this price is one that I can't get us there in five years. Let's take it.
Look, I'm not going to speculate on what the board determines the value of the company is. But what we're dealing with right now is an offer for $124.25 per share.
We determined at the time, the board determined at the time that that was insufficient. We went back and tried to be constructive with QXO. Constructive meaning, look, we can do better. Constructive meaning this is where we could be. What's constructive mean? Constructive. I don't think you may think that. Constructive is we try to engage with them. And we try to have a conversation. We offered them our long range plan, let them under the hood to show them what we were capable of doing.
and to revalue the company based on what we were prepared to share with them. They said no. We tried once again to go in there. We offered them an NDA agreement that allowed them to continue to do what they've
done today. And it was a short-term NDA that still allowed them to take the office rate to shareholders. They said no at that as well. So here we are. We try to be constructive, as I said, with engaging with them to see if we could get the value to where we thought it was the right number. Let's puzzle through this. I think there are probably people at home who are saying,
Who is this guy who suddenly creates this vehicle and then goes after another person, company that's done quite well? It seems unfair. Should that even matter in the equation? No, this is about shareholder value. I mean, ultimately, we are here. I lead this company in order to generate shareholder value. That's fundamentally it. We do it through being a great company. We do it by hiring great employees. We do it by delivering roofs and doing...
Hard things. So, no, it's not personal. It's not about that. It's about value and about shareholder value. But could you argue that the stock would be somewhere around here without a takeover bid? Or do you think it would fall drastically if Mr. Jacobs walked away?
Look, I can't answer that question directly. That's a very fair question because I think I know that I would have paid more for Beacon than the market was paying for it because you can become – I'm looking at what's happening in North Carolina. I'm looking at what's happening in California, and I'm thinking this is a stock that I would reach for, and I might reach for it for more than the stock price. Yeah, look –
I'm very proud to be able to say that we operate nearly 600 branches across the U.S. and Canada. We are in all of these communities. We're in Asheville. We're in L.A. We're in Augusta. We're in these places that get hit. Our people are part of those communities, and we're very proud of the work we do helping rebuild these communities.
It's a terrific industry. It's a terrific job. We've got terrific customers and terrific shareholders. And just to be sure, people should know, you reported revenue category of 8% from 2019 to 2023 during a very difficult period for the housing business. It's not like you guys have been, I said, yes, and woe is me. The housing business is not building houses. That's not been the case.
No, this has been something that, like I said, goes back to the transformation and the launch of our Ambition 2025 strategic plan. We'd paid down a lot of debt. We had a very high debt load when I joined the company. We got down that. We saved $50 million in interest expense every year. We put that
back into the business to refresh our fleets, to refresh our facilities, to invest in growth. And that's what we've been delivering. Well, I hope the shareholders hear you. I think that you've done a great deal. I know it may be your best offer, whatever, but I wanted you to tell your side. And I think you've really told your side excellently. And I know like the best offer win, but I certainly know that you've done a great job for your company.
I appreciate that, Jim. Very kind of you. Absolutely. That's Julian Francis, president and CEO of Beacon Roofing Supply. Even from my days at my old hedge fund, I'd always say this is the only one in the category that's a winner. Thank you so much. Thanks, Jim. Great to be here. Coming up, lightning doesn't just strike twice in Cramerica. Booyah, Jimmy Chil. Booyah. Booyah. Booyah. Thanks for taking my call. It strikes every day. Kramer is back in a flash with your questions next.
It is time. And then the lightning round is over. Are you ready? I want to start with Michelle in California. Michelle. Hi, Jim. Thanks for taking my call. Thanks for your whole team. Oh, thank you, Michelle. What's going on? I'm a new club member. I've been loving it so far. Oh, thank you. Oh, yes.
And on the call last week, you mentioned something about Dana Herb being kind of complacent. So I was wondering if you could elaborate on that a bit. Well, I think it's funny. Today was a big rotation day into health care and the stock went up. When I say complacent, look, I think that those guys are great. The Rails brothers are amazing. Even one of them owns it. You know, they have the stake there in the commander. So I love me more. But here's what I mean by that.
I want them to show me that they understand that there's been some serious underperformance here. But they could come back and say, we've outperformed for so many years, Jim. Give us patience. I just want something that shows me that they understand that we're getting restless. I think that's a reasonable thing to say. And I do like them very much. Let's go to Paulette in Louisiana. Paulette.
Hi, Jim. Thank you for taking my call. Of course. What do you think about Katerra Energy? OK, so we sold a little Katerra because it's up on a straight line. It was in a parabolic move. Now we're watching it and waiting. But I do think it is the cheapest natural gas company. It's very good for a president that wants export of natural gas. Let's go to Sam, Pennsylvania. Sam. Jim, first order of business. I got to say, let's go birds. Oh, absolutely. Let's go birds. Absolutely. What's happening?
So, Jim, I got a question about a company, Grail. You know, it was acquired by a leader. Look, it's a terrific science, just great science. But it is parabolic. It had a parabolic move and those are going to be repealed. I may I please wait until that gives back a lot of the gain that it just had. It just started going. I just started rolling over. Let's go to Eric in Michigan. Eric, Jim, I'm calling on BlackRock today.
Okay, so BlackRock is a fundamental position for the portfolio, for my travel trust. I think it's been resting. The way this stock works is it has a big move, then it rests, big move, then it rests. And overall, the long-term growth rate of this thing is fabulous. I think it's going to stay that way. I'd like you to buy the stock. Let's go to Susan in New Jersey. Susan.
Hi, Jim. Thanks for taking my call. Oh, absolutely. Thank you for calling. Yeah, yeah. You guys are a show of the national treasure. So my question is about DLR, Digital Realty Trust. Okay, I want you to wait till that comes down. That's another stock that got overheated because of the data centers, and we cannot...
We cannot get involved with a parabolic move of a stock that could go much lower. It's 2.9% yield. I think a 4% yield is probably right for that one. Let's go to Susan in California. Susan. Hey, Jim. Thanks for taking my call. I'm calling about a stock that decided last October to put up to $42 billion capital to be buying Bitcoin. Since it started buying it, it's got around $35 billion.
$30 billion, but it's worth, on the spot, it's $46 billion. Of course, the stock's jumping up and down, as you well know. MicroStrategy is so like you. Yeah, MicroStrategy. Okay, look, I say if you want to own Bitcoin, own Bitcoin. I own Bitcoin. You should own Bitcoin. Bitcoin's a great thing to have in your portfolio, but not MicroStrategy. Just own the Bitcoin. That's enough. And that, ladies and gentlemen, concludes the lightning round.
The Lightning Round is sponsored by Charles Schwab. Tomorrow, kick off the trading day with Squawk on the Street.
Live from Post 9 at the NYSE. You're like my wife. I'm at the middle of the game. I am your wife. Don't you think it's time to text Jensen? Do you mind if I watch to see whether we win the game first? I'm your TV wife. Let's just see if we can get this covered. You're fretting about Jensen. Why didn't you call Jensen? You're more worried about Jensen. It all starts at 9 a.m. Eastern. What?
Coming into this year, a lot of us were looking for a major acceleration in the IPO market. Something you heard about repeatedly when the investment banks reported earlier this month. You know, they put in some pretty darn good numbers. Sure enough, last week we got our first major deal of 2025 from an energy infrastructure company. It's called Venture Global.
Regular viewers might remember that Rusty Brazil, co-founder and chairman, executive chair of RBN Energy and one of our go-to guys, mentioned this one in our interview last Wednesday. So we were kind of curious about it. See, Venture Global has rapidly grown to become one of the top liquefied natural gas exporters in America.
And it was supposed to be a major deal now that we've got a much more fossil fuel friendly White House. But the actual offering, which priced last Thursday night and began trading on Friday, turned out to be significantly smaller than expected. Originally, Venture Global was looking to sell 50 million shares at somewhere between 40 to 46 dollars apiece. That's a deal that would have valued the company around 100 billion dollars. In the middle of last week, though, they raised the size of the offering from 50 million to 70 million shares, but they slashed the price range.
Almost cutting it in half, asking for 23 to 27 bucks. In the end, the deal priced at $25, and Venture Global got a $60 billion valuation right out of the gate. Not bad, but also a far cry from what people expected.
Then the stock fell a dollar on Friday, closing at $24 before slipping another $4 or 17% today and closing at just under $20. Wow, that's some gut-wrenching decline. The company's now valued at less than $50 billion. Now, this is still the largest energy IPO in over a decade. But when you look at how the enthusiasm for this one just evaporated over the course of a week, it's worth taking a closer look to figure out what the heck went wrong here.
First, what's the story with this company? Venture Global was founded 12 years ago, and it's now working on five natural gas export terminals in Louisiana near the Gulf of Mexico. I'm sorry, not near the Gulf of America.
Their first facility began producing liquefied natural gas in early 2022, and their second one started running last month. One is fully operational. They'll be the second largest LNG export in America behind Chenier Energy. When all five projects complete venture global, police say could produce 144 million metric tons per year. By comparison, right now, our entire country only exports 88.3 million metric tons per year. One of the reasons why I thought the deal would be received better.
What sets this one apart is that they're able to build these LNG export terminals far more quickly than their competitors because they take a modular approach to construction. But there's also some controversy here. See, when Venture Global was building its first LNG export terminal, it lured in partners by promising cheap gas prices in exchange for the customers agreeing to lock into long-term supply contracts.
With those long-term contracts in place, the company is able to obtain the financing it needed to build these complex facilities. But after Russia's invasion of Ukraine in February 2022, natural gas prices skyrocketed, at least overseas. Looking to take advantage of the moment, Venture Global started selling LNG cargos at high spot prices, rather than selling those cargos to its initial customers at the lower prices that they've been agreed to for years before. Mattress said they could do this.
They can do it because the plant wasn't yet fully operational. But the customers were obviously upset. And Venture Global disclosed in its IPO prospectus that it's currently involved in arbitration proceedings to deal with this issue. Now, that's why I don't want to dive too deep into the financials here, because, yeah, look, if they have to start fulfilling those long-term contracts, low-price contracts ones, yeah, the numbers are going to look a lot worse. Still, Venture Global has been profitable for at least the last three years. Through the first nine months of 2024, however, revenue was down 45% year-over-year, operating
operating income was down 72% and net income was down 79%. Hard to tell how much of that's because the numbers were inflated the year before and how much comes down to lower spot prices in 2024 or some of the deterioration of business. Venture Global's second facility just began production in December, which should help, but it's hard to say by how much. The numbers are just too noisy.
I think that a major reason why the venture global IPO was far less successful than these guys hope was the noisiness. While it seemed as though that everything was coming together all at the exact right time for this company, IPO coming merely days after President Trump rescinded Biden's ban on new liquefied natural gas facilities,
They just couldn't get investors on board at a high price. After a couple of days of declines, venture global's valuation is roughly in line with Shania Energy. That makes sense. Current market leader. You could argue it deserves a higher valuation because it's building new facilities faster than anyone else. And I would buy that argument. In fact.
I actually down here would give my blessing, put on a small position because this is a great story, even if the near term numbers might be bumpy and the deal looks like it fell apart. But what does the venture global meltdown mean for the broader IPO market? Now, this was certainly an inauspicious start for one of the first major deals of the year. And I've been hearing a lot of people claim it was a very bad sign. Now, they may be right. I got a different takeaway, though. Different.
Entirely. See, the hallmark of last year's IPO market was the fact that things worked pretty darn well for the few companies that managed to come public and their new shareholders because the banks running these deals did a fantastic job in pricing. Basically, they priced the offerings low enough that they were attractive to investors and people made good money on most of these deals. Sure, in some cases like Reddit, you could argue they left money on the table by pricing the deal too low. I call that a high-quality problem. In the end, everything generally worked well because no one got too greedy.
I think that Venture Global, or whoever was responsible for the initial pricing range that was flooded, maybe the Goldman Sachs bankers, got a little greedy, trying to obtain a valuation that was double what people were paying for the industry leaders, Chenier Energy. And then they got slapped down by investors who saw what they were trying to do, and they just said, no. I don't have any grand prognostications about what the Venture Global deal means for the IPO market. And I'm certainly not ready to say it's dead on arrival because of what happened last week.
The bottom line, as I see it, Venture Global was an imperfect deal that was initially priced for perfection.
In fact, I actually hope that everyone involved in the IPO market, especially those bankers who did a good job last year, but not last week, take note of what's happened here and try to avoid making the same mistake twice. If the investment bankers learn from their failure, then the 2025 could still prove to be a very good year for IPOs. I like to say there's always a bull market somewhere. I promise I'll find it just for you right here on MadMoney. I'm Jim Cramer. See you tomorrow.
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