00:00We're in this really interesting moment, right? Caroline said it at the top,
00:03six straight weeks of gains on the NASDAQ 100. I feel like the next phase is like this pre-IPO
00:10anticipation, you know, Cerebris, yes, SpaceX, June. How does that impact a market
00:15at the index level, that anticipation? Well, I think the anticipation does
00:20keep a lot of eyes, obviously focused, not just on AI, but on the broader index.
00:26And it's interesting because on the one hand, yes, markets have gone up, but so too
00:31have earnings. We've just come through an earnings season. We're almost towards the
00:34end of it when you've got top and bottom line growing double digits, not just among
00:38tech. But that anticipation is there. We'll see if we get several trillion dollar
00:44sized deals later this year, what the investment appetite is and how much can be
00:52absorbed? Because unlike your former commentator, we do have some nervous clients because on
00:58the one hand, they don't want to get off the bus. On the other hand, they're scratching
01:02their heads about how can markets be at all time highs when you've got all these concerning
01:06short term headlines, which you just mentioned.
01:09Carol, can we not have two things being correct at the same time? Yes, there are short term issues.
01:16Yes, oil is an issue. And in some ways for chips, helium and other things that pass through
01:19the straight-of-home moves are an issue. But longer term, the drive towards AI infrastructure
01:23is only a supply side issue rather than demand.
01:27Yep, exactly. And that's exactly what we've been writing to our clients. I wrote a piece
01:31last Friday talking about a brave new world and just laying out the case for this next phase
01:38that we're in because the orders of magnitude that we're talking about investing in capital
01:42infrastructure, that tends to tee you up for very good performance from a productivity
01:47standpoint, from GDP. And we're seeing it start to creep in the numbers because it's not like the
01:52markets are just floating up without earnings and revenue and margin support. And you're seeing
01:59very well-managed tech companies that are paying a lot of attention to their margin management and
02:04the way they're managing their people and their costs and their inputs. And you're exactly right that
02:08it's capacity constraint. It's not like we're going to have dark data centers other than the fact that
02:14if you can't get energy to turn them on. Well said. That is the bottleneck that many are focusing
02:19in on. It's why everyone's turning towards nuclear. It's why we look at Constellation Energy's earnings
02:23and we'll be diving into them in but a moment. But there's this great report out of Bloomberg
02:27Intelligence at the moment. AI is swallowing the world. Everything else is just holding on.
02:32Is that the sense you get from clients at the moment, Carol? Because this isn't just a U.S. trade.
02:36And boy, have we seen Qualcomm, Micron, other of the chip sectors up today. And the SOX has been
02:41extraordinary. But think of the moves with SK Hynix of Samsung. There's still earnings potential for
02:46those companies means that even though we've seen hundreds of percentage points added in terms of
02:51their share price, the P ratios are actually coming down because people think earnings are going to
02:55arrive rise even faster. That's exactly it. And the markets are telling you underneath the surface
03:00too that even with all of the issues going on in the Strait of Hormuz and the fact that the
03:05bulk of that oil
03:05goes to Southeast Asia, those stocks are rallying anyway because they're telling you this is a lot
03:11bigger. And one of the phrases we had used in last week's piece was, how about, yeah, I mean,
03:17it's like we're all grabbing the tiger by the tail and just hanging on for the ride. But it's got
03:22fundamental underpinnings to it and it touches so many other places. And you take, you know, I spent the
03:29weekend talking to grandkids about how exciting space is and lots of things going there. There's
03:35so many things we haven't even started to explore. I'm changing my mind. I just asked Marguerite in
03:42the control room to bring back that research. But you brought up space, so I'm going to pivot,
03:46right? The point of that research is that the entire market in terms of profit growth is held up by
03:52a very
03:52small number of companies. Yes, they're around the world, AI infrastructure related. SpaceX is trying to
03:58sell that story as well, right, with its IPO. The vision the bankers are putting out on the roadshow is
04:05orbital data center. How easy is that for you to translate to clients, Carol? Like, is that believable
04:11for the biggest IPO of all time? Well, the IPO aside, the whole when you take the Artemis mission and
04:19what
04:19was going on there and the fact that actually when you look at earnings, it's not just a handful of
04:24companies
04:24because we had double-digit revenue growth. I pulled the numbers from Bloomberg this morning
04:29and you had double-digit revenue and bottom and earnings growth in eight out of 11 sectors. So
04:36this is pretty broad spread and there's a lot of companies playing into it. But space, I mean,
04:40clients love to talk about space. The Artemis mission got kind of shoved aside because it
04:45coincided with increased hostility in the Middle East, so it got pulled short term. But this is
04:51definitely a market that wants to lean into that long-term story and investors are all about it.
04:57Carol, earlier you talked about riding the bus. And if we stick with that analogy,
05:02if you are an investor and you know that the biggest IPO of all time is happening in
05:08a month's time, do you put yourself into cash or do some kind of rejiggering in order to be able
05:16to participate in that IPO? Well, we don't necessarily go chasing down IPOs any more than
05:23I did managing money for clients in the 90s, IPOs per se. But strategic rebalancing is something we do
05:31all along and trimming some of your losers or some of the winners, if you will, trimming some of the
05:38gains that you've made there to make sure that the portfolio stays balanced intermediate and longer
05:43term is where you want to be. We've been growth biased all along. Starting before last year,
05:50we never bought into the recession fears in 22. We didn't think that tariffs were going to throw
05:55things substantially off last year, although our companies are learning to adapt. And this year,
06:02too, we think it makes sense to trim some of the winners, look at other industries, look at those
06:06second and third tier knock-on industries. We touched on energy. We touched on space. There'll be
06:11substantial rebuilding or reconstruction, if you think. Once we settle some of these, the conflicts,
06:19Russia, Ukraine, Middle East, you're talking about substantial rebuilding. You're also talking about
06:25companies rethinking supply chains and where they get done and solidifying. So you're talking about a
06:31massive infrastructure build or teeing up for that that has many years to run.
06:37Carol, I want to go to the rethinking of supply chains, because for many years, people have been
06:40rethinking their dependence on China. Maybe that starts to get more clarity this week. We understand
06:45that President Trump, of course, is going for that meeting with President Xi over in China. And he's
06:49taking a whole host of CEOs with him. Tim Cook of Apple, Elon Musk, of course, talking of SpaceX. But
06:55a
06:55moment ago, Micron, the chip sector, Qualcomm. But also there are some sprinkling of banks and other
07:01areas. Carol, does this meeting mean something to your clients briefly?
07:05We definitely think we've been watching this geopolitical pivot and the geoeconomic pivot for the last year and a half
07:12or so. And it's been clear from the beginning that you've got two major players in terms of the U
07:17.S. and China. China was the only
07:20primary country able to push back on the U.S. against the tariffs and engage and even if briefly in
07:27the in the trade war. But they've got
07:31critical supply chain issues with rare earths. The U.S. has critical supply chain issues with with energy and materials.
07:38And so
07:38and clearly they want to have a collaborative relationship where there's certain things that we want to manufacture. Here's
07:45things China wants control over. But business deals are what the administration is all about and hence bringing a lot
07:53of those
07:54companies with. But you've got a lot of interesting interplay to watch here and how this thing plays out.
08:01looking at what's going on.
Comments