Are Markets Headed for an AI Bubble?

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Transcript

00:00Give us the fundamental underpinnings that gives you confidence that this isn't some tech wreck

00:04rewritten. So I think what's really interesting is we actually look at the equities landscape a

00:08little bit different than everybody else. So everything we do is through a thematic lens

00:12or a thesis driven. So we actually carve out the equities landscape into AI, decentralized energy,

00:18grid tech, space. Ed, you guys were talking about this a few minutes ago, space, quantum computing.

00:23So when we think about tech or we think about energy, we're actually looking much more discreet.

00:27And right now, what we're looking at right now is that we've seen an incredible rise in correlations

00:31between AI and decentralized energy, transition metals, which again, rare earths and other metals

00:37critical to the transition. So those correlations have been rising over the last year. What's also

00:42very interesting, though, is we're seeing that those names or those themes have much higher beta

00:46to AI than they used to. And more specifically, it means they're getting hit a little bit harder

00:51on the downdraft, right? So when you get AI pullback, you're seeing those decentralized energy,

00:55grid tech, transition metal names, actually feel some pain on that. But when we look at how these

01:00secular trends are actually progressing, there is just such huge underlying opportunity in the

01:06bottlenecks, in the retrofits, in the fact that, let's be honest, the power grid itself was already

01:11aging. There's a lot of investment opportunities there.

01:15If you are a Bloomberg Terminal client and you're listening to the show, first of all, look up at the

01:20screen and really focus here on what Brianne's about to say, and then check out her research on

01:25the terminal. Seriously. You're doing a comparison with 2021. Why? Why look at 2021? And then you're

01:32saying, this is what we think will happen in 2026. Answer those two, please.

01:37So we're looking to 2021 because that's the most recent correction, if you will, that we saw. And a lot

01:42of people refer back to 2021, where we see a lot of that, particularly US technology, really dive down

01:47into 2022. So that's a really good reference point for us. Something that we are flagging,

01:51though, it's pretty hard to make comps, right? When you go back to the dot-com era, we're not in the

01:55dot-com era. We're looking at, when we look at the 18 biggest, most powerful names in our AI theme

02:00universe, for instance, we're talking about $24 trillion of market cap. In the dot-com area, that

02:06was more like a $7 trillion type number in today's dollars. So what we're looking at is 2021 is the most

02:11recent comp where we saw a massive market correction, naturally. And when we look to 2026, though,

02:17we don't expect that to happen. We've got rate cuts coming. We've talked about that a lot in the

02:21last few weeks as well. So rate cuts are coming. They're not on the rise, which was also a big part

02:25of that time period. And then more importantly, though, we are very much flagging some tension.

02:31So while we do think that we're very much in a boom, this isn't a bust, it's not to say that it's

02:35not going to be without tension. And the biggest tension we're watching for is the fact that we've now

02:39seen tech investors, tech dollars, flock towards industrial materials, energy names. Well, guess what?

02:46Those tend to be longer build cycles. So the tension on quarter to quarter earnings,

02:51tech investors maybe aren't used to the patience that are sometime required in there. And so we

02:54do expect some volatility because of that.