Government Shutdown Doesn't Matter: Grenadilla's Rathbun

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00:00Let's just start with that reporting, right? And a lot of the names that were mentioned

00:03were ex-US, you know, international names. Some of them have ADRs. But these stories keep coming up

00:11about global supply chain and China's reliance on them. I just wonder what you made of it.

00:18Yeah, good morning. You know, this reminds me of what happened like a year and a half ago with

00:23deepfake. You know, they said they were able to produce all of this, you know, at a fraction

00:29of a cost, but it turned out that it was old NVIDIA chips. So, I mean, in some ways, am I

00:34surprised? No. I don't think, you know, AI chips is something you can produce, you know, on a dime

00:40just because you want to and you tell people to use Huawei chips only. So I am not surprised.

00:45But it also highlights the urgency of the AI race. And one of the reasons why there's so much

00:52support for it, especially from the U.S. government and also taking, you know, stake in some of

00:57our companies, Intel for one, you know, some rare earth minerals as well. The race is on. It's very

01:04hot. And China's going to have to figure it out if it doesn't have internal supply chains. Because,

01:10you know, if this gets found out, then some of their negotiating powers go away because it

01:16looks like they're bluffing. Anna, it's leading not just to a hot race, but to hot valuations.

01:22Are they too hot? You know, I would say compared to what, right? We haven't had AI before. We haven't

01:31had this kind of support behind a tech movement before. And it's not just the U.S. It's global,

01:37right? I mean, we just talked about the race between U.S. and China. So, you know, yes, it feels hot

01:43compared to historical standards. But, you know, when money goes into something like this, and this isn't

01:50just a year or two, this has been for a while. And we have to ask yourself, what is the wisdom

01:54of the masses in the markets telling us? What is behind this? And I think there's something to pay

01:59attention to. Maybe not compared to the valuation, to the historical norms, but think about what the

02:05norm in this new world might be. And it might actually just be a little bit higher. Yeah, but,

02:10Anna, that is a lot of hope baked in. We had GQG on the show yesterday. And they're saying,

02:16look, the level of revenue that an open AI has to bring in to vindicate the investment,

02:20the level of money that NVIDIA has to continue earning, and the worries that we're seeing of

02:25NVIDIA writing $100 billion equity checks over to an open AI and feeding back the loop of demand.

02:31Yeah. How are you strategizing and seeing that becoming a reality?

02:37No, it's actually very difficult if you're looking at from a company by company standpoint.

02:42They're absolutely correct. There's stuff going on that doesn't really justify those high valuations.

02:50But if you look at it from an investor, an allocator point of view, if you look at AI as a theme,

02:55there are a lot of things going on that's outside of NVIDIA and open AI. I mean,

02:59we just heard about Hitachi. We heard about Caterpillar yesterday benefiting from some of the AI

03:05movements. This is really talking about industries that are not only adjacent to AI,

03:11but that adjacency circle is growing wider and wider. And so from an investor point of view,

03:17that is what we're really looking at from an AI movement, not just NVIDIA and not just the chips.

03:22I know the story in technology markets this week has been about AI enthusiasm,

03:27the infrastructure deals that have come daily, the open AI private market valuation of $500 billion.

03:33But I think we really need to acknowledge this government shutdown because it's also a factor in markets.

03:39How are you looking at that? And what are you telling to clients?

03:43Yeah, you know, if I'm thinking about government shutdown and the fact that we did not get a labor market report today,

03:50this has implications more for old economy sectors. When it comes to tech,

03:56it really doesn't even matter that the government is shut down. We saw how many deals that took place

04:02today, not today, this week, right? So as far as tech is concerned, I don't think it matters,

04:07which is a little bit scary. But at the same time, it's a little comforting because the government

04:12might be shut down for a few more days, right? Maybe weeks.

04:15So, Anna, when we're just looking at tech not caring, the Nasdaq 100 at a record high,

04:20it might be added, the S&P is too. Where do you allocate if you still believe in the AI trade,

04:26but just think an NVIDIA or some of the other names would just be overplayed?

04:30So earlier, I mentioned some of the adjacent industries, right? So this actually points to

04:35the importance of being diversified and not too concentrated on certain names, because then you

04:41are exposed to idiosyncratic risks. Now, when you're looking at the valuations, it is sky high

04:47and nosebleed sections. It's difficult to allocate cash into it, right? So if you're an investor and

04:53you're actually, you know, boots on the ground, where do you put cash becomes the problem? And

04:58that's where the diversification helps you. This idea of adjacencies helps you. If you already own

05:04tech, it's difficult to sell. I mean, it's difficult to sell because of the momentum. And in that case,

05:10sometimes it's not about selling the whole positions. It's just about being prudent and taking

05:15some of the gains, rebalancing your portfolio. So you're taking the gains and reallocating it to some

05:20of the other sectors that may benefit from it in the future. The idea of a diversified portfolio

05:26becomes much, much more important.

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