00:00The Nasdaq 100 up more than 17 percent year to date. That's despite visible headwinds including a potential shutdown in the next 19 hours. Kevin Mann of Hennion and Walsh writes this though. More growth opportunities are available ahead particularly related to the information technology sector and companies that derive revenues from the role they play within the overall AI ecosystem. Kevin joins us now. Kevin if indeed some of these headwinds become you know real difficulties for the economy aren't
00:29tech companies going to pull back. Won't AI be put to you know further down the priorities list and won't some of the spending not happen. Well the way I see it I've been doing this for 32 years now as a portfolio manager. I've always lived by the adage of follow the money. Where is all the money being spent right now. It's being spent in two areas that I see one hour space and defense to your prior segment to AI infrastructure. We've seen hundreds of billions of dollars being spent on building the capabilities through data centers cooling solutions in the past.
00:59Power solutions to power the AI revolution. In fact Nvidia CEO Jensen Wong just recently forecast that between three and four trillion dollars are going to be spent on AI infrastructure by the end of this decade. We're about 600 billion right now. That's a lot of spending ahead. So as a portfolio manager I want to follow that money and look for who's likely to be the benefactors of all that additional spending. So we've seen the data centers do particularly well getting a lot of private equity money as well. If you want to be a benefactor and you're using the public market.
01:29Where do you go. Yes. Look beyond just Nvidia. Look we hold a lot of shares of Nvidia and I still contend that Nvidia sits at the hub of the ecosystem. But let's look beyond that in terms of the entire ecosystem.
01:41How about a company such as IES Holdings. A lot of people never heard of IES Holdings. They supply the electrical connectivity to data centers. Their stocks up over 80 percent year to date. Or how about a company like Comfort Systems ticker symbol FIX.
01:54They supply the cooling solutions to data centers. They're an HVAC company in the industrial sector. They're also up over 80 percent. And then with respect to Nvidia themselves maybe a lot of investors don't realize Nvidia doesn't manufacture their own chips even though they're the largest chip seller in the world.
02:10Taiwan Semiconductor does. But Taiwan Semiconductor doesn't do their own lithography. ASML does. So every time we hear another knockout earnings report from Nvidia recognize that Taiwan Semiconductor benefits ASML benefits and their stocks are actually outperforming Nvidia year to date as well.
02:26Sure. So two questions there. First of all these gains that we've seen year to date in some of these companies. I mean they're massive. So has the repricing happened.
02:34Are they now perfectly priced for the growth that they're going to see or are they still cheap. Yes. Some of them are cheap. Some of them are not so cheap. Some are certainly overvalued as is the US stock market as a whole right now.
02:45But I think about a company like Taiwan Semiconductor the largest dedicated chip foundry in the world with a market share of over 60 percent. On a forward P basis they're around 24 right now.
02:56Not too rich for that type of growth that we expect going forward. You look at some of those other names though you want to pay attention to valuation because perhaps on a pullback they'll present more attractive entry points but opportunities still exist.
03:08On Taiwan Semiconductor don't you have to price in some geopolitical risk there particularly what we've seen in the last few days with China pushing the US to get stronger on its stance about Taiwan independence.
03:18One hundred percent. But also recognize that Taiwan Semiconductor not so long ago built a massive plant in Phoenix Arizona. That's where Nvidia anticipates on sharing the manufacturing their chips going forward to try and navigate this new world order and the new trade and tariffs environment.
03:36So they've tried to navigate away from some of that and I still think there's growth ahead for them as a result.
03:41We did also see that market sell off brutally when it looked like you know Nvidia wasn't going to be able to sell certain or maybe all of its chips to China.
03:50Aren't there risks like that out there too.
03:52There are but Nvidia continues to pivot right last quarter just looking at their earnings report 88 percent of their revenues didn't come from chips came from data centers.
04:01They're building now AI capabilities in a box if you will whether you want the chips and processing power or the acts of data centers.
04:09Nvidia handles both so they've diversified their revenue stream. I think they're doing the best that they can to operate in this new world order.
04:16Beyond all the gay eye plays you say the Fed is actually playing catch up for the rest of the year that the Fed has been late to the party.
04:21Yes. I mean what do we see then. I mean what would you want the Fed to do.
04:26Yeah. Well first let's talk about the looming federal government shutdown right. Unfortunately it looks as though these federal government shutdowns has become part of the political process here in the United States.
04:36Going back over the last five decades as I understand it there have been 21 shutdowns of the federal government with the average duration around eight days the longest one around 35 days.
04:45Why do I bring that up. Well 35 days from now brings us to the next Fed meeting right between October 28th and October 29th.
04:52We certainly don't want the Fed flying blind into that meeting without current and fresh jobs data or inflation data as it stands right now.
04:59I'll go with what the Fed is telling us from their most recent dot plot chart. Two more rate cuts of 25 basis points this year at their final two meetings of the year based upon their updates for jobs and based upon their updates for economic growth.
05:13Sub 2 percent economic growth and also an unemployment rate that they're forecasting to hit 4.5 percent by the end of this year.
05:20So are you comfortable with that kind of an economy. So if we get two more rate cuts by the end of the year are we in balance.
05:25Do we have our eye on inflation while also keeping the labor market intact.
05:29If we don't get those two rate cuts I won't be as uncomfortable with the economy because I think the Fed is scared.
05:35I think when we saw that jobs revision with nine hundred eleven thousand less jobs created over the last 12 months that wasn't in their calculus.
05:42So they had to reset their expectations for the labor markets. We'll get the jolts report today.
05:46Hopefully we get another jobs report on Friday. That's going to give them more clarity on the jobs front.
05:51But I think they're more attentive now Bonnie to the employment side of their mandate as opposed to the price stability or the inflation side of the mandate that could change.
05:59But right now they're more attentive to the job side. And that's why I see two more rate cuts ahead.
06:03OK. So September assuming the SEC 100 doesn't fall more than 5 percent today will have been a positive month at least for tech.
06:09Where beyond tech would you be looking or is it not yet time.
06:12I still like aerospace and defense considering that NATO countries recently pledged to spend up to 5 percent of their respective GDPs on defense.
06:21Look at the European Union who pledged to spend the equivalent of 840 billion U.S. dollars on their own defense capabilities.
06:28Who's going to benefit from all that spending. Look to the large defense contractors.
06:32But also look to some of the smaller ones such as Kratos security solutions which is a manufacturer drone technologies which you could argue is the future of military warfare.
06:41Follow the money once again. And the two places it's going is defense and AI infrastructure.
06:45Speaking of follow the money we've seen this massive run up in China. We've got to wait a few years for it.
06:50Now it's happening or maybe has happened. Not quite sure. Are you allocating any money outside of the U.S. and any of it to China.
06:57Yeah I'm still very dubious to Chinese securities right now for a variety of reasons but emerging markets as a whole many investors are surprised to know our clients are surprised to see that emerging markets are actually outperforming international developed markets in totality both U.S. markets and international.
07:14So you need to consider dipping your toe in the mortar building a globally diversified portfolio but perhaps navigating around some of the more concerning emerging market economies such as Russia and China.
07:26But the opportunities are out there but I wouldn't shy away from the U.S. and I wouldn't shy away from international development.
07:31What are the opportunities for international development?
07:32What are the opportunities for international development?
07:33What are the opportunities for international development?
07:35What are the opportunities for international development?
07:36What are the opportunities for international development?
07:37What are the opportunities for international development?
07:38What are the opportunities for international development?
07:39What are the opportunities for international development?
07:40What are the opportunities for international development?
07:41What are the opportunities for international development?
07:42What are the opportunities for international development?
07:43What are the opportunities for international development?
07:44What are the opportunities for international development?
07:45What are the opportunities for international development?
07:46What are the opportunities for international development?
07:47What are the opportunities for international development?
07:48What are the opportunities for international development?
07:49What are the opportunities for international development?
07:51What are the opportunities for international development?
07:52What are the opportunities for international development?
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