Has the AI bubble turned into an energy bubble? Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool's Hidden Gems Investing. I am Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. We have a lot of news, especially in the world of AI and energy. We're going to get to that in a moment, but I wanted to start with one of the, I think, more notable earnings reports yesterday came from Spotify. The market wasn't super happy with what they saw. But Lou, the interesting dynamic here is Spotify is not saying, hey, we're in trouble. We're losing customers. It reminds me a little bit of Netflix. It's more a matter of how fast are we gaining customers? And is that growth just isn't quite as impressive as it was a few years ago. They're maybe not getting into ads as quickly as investors had hoped. Maybe not able to push those prices as high as people would hope. So it's kind of become this ho-hum business that you take a step back and you go, man, this is a great business, but the stock has not done particularly well recently. So are we just entering a new phase for these great companies that are just going to be kind of high single digit, low double digit growers? It's hard to believe that efficient markets were caught off guard by the number of people on the planet Earth, isn't it? I mean, isn't that what's happening here? Travis, you said, let's talk about Spotify. I was like, oh, wow, look at that drop. Let's see what went wrong. And I still don't know. You're going to have to tell me. They added 3 million premium subscribers. They're expected to add 6 million in the current quarter. But because that total is 299.4 and not the 300 that Wall Street had expected, suddenly we're just going to sell the thing off. I mean, like you said, there are natural limits here. I would say for a mature company, growing premium subscribers by 9% still feels pretty good. But yeah, I guess we just need to adjust expectations. I'll say, I don't know if this is screaming by yet. I'm not a customer or a shareholder, but it's now below 30 times forward earnings. It was at 70 last summer. So maybe slowly and painfully, we are making that adjustment to just a well-run, mature business versus a hyper growth story. Yeah, Rachel, when you look at these businesses, and I think Spotify and Netflix kind of fall into the same category. They're winning in video and audio respectively. But how do you think about these and what sort of prices these stocks need to trade at for them to be attractive? Yeah, it kind of just makes me think that that era of very explosive viral subscriber growth maybe for Netflix and Spotify has drawn to somewhat of its natural maturation and deceleration phase. But also, I think that there is a level of irrationality in the markets. We're at a time where businesses that are very mature, that are incredibly financially well-run, as we see in the case of Netflix and Spotify, that deliver solid results, right? They're not the eye-popping figures we saw a few years ago. But that just isn't drawing the same response and excitement for investors than it did five, six years ago. I mean, you've got Netflix, right? They're still adding millions of users. There is this element where I think the law of large numbers and high market penetration means some of that easy growth is gone. But also, they're focusing on Netflix's case. They're growing average revenue per user through password sharing crackdowns. You've got Spotify with their strategic price hike. So my takeaway is I think we've reached a maturation point where the metric for success isn't necessarily how many people you sign up for free trial or subscriptions, but how much cash flow and profits that you can squeeze out of a really mature base. Yeah. And those things seem to be improving for both of those companies, even though the numbers aren't necessarily as high as they once were. And currency has complicated this too. I think on a reported basis, Spotify's revenue was up 8%, but on a constant currency basis, it was up 14%. So the weak dollar is really changing how we're looking at some of these things. Lou, the other thing that I wanted to bring up is the advertising business, because we know Spotify actually has more ad-supported users than it has premium users. But these numbers are a little bit wild. In the most recent quarter, the premium business generated 4 billion euros worth of revenue That was up 10 year over year But the ad business 385 million So less than a 10th despite having more users and that revenue was in decline Does that need to pick up for Spotify, for Netflix, for some of these companies that used to be just the premium supported and what can they do? They said they rebuilt their stack, that these things should be getting better. We've been, we've heard this for quite a while from Spotify, but that seems to be both an area of opportunity and also an area where, I don't know, should they just outsource it to somebody that does advertising better than they do, like a Google or a Meta? It seems like there's low-hanging fruit there. Probably. Yeah. I mean, I don't know why they have to be the master of ads. We've seen Netflix do this. I think we learned this with Yahoo back in the day or Tumblr. Ad supported business isn't necessarily going to be the path to success. I think this is a nice add-on, but no, it's not going to offset. I actually think they have more wiggle on pricing power than they do on ads in terms of a market mover. I don't know. I mean, like I say, I'm not a customer. I don't really see them having as much pricing power as Netflix. The algorithms are good, but you don't have that exclusive content. I have to buy Netflix to get stranger things. I don't really have to go to Spotify if I want to listen to my stupid 90s alternative music. But I do think there is opportunities there more than there is advertising. Advertising is a thing they should do, but that's not the answer here to turn it back into a hyper growth story. Yeah, be interesting to see what the market thinks about these going forward. Because I think it's hard to argue that these are bad businesses, but the stocks have not been winners, at least recently for investors. When we come back, we're going to get to a couple of stocks that are also struggling today, Robinhood and SoFi. You're listening to Motley Fool, Hidden Gems Investing. Starting a business can be overwhelming. You're juggling multiple roles, designer, marketer, logistics manager, all while bringing your vision to life. Shopify helps millions of business sell online. Build fast with templates and AI descriptions and photos, inventory and shipping. Sign up for your one euro per month trial and start selling today at shopify.nl. That's shopify.nl. It's time to see what you can accomplish with Shopify by your side. Welcome back. Two of the big earnings reports for today, or at least in the last 12 hours or so, is Robinhood and SoFi. And both of the stocks, Rachel, are down double digits as we're recording. These are both still technically growth companies. If you're looking quarter over quarter, maybe things don't look like that with Robinhood. But the sentiment around them have both turned very negative very quickly. So when you look at this earnings report and the trajectory of these companies? What are you thinking? Yeah, I think it's an example of the shift we've seen and how the market values these high growth fintech businesses the last few years, right? I mean, for a long time, companies like Robinhood, like SoFi, they had these speculative multiples because they sort of promised to disrupt the banking establishment with viral, you know, high velocity trading and lending models. And maybe we're seeing investors re-rating them more like traditional financial institutions, although I think the business models are entirely different. You know, it's interesting, you know, Robinhood, their revenues are still growing significantly. They had about a 47% collapse in crypto revenue. So I think we're seeing how much they still rely on volatile retail trading. SoFi, they gave a more conservative outlook, I think, than the market was hoping for. They left their 2026 revenue forecast unchanged. So maybe investors see that as a signal of a slowdown in the latter part of the year. I mean, these are both companies that are expanding their user bases. I think that the market is really no longer willing to pay a premium for potential. They want predictable, disciplined profitability. Robinhood is evolving into a wealth management tool, a quality one, but I think they're finding that maybe the boring growth in subscriptions and retirement accounts doesn't command the same valuation as it did a few years ago. And SoFi, I think, is also discovering that maybe being that kind of one-stop shop for finance is a bit of a double-edged sword. They have a long streak of profitability, but their growth is becoming more predictable. It's maybe even capped by the broader economy. So these aren't stocks that I own, but I do think if you're an investor looking at these businesses. There are some nuance to what we're seeing right now. I do own both of these shares So rough day for me But I think you look at these earnings reports and what sticks out to me is are you looking at it short term and based on analyst expectations or what does quarter over quarter growth look like or are you looking at it long term And Rachel said it The assets in retirement accounts at Robinhood are up 90% year over year. People say, we don't want you doing all this YOLO trading and prediction markets. And now they move into this more stable business and the market goes, we don't really like that either. Then you look at SoFi, 41% revenue growth. It's hard to match that if you're looking at any sort of financial institution. Yeah. Sometimes we're the problem, Travis. It's not the company that's the problem. Oh, no. Oh, no. Don't turn it on us. But in this case, I'm going to say you're the problem, pal. To your point, nothing is wrong with either of these companies. SoFi first. SoFi's earnings, they were better than fine. They were pretty good. The issue is we don't seem to be willing to admit that they're a bank. And banks, especially as they grow, have limits to how fast they can grow. That is by design. It is hard to innovate in financial services. I keep making this point, but 99% of what we call fintech innovation is just some new marketing thing. That's by design. Regulators like it that way. SoFi seemed to defy gravity when it was smaller. The denominator made a huge difference there. As they grow, these marketing strategies, just the rate of return on this is going to go down. So, you know, at some point, we're just going to say, OK, this is what they are. They're a bank. I will note even with today's drop, their multiple to book is double that of Ally Financial. Their forward PE is triple that of Ally Financial. Ally Financial is a really good online bank. So there's no red flags. But again, I mean, I don't know what SoFi is going to do to change the calculus and turn into some hyper growth machine that the market wants them to be. It's a similar story for Robinhood. You're paying twice the multiple that you get for Charles Schwab. Robinhood tries desperately to innovate. They've tiptoe all over, you know, lines in the sand from regulators. Yeah, there's a lot of gray areas if you're talking about prediction markets and some of the things like that. Yeah. Right, right. But at some point, they are what they are and what they are is a lot more similar to Charles Schwab than maybe investors want to admit. I think that at some point, either these companies are going to have to discover magic fairy dust or we're going to have to admit that we know what they are and we know how to value them and they should be valued maybe at a premium to some of the slower growth ones because they are still faster growth in their sector. But the in their sector thing is the part that I think we've kind of lost track of. Yeah, these stocks have not done well. But at some point, you have to look at the business and it does seem like they're both doing very well from a kind of fundamental basis. There's a little bit more volatility in Robinhood. But, you know, so far, it's hard to argue with 40% growth. The question is, what does the market want to pay for those things? And I think that's kind of what Lou's getting at eventually. Maybe there is some value there, even for somebody like Lou. When we come back, we're going to get to the potential bubble building in energy. You're listening to Motley Fool, Hidden Gems Investing. Welcome back. And as we talk about earnings season, we have to talk about the hottest stock in the market. Lou, that is Bloom Energy. A few years ago, this was the company that was going to bring hydrogen to everybody. We're going to be making hydrogen out of water. Now it just seems like they are selling these fuel cells that are actually taking natural gas to any data center at any price. Is this just another bubble building around the AI bubble, except this time it's in energy? To be fair to them, those generators are hydrogen capable, right? So at some point they could be. But yeah, I think this is saying what we already know on steroids. These data centers are creating a huge problem in terms of energy, and companies that are in position to solve that problem or address that problem are attractive to investors. Stock is up 180% year to date, Travis. It's still April, so that a pretty good year 180 Let go back a little bit further One year It is up 1 Yeah that not bad We take that most years But look I mean not to be the wet blanket here but a lot of that momentum is tied to a deal to plug into Oracle databases. I don't know if you've checked on Oracle recently, but Oracle is down way big on investors wondering if they should and if they will actually turn those data centers on. I think that's a huge, I don't want to say red flag, but that should be something that we should be aware of, especially when you're trading at 160 times expected earnings. I hope for this. I think we need this. We certainly, we know the grid is not prepared for this and we know there's huge energy needs. I don't know how I can get my little brain around how this makes sense in the longterm. So yeah, I guess to answer your first question, is there a bubble here? There's a really decent company here and also a bubble. buying a company like Bloom Energy at 32 times sales. Typically, energy stocks don't trade for those kinds of multiples. Yeah, yeah. The valuation's a bit rich for me. I think part of it is we're seeing the fact that the market's really waking up to the reality that these AI factories are effectively giant, power-hungry heaters that the current utility grid can't support, right? And so Bloom offers this grid-independent solution. Companies can deploy Bloom's fuel cells to generate high-density power right on site. And so we're seeing them shift into more of maybe an officiary in that essential AI infrastructure category. And we're in an era, I think, where the most valuable commodity in tech isn't just the algorithms you build. It's really guaranteed access to electricity. So we're seeing that hyperscalers are willing to pay a premium to bypass the traditional slow moving energy infrastructure of yesteryear. And by providing a way to generate massive amounts of power without a traditional grid connection, they could be positioning themselves as a bottleneck breaker in the AI industry. It doesn't mean I would personally invest in this business, but I do think that driver of the enthusiasm for the stock that we're seeing, the need for its solutions, I do very much look at it as a function of the AI era that we're living in, and I don't see that diminishing. Lou, let's end on this. You and I have been following industrials and energy for a very long time. Have you ever seen prices like this, multiples like this and does that ultimately worry you as an investor? It definitely worries me. Have we seen it? Yeah. I mean, look, if we're going to see it, we see it in little pockets like this. And again, there's a there there. Bloom Energy has a potentially interesting business, but just always know what you're paying for a company. Valuation is always how quickly can they get there and how many hurdles do they have to jump to get there. If you look at all of the chaos and data centers right now, let's at least wait till the end of the week and see what the hyperscalers say about their rollout plans before jumping in at these levels. What about when you look at the energy market more broadly? Because if you look at a heat map of the S&P 500, tech stocks not necessarily doing great. A lot of companies are struggling in the market, but yet energy is holding things up. And you look at these multiples from ExxonMobil to utilities, and they're higher than they've been in a very long time. I guess that's what I'm wondering if If this is bloom energy is like a symptom, but is this a bigger problem that ultimately, you know, energy typically doesn't trade for 30, 40 times earnings and that may eventually normalize. Yeah. And also there was a elephant in the room with the Middle East too, that is driving up energy prices. I will say this broadly on energy. I don't know if this applies to bloom, but these are the times that you're glad you have energy in your portfolio. These aren't the times you buy energy. You deal with years of underperformance, so you have that exposure in times like this. I would not be personally running into energy right now. Again, I think this is why these are times where you're glad you put up with the down times, not times to rush. Energy can struggle for decades and have one great year like we have in 2026. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so it'll buy or sell stocks based solely on what you hear. While personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers, advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou, Rachel, and Dan and Christy behind the glass, I'm Travis Hoyam. We'll see you here tomorrow.
