The next AI Trade - Enterprise AI Cost Control (Massive Potential for Re-Rating)

Do you ever wish you got into some of the seemingly boring/dying companies before their massive rerating? Well I got two names for you.

These are two asymmetric risk reward plays on the rising AI cost issue. I have a feeling this will be the next biggest AI talking point and it's just starting now. Anecdotally people are already saying this but it hasnt been fully reflected in the market yet, at least not for secondary trades.

There are many names in this space but the big and obvious names have already seen a huge run. These have not.

1. Elastic(ESTC): Right now, companies are paying an absolute fortune to access AI models, but they can slash those bills by using a smart filter with Elastic. Instead of sending an entire mountain of disorganized data and paying a massive fee for every single token, Elastic uses a process called RAG (Retrieval-Augmented Generation) to pinpoint and send only the exact information needed. Even though it's a critical tool for making AI affordable, The street still mistakenly prices Elastic like an old, boring search software, making its stock incredibly cheap compared to its potential value. It trades at a discounted \~3.5x EV/Sales with near 20% FCF margins, offering massive multiple expansion upside. Don't pay nosebleed prices for Cloudfare or Datadog for model routing and observability to save AI costs. Go with the Elastic angle instead for cheap.

1. Nutanix(NTNX): Because paying for public AI computing is getting so expensive, many businesses are just starting to build their own on-premise/hybrid AI with open weight models so they eliminate their AI bills, and Nutanix provides the essential software to run them. Nutanix is the underlying operating system that allows a company to easily manage its own physical servers just like they would a cloud service, generating 88% profit margins in the process. By investing in Nutanix, you get to profit from the massive wave of companies buying new hardware without getting stuck owning the low-profit companies that actually manufacture the metal parts. It trades at \~4.5x EV/Sales and roughly 16x FCF, so it has a lot of room to rerate. Don't pay for Dell/HPE after their huge run. Nutanix is the natural next leg without the risk of becoming a bagholder.

Y'all agree?