Too Soon to Tell Who Winners Are in AI, Misra Says

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00:00Is it a catalytic moment to look more broadly or invest more broadly?

00:04So, again, the narrative has been so much has been confined to these seven stocks,

00:08so much has been confined to these hyperscalers, this particular sector.

00:11Is this the moment in which people begin to look more seriously at some of the other sectors and companies

00:16that you've been alluding to here and Lisa pointing out in the last hour,

00:20what we've seen in small caps, what we've seen in the Russell 2000 over the last week,

00:23an indication to you that that's finally happening, that this catalytic event has happened

00:27and people are investing more broadly?

00:28I think the investment is there.

00:31I mean, we're seeing it across the board, not just in the AI,

00:34and particularly the large cap companies are investing.

00:37Whether they're seeing the returns, I think that's where we do want to see that

00:41for us to have a lot of faith in the broadening out.

00:43But I will highlight given valuations, it makes sense for people to say,

00:47look, AI might be absolutely transformational for the way business is done a few years from now.

00:52It can absolutely increase productivity.

00:54But who are the winners?

00:55I think given valuations, you might want to diversify who you think might end up winning.

01:01And the GPU-TPU fight is ongoing.

01:04I don't think anybody knows who the winners are going to be.

01:07So I think being diversified, I'm a fixed income person,

01:10so I'm going to talk about fixed income.

01:11So fixed income playing a role in portfolios with equity valuations where they are.

01:16Look at what bonds have done.

01:17They don't sound very exciting, but the ag is up 7% this year.

01:21Anytime there'll be this, you know, wobble, oh, we didn't see enough of that AI earnings,

01:26and there's an equity market correction, you'll see bonds work.

01:30It's happened this year.

01:31I think it's going to continue to happen.

01:32So I would say, thinking about the portfolio, your portfolio as a whole,

01:37and looking at earnings, looking at all the fundamentals, but making sure you're diversified,

01:41you have income somewhere, I think that's the role that bonds play as well.

01:44So I'm going to put a plug there for bonds.

01:46Well, this is a plug that a lot of people are making,

01:48especially if they think that maybe people are overstating the economic growth.

01:52And if the Fed is cutting for the wrong reason, not necessarily the right reason,

01:56is that kind of where you sit, that you think the Fed is going to have to cut a lot more,

02:00and you kind of reject the yield curve steepening in a way,

02:02and think people are overestimating how much growth can really continue?

02:07So, you know, you can have growth, but you need not have the job growth.

02:11Remember the jobless recovery in the early 2000s?

02:14I sort of wonder about that.

02:15If you're going to get this big productivity boom,

02:17if everybody, every other company is deciding to invest in AI,

02:22do they cut back on hiring?

02:23Because of all the razor-focused shop, everyone's looking at margins.

02:28If I don't want my margins to compress, maybe I'm going to keep hiring low.

02:31I am concerned about the labor market.

02:33I mean, we're looking at bottom-up, top-down analysis,

02:36and the one thing that doesn't make sense is why it's the labor market this week,

02:40and it could be the productivity boom that everyone's expecting,

02:43and so I don't need to hire.

02:45And so, you know, to your question about the Fed, you know, I think they still have a couple of cuts.

02:51Those, exactly, I know Chair Powell said we're in the realm of neutral.

02:54There are only four Fed officials who think that neutral is above 3.5, which is where we are now.

02:58So I do think they're going to cut.

03:00We see two states of the world, one where they cut gradually, you know, maybe one this year, one next year,

03:06two this, you know, next year, to try and get to that neutral if inflation starts getting closer to that 2%.

03:13And then there's the scenario where now the labor market continues to weaken,

03:17and you can still have okay growth and an unemployment rate at 5%.

03:21That's concerning.

03:22That's that non-linear weakening in the labor market typically precedes a recession.

03:27Then I think you see this Fed irrespective of the Fed chair.

03:30I think they're all unified on this point.

03:32And if the labor market is clearly weak, the Fed's cutting a lot more than what's priced in or what's in the dot plot.

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