00:00Joining us now is PNC Asset Management Chief Investment Officer Amanda Agati. And Amanda let me just first get your
00:06take on this sell off.
00:08I don't know if I use the word severe but you don't often see the Nasdaq 100 falling two and
00:12a half percent in a day. The Sox index more than six.
00:16Is it just that we've come so far so high so fast. Well I'm still giggling about your chickens and
00:22roosters analogy.
00:23I think there's something to that as it relates to investor sentiment. I've been using song analogies for years so
00:31my version of that is Paranoid Android by Radiohead in terms of investor sentiment.
00:37I think that's entirely what's going on here. The Philly Sox is up 100 percent right since the end of
00:44the first quarter. I'm a Philly girl.
00:45I like to talk about the Sox but it's gotten way ahead of itself right. This has been entirely a
00:52mo trade.
00:52And so the question is when are the fundamentals going to catch up. And so I think you know the
00:57minute a negative headline even if it's a small one comes to the into the equation.
01:03When investor expectations are so high and valuations are starting to get stretched it just doesn't leave a lot of
01:08headroom.
01:09So this feels natural and healthy to get a little bit of a reset here after just an extraordinary run.
01:15Is it all just momentum Amanda because let's take Micron which is going to be reporting earnings on Wednesday.
01:22It's seen stunning earnings growth expectations. I think since April 1st the statistic is like 11 percent upgrades from the
01:29sell side which more than doubles what the S&P expectations are.
01:33Isn't there some fundamental story to just how earnings are really solid among these chip makers.
01:39Oh absolutely. Q1 earnings season was just absolutely tremendous in terms of shooting the lights out relative to expectations.
01:47So there is a ton of fundamental strength there. But I think because investors have this anxiety around what the
01:54path forward holds what the right forward PE is what the winners and losers may be.
01:59I think everything's kind of selling off here. It's investors aren't as discerning maybe yet as they should be as
02:06it relates to the leaders and the laggards.
02:09And I think that's just what's happening here in the short run.
02:10This is all about bottlenecks and we talk about energy usage. Right. We talk about memory chips. These have been
02:20incredible investments from Micron to Oklo.
02:24What what's the next bottleneck or do you spend time Amanda actually thinking about looking for the next bottleneck here.
02:29Well you know I don't know that I want to call out the specific bottlenecks and the the investment opportunities
02:36that we see right ahead of us here.
02:38But you're absolutely right to say that demand has far and away exceeded supply.
02:43And you know these suppliers are just trying to catch up. And so pricing has been through the roof. Right.
02:49Because things have been so constrained. I still think demand is certainly as a function of what we heard out
02:54of Q1 earnings season.
02:55And demand just continues to skyrocket here. I think the challenge from here is pricing. How to stay competitive in
03:04the AI innovation cycle.
03:06Just the bar keeps getting set higher and higher. And so I think it's less about what the bottleneck is
03:12in terms of the next handoff in terms of this innovation cycle
03:15and just the cost or the expense that investors are willing to accept at the still early to kind of
03:21middle innings of the cycle.
03:23Also along the lines of cost is the cost of AI. It's something Matt and I have been talking about
03:28nonstop because it is such an important narrative that's been forming.
03:31I mentioned this to Mandeep earlier. This Torsten Slott from Apollo Note laying out three macro risks.
03:37And one of those macro risks is around AI and token costs that you get companies who push back and
03:43say we're not willing to spend as much as we currently are.
03:47That they move to open source models. That they just limit the amount that employees can spend.
03:52Amanda, is there a situation that we could see demand meaningfully pull back because company business models gets challenged just
03:59because of how expensive it is to run some of this stuff?
04:02I think there's going to be winners and losers as it relates to who uses tokens, what the right business
04:08model is.
04:09Is it open source? Is it one enterprise wide license and you can use it as much or as little
04:14as you want?
04:15So so I absolutely think that there are going to be winners and losers.
04:18I don't think that the revenue streams have really been clearly defined at this point.
04:23Neither of the use cases. This is a lot of the disruption that happens in the early to middle innings
04:28of an innovation cycle.
04:29So I'm not at all surprised to see the noise around this.
04:33I find it very hard to believe that demand is going to dry up here in this environment.
04:37This is a race. Everybody's trying to figure out how to win the race and everybody feels perpetually behind.
04:42So I don't see the demand story slowing.
04:44I just think it's more about what the business model is that ultimately takes the lead.
04:50Yeah. I mean, this is this is the discussion that Masayoshi Son is having.
04:56I mean, not with Elon Musk directly, but that we're reading about in the press today.
05:02Right. A son says the race is going to be won with compute here on Earth because it will be
05:07won in the first couple of years of this AI revolution.
05:11Whereas he says Musk is betting on, you know, technology a decade or two ahead where we're going to have
05:18compute in space, which currently would be far too costly to even really conceive of.
05:22Although Elon Musk can conceive of almost anything. How do you think that plays out?
05:27Well, it's a great question. I wish I had an answer. It's sort of like the billion dollar question.
05:32I think both win, which probably feels like a cop out.
05:35And I don't mean it to be, but I think there are winners in the short run.
05:39And then I think those who can really think creatively about the long run trajectory of growth, AI innovation, adoption,
05:47et cetera, I think they win in the long term, too.
05:50It's just I think investors have a hard time getting really creative in the short run.
05:55And investors are also really impatient. Right. We focus. I'll include myself. We focus on quarter by quarter results.
06:02What about 10 years from now? It's just it's really hard to envision what that looks like based on where
06:08we are today.
06:08But I think both can win. You just have to be in the game to win.
06:13To take you even even more short term, just SpaceX today, we're looking at the price.
06:17It's up one point seven percent. At one point it was up two point eight percent.
06:20At one point at the open, it was down nearly five percent.
06:23And trading has only happened for an hour and a half.
06:26Amanda, what does it mean to have this new IPO with so much hype and so much retail money behind
06:31it and worth two trillion dollars?
06:33Just to be seeing the type of volatility that we are in these early days.
06:37I'm not at all surprised to see the volatility. This is a joke, so no one should freak out.
06:43But I always say IPO means it's probably overpriced.
06:47And I think, you know, we haven't seen I'm giggling just because it's a fun thing to talk about.
06:52There's not a sell on SpaceX, for goodness sakes. But I think investors are struggling with this one, given the
06:59three very different businesses under this sort of conglomerate umbrella.
07:03And what's really going to be the needle mover going forward?
07:06And so this is exactly why I said I think investors struggle with creativity and sort of seeing the future.
07:12It isn't that we don't want this type of activity to occur. I think we've had a real drought in
07:19terms of capital markets activity.
07:20I think it's a great signal for the health of capital markets coming flooding back in.
07:25So we'll expect to see more IPOs going forward. But I'm not at all surprised to see the volatility.
07:30This is kind of like what exactly what we would expect to see, particularly with an IPO of this size.
07:36That's why the Nasdaq has moved to put SpaceX in the index within 15 days, because they want that kind
07:43of volatility in a massive trillion dollar stock on the Nasdaq 100.
07:47What likelihood is there? And I know you said it's a joke that SpaceX, OpenAI, Anthropic, that these IPOs mark
07:57a top here.
07:58Are we going to look back in five or 10 years and say, of course, that was the top?
08:03Well, it's always a great question. It's always a question that investors are focused on.
08:08As soon as you start seeing a glut of IPOs, is that the peak? Is everybody cashing out?
08:12I don't view it that way at all. I think, again, if we had been on a tear from capital
08:18markets activity over the last, let's call it three years,
08:21I might be feeling differently about it. But I think there's just such a frenzy because we haven't had this
08:26kind of activity in so long
08:28that that's just really bidding up the prices and the activity in this environment.
08:32I don't view it as a peak. We're still very much in the early to middle innings camp of all
08:37things AI.
08:38I think it's just sort of the next stage in the maturation of the cycle.
08:42But I do worry a little bit about the underlying cost, right?
08:46The return on invested capital is going to look a lot different with debt issuance, equity issuance, et cetera, relative
08:53to free cash flow funded projects here.
08:57So I think it is definitely changing the nature of the next phase of the cycle.
09:01Amanda, we're going to have to leave it there. Thank you so much for joining us.
09:04That's PNC Asset Management Chief Investment Officer Amanda Agati.
09:08Let's get a check on your equity market about 40 minutes into your trading day.
09:12And it continues to be pain in tech stocks and chip stocks that are leading this market lower with the
09:17Nasdaq underperforming down two and a third of one percent.
09:20The S&P down less than one percent.
09:23SpaceX now gaining because why not?
09:26It was down as much as I think four percent at the open.
09:29So it's been really volatile.
09:31But it goes back above two trillion dollars.
09:33So congratulations SpaceX for not going under there.
09:36And Brent crude that continues to fall down one and a half percent.
09:39All right. Let's take a look.
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