Tech Stocks Ping Pong on Mixed Economic Signals

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Watch Tech Stocks Ping Pong on Mixed Economic Signals - Bloomberg on Dailymotion

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00:00It's been a difficult week. We planned this morning's show with the narrative in the market

00:05right now that this is about the Fed and what they will or won't do in December. But actually

00:10over the course of the week, it wasn't about that at all. It was about valuations and an AI bubble

00:15or not an AI bubble. What's the real driving force right now that's top of mind for the people you

00:20speak to? Yeah, you know, the debate has absolutely intensified when we talk about are we in an AI

00:26bubble? And there's really there's two sides to the story. On one side, it doesn't appear to be

00:31as cut and dry as maybe a repeat of the dotcom bubble. And that's because we have spending on

00:37real capital, contracted services. We also see profitability, right? We see revenue growth when

00:44we look at enterprise planning, when we look at productivity tools, advertising. And third and

00:50foremost, we also see that the hyperscalers have some pretty resilient balance sheets to fall back on.

00:55Now, there's absolutely risk, right, as we as we approach the potential for an AI bubble. But it's

01:01not as cut and dry. Let's try and link it to the Fed. You know, why does it matter if the Fed does or

01:07does not cut interest rates again in December? Yeah, it matters extensively, especially for a

01:13sector like tech, because it's so rate sensitive. When we look at discounted cash flows, we look at M&A

01:19activity. You know, the Federal Reserve was already flying partially blind back in October. Very likely data is

01:25going to continue to be delayed or offset as we get into December. And so that elevates the risk of a

01:31Federal Reserve misstep that's going to have an outsized impact on tech. What's having an outsized

01:37impact on the economy is AI investment. In many ways, it's underlying why we've seen GDP growth.

01:44But I've been speaking to CEOs of late and underneath the hood, they're saying this economy is weak.

01:49And actually, we're seeing companies Verizon this week, Amazon earlier, they are laying off tens of

01:55thousands of people in many ways to try and right side their cost base. Natalie, what are you actually

01:59hearing from the companies that lead right now? What I'm actually hearing is that there's really two

02:05sides to the economy right now, right? It's it's regularly called a K shaped economy. So you're

02:09absolutely right. We have AI valuations that are really driving business investment and overall

02:15economic growth. R&D spending, for example, it was up 15% in Q2. That is the highest it's been since

02:22the dot com era. Now, when we talk about what's also sort of channeling economic growth, those AI

02:27valuations, they're allowing higher income consumers to continue to drive growth in the economy. And

02:33that's why it's so important as we get into 2026, we really have to talk about what does the tech

02:37sector look like? And what does AI look like in the next 12 months? Now, Natalie, I'm going to ask more

02:42of a complex one now. And I want your take just more broadly on when we're thinking about the AI

02:46bubble. Michael Burry, many in the media have been talking about this depreciation of certain assets

02:51in particular. We're trying to work out just how long an NVIDIA GPU lasts you. Is it three years,

02:56four years, five years? And the company is sort of doing accounting, wouldn't say tricks, but accounting

03:02changes to try and understand how long these assets really last. From your perspective, what is the

03:08asset that we should be analyzing? What is the underlying accounting we should be keeping an

03:13eye on? You know, I would say even broader picture, what we really need to track is the investment

03:19that's been taking place, right? There's been a significant investment wave really across assets,

03:24and this is just part of the broader story. What we're really going to need to see from an economic

03:28perspective is this translate into meaningful productivity growth. If we don't see that,

03:33then we risk a capital misallocation story.

03:35Just a couple of minutes time, we're going to go talk about applied materials, the chip equipment

03:39maker. But that story illustrates that right now, there is still an issue with tariffs and with China

03:47and with trade policy. How is that impacting the global economy right now?

03:53Right now, you know, we saw an immediate de-escalation when we had the US-China trade talks

03:58back in October, and so that removed an immediate headwind. But it also introduced a structural issue,

04:04right? We have an annual renegotiation period, for example. Now, what that does,

04:09and in broader sense, what tariffs do is they create a situation where companies don't have

04:14quite the forward guidance that they would like, because we're talking about investment cycles that

04:17are seven to 10 years. Realistically, we're getting about one year visibility into overall prices.

04:22We're about to get a bit of visibility next week with our so-called Super Bowl when it comes to

04:29NVIDIA's fundamentals. But when you're giving analysis, when you're thinking about strategic

04:33advice, do you think the commitment to continue spending by big AI players is there and is there

04:39globally at the moment, Natalie?

04:40I absolutely think it continues to have a lot of weight behind it. Now, what I also see when I

04:48look at the numbers is that there's been sort of a clear shift in investment strategy towards

04:53evidence-based investment rather than just spending on faith alone. You know, we absolutely saw this

04:59with how investors responded to share prices following the earnings release back in October.

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