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Speaker 2: Alicia Levine is far too young to remember this. Your
Speaker 2: mother would throw at you a book called The Intelligent Investor.
Speaker 2: And one of the great themes of The Intelligent Investor
Speaker 2: is if you're not in the game, you don't get
Speaker 2: to win. And there's this whole modern disease of market
Speaker 2: timing where that if you're not in the game, you
Speaker 2: don't get to win. She's b Andy. Can we just say,
Speaker 2: Paul Jeffrey you Elisia Levine Solidine, It's like the mathematics
Speaker 2: involved your folks is prodigious, Alicia, what's the damage to
Speaker 2: people who aren't enjoying this bull market?
Speaker 3: So like permanent, it's not permanent, but you can't make
Speaker 3: up what you've lost. One of the most important statistics
Speaker 3: is that the best month of the year always follows
Speaker 3: the worst month of the year, and so we show
Speaker 3: our clients in various ways, like you try to time
Speaker 3: the market. You're likely to miss that massive rally like
Speaker 3: we had yesterday because you were so fearful of what
Speaker 3: was going on. From June and July, the favorites were underperforming,
Speaker 3: Tech was over. I mean essentially, if you go back
Speaker 3: thirty years and you missed the best month of the year,
Speaker 3: you're underperformed by five hundred bases on.
Speaker 2: I go to a Capitol group out in Los Angeles
Speaker 2: who've done great studies on this. You got to be
Speaker 2: in the market. We all know that. But you were
Speaker 2: weaned to Chicago, the land of Fama and French where
Speaker 2: you off to play.
Speaker 3: You discuss that, discuss as my three male children would
Speaker 3: tell me, you miss all the shots you don't take,
Speaker 3: and I think it there is there. As you say
Speaker 3: it's a disease of trying to time the market, I'll
Speaker 3: say this, people can be pretty good at selling more
Speaker 3: or less near Like you know, local peaks right well,
Speaker 3: you can see deterioration. You can see it per set
Speaker 3: of SMP advanced to client linzing. You can kind of
Speaker 3: see you could be headed into a nice little sell
Speaker 3: off or consolidation phase wherever you want to call it,
Speaker 3: and then you never get back in and that's the
Speaker 3: issue because the lows are ugly. If you think about
Speaker 3: last Thursday, it just looked like the apocalypse. Actually it
Speaker 3: turned out to be a clearing event, and you know,
Speaker 3: Citadel did great on that, but I'm sure a lot
Speaker 3: of people were selling right into it. And it's just
Speaker 3: it's too emotional. It doesn't matter how many years you've
Speaker 3: been doing this, but people fall for it. The same time.
Speaker 3: You're not going to save yourself anything. You're going to
Speaker 3: damage your forward returns. The only time you really want
Speaker 3: to think about next twelve months possibly being lower is
Speaker 3: if you think a recession's coming. We haven't had a
Speaker 3: proper recession since two thousand and eight. The one in
Speaker 3: twenty twenty was man made. It was man made, Okay,
Speaker 3: that's stunning the market. The market since twenty ten is
Speaker 3: up fourteen percent annualize. Okay, that includes the twenty five
Speaker 3: percent sell off in twenty twenty two. That includes the
Speaker 3: down six percent in twenty eighteen. So trying to time
Speaker 3: it is it's fruitless. It's from a different era when
Speaker 3: you actually had recessions every five to seven years, and
Speaker 3: coming out of the market perhaps saved you some losses.
Speaker 3: So you know, the most important thing is is their
Speaker 3: recession looming? This market, this economy, there's no recession. And
Speaker 3: by the way, the banks are doing terrific. When banks
Speaker 3: do great, you're not going into recession. They're the forward
Speaker 3: leading indicator.
Speaker 4: Technology AI focusing on returns on AI capfex.
Speaker 5: How do you guys think about that theme right now?
Speaker 3: So I think that's the most important theme in the market.
Speaker 3: And that, of course was the clearing was the earnings
Speaker 3: that we had from some of the hyper scalers, you know,
Speaker 3: even where the market was disappointed in some of the others,
Speaker 3: the revenue was going much higher on the cloud business.
Speaker 3: And what we saw was the one question. There are
Speaker 3: two questions, ken kind of equities rally with the four
Speaker 3: point five percent bogie on the tenuere being breached, right,
Speaker 3: And the answer was like, yeah, actually it was kind
Speaker 3: of fine. It was fine. Okay, So that question was answered.
Speaker 3: So look, Yalds probably could get to five percent here
Speaker 3: simply because between the inflation numbers and you know, from
Speaker 3: the questioning of the FED reaction function and the uncertainty
Speaker 3: in Iran, they ran. So that's number one. But equities
Speaker 3: are fine. The second big question is new ROI on spending,
Speaker 3: and that could have killed the entire market. You would
Speaker 3: have wound up with healthcare, you know, utilities and staples working.
Speaker 3: And the answer is, actually, the business model is working,
Speaker 3: even if free cash flow is going negative in the
Speaker 3: short term, even if they have to sell debt to
Speaker 3: fund it, they're reaccelerating the core business, which is cloud
Speaker 3: and so it's working. And once you answer that question,
Speaker 3: you're off to the race. It's the whole complex can rally.
Speaker 2: Alicia Levine with this B and y thrilled with us
Speaker 2: today across America, around the world. Futures Up twenty eight.
Speaker 2: Paul asked a question because I got to go nerd
Speaker 2: here in a moment, Paul Sweeney with Alisia Levine.
Speaker 4: Alicie, you say industrials attractive entry point and we had
Speaker 4: great numbers out of Catapillar yesterday, So boy, that's a
Speaker 4: great time.
Speaker 3: So you have, like it's a perfect storm. You have
Speaker 3: the capex incentives from the one big beautiful Bill which
Speaker 3: are rolling through the economy and are definitely helping hard
Speaker 3: assets that's industrials, as well as the funding from the hyperscalers.
Speaker 3: So if you think about what you need to build
Speaker 3: a data center or what you need to kind of
Speaker 3: to build out the AI. On the hard asset side,
Speaker 3: the projections for next year is one trillion dollars in
Speaker 3: spending that is going directly into the P and L
Speaker 3: of twenty percent of the S and P. So that's
Speaker 3: why we like it. I mean, industrials have been actually
Speaker 3: the best, the best sector of the year, so we
Speaker 3: think that continued.
Speaker 2: To give us your targets here quickly.
Speaker 3: Okay, eight thousand with risks, but risk to the upside
Speaker 3: here right Okay? Forward earnings are growing at thirty percent.
Speaker 2: Okay, cheez.
Speaker 3: The multiples lower than it was June second, with the
Speaker 3: market peak before.
Speaker 2: If I look at two sets of different equations on
Speaker 2: the X axis and I look at all this capex
Speaker 2: all these tech companies are spending and matched against, that
Speaker 2: is the same timeline of their huge cash flows and profitability.
Speaker 2: I say, they've only got to go out one quarter,
Speaker 2: two quarters, three quarters, four quarters after the CAPEX expense
Speaker 2: to be made whole.
Speaker 5: Yes, Is that in the zeitgeist now?
Speaker 2: I don't think so.
Speaker 3: So we've been running my models on it, and it
Speaker 3: looks like they return to cash flow positive in about
Speaker 3: eighteen to twenty four months.
Speaker 2: Okay, so that's six quarters.
Speaker 3: And then it explodes again. Then it explodes, Then they
Speaker 3: become the bond will positively, it explodes, the cash flow
Speaker 3: becomes positive, and then it explodes to the upsidecause they're
Speaker 3: monetizing the investment.
Speaker 2: This is the first one who's done this. Thank you.
Speaker 2: What's the fan distribution of outcomes twenty four quarters or whatever?
Speaker 3: Okay, let's call it. Let's call it. We're in twenty
Speaker 3: twenty six, let's call it twenty twenty nine. So you're
Speaker 3: looking at about flat twenty eight to twenty nine, and
Speaker 3: then it explodes by twenty thirty, okay, because you're monetizing it,
Speaker 3: because cloud is necessary to build this out.
Speaker 2: I mean, Paul, this is this is like nascent. I
Speaker 2: would say, it's sort of like the China dominance in ay,
Speaker 2: we don't really know, give one.
Speaker 5: More, yeah, exactly. So what are you thinking about valuation here?
Speaker 4: I mean, the earnings are coming through so strong for
Speaker 4: the past several quarters.
Speaker 5: Valuation we're okay here.
Speaker 3: I think we're okay. You know, Sunday night, exceptter Friday's close,
Speaker 3: the tech sector was trading at twenty times forward earnings.
Speaker 3: So it's trading exactly where the market is. That's the
Speaker 3: lowest relative value in fifteen years, So I think valuations
Speaker 3: are fine. Actually, non tech is trading at higher valuations
Speaker 3: than tech because people were hiding in other areas feeling
Speaker 3: it was a concentrated market. Like hello, folks, there's one trade.
Speaker 3: The entire market is AI. It's about fifty percent of
Speaker 3: the market. Very hard to hide anywhere here. Again, the
Speaker 3: fear will be expressed in you know, staples, which have
Speaker 3: been moribund because the economy is good enough and is
Speaker 3: growing and the labor market is stable. So that's where
Speaker 3: you go to hide. Everywhere else it's it's an AI trade.
Speaker 2: But do you hold meetings in the Hamptons during the week?
Speaker 2: Do you just drive out to the Hamptons to hang
Speaker 2: out with people?
Speaker 3: We do not. We go to our offices in Midtown.
Speaker 2: We take from office.
Speaker 3: We were from office.
Speaker 2: Very good.
Speaker 3: We have meetings in office.
Speaker 2: We do very That's a good thing. People know where
Speaker 2: I stand on this. Alicia Levigne, thank you. Back to
Speaker 2: your office. Cio b ny Wealth. Stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
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Speaker 2: Ben Cook with Us with Hennessy. He's got just a
Speaker 2: brilliant acuity here on American oil, in our oil independence.
Speaker 2: But I got to digress here. I just did a
Speaker 2: thing on Ned Johnson and Justin Bearer's wonderful book on fidelity.
Speaker 2: One of my heroes was a guy named William H. Miller,
Speaker 2: the Third who came out of Washington Lee and Johns
Speaker 2: Hopkins and did better than good at Legg Mason and
Speaker 2: you darkened the door at Johns Hopkins, where he just
Speaker 2: committed a ginormous amount of money to physics and astronomy.
Speaker 2: It's amazing what Bill Miller's done for the school. Explain
Speaker 2: why we need fifty million dollars to go to physics
Speaker 2: and astronomy, to nonscience America.
Speaker 6: I'll tell you Johns Hopkins is a great institution, tom
Speaker 6: and obviously a great history. But I think you know,
Speaker 6: going forward, we need to be competitive as an economy,
Speaker 6: and that's where we're building the next generation of experts
Speaker 6: to compete on a global scale.
Speaker 2: Am I right that physics is what made American oil
Speaker 2: independence in that we took physical mathematics and technology and
Speaker 2: brought it over law help me Landman season two? Help
Speaker 2: me here, that we brought it over to fracking and
Speaker 2: all that all came from stuff like what Bill Miller's
Speaker 2: funding at Johns Hopkins. That's absolutely right, Tom.
Speaker 6: You know, we're seeing increased improved technology increase the output
Speaker 6: the efficiency of the industry. Industry is able to do
Speaker 6: more with less. That's in turn translating to good financial
Speaker 6: results from many of the companies that we invest in,
Speaker 6: and we expect that to continue as AI becomes a
Speaker 6: bigger part of the drilling and completion process.
Speaker 4: You guys think about AI as it overlay to all
Speaker 4: your energy investments, because it just seems like to me,
Speaker 4: at least, as I think about and here, all these
Speaker 4: people talk about data centers here, data centers there, we're
Speaker 4: going to need so much power power, so gaining issue.
Speaker 4: It just feels like we're going to need every source
Speaker 4: of energy going forward, whether it's fossil fuels, renewables.
Speaker 5: How do you guys think about it?
Speaker 6: Yeah, you know, as part of our repeatable investment process
Speaker 6: and managing the Hennessy Energy Transition Fund. We're looking at
Speaker 6: natural gas really as a primary beneficiary and really the
Speaker 6: bridge fuel to nuclear as being a major contributor to
Speaker 6: the baseload power that's required to fuel these data centers
Speaker 6: on a twenty four hour basis. So from an investors standpoint,
Speaker 6: the opportunity to invest in many of these names across
Speaker 6: the hydrocarbon value chain is attractive to us today because
Speaker 6: of the demand drivers for that power going forward, and
Speaker 6: we'll see a lot of opportunity emerge as the need
Speaker 6: for energy continues to grow.
Speaker 4: So talk to us about Texas. You're in Dallas. You
Speaker 4: guys have your own grid. I mean, Texas is unto itself.
Speaker 4: We know that you guys are like you do your
Speaker 4: own thing.
Speaker 5: How is that grid set up?
Speaker 4: Because every day I hear about a new company relocating
Speaker 4: to Texas. Do you guys have the grid to deal
Speaker 4: with all that?
Speaker 2: You know? We do?
Speaker 6: You know, as a byproduct of the major winter storm
Speaker 6: ury several years ago, Urkott did a lot to shore
Speaker 6: up additional capacity to ensure that we didn't have future outages.
Speaker 6: And we're benefiting from that today. You know, the AI
Speaker 6: race as many are calling it today, you know, is
Speaker 6: requiring a build out of power gen faster than the
Speaker 6: utility sector can provide. So we're seeing a ton of
Speaker 6: behind the meter of power generation projects. So the industry
Speaker 6: is solving its power needs by pursuing these power projects
Speaker 6: on a co located basis.
Speaker 2: I saw this just I'm so sorry, folks. I don't
Speaker 2: have it here in front of me to site. But
Speaker 2: somebody said we're getting AI wrong and that mostly it's
Speaker 2: an energy bottleneck. Discuss that.
Speaker 6: Yeah, you know, if you think about the demand trend
Speaker 6: associated with AI compute, we're going to need a tremendous
Speaker 6: amount of electricity and to generate those electrons, we're going
Speaker 6: to need a lot of natural gas and other fuel
Speaker 6: sources to generate that power. So the bottleneck as many
Speaker 6: see it today, really is the ability to produce the electrons.
Speaker 6: I was out in West Texas just recently drove out
Speaker 6: through Abilene and ultimately Amarillo and up towards Colorado. A
Speaker 6: number of major projects being developed alongside renewable power sources,
Speaker 6: wind farms that we're generating electricity for the grid are
Speaker 6: going to be dedicated to generating power for data centers.
Speaker 6: It's an amazing trend.
Speaker 5: Talk about nuclear I hear a lot more about that.
Speaker 5: I'm old enough to remember Three Mile Island they sent
Speaker 5: us home school. Then how much how does nuclear player
Speaker 5: role here going forward? Because it's been so out of
Speaker 5: the picture.
Speaker 2: For so long it has.
Speaker 6: Been you know, it's been a year since the Trump
Speaker 6: administration issued in executive order to mandate the acceleration of
Speaker 6: developing additional nuclear resources in this country. You know, we
Speaker 6: have you know, a proven concept in AP one thousand
Speaker 6: by Westinghouse that'll be the primary model for large scale
Speaker 6: nuclear development. There's a lot of science projects underway with
Speaker 6: small scale modular reactors. We'll start to see some contribution
Speaker 6: from those those models here over the next five to
Speaker 6: six years. But on a larger scale, it's.
Speaker 2: Going to take time.
Speaker 6: It takes a significant amount of capital in ten plus years.
Speaker 2: So there's upstream drilling, old school, downstream refineries, distill it's
Speaker 2: and all that, and this thing I really don't understand midstream.
Speaker 2: Where's the investible future among those three categories of oil?
Speaker 6: Yeah, you know, the in terms of the value chain,
Speaker 6: really we see a lot of potential in all of
Speaker 6: the areas. I think midstream is a natural base. Midstream
Speaker 6: is the really the connection of the source of supply
Speaker 6: to the end users.
Speaker 5: Oh it's no, it's pipes. I think it's like the pipelines.
Speaker 4: It is the pipe hundred thirty six, Okay, gathering, storage, transportation,
Speaker 4: ultimately liquefaction the operators of the AKA.
Speaker 2: So you've got a data center in the middle of
Speaker 2: nowhere west to Abilene. It sounds like, you know, sleep
Speaker 2: at the wheels song. Sure, So you got a data
Speaker 2: center out west to Abilenehos, Dallas, grows up to Oklahoma.
Speaker 2: They need net gas. It's just pipelines, right.
Speaker 6: Just pipelines, absolutely, And you know, the West Texas region
Speaker 6: of the Permian Basin is a logical source of supply
Speaker 6: of that energy. In a lot of cases, natural gas
Speaker 6: is still being flared as a biproductive.
Speaker 2: But what about a data center outside Washington, d C.
Speaker 2: Twelve miles you know, not twelve twenty miles. There's dulles.
Speaker 6: Yeah, there's an ocean of gas in Appalachia that's a
Speaker 6: waiting for end use markets, including.
Speaker 2: What about not in my backyard?
Speaker 6: You know, you know, there are some issues pushback on
Speaker 6: data centers and communities that the reality is scarce. Resources
Speaker 6: like land and water are an issue. First, we need
Speaker 6: local policy.
Speaker 4: We need pipelines to get the new England, Tom, because
Speaker 4: you you can't get your games there.
Speaker 2: Quebec saves us, like you know every I mean, just
Speaker 2: what's your signal best buy? Is it Excellon? We like Exxon.
Speaker 6: The integrated business model of Fords flexibility and a commodity
Speaker 6: environment is volatile. You've got a refining asset footprint on
Speaker 6: a global stap.
Speaker 2: Do they have a new attitude about distributing cash to shareholders?
Speaker 6: They the old days they do. This is a group
Speaker 6: that is returning cash to investors and spades, and it
Speaker 6: will continue as the commodity price environment continues to be buoyant.
Speaker 5: In our view, I'm going down to West Texas, Tom,
Speaker 5: I'm going to bring a drill. I'm just just make money.
Speaker 5: I mean, because these oil companies they won't drill. They
Speaker 5: have discipline.
Speaker 4: Now they want to return cash shareholders. I'm going down
Speaker 4: and be a wildcatters how to do it?
Speaker 2: I Steve don't even know where to go. You just
Speaker 2: want to go meet the angelin Norris.
Speaker 5: Yes, you darn right, absolutely.
Speaker 2: Cook I have no idea who angelin Norris is, Paul does.
Speaker 2: Ben Cook with Hennessy Energy Transitions funds in from Dalla's week,
Speaker 2: thank come on home, stay with us. More from Bloomberg
Speaker 2: Surveillance coming up after this.
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Speaker 5: Nisha Mittels, she knows what I'm talking about.
Speaker 4: SMA, portfolio manager of Parametric, talk to us about the
Speaker 4: muni space. Shirk is one of the things that's it
Speaker 4: seems like a headwind for the muni spaces. There's a
Speaker 4: ton of issuance out there. I mean, twenty four was
Speaker 4: a record year, twenty five was a record year. How's
Speaker 4: twenty six looking for new issuance in your municipal bond market.
Speaker 7: Yes, that's that's completely right, Paul. So we've seen a
Speaker 7: surge of issuance this year too. So this is almost
Speaker 7: the third year. We're on pace to actually break last
Speaker 7: year's record. So we almost are looking at about three
Speaker 7: hundred billion UH in the first half. If you analyze that,
Speaker 7: you know, kind of street estimates are close to six
Speaker 7: hundred billion, so that has been a major headwind. But
Speaker 7: I think the difference this year now, keep in mind,
Speaker 7: we just gave back a good amount of performance in July, right,
Speaker 7: so the kind of the broad MUNI index was down,
Speaker 7: you know about uh, we're slightly positive now for the year,
Speaker 7: so we gave a lot of it back. A lot
Speaker 7: of that had to do though, with the treasury rate
Speaker 7: volatility right in the movement there, so this was not
Speaker 7: a credit issue. And then again treasury rate volatility couple
Speaker 7: with supply, that's what's really kind of created this negative
Speaker 7: overlay for munis. But again, I think when you look
Speaker 7: at the technicals, it's about supply, but it's about can
Speaker 7: that be absorbed, So then it's also demand. So demand
Speaker 7: has actually been fairly robust this year, so if we
Speaker 7: see that trend continue, that can help absorb some of
Speaker 7: this supply, which is very different than what we saw
Speaker 7: last year where demand wasn't keeping up with the amount
Speaker 7: of supply of the market saw.
Speaker 4: But all that being said, though absolute yields are on
Speaker 4: a taxi just the basis are really attractive for a
Speaker 4: lot of people right.
Speaker 5: Like, yes, high take high exercisions.
Speaker 7: Yes, that's exactly right. So we were seeing that already
Speaker 7: before this recent repricing. Now where we see you know,
Speaker 7: I would say the curve remains very steep, right, especially
Speaker 7: relative the treasury market, So you're getting paid to take
Speaker 7: on duration. The belly of the curve, though, particularly has
Speaker 7: sold off the most so far this year. So think
Speaker 7: about that as a ten year part of the curve.
Speaker 7: A lot of the issuance has been in that part
Speaker 7: of the curve, so that part of the curve has
Speaker 7: sold off even more than the long end. So now
Speaker 7: before you had to maybe go out fifteen twenty years
Speaker 7: to get you know, I think getting I don't want
Speaker 7: to take get paid for a duration, but to really
Speaker 7: find that relative value, you don't have to go out
Speaker 7: that far. So your ten year bond New Jersey, let's
Speaker 7: say roughly three and a half percent yield, high tax state,
Speaker 7: you're looking at, you know, kind of six and a
Speaker 7: half seven percent all in, which is extremely attractive. So
Speaker 7: as we talk about this equity melt up, tom seven
Speaker 7: percent locked in high quality bonds that looks very attractive
Speaker 7: on a risk reward basis. In my view.
Speaker 2: How is parametric different from the big houses in mini bonds?
Speaker 2: What are you people doing it? Exactly?
Speaker 7: So two things we manage separately, severally manage accounts. So
Speaker 7: what that means is each of our accounts are customized.
Speaker 7: We manage roughly ninety thousand different accounts. So, Tom, you
Speaker 7: give us an account, Paul, you give us an account,
Speaker 7: You give us a parameters round what you want us
Speaker 7: to invest in? So being New Jersey for you, you.
Speaker 2: Go Tom for bonds.
Speaker 7: Correct. Now, we do ladders. You talked about laddering. It's
Speaker 7: a great way to take beta exposure, but we also
Speaker 7: do Wait.
Speaker 2: They were a great band beta exposure. They played Devo
Speaker 2: like nobody, what a god's name is beta exposure?
Speaker 7: Well, that means, look, you can't match the index perfectly
Speaker 7: in Muni's right. It is very tough to recreate a
Speaker 7: Muni index. But by saying, hey, I would like it,
Speaker 7: let's say one to ten year ladder New Jersey specific,
Speaker 7: we can create that market exposure to Muni's. Now we
Speaker 7: can also manage to toll return component. But bottom line, Tom,
Speaker 7: the number one thing that we are doing is customizing
Speaker 7: these accounts for our clients. Number two muni's are already
Speaker 7: inherently tax efficient. We are overlaying this with a component
Speaker 7: of taxos harvesting. So Parametric manages over seven hundred and
Speaker 7: fifty billion across equities and fix income. Taxos harvesting is
Speaker 7: another element of tax efficiency that we can create for
Speaker 7: our clients at Parametric.
Speaker 5: That's credit quality out there in the municipal bond world.
Speaker 4: I don't hear any stories like a, I don't know,
Speaker 4: Chicago or Puerto Rico blowing up then causing all kinds
Speaker 4: of problems house credit.
Speaker 5: Quality out there.
Speaker 7: Credit quality is fairly stable. And look, I would say
Speaker 7: boring is okay, right, So, but I think you have
Speaker 7: pockets in certain areas, at certain sectors that you do
Speaker 7: see a little bit more credit bifurcation, So private education,
Speaker 7: I would say, healthcare in the lower quality space. Obviously
Speaker 7: you want that credit oversight, right, making sure you're getting
Speaker 7: paid for that additional yield. But think about the economy, right,
Speaker 7: I mean, the economy's been fairly strong. Tax collections are strong,
Speaker 7: so you're looking at a fairly robust profile generally across
Speaker 7: the board. In the investment grade space. Now you may
Speaker 7: start to see headline risk. Now I would say you're
Speaker 7: seeing that with some states, with some cities. Dare I
Speaker 7: say New York City given the budget gaps right that
Speaker 7: are projected some of the one time measures they're considering.
Speaker 7: But we remind our clients that fundamentally the credit remains strong.
Speaker 7: Headline risk is very different than the ability to repay debt.
Speaker 7: This still remains a high quality issue.
Speaker 2: Interview Mishah, thank you, Thank you so much, Nicha Patel
Speaker 2: with this parametric this morning, I'm taking advantage of tax
Speaker 2: free bond. She lifts the equity market. Heich just known
Speaker 2: to do that. Stay with us. More from Bloomberg Surveillance
Speaker 2: coming up after this.
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Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or
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Speaker 2: Dan, it's joins us right now. Dan, I really want
Speaker 2: to focus on Microsoft, the amount of inertial force to
Speaker 2: get that jump condition in Microsoft. Where did that inertial
Speaker 2: force come from?
Speaker 8: I mean, I think first of all, the market was
Speaker 8: painting it wrong relative to where they were on the
Speaker 8: AI Revolution, the mondzation piece, and like I've said, I
Speaker 8: mean I leave what Microsoft should in that quarter. I
Speaker 8: think that's an inflection point for all of tech because
Speaker 8: it shows what's happening in monization, the hyperscalurs. It's not
Speaker 8: just so important for Microsoft, I think important for the
Speaker 8: overall sector.
Speaker 2: We're going to look.
Speaker 8: Back and this is gonna be a monumental sort of
Speaker 8: turning point.
Speaker 5: Hey, Dan, it's we had SpaceX last night.
Speaker 4: I'd love for you to frame out what the SpaceX
Speaker 4: story is now versus maybe what it was at the IPO,
Speaker 4: because obviously there's been a lot of volatility in the stock.
Speaker 4: It's obviously a very long term story, and it's obviously
Speaker 4: a big big.
Speaker 5: Play on Elon Musk himself.
Speaker 4: What did you take away from the earnings release and
Speaker 4: the call last night?
Speaker 8: Look, I think part of it is that there's a
Speaker 8: longer term vision that's all to me investors that bardy
Speaker 8: on the IPO. That's the view in terms of the
Speaker 8: broader AI space story and what Musk is going to
Speaker 8: do over the coming years. And when it comes to quarters, Look,
Speaker 8: there's no number that they're going to show that you
Speaker 8: could say, neighborhood calm nerves right in the lock up
Speaker 8: and just given some of the nervous in you're seeing right.
Speaker 8: But for them it's the bounce because cap X is
Speaker 8: how they're going to narrow the gaps Open AI and
Speaker 8: anthrop and that continues to be the tuggle Ward.
Speaker 2: Did Bill Ackman get this going? Because I had the
Speaker 2: clearest memory in Q one he stepped in with. You know,
Speaker 2: for Bill Ackman, an odd lot, you know, I mean
Speaker 2: it was it was a piece of change. Yep. Five
Speaker 2: point seven million shares two point one billion, that's an
Speaker 2: odd lot for Bill Ackman's a big one. Did he
Speaker 2: get it started? Dan Ice? It was like, OMG, Bill
Speaker 2: Ackman's long ostadgy Microsoft.
Speaker 8: Oh, I think, I mean Ackman saw around the corner
Speaker 8: because investors were massively discounting what the monization story was
Speaker 8: going to be with Azure and I think ultimately counting
Speaker 8: out Nadella because some of the Open AI stuff and
Speaker 8: sort of the narrative, and I think it just speaks
Speaker 8: to him. We've talked about it obviously so much with
Speaker 8: you guys in the show. So this is good. We're
Speaker 8: gonna have white knuckle moments, whether it's Microsoft, whether it's Tech.
Speaker 8: But the reality is this earning season shows you you're
Speaker 8: in the third inning. I can even even say bottom
Speaker 8: of the second. You must go back to where this
Speaker 8: is all playing out. Roative demonization, especially on the hyperscalars.
Speaker 2: Up thirty eight percent from the end of March.
Speaker 5: Yeah, just extraordinary.
Speaker 4: Hey, Dan, So where are we broadly defined on this
Speaker 4: AI conversation in the marketplace?
Speaker 5: What is the narrative in the marketplace?
Speaker 4: Because we had, you know, big tech earnings last week
Speaker 4: and a couple companies stock reacted really positively, in Microsoft
Speaker 4: being one of them, Amazon and some others did not.
Speaker 4: Where What's what's the street thinking about AI these days?
Speaker 8: So I'd say, let's put it like a Jenga puzzle. Okay,
Speaker 8: So the hyperscalars have these good double down in capax demonization.
Speaker 8: You now see whether it's outfit, Amazon, Microsoft, the software piece,
Speaker 8: I think Palenteer Front and Center is showing you the
Speaker 8: enterprise use cases are accelerated. Even when you look at
Speaker 8: AMD despite what you saw, it just shows chips. We've
Speaker 8: said demand the spy twelve to one, thirteen to one.
Speaker 8: Obviously in video front and center, when you piece it
Speaker 8: all together, enterprise are accelerating the hyperscale or see it
Speaker 8: that ultimately is a key catalyst for chipstocks. And I
Speaker 8: think what you're essentially seeing now is that the second, third,
Speaker 8: fourth derivatives of this AI revolution cybersecurity, among others. Now
Speaker 8: it's starting to spread. This is real and you can't
Speaker 8: even deny it, Okay.
Speaker 2: Dan, The reality is you're in the Hamptons because he's
Speaker 2: living large, so we all know that we are in Barns.
Speaker 2: And you know it's like a thing. Dan, you need
Speaker 2: to go up the coast, do Main to Roke Bluff,
Speaker 2: Rogue Bluff. It's almost like where FDR Summer Place was
Speaker 2: on the border with Canada. Like they're more Montreal Canadian
Speaker 2: fans out there than they are Boston Bruin fans. And Dan,
Speaker 2: we got a question here that absolutely brilliant from Rogue
Speaker 2: Bluff's main I hope I'm pronouncing that right at it.
Speaker 2: Does the innovation of AI is its circuitous? Does it
Speaker 2: feed on itself into secondary and tertiary uses?
Speaker 8: That's our whole first, It's a great question, and that's
Speaker 8: our whole thesis, is that what essentially happened it is
Speaker 8: not about the models open AI and anthropic It's about
Speaker 8: the data, the derivatives, the data center build out, the Capax.
Speaker 8: But that's going to do to energy and it goes
Speaker 8: back to like for the first time in thirty years,
Speaker 8: the US is added China.
Speaker 2: Okay, industrial guy, how does it? I mean Caterpillar just
Speaker 2: blew out numbers. You're gonna tell me it's data centers.
Speaker 2: What's Danaives's X axis for all these tertiary companies advantage
Speaker 2: by your AI world?
Speaker 8: Well, I think that's where when you look at Caterpillar,
Speaker 8: you look on the energies like manergs Iquanta. I'm just
Speaker 8: giving example of companies that are playing into the buildouts,
Speaker 8: to the data centers, the Capex buildouts. This is remember,
Speaker 8: for every dollar in Cappex, there's a five to six
Speaker 8: dollars multiply across the rest of TAP and I think
Speaker 8: that just continues to be our THEA And I think
Speaker 8: this earning season, earnings now caught up maybe to where
Speaker 8: some shocks were.
Speaker 4: So what's the what's the next thing that you think
Speaker 4: the streets looking for over the next two, three, four quarters?
Speaker 4: Then is it more ROI the evidence is it eight
Speaker 4: scaling back in Capex?
Speaker 5: What do you think that the street's looking for monization.
Speaker 8: You want to now see, like as King with the
Speaker 8: X acts, you want to now see go the baton
Speaker 8: hander from Capex to monization. And I also think there's
Speaker 8: just a laser focus what's going on in Koupertino because
Speaker 8: the consumer AI revolution runs through Rupertina. What they do
Speaker 8: on the consumer it's by memory chips and everything. All
Speaker 8: that is so important to their own strategy.
Speaker 2: Dan is a twenty two dollars ultimate breakfast burrito at
Speaker 2: the Golden Pear Cafe. Is that a little rich for you?
Speaker 2: I mean just a breakfast burrito twenty two dollars?
Speaker 8: Wow, Look, I do think Golden Power. I'd say argue
Speaker 8: maybe some of the best coffee in the United States.
Speaker 8: But I will say that that burrito, you know, I
Speaker 8: think it's price high, but I think well worth it,
Speaker 8: you know, for those that have never tried it.
Speaker 2: I mean, the chicken panini is just unbelievable. It's a
Speaker 2: charge more for that. Okay, you can't even get in
Speaker 2: the door there half the time, right Dan.
Speaker 8: Dan, it is, But I mean keen he would you'd
Speaker 8: have VIP accents. But for others, yeah, you know, but
Speaker 8: for others, the regular people, the non keen.
Speaker 2: They have to wait out God, can you see me
Speaker 2: out there happens?
Speaker 8: I could picture it, the bow tie going into Golden power.
Speaker 2: I see the scene, Bill and I the science guy,
Speaker 2: busted my chops on it like the Nerd Patrol and
Speaker 2: nice go away in the Hamptons. Thank you so much
Speaker 2: for the perspective, particularly on Microsoft.
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