00:00Over the past few days, the market has gone from rewarding AI spending to kind of punishing those big spending
00:08initiatives in those big names across hyperscalers and others as well.
00:14Are we seeing a valuation reset, do you think, or is this a start of something fundamentally different?
00:21I think what's going on is you're seeing the stocks basically reacting to the potential for interest rate increases because,
00:32you know, these are highly valued stocks.
00:33They've already run a long way. And so consequently, they're much, much more volatile than the average in the market.
00:39So when you see fluctuations in interest rate expectations, they're going to react more.
00:45Also, you know, there's also I think there's also a case to be made.
00:48There is a debate beginning to emerge in the industry about what is the real demand for AI infrastructure, which,
00:56again, as one side of the debate wins or one side of the debate loses, you tend to see these
01:02wild swings.
01:03We're seeing a very good correction today.
01:05And I think, again, as Mr. Dobson pointed out, I think it's, you know, it's about the interest rate expectations
01:13on highly volatile stocks more than any change in fundamentals that we've seen so far.
01:19But recently, we've seen a sell-off in hyperscalers, semiconductor stock software.
01:24Previously in the year, you'd see one segment losing while other wins.
01:29Where do you think the market is pricing in or where is the market making the biggest mistake in this
01:33sell-off, do you think?
01:38Well, I think the mistake the market is making at the moment is to be worried about demand for AI
01:46compute.
01:48It is possible to interpret things like Meta's news about selling some of its capacity into the market as negative
01:56for demand.
01:56But then on the flip side of it is if you look at the report that Micron put up, I
02:01think last week or the week before, if you look at the price that XAI is able to command for
02:07the compute that it has sold to both Anthropic and Google,
02:11these are not the actions or not the events that you would see where there is a market with excess
02:16supply.
02:17It's the actions in a market where there is extreme shortage of compute.
02:23And so from that side, I think at the moment, demand for compute, certainly for 2026, is going to be
02:30incredibly robust.
02:33But then when it comes to those timelines, do you think there is a discrepancy between when the AI infrastructure
02:41versus AI profits will be delivered?
02:43Is that something that you think investors are starting to look at now and think maybe we're not going to
02:48see the same timelines we had expected earlier in the year?
02:54They're certainly looking at it.
02:56And so, you know, if you look at it from the point of view, this is why the semiconductor stocks
02:59have been so strong is because you've seen the money move to the place where money is being made now,
03:06which is in the supply of capacity or components into the AI build out.
03:14And I think that's one of the reasons why you've seen particularly the MAG7 have struggled a little bit is
03:20because most of these guys are the guys who are spending the money.
03:23So, you know, while everyone else's cash flow on the semiconductor side is going up very strongly, their cash flow
03:29is going down very strongly because they're spending all the money.
03:32And that's why you've seen this sector rotation over the last three months or so.
03:40And so, Richard, looking beyond the volatility we're seeing this week in particular, which part of the AI ecosystem do
03:48you think investors are materially underpricing or overpricing?
03:53Is it the chip makers? Is it the hyperscalers, the MAG7 you were talking about?
03:57Or is it the application layer or is it something completely different?
04:02Right. That is a very good question.
04:05And the answer is, I don't think any particular one sector is reflecting it more than any of the others.
04:12If you were going to call out one sector that is underpriced, it would have to be the software sector.
04:20The general view of the market is the software sector selling to the enterprise is dead because everyone's going to
04:25run AI and will no longer need to buy software.
04:28That's the view of the market and the software sector is halved as a result of it.
04:33I think that's taking it too far.
04:35There are particular stocks within the software sector that I think will benefit from AI and then consequently they're currently
04:41on sale at a great bargain.
04:43So if I was going to look for a sector that has unduly suffered because of the AI trade, that's
04:48where I would start.
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