00:00There was a question it seemed. Are they spending too much? Will the revenues come? And now it feels like
00:07the market is totally down with as much CapEx as they can put out there because we're supply constrained really
00:15according to Amandeep Singh. So how do you look at it?
00:19Yeah, I think there's been a massive rally over the past couple of weeks over really anything that the AI
00:24wand touches. And the reports that we're getting this week are going to have to justify a lot of that
00:30move. So that is a high bar. And I think that's more of a – my concern there is more
00:36of a short-term trade move. Over the longer term strategically, I think that as long as this CapEx keeps
00:43going and the market keeps rewarding that, it'll be great.
00:46My concern is that at some point it's going to decelerate. And I think that could pretty substantially change the
00:53AI story.
00:54So where do you see that hitting specifically? I'm thinking about 85% earnings growth for NVIDIA. I guess you
01:02could decelerate a little bit from that because it's such a huge number.
01:05But a lot of other companies – we mentioned the cash burn at Amazon. We mentioned low expectations for meta
01:13-EPS growth, negative expectations for alphabet-EPS growth.
01:17They're spending so much that their earnings growth can't decelerate anymore.
01:23That's true. And I also think we're going to start to see a little bit more idiosyncratic behavior.
01:28We just had an announcement this morning of the changing nature of Microsoft and OpenAI's relationship.
01:35And it's strange to say it for a massive company like Microsoft, but this is a relatively new industry, sort
01:42of almost in its infancy.
01:44So there are a lot of changes going on. And I think going forward, we're going to see a lot
01:49more of people sussing out the winners and losers and who's best positioned.
01:54And that's a little bit different than what we had for a lot of the past couple years, which was
01:58the sort of monolith moving all as one.
02:01Do you not see at least the hyperscalers still as one monolith?
02:06I think for now they are. If you start to have a slightly less aggressive growth environment on the CapEx
02:12side, I think they'll diverge more.
02:14In terms of the market moves, you know, it's fascinating that President Trump's true social posts have driven the biggest
02:21moves in this market.
02:23Probably not a surprise if you're following along every day. But does that matter longer term or is that just
02:28a trading opportunity for those in the know?
02:30I think that's trading opportunity. It's something that's so difficult to predict any one individual's behavior that it's sort of
02:37a game that I wouldn't want to play.
02:39As you mentioned, if you're in the know, maybe. But it's it's it's more about playing the longer term trends.
02:45AI, of course, has been a major story. And I think what's going on in Iran, of course, also has
02:51some longer term implications.
02:53But it seems like for the now, the Iran war, the closure of the Straits of Hormuz, the doubling of
02:59the price of oil has had almost zero effect on strategists' earnings expectations.
03:05Absolutely. And pretty much everywhere you look in the market, they're telling you nothing to see here.
03:10Stock prices moved a little bit, but they've come back. Spreads are still narrow.
03:15And energy prices, especially further out on the future curve, are basically pricing in a return to normalcy.
03:21And our base case is for a continued trend towards becoming less aggressive on the Iran situation.
03:29But trend is the key word there. I don't think the de-escalation can be very smooth.
03:34And also, it's not going to be like you can return to the Strait of Hormuz as it was before
03:41the conflict.
03:42The Bob Al-Mandeb Strait has been in the news a little bit as a potential what could go worse
03:48from here.
03:48But it also offers a historical example of what can happen if things get a little bit more resolved from
03:56here.
03:56That Strait, it's another oil choke point.
03:59Back in 2023, it started to go under tax, some attacks from the Houthis.
04:04And that went on for a while, and you saw transmission through that choke point fall off a cliff.
04:11After a ceasefire was declared in that conflict, you did not see a return to normalcy.
04:17That stayed at almost like half the levels that you had seen before.
04:21So I think with the Strait of Hormuz reopening, it's not going to be a return to what it was
04:26before.
04:27There will be sort of this permanent risk premium priced in for the foreseeable future.
04:31So does that, first of all, that's fascinating to use that as a template for what we might expect to
04:36see if the Strait is reopened.
04:41Does that affect the slowdown in transmission through those two Straits, really?
04:47Your EPS forecast for the S&P at year-end?
04:51We see it as sort of a tax on economic activity.
04:56Energy prices will likely be higher, input costs also higher.
05:01But we see it sort of as we saw the tariff story, which is it's not causing entrenched inflation because
05:07hiring is so weak,
05:09it's hard for workers to see higher prices at the pump and go ask for a raise.
05:13So you don't get that wage price feedback loop.
05:15And at the same time, you have the AI story really helping companies become more productive
05:21and giving people a reason to invest in growth.
05:24But I think the energy story and the remaining tariff story will just continue to drag growth down at the
05:30margins.
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