VALUE: After Hours (S08 E17): AI Fear Is Creating New Opportunities

During their recent episode, Taylor, Carlisle, and Tweedy Browne’s John Spears And Jay Hill discussed AI Fear Is Creating New Opportunities. Here’s an excerpt from the episode:

[Jay] I mean, what I’ve noticed, Tobias, is that the earnings of all these big tech companies, and it has been extraordinary, extraordinary revenue growth, extraordinary earnings growth, but the free cash flow now is headed the other way. It’s hard to imagine the returns on incremental invested capital can go anywhere but down in the future. And I would say, look, as value investors, we’re never going to invest in NVIDIA.

We’re never going to invest in Microsoft. But there’s this whole narrative now between AI winners and AI losers. And so, we’re spending more time today on the perceived AI losers.

We’ve bought a company recently. It’s a company called AutoTrader, another company based in the UK. They’re the leading online classified platform for used cars in the UK.

Complete dominant position, six times larger than all of their closest competitors combined. This is a business with a terrific brand. It’s been around 50 years.

It’s a network effect business. If you have the most consumers looking for used cars, and you have the most dealers on your platform, that network effect is self-reinforcing. And this is a business that also has proprietary data.

They have more data on the prices of cars, the accident history of cars, the ownership history of cars. And a lot of this data is embedded into the business processes and flows of their customers, which are UK auto dealers. So, we think there’s a real moat here.

But the narrative among really all online classified platforms has really switched from high margin, high return, structural growth, long term compounders to AI losers in really a matter of months. These stocks have gotten hammered. And we think the bear case is over-exaggerated.

It’s unlikely. There’s pushback from how these businesses are pretty protected from the AI threat. But as you would imagine, we’re looking for places that are being shunned.

And I think that’s a good example. So, we’re looking for the AI losers, so-called AI losers, as opposed to the darlings.

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VALUE: After Hours (S08 E17): AI Fear Is Creating New Opportunities

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