As Economic Storm Brews, I’ve Got Two ‘Backdoor’ AI Trade Ideas to Keep Dry
Let’s check two names, one rebranded big energy player, and one rebounding from a recent ‘busted’ IPO.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Imagine, if you will, that I laid out the following market scenario to a group of investors toward the end of 2025 for the upcoming year: Interest rate expectations will go from a consensus of two quarter-percentage point reductions to the Fed Funds rate by year end to with one or two quarter-point hikes in 2026. The 30-year treasury yield will move past the 5.1% threshold, its highest level since 2007, just before the Great Financial Crisis. U.S. gross domestic product growth will be lucky to average 2% for the year.
Further, a new war will erupt in the Middle East, effectively shutting the Strait of Hormuz from transiting much or any of the 20 million barrels of oil and refined products daily that went through this global choke point prior to the conflict. The spike in energy and commodity prices would push inflation higher and lower global growth projections. By mid-year, S&P Global would downgrade Oracle’s (ORCL) debt to one step above junk status. Free cash flow at all the major hyperscalers would plunge as capital expenditure budgets soared, thanks in large part to higher prices for key components. And despite all of these unexpected headwinds, equities would continue to rally to all-time highs.
My guess is more than a few of that imagined investor group would have looked at me if I had three heads. And yet, here we are.
That said, and despite my pessimism on the market, I continue to make opportunistic trades. Several of my covered-call positions expired in the money last Friday pushing my short-term treasury/cash allocation to nearly a third of my portfolio. That leaves me with a bit too much cushion, even with my skepticism. This week I have taken positions in the two new names via covered-call orders. Both are energy-related and could be called back-door plays around the AI Revolution.
Let’s start with ERock, Inc. (EROC), which was my first trade on Monday. The company came public in early June and soon after became a “busted IPO.” The shares are starting to rebound recently. The company makes, maintains and operates modular natural-gas power systems. This includes after sale services, software, and getting all the permits and grid connections to install this electrical generation capacity. A big need for all the massive AI data centers going up across the nation. The company has a $1.3 billion backlog and should become profitable in fiscal 2027 where the analysis consensus believes it will deliver just over $1.4 billion in revenues.
The second new addition is more well-known. It is oil services giant SLB N.V. (SLB), which was previously named Schlumberger Limited. The company has rebranded itself as a global technology company providing services and products for the energy industry. The company recently signed a seven-year contract with the Kuwait Oil Company. The agreement covers scores of projects including those that span artificial intelligence and the industrial Internet of Things applications. The company is aiming to double its digital revenues to $2 billion by fiscal 2030. Management also believes that SLB will benefit over the long-term due to the latest conflict in the Middle, which will push many countries to “accelerate efforts to diversify supply, strengthen domestic resource development, and rebuild strategic and commercial inventories.” This sounds like a reasonable assessment to me and the stock is reasonably valued at just over 18-times forward earnings with a 2.5% dividend yield.
At the time of publication, Jensen was long EROC, SLB.
