00:00We are, on this day, shining like Palantir, for example, the sort of poster child of where the fundamentals live up to what have been deemed nosebleed valuations or nosebleed success stories.
00:11But how do you square that with then the potential for a pullback in the equity market more broadly?
00:18Well, I think there is just a lot of enthusiasm around anything that's related to AI.
00:23And I'm old enough to remember the late 1990s and how much enthusiasm there was around any companies that were related to the Internet, for example.
00:32Everyone was scrambling to change their name to have dot-com at the end.
00:36Now, many companies are scrambling to say they are part of this incredible AI food chain.
00:41And I think what is happening, though, is that investors may not be thinking about what could be obstacles to the continued CapEx boom around AI.
00:55And I think there are some pretty significant ones.
00:58First of all, we knew and, of course, we got the deal done on rare earth elements.
01:03But that was clearly an issue.
01:05If you don't have access to enough rare earth elements, that will certainly slow down an AI CapEx boom.
01:10But we also have concerns around how much productivity gains companies will actually see.
01:17We had that MIT report that came out last spring that suggested maybe not so much.
01:22There could be a point where companies say, you know what, we've thrown an enormous amount of money at this.
01:27We're not necessarily seeing all that we wanted to see.
01:29We'll slow down investment.
01:31And then finally, we have the potential for a NIMBY movement, not in my backyard.
01:35In fact, you just reported on how there are AI data centers.
01:40And, of course, we're seeing a lot more news around neighborhoods that are not thrilled to have AI there
01:47or states that don't want to see it there because electricity costs are going up a lot.
01:52So there are a lot of macro elements and risk factors to the endless money that's being thrown at the desire to build out by the hyperscalers we've seen in their earnings.
02:04But more about the valuation front, because I can understand how people – is that really what takes the wind out of the sails of valuations?
02:09Or is it more of a Michael Berry perspective that, you know, there's just an awful lot of endless capital expenditure
02:14and also cloud growth similarities that seem to be slowing down?
02:17And he's trying to say, look, you know, maybe it's time to bet against just how far we've run rather than the future risks.
02:24Absolutely.
02:24I think it's both.
02:26There are certainly real question marks, I think, about how much more investment we'll see companies make without seeing, you know, sort of significant gains
02:36and perhaps recognizing that there could be some overlap, there could be more discretion and more thoughtfulness around spending.
02:49So I certainly think there's a little of both there.
02:51I just, as an outside observer, seeing the incredible, incredible amount of money and excitement, there's nothing like it, I think, since what we've seen in the late 1990s.
03:02We know how that ended.
03:03So we should just think of it as a cautionary tale and say, hey, maybe we should be diversified.
03:08Maybe we should have some exposure to China AI, given that the risks aren't the same, the vulnerabilities aren't necessarily the same there.
03:17Let's go back to the tale of two cities thesis.
03:20So American technology, at least, good, but papering over some cracks.
03:26What are those cracks?
03:28Tell our audience more about the warning signs you're seeing in other parts of this economy, Christina.
03:34So I certainly think we are seeing consumer weakness, especially among lower income consumers, but also some middle income consumers.
03:43And I think we can just look to the Chipotle earnings call last week for signs of that growing weakness.
03:50September and October were difficult months where the frequency of visits went down for a lot of customers, many of whom are young.
04:01And so that could very well be giving us an inclination of what could come and what could spread.
04:08Because keep in mind, we are seeing a lot of white collar job layoffs being announced.
04:14We could see more coming and that will likely impact middle to higher income consumers, many of whom are spending, still spending quite robustly.
04:26And that could create a much bigger problem for the economy.
04:32Thus far, it's been a two-legged stool and it could very well go down to one and a half legs.
04:38So this is very interesting going into the holiday quarter.
04:41Maybe this is not the right data set, but Apple told us last week that revenue going into the holiday quarter would be up 10 to 12 percent.
04:50That indicating that in the middle to higher income earners, they'll go out and spend money on iPhones, right?
04:56I guess that how does that set us up for the holiday quarter and how we view this economy?
05:02Well, we could still have a very strong holiday quarter driven by those higher income consumers.
05:08My concern, though, is that there are vulnerabilities there.
05:12And especially as we go into 2026, we could see more in the way of white collar layoffs.
05:17We also know that the higher income consumers are not so sensitive to inflation, but they are very sensitive to the stock market.
05:25And so if we were to see some kind of stock market sell-off, I think that would be problematic and would certainly reduce high-end consumer spending as well.
05:34Christina, I want to go back to something you said, that maybe you diversify into China AI.
05:39I had a great conversation with Mandeep just on the side of the set.
05:42He's our Bloomberg Intelligence Analyst.
05:43He'd just been to Asia and he said they're doing it so differently there because they cannot depend on NVIDIA chips being limitless.
05:49They are aware of the geopolitical risks, maybe in the way that the U.S. ones are putting rare earths to one side.
05:54So which China names and how does one get exposure to that from your mind's eye?
06:00So I can't name specific companies, but I can say that there are so many that look very attractive, that have much lower valuations and are part of that AI food chain.
06:12And that CapEx spending, I think we'll see more dollars go there.
06:17And certainly it's in earlier innings in Asia.
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