Tech Markets See Moment of Calm

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00:00Today, is AI winning out?

00:03It is a good day for technology. The TSMC results and guidance provide some confidence in the

00:11durability of the AI theme. There's no AI related slowdown, at least not yet. And AI is going to

00:20remain a key driver for markets. Angelo, one of the most read stories today on the Bloomberg

00:26terminal and on the website is Ken Griffin, the founder of hedge fund in Citadel, saying that

00:32Gen AI is not helping hedge funds beat the market with astonishing returns. We're going to pull up

00:38what it is that he said. But as somebody that is in the markets, as a strategist, your reaction to

00:44that news story, and also what? Gen AI better than you in strategy?

00:51I don't think we're quite there yet. We are still in our view in the early stages of adoption. Of

01:01course, there's a lot of spending going in now to make this technology and incorporate it. But

01:06thinking about major technology firms and really many different businesses, including in finance,

01:12they are all rewiring their operating system to incorporate AI. So it will take a little bit

01:18while to see productivity gains. But we do think that these gains are on the way. Of course,

01:24from an investment standpoint, we need to be wary of complacency or euphoria. At some point,

01:31there's going to be increased competition, some overbuilding, overcapacity. We are not quite there

01:36yet. But something to watch out for. And I think the reaction in the TSMC results in the stock today,

01:42the new reaction reflects the high expectations.

01:45So there are two very distinct stories, right? How market participants use AI,

01:50and then the impact of the AI story on markets. But you went there with TSMC. So what did that

01:55sort of outlook from them tell you about the staying power of this cycle?

02:00Yeah, I do think it provides confidence that this will continue, especially thinking about the next

02:06six to 12 months. Only the direction of travel for spending is higher. And there's a lot of push for

02:14many different businesses and industries to incorporate AI. So I think that the mega trend of adoption

02:21remains alive and well. And yes, we can debate all day about valuations. But the results speak for themselves,

02:28especially as we enter a key earnings season. We don't have all day, but let's debate.

02:33Where would you go if valuations are high for some of the big names?

02:36So we favor a barbell approach. So having continued to participate in this AI long term secular theme,

02:48as I would call it, but at the same time, for especially new capital, start to complement portfolios

02:55with areas of the market that have been left behind. And that could include value style investments,

03:00small cap stocks that may benefit from the Federal Reserve rebooting its rate cutting cycle.

03:06So having this balanced approach and again, avoid chasing some of the unprofitable, more speculative

03:13parts of the market. What is the catalyst for those speculative parts of the market to actually be

03:19popped? Do you think that we can remain irrational for a little bit longer if you see it that way?

03:24You know, as they say, you can only tell a bubble kind of with a benefit of hindsight. But at the same

03:30time, there's some key differences between now and the late 90s. A lot of these companies that are doing

03:36all this heavy spending, they're financing that from their own cash from operations. So not debt financed.

03:42They're very mature, profitable businesses, and they have a diversified stream of revenue. So we're not

03:49quite there yet. Valuations are not at extremes. But at the same time, markets are going to be sensitive

03:55to any news about return on investment from all this spending that is taking place. And also paying

04:01attention to signs of euphoria, which we do not see yet. In this environment, Angela, I think we should

04:08continue to talk about tariffs. The idea when the president took office in January was that consumers

04:17would take on the burden of tariffs, right? Because companies would raise prices across all sorts of

04:22domains. That hasn't really materialized. What has been impacted is the labor market in different

04:30ways. Either people are cutting back. How are you reading that play out right now?

04:35Yes. So a couple of things here about prices. As we navigated the very period of high uncertainty,

04:42especially in April and May, companies really try to absorb a lot of that and not pass these

04:48increased costs to the consumer. Now that we have a little more clarity, we may see a little more

04:54even distribution of this increase in costs. We have seen goods prices increase, but at the same time,

05:01the increase, the uptick inflation remains manageable. Now, as it relates to the labor market,

05:08we remain in a low hiring and low firing mode. The labor market remains balanced. Company corporate profits

05:17remain at record highs, even as we've seen a significant slowdown in hiring, which to me implies

05:24productivity gains. So we do not expect a major uptick in unemployment. Companies remain very profitable,

05:30so they have really no pressure to continue to cut costs to protect margins, because margins, again,

05:37are at all time highs. But something to monitor. There's going to be some disruption from AI,

05:42but so far, it seems like only a small part of that slowdown in the labor market is because of AI,

05:48or, you know, tariffs for that matter.

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