WEBVTT - Nvidia Shares Surge as Sales Forecast Delivers 0:00:02.960 --> 0:00:07.280 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on Apple, Cardplay and Android 0:00:17.040 --> 0:00:20.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:20.200 --> 0:00:25.040 you get your podcasts, or watch us live on YouTube. 0:00:25.120 --> 0:00:28.320 I'm Alex Steel alongside Paul Sweeney. This is Bloomberg Intelligence Radio. 0:00:28.520 --> 0:00:30.280 We bring you all the top news in business and 0:00:30.320 --> 0:00:33.960 economics and finance with our lends through a Bloomberg Intelligence Analysts. 0:00:33.960 --> 0:00:36.240 They cover two thousand companies in about one hundred and 0:00:36.240 --> 0:00:39.199 thirty industries a worldwide. We also take a look at 0:00:39.200 --> 0:00:41.320 all the stock market action. Take a look at Nvidia, 0:00:41.560 --> 0:00:46.200 that's stock up by still over nine percent that company, Paul, 0:00:46.520 --> 0:00:49.600 that's some serious cash. I mean that just like mints. 0:00:49.320 --> 0:00:51.720 The money it does, and you know, it's just extraordinary. 0:00:51.760 --> 0:00:54.240 You think about kind of how they've. 0:00:54.080 --> 0:00:59.160 Become really the play on all things AI. I mean 0:00:59.200 --> 0:01:01.240 they it was a year ago, maybe five quarters ago 0:01:01.240 --> 0:01:05.360 that they issued that revenue guide increase that just shocked 0:01:05.640 --> 0:01:08.720 the tech space and talk shocked Wall Street in terms 0:01:08.720 --> 0:01:12.520 of Wow, this AI spending thing, it is real because 0:01:12.560 --> 0:01:14.800 we are seeing in videos, seeing it in its order book, 0:01:15.080 --> 0:01:19.000 and it's just been extraordinary and it's hasn't let up. 0:01:19.000 --> 0:01:21.440 And you know, I talked to Tim Steneviek every time 0:01:21.480 --> 0:01:23.280 these company reports earnings, and he asked me, Paul, do 0:01:23.280 --> 0:01:24.600 you think these guys are gonna. 0:01:24.440 --> 0:01:25.039 Beat and raise? 0:01:25.080 --> 0:01:27.920 And I said, I think so until they don't, because 0:01:27.959 --> 0:01:29.920 I just don't see any end there at least what 0:01:30.360 --> 0:01:33.800 you hear from the the companies that are making these 0:01:34.000 --> 0:01:38.080 these orders, like Microsoft, like Amazon. All they talk about 0:01:38.120 --> 0:01:40.480 is AI AI AI exactly, and they get the chips 0:01:40.480 --> 0:01:41.760 from in video, So there you go. 0:01:41.920 --> 0:01:45.040 I mean, so, yes, more than forty percent of Video's 0:01:45.040 --> 0:01:49.639 revenue comes from just those guys, right, Microsoft, Meta, Amazon, Alphabet. Okay, 0:01:49.720 --> 0:01:52.120 so there's some so maybe risk in that you have 0:01:52.200 --> 0:01:55.200 competitors that are still trying to ramp up their own 0:01:55.240 --> 0:01:58.800 ability for that. So I guess you're looking at again 0:01:58.880 --> 0:02:00.400 what we what I like to talk about is a 0:02:00.440 --> 0:02:03.040 structural versus cyclical trend. The AI is here to stay 0:02:03.200 --> 0:02:06.280 is a structural change, a structural trend? Right? Does it 0:02:06.440 --> 0:02:09.200 mean that eventually this also won't be some kind of 0:02:09.240 --> 0:02:13.119 cyclical story but we're clearly not there yet. 0:02:13.360 --> 0:02:15.760 No, And so when we get the smart people on 0:02:16.480 --> 0:02:18.400 and we're going to get a smart person on sooners 0:02:18.400 --> 0:02:20.760 soon as he figures out how to get his microphonnel. 0:02:20.720 --> 0:02:21.240 In other ways. 0:02:21.360 --> 0:02:25.519 Yeah, yeah, is a competition. I mean you're supposed to 0:02:25.520 --> 0:02:27.440 be on there a certain time with the Yeah, how 0:02:27.440 --> 0:02:27.959 hard is that? 0:02:29.440 --> 0:02:33.120 You know? So the question is competition. Where's competition? 0:02:33.639 --> 0:02:36.320 Yeah, well it's hard. It's expensive to get this stuff out. 0:02:36.360 --> 0:02:37.200 I think that's the problem. 0:02:37.280 --> 0:02:38.720 And also if you don't want to pay over one 0:02:38.720 --> 0:02:41.720 thousand dollars this year for Nvidio, even though you're optimistic 0:02:41.760 --> 0:02:44.880 about the future there, what are the derivative plays? There 0:02:45.320 --> 0:02:45.880 was so. 0:02:45.840 --> 0:02:51.280 Many today looking at a company it's not publicly traded 0:02:51.600 --> 0:02:56.639 and charge the brainschild of a Princeton professor to make 0:02:56.680 --> 0:02:58.600 it more energy efficient these chips. 0:02:58.720 --> 0:03:01.560 Oh sure, but there are a ton of those startups. 0:03:01.560 --> 0:03:03.960 But it's just a question of actually making the money, 0:03:04.040 --> 0:03:06.840 that is the question. All right, thanks so much for 0:03:07.040 --> 0:03:08.720 I don't know. I don't know why I'm thanking John Tucker. 0:03:08.880 --> 0:03:11.920 Now we do, but I'm gonna go to about those. 0:03:11.960 --> 0:03:16.040 You're welcome. Su Johan Shabani is Boomberg Intelligence senior semi analysts. 0:03:16.080 --> 0:03:17.320 I hope he knows more than we do about this? 0:03:17.680 --> 0:03:18.480 Does all right? 0:03:18.480 --> 0:03:21.040 The stock up ten percent? Can they continue at this 0:03:21.200 --> 0:03:23.120 point to just continue to beat and raise. 0:03:24.400 --> 0:03:27.120 I think in the near term they can definitely demand 0:03:27.200 --> 0:03:30.200 on most of their products keep running ahead of supply. 0:03:31.040 --> 0:03:35.520 We don't see any slowing down in terms of purchasing 0:03:35.520 --> 0:03:39.160 from their customers. In fact, beyond their largest cloud customer, 0:03:39.360 --> 0:03:42.600 enterprise and consumer intern companies are coming in strong. So 0:03:42.800 --> 0:03:45.200 we don't see any sort of big risk that says 0:03:45.240 --> 0:03:46.400 they cannot continue. 0:03:46.760 --> 0:03:49.080 So Kunjohn, I was selling Alex and John. When we 0:03:49.080 --> 0:03:51.400 get smart people on like you yourself, I like to 0:03:51.400 --> 0:03:52.920 ask the question about competition. 0:03:53.520 --> 0:03:55.960 I'm kind of surprised that, you know, in. 0:03:56.000 --> 0:04:00.440 Nvidia has this competitive leadership position relative to everybody else. 0:04:00.640 --> 0:04:04.400 How proprietary is their chip design versus I don't know 0:04:04.480 --> 0:04:07.800 the AMD's of the world, even in Cisco's. What is 0:04:07.800 --> 0:04:09.120 the competitive landscape? 0:04:10.280 --> 0:04:12.880 Yeah, I mean, look, they were I would say almost 0:04:12.960 --> 0:04:16.400 two to even arguably three years ahead of everyone, and 0:04:16.440 --> 0:04:19.200 it's not easy in the chip landscape to catch up. 0:04:19.279 --> 0:04:22.279 When someone has that kind of a lead, they have 0:04:22.480 --> 0:04:27.440 actually aggressively gone out and out in it their peers 0:04:27.480 --> 0:04:30.200 before they were on an eighteen to twenty four month 0:04:30.400 --> 0:04:32.800 product cycle. Now they are on a twelve month product cycle, 0:04:33.080 --> 0:04:35.400 so they just keep staying ahead of their combetition. Their 0:04:35.400 --> 0:04:38.800 combination is trying to catch up. AMD has made significant 0:04:38.800 --> 0:04:43.279 progress and now is another second viral alternative in the market. 0:04:43.360 --> 0:04:46.000 Hence you see that in their significant growth as well. 0:04:46.240 --> 0:04:48.920 But we don't think at this point there is anyone 0:04:49.000 --> 0:04:52.600 else who can rival the total system TCO and performance 0:04:52.600 --> 0:04:53.000 that they have. 0:04:53.440 --> 0:04:55.720 I was mentioning earlier that Nvidia gets about forty percent 0:04:55.720 --> 0:04:58.520 it's revenue from the big four players, Microsoft, Meta Alphabet 0:04:58.560 --> 0:05:01.400 and Amazon. What kind risk is that, if any? 0:05:02.800 --> 0:05:04.880 I mean there have been concerns around it. So there's 0:05:04.920 --> 0:05:07.080 two good data points that came out of this print. 0:05:07.160 --> 0:05:10.479 One that concentration did reduce for the very first time, 0:05:11.040 --> 0:05:13.919 and what we liked it It was not reduced because 0:05:13.920 --> 0:05:16.800 the cloud guys slowed their purchasing. In fact, those top 0:05:16.880 --> 0:05:19.680 four guys that are expected to increase their capec spent 0:05:19.800 --> 0:05:22.000 by forty five percent this year and they are all 0:05:22.000 --> 0:05:24.880 lined up to purchase its newest Blackwell products. But what 0:05:24.880 --> 0:05:27.960 it was good was that the share was taken by 0:05:28.040 --> 0:05:30.880 strong enterprise demand, which we really like because that is 0:05:30.960 --> 0:05:33.640 much more diversified and sticky Kunjan. 0:05:33.720 --> 0:05:35.720 Let's say I'm at Amazon and I buy one of 0:05:35.800 --> 0:05:36.760 nvidious chips. 0:05:37.120 --> 0:05:39.280 When do I have to replace it? Question? 0:05:41.640 --> 0:05:43.479 There's two answers to it. If we were in a 0:05:43.600 --> 0:05:48.560 normal sector semicharactor cycle like you are in smartphones or PCs, 0:05:48.800 --> 0:05:51.919 the refreshed time would be longer, so I would say 0:05:52.839 --> 0:05:55.640 on ideally three to five years. But what's going on 0:05:55.720 --> 0:05:57.960 right now is all of these customers are just racing 0:05:57.960 --> 0:06:01.200 against each other, so they cannot afford to stop. So 0:06:01.240 --> 0:06:03.920 as soon as a newer, better chip is available that 0:06:03.960 --> 0:06:06.840 they can change, they are going to change. 0:06:07.800 --> 0:06:11.039 What would stop all this? Like, we know that AI 0:06:11.120 --> 0:06:12.360 is going to grow, we know that there will be 0:06:12.400 --> 0:06:14.599 demand for chips. We know all that. That's a structural 0:06:14.640 --> 0:06:18.719 shift within the economy. But what makes it cyclical? 0:06:20.480 --> 0:06:24.120 I think the first point of cyclicality would be when 0:06:24.279 --> 0:06:27.960 the demand momentum stops, which we haven't seen no signs of. Look, 0:06:28.000 --> 0:06:30.760 the supply keeps on coming up, so at some point 0:06:31.120 --> 0:06:34.960 demand is going to be meeting supply. And after that, 0:06:35.040 --> 0:06:37.200 if we see any kind of weakness in demand, look, 0:06:37.200 --> 0:06:40.279 look if the largest cloud providers don't see return on 0:06:40.320 --> 0:06:44.120 that investment, don't see monetization benefit, don't see their earnings 0:06:44.120 --> 0:06:47.000 and revenue grow from these investments. That's when we can 0:06:47.040 --> 0:06:49.200 start worrying about sort of a cyclical downtown. 0:06:49.640 --> 0:06:54.120 All right, So, how else in your universe of semiconductors, 0:06:55.400 --> 0:06:56.799 how else do you if you play this trend? 0:06:59.400 --> 0:07:03.000 Look, it's Nvidia still remains sort of the best pure 0:07:03.040 --> 0:07:05.920 play AI play in semiconductors. So I don't know why 0:07:05.960 --> 0:07:07.920 you would want to look elsewhere, but if you were 0:07:07.960 --> 0:07:12.720 forced to, we also like you know, players like Broadcommon, 0:07:12.800 --> 0:07:15.840 Marvel when it comes to AI networking, when it comes 0:07:15.840 --> 0:07:21.960 to the ask chips, which Nvidia's largest customers are designing themselves. 0:07:22.040 --> 0:07:25.320 So these are the two areas where we see significant 0:07:25.320 --> 0:07:27.640 growth coming in over the next two years. 0:07:28.240 --> 0:07:30.720 All right, Yeah, good, John Sabanni, thanks so much for 0:07:30.800 --> 0:07:31.200 joining us. 0:07:31.200 --> 0:07:31.280 There. 0:07:31.760 --> 0:07:35.440 Sabani, senior analyst covering to sevent conductor space for Bloomberg Intelligence. 0:07:36.000 --> 0:07:38.600 Joining us from San Francisco is right there in Silicon Valley. 0:07:40.160 --> 0:07:44.040 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:44.120 --> 0:07:47.640 weekdays at ten am Eastern on applecar Play and Android 0:07:47.680 --> 0:07:50.440 Otto with the Bloomberg Business app. You can also listen 0:07:50.560 --> 0:07:53.640 live on Amazon Alexa from our flagship New York station. 0:07:54.040 --> 0:07:57.520 Just say Alexa play Bloomberg eleven thirty. 0:07:58.560 --> 0:08:00.360 Let's switch gear. Let's get right to our next guys. 0:08:00.480 --> 0:08:06.120 Shanna Sissel, president and CEO of ben bond On Capital Management, 0:08:06.520 --> 0:08:09.400 joining us from Chicago via this zoom thing. Shana, think 0:08:09.400 --> 0:08:11.080 so much for joining us here. I mean, I guess 0:08:11.080 --> 0:08:14.080 the story of the day this morning is in Nvidia, 0:08:14.560 --> 0:08:16.240 another beat and raise. 0:08:16.480 --> 0:08:19.000 As the kids say, what did you take away from 0:08:19.080 --> 0:08:19.960 the earnings last night? 0:08:21.880 --> 0:08:25.040 It wasn't the earnings that I was most surprised by. 0:08:26.160 --> 0:08:27.920 I think we all expected them to be. It was 0:08:27.960 --> 0:08:31.600 somewhat built into the stock price aftermarket. It didn't move 0:08:31.640 --> 0:08:35.120 that much. Obviously now it is. But I think that 0:08:35.360 --> 0:08:37.720 the thing that shoped me most was the ten for 0:08:37.800 --> 0:08:40.839 one stock split announcement. That surprised me. 0:08:42.280 --> 0:08:43.480 Not because. 0:08:44.559 --> 0:08:46.760 It's not unusual for a company to want to split 0:08:46.760 --> 0:08:48.439 in a way that would make their stock price under 0:08:48.440 --> 0:08:50.520 one hundred dollars again and make them more attractive to 0:08:50.679 --> 0:08:54.160 retail investors, make it easier for their employees to take 0:08:54.160 --> 0:08:57.560 advantage of their stock compensation, and a variety of other reasons. 0:08:57.600 --> 0:09:00.360 But in the world of fractional shares, it's not as necessary, 0:09:00.400 --> 0:09:03.240 which is why we see so many stocks trading at 0:09:03.320 --> 0:09:05.880 you know, five six, seven hundred and eight thousand dollars. 0:09:05.920 --> 0:09:08.839 I mean Chipolti is like over three thousand dollars. So 0:09:09.080 --> 0:09:13.439 that actually surprised me the most. But the earnings weren't 0:09:13.480 --> 0:09:17.880 particularly surprising. Obviously, it was above consensus estimates, but there 0:09:17.920 --> 0:09:21.160 was a whisper number, and the numbers that they reported 0:09:21.160 --> 0:09:24.480 were close to that whisper number, And so, you know, 0:09:25.000 --> 0:09:29.280 I think the probably the real problem here is how 0:09:29.320 --> 0:09:31.079 long they can they keep doing this. This is the 0:09:31.160 --> 0:09:34.679 third straight quorder that they reported greater than two hundred 0:09:34.679 --> 0:09:36.240 percent year or year revenue growth. 0:09:36.360 --> 0:09:38.360 Yeah, and I feel like we've been asking that question 0:09:38.400 --> 0:09:41.520 for the third straight quarterer too, so you're not alone. 0:09:41.720 --> 0:09:45.080 I was really struck by a note that came out today. Man, 0:09:45.120 --> 0:09:47.400 it's time for spring break in video is done. We 0:09:47.480 --> 0:09:50.640 got nothing going on until June seventh, which is jobs day. 0:09:50.880 --> 0:09:52.960 It is time for spring break. Do you subscribe to 0:09:53.000 --> 0:09:53.440 that view? 0:09:54.360 --> 0:09:57.520 But I don't. I'm always following the markets. There's always 0:09:57.559 --> 0:10:02.400 interesting things going on. You know. Obviously, as you said, 0:10:02.400 --> 0:10:05.960 the next big report is in June, but there's opportunities 0:10:06.000 --> 0:10:07.720 for here to take a breather. But I think this 0:10:07.800 --> 0:10:10.479 is a great opportunity to start looking for new opportunities 0:10:10.520 --> 0:10:13.600 to get into stocks as people are taking a breather, 0:10:13.880 --> 0:10:16.200 and so I use this time to kind of do 0:10:16.360 --> 0:10:18.520 my work and figure out what my best ideas are 0:10:18.520 --> 0:10:18.920 going to be. 0:10:18.840 --> 0:10:22.760 Going forward, Shenna, do your best ideas include small cap stocks? 0:10:23.640 --> 0:10:27.880 So right now, small caps have some technical issues they 0:10:27.920 --> 0:10:31.280 have I think they're in the third longest streak of 0:10:32.360 --> 0:10:35.760 negative of not reaching a new high, and they have 0:10:36.480 --> 0:10:40.040 really struggled to get out of the funk that they're in, 0:10:40.080 --> 0:10:43.280 which is unusual in many ways, and it might be 0:10:43.720 --> 0:10:47.040 a reflection of some change in market dynamics, especially the 0:10:47.120 --> 0:10:49.960 concentration and the large caps that MAGS seven kind of 0:10:50.320 --> 0:10:53.840 feel and what's driving it. But small caps are interesting 0:10:53.920 --> 0:10:57.640 because if you look at the data, it's the actively 0:10:57.720 --> 0:11:01.679 managed and the factor based small cap types of ETFs 0:11:01.679 --> 0:11:05.360 and mutual funds that are outperforming and substantially so. So 0:11:05.679 --> 0:11:08.080 this whole idea that active management is dead and that 0:11:08.160 --> 0:11:10.840 you don't need active management in your portfolio in order 0:11:10.880 --> 0:11:13.720 to do well, I think needs to be reconsidered because 0:11:13.760 --> 0:11:15.560 in a place like small caps, where there's a lot 0:11:15.559 --> 0:11:20.400 of inefficiencies and opportunities for smart money and those who 0:11:20.440 --> 0:11:24.120 are actually doing work on individual names to outperform. I 0:11:24.160 --> 0:11:26.920 think that, you know, we should reconsider ways that we 0:11:27.000 --> 0:11:30.400 build portfolios and active management right now is really working 0:11:30.400 --> 0:11:31.400 in the small cap space. 0:11:31.840 --> 0:11:33.800 So where in the small cap space, whether is it 0:11:33.840 --> 0:11:37.200 sector specific, is it balance sheet specific? Is it a 0:11:37.240 --> 0:11:38.640 growth value kind of thing? 0:11:39.640 --> 0:11:43.920 It's more factor based, so like quality, but even it 0:11:43.960 --> 0:11:46.360 has to be even higher quality because the active managers 0:11:46.360 --> 0:11:48.400 are beating the S and P six hundred, which tends 0:11:48.400 --> 0:11:50.960 to be higher in quality than the Russell two thousand, 0:11:51.000 --> 0:11:53.000 which tends to be full of a lot of like 0:11:53.120 --> 0:11:56.920 junk and penny stocks and things of that nature. So 0:11:56.960 --> 0:12:00.360 we're seeing that in active management. We're seeing it and 0:12:00.800 --> 0:12:04.120 the quality factor. You're seeing it in the momentum factor, 0:12:04.800 --> 0:12:06.960 but you're seeing it more in the factors than in 0:12:07.240 --> 0:12:09.680 like growth value, in more than. 0:12:10.040 --> 0:12:11.120 Style per se. 0:12:11.880 --> 0:12:14.240 Hey Shanna, what are you guys doing in fixed income? 0:12:14.320 --> 0:12:16.520 I mean I can sit in to your treasury and 0:12:16.520 --> 0:12:19.080 get close to five percent here with no risk? 0:12:20.040 --> 0:12:21.240 Do I sit there? Do I go out on the 0:12:21.240 --> 0:12:22.120 credit curve a little bit? 0:12:23.120 --> 0:12:27.760 So we are being focused on alternatives. We're looking more 0:12:27.760 --> 0:12:31.680 at the private credit and private debt markets. Some interesting 0:12:31.679 --> 0:12:35.240 opportunities in real estate income and with the advent of 0:12:35.360 --> 0:12:39.640 interval funds, it allows us the opportunity to gain exposure 0:12:39.679 --> 0:12:44.080 to those types of credits even for clients that aren't 0:12:44.160 --> 0:12:47.880 qualified or credited. So you know, there's a there's a 0:12:48.240 --> 0:12:51.480 Pender Capital has a real estate debt fund that is 0:12:51.520 --> 0:12:54.520 an interval fund that allows for you know, the average 0:12:54.520 --> 0:12:57.400 investor to gain exposure to an area in private credit 0:12:57.440 --> 0:13:00.959 that was not traditionally available to that space. There's others 0:13:01.120 --> 0:13:04.440 like that, So for us, that's kind of where we're 0:13:04.480 --> 0:13:07.760 playing because that's where the real opportunity lies. You know, 0:13:07.960 --> 0:13:12.920 rates are kind of volatile right now, and as you said, 0:13:12.960 --> 0:13:16.880 you can get really good yield and treasuries, but we're 0:13:16.880 --> 0:13:19.839 seeing a lot of demand in the non traditional credit 0:13:19.880 --> 0:13:24.199 markets and the non bank lenders because the credit markets 0:13:24.360 --> 0:13:27.600 after the financial crisis kind of seized up for a 0:13:27.720 --> 0:13:33.040 lot of potential potential businesses, small business and such. So 0:13:33.080 --> 0:13:36.160 the private debt markets have real opportunity to get above 0:13:36.160 --> 0:13:40.960 average yield with relatively good credit quickly before we. 0:13:41.000 --> 0:13:44.720 Let you go, before we let you go. When you 0:13:44.760 --> 0:13:48.680 look at alternatives like that, that also include like gold, 0:13:48.760 --> 0:13:50.480 and I say that because man gold has been on 0:13:50.520 --> 0:13:52.479 a tear like is that part of the portfolio. 0:13:53.160 --> 0:13:56.079 Oh, absolutely, Commodity is a part of the portfolio. Gold 0:13:56.120 --> 0:13:59.520 and copper are really interesting right now. Gold hit all 0:13:59.600 --> 0:14:03.680 time his yesterday. I would also put crypto in that space, 0:14:04.120 --> 0:14:06.120 so big point. And you know there's a lot of 0:14:06.480 --> 0:14:11.559 chatter right now about the probabilities of the spot E 0:14:11.559 --> 0:14:15.600 ETF being approved this week or next week. I know 0:14:15.840 --> 0:14:18.480 your colleague Eric Belcunus has been writing a lot about it. 0:14:19.280 --> 0:14:22.120 So it's one of those things where crypto is also 0:14:22.200 --> 0:14:25.400 quite interesting right here. But yeah, those are all alternatives, 0:14:25.400 --> 0:14:27.440 and those are all things we consider for portfolios. 0:14:27.560 --> 0:14:29.720 All right, Thanks Lott, really appreciated. Thank you for jumping 0:14:29.760 --> 0:14:32.960 on with us. Shana Sissel joining US, President and CEO 0:14:33.400 --> 0:14:37.560 of a bandy Own Capital Management joining us from Chicago, Illinois. 0:14:39.520 --> 0:14:43.400 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:14:43.480 --> 0:14:46.120 weekdays at ten am Eastern on Apple card Play and 0:14:46.120 --> 0:14:48.760 then Broyd Auto with the Bloomberg Business app. Listen on 0:14:48.840 --> 0:14:52.120 demand wherever you get your podcasts, or watch us live 0:14:52.200 --> 0:14:53.560 on YouTube. 0:14:54.480 --> 0:14:57.320 We're also keeping our eye on the broader market as well. 0:14:57.800 --> 0:14:59.960 You're looking at the s and key is barely high 0:15:00.200 --> 0:15:02.920 up one tenth of one percent. The Nasdaq Shocker is 0:15:02.920 --> 0:15:06.040 at performing up by six tenths of one percent, really 0:15:06.040 --> 0:15:09.120 helped by Nvidia at a record high fifty two week 0:15:09.200 --> 0:15:12.400 high below and past one thousand. So let's get what 0:15:12.440 --> 0:15:14.760 I'm interested in now is now what? It's not only 0:15:14.760 --> 0:15:17.960 what's now what for Nvidia, but now what for the 0:15:18.000 --> 0:15:21.400 broader market? Is tech still going to be responsible for 0:15:21.520 --> 0:15:24.600 pushing it higher? Gina Martin Adam's chief equity strategist at 0:15:24.600 --> 0:15:26.960 Bloomberg Intelligence, joins us now. And you know this comes 0:15:26.960 --> 0:15:29.360 directly from your guys's note this morning that came out 0:15:29.360 --> 0:15:31.280 that talked about the importance of tech when it comes 0:15:31.320 --> 0:15:34.440 to earnings, but how much that importance will still be 0:15:34.560 --> 0:15:35.840 there in the coming quarters. 0:15:37.600 --> 0:15:39.960 Yeah. I think it's a critical issue for the market 0:15:40.000 --> 0:15:43.000 at large because we've been in this really intriguing sort 0:15:43.000 --> 0:15:45.240 of environment over the course of the last year where 0:15:45.320 --> 0:15:49.120 tech has sort of almost single handedly held up S 0:15:49.160 --> 0:15:52.760 and P five hundred earnings. Tech and communications together as sectors, 0:15:53.280 --> 0:15:55.760 have been the earning stalwarts and the index, while the 0:15:55.760 --> 0:15:58.120 rest of the index has suffered through some kind of 0:15:58.120 --> 0:16:02.760 earnings recession. Intulular, the commodity centric sectors really posting very 0:16:02.760 --> 0:16:05.640 strong declines, but also healthcare posting double digit clines and 0:16:05.680 --> 0:16:08.040 earnings over the course of the last year. As we 0:16:08.120 --> 0:16:12.560 move forward, this sort of onus on technology should lighten 0:16:12.680 --> 0:16:15.720 up at the very least, and that may get reflected 0:16:15.720 --> 0:16:17.760 in the stocks as well. Naturally, when these were the 0:16:17.800 --> 0:16:22.040 only earners on the index, capital concentrated in those names, 0:16:22.080 --> 0:16:25.720 concentrated in those themes, and we're already starting to see 0:16:25.760 --> 0:16:29.280 some evidence that that thematic trade, that tech centric trade, 0:16:29.320 --> 0:16:32.240 is breaking up. Some of the evidence that we presented 0:16:32.240 --> 0:16:35.760 in the note this morning. For example, first is Navidia 0:16:35.840 --> 0:16:38.480 isn't even the top theme stock that we follow right now. 0:16:38.600 --> 0:16:40.480 And when we look at all the stocks that are 0:16:40.520 --> 0:16:44.040 most levered two themes, the stock that has actually performed 0:16:44.120 --> 0:16:47.840 the best is Seman's Energy. We're seeing physical environment themes 0:16:47.880 --> 0:16:51.720 generally outperform AI centric themes. Already in twenty twenty four, 0:16:52.440 --> 0:16:55.840 earnings trends are shifting, and correlations with the market between 0:16:55.840 --> 0:16:58.280 tech and the rest of the market are also shifting somewhat. 0:16:58.320 --> 0:16:59.840 So there's a lot of evidence that this is already 0:17:00.000 --> 0:17:04.320 ocurring in anticipation of that earnings trend shift later this year. 0:17:05.200 --> 0:17:08.919 How about valuation, Gina, where are we here kind of 0:17:08.920 --> 0:17:11.240 post earnings and we've seen the shakeout in kind of 0:17:11.280 --> 0:17:13.280 earnings estimates and guidance and so on and so forth. 0:17:13.320 --> 0:17:16.200 What does that mean for you in terms of valuation. 0:17:15.800 --> 0:17:16.440 Of this market? 0:17:17.680 --> 0:17:20.359 Yeah, I think you have to look at valuations on 0:17:20.400 --> 0:17:23.400 a sector by sector, stock by stock, industry by industry basis. 0:17:23.400 --> 0:17:25.520 If you're looking at valuations in the market at large 0:17:25.560 --> 0:17:29.480 right now, you're also looking at valuations that reflect in 0:17:29.640 --> 0:17:34.359 earnings recession outside of tech and an expected slow recovery 0:17:34.400 --> 0:17:38.119 from that recession. You're also looking at valuations that are 0:17:38.119 --> 0:17:42.399 abnormally skewed toward tech, and tech is the one sector 0:17:42.400 --> 0:17:45.600 in the index where we can prove that using valuations 0:17:45.640 --> 0:17:48.800 as a tactical timing measure is a faulty strategy. So 0:17:49.480 --> 0:17:51.960 I do think that if you're looking at broad market valuations, 0:17:52.000 --> 0:17:55.640 you're kind of missing the bigger picture in really unique circumstances. 0:17:56.600 --> 0:17:59.560 So we do look at sector level valuations, and what 0:17:59.640 --> 0:18:03.240 you find is there are still quite a few very 0:18:03.320 --> 0:18:07.120 discounted segments of the US equity market outside of tech 0:18:07.119 --> 0:18:11.720 and communications, where again capital has concentrated because those were 0:18:11.720 --> 0:18:14.680 the only earnings grows stories largely in the market over 0:18:14.720 --> 0:18:16.880 the course of the last year. So when we look 0:18:16.880 --> 0:18:19.439 across the landscape of the S and P five hundred, 0:18:19.760 --> 0:18:21.840 we actually see nearly half of the stacks in the 0:18:21.840 --> 0:18:25.400 index are training at levels below their media and valuation 0:18:25.560 --> 0:18:29.280 multiples of the last cycle, the pre pandemic cycle. So 0:18:29.359 --> 0:18:32.760 that's just one small stat on what's really happening beneath 0:18:32.800 --> 0:18:36.040 the headline of multiples. Sure everyone will tell you the 0:18:36.160 --> 0:18:39.600 S and P five hundred looks expensive. It looks expensive 0:18:39.720 --> 0:18:43.439 relative to recent pass because of these unique earning circumstances 0:18:43.480 --> 0:18:47.320 as well as the unique concentration of earnings inside tech 0:18:47.359 --> 0:18:48.280 and tech specifically. 0:18:48.400 --> 0:18:50.679 And that's what happens when we say things like maybe 0:18:50.680 --> 0:18:53.199 this time is different, like maybe the economy is different 0:18:53.480 --> 0:18:56.720 this time than it was, say, twenty years ago. Gina. 0:18:56.800 --> 0:18:59.000 One of my favorite stories of this year has been 0:18:59.000 --> 0:19:02.960 the outperformance of utilities, And typically if that happens, you're like, ooh, well, 0:19:03.000 --> 0:19:05.320 investors are going to be really scared because that's where 0:19:05.320 --> 0:19:08.359 you go, and you're scared and you want higher yield 0:19:08.400 --> 0:19:10.320 and you don't want to have any growth, et cetera. 0:19:11.520 --> 0:19:14.880 Is there possibility for utilities to become a growth sector? 0:19:15.040 --> 0:19:20.840 As we tie that into the data center AI story. 0:19:19.520 --> 0:19:23.199 I think no, no, But is there anything to that 0:19:23.240 --> 0:19:26.560 at all? I think the reason utilities have outperformed is 0:19:26.560 --> 0:19:30.119 actually several fold. Yes, there is some optimism with respect 0:19:30.160 --> 0:19:33.000 to AI, but we're in the process actually of working 0:19:33.000 --> 0:19:37.760 through our earning sentiment analysis right now, and no utilities 0:19:37.800 --> 0:19:41.840 companies are mentioning AI as a growth opportunity for them. 0:19:42.440 --> 0:19:46.040 So as much as the market has maybe tried to 0:19:46.240 --> 0:19:51.200 push this narrative, that's really only part of what's impacted 0:19:51.240 --> 0:19:53.240 the utility stocks. It's important to keep in mind that 0:19:53.359 --> 0:19:56.520 utilities are very low beta stacks. We did go through 0:19:56.560 --> 0:20:00.359 a pretty significant corrective process in the month of apriltilblities 0:20:00.480 --> 0:20:05.040 naturally outperformed that process, so their base was higher coming 0:20:05.080 --> 0:20:08.280 into May. And then we've had a bond market rally 0:20:09.160 --> 0:20:12.800 to boot. Utilities are a high rate sensitivity sort of 0:20:12.880 --> 0:20:16.679 segment of the market. When bond yields rally, then of 0:20:16.680 --> 0:20:20.280 course utilities tend to outperform. So there's three reasons why 0:20:20.400 --> 0:20:23.240 utilities have done well over the last three months. I 0:20:23.400 --> 0:20:26.800 do think that there's a possibility, certainly that you have 0:20:27.680 --> 0:20:33.440 some exposure to AI propelling demand for utilities The question then, 0:20:33.600 --> 0:20:36.600 is how much of that demand ultimately results in pricing 0:20:36.680 --> 0:20:39.399 power for utilities. And this is a really critical question 0:20:39.440 --> 0:20:42.520 for this segment. This is a hyper regulated sector, especially 0:20:42.600 --> 0:20:45.960 here in the United States. Will they ultimately just get 0:20:46.040 --> 0:20:49.320 price passed through on a regulated basis or will we 0:20:49.480 --> 0:20:52.639 actually see real shift in growth in the business model. 0:20:52.720 --> 0:20:55.560 I don't know, but it seems like the short term 0:20:55.600 --> 0:20:57.080 answer is not anytime soon. 0:20:57.280 --> 0:20:58.879 Hi, Gina, thank you so much for joining us. 0:20:58.920 --> 0:21:02.480 As always, Gina Martin Adams us strategist for all the 0:21:02.480 --> 0:21:04.040 equity stuff for Bloomberg Intelligence. 0:21:04.040 --> 0:21:06.159