00:00I think the interesting thing right now is that the market is trying to price two different trades
00:04at the same time, in our view. One, we're kind of in the middle of this AI financing and
00:10infrastructure build-out, where a lot of the money, so far trillions of dollars, have been
00:15put to work in terms of building out the infrastructure that's needed, whether that's
00:19the data centers, whether that's the power that's needed, or whether that's the chips that are
00:23needed because we're still in a compute-constrained economy. We're kind of mid-innings there.
00:26The second trade that the market is trying to price is what ultimately is going to be
00:31the impact of integrating artificial intelligence and the technology and the improvements that
00:36we see there into companies and sectors that are outside of technology. And that, we're
00:42still early innings. So, in our view, we're in a digestion period right now on the AI front.
00:48We're going to expect to see, at least over the near-term, volatility. But the biggest thing
00:53for us is, over the long run, we're still constructive on it. We would actually start
00:56to lean more into some of the integration and the application layer of artificial intelligence.
01:01We don't think that the spending in that area is going to go down. We think that the neutral
01:06rate for the economy is different than what the neutral rate and the restrictive rate is
01:10for these hyperscalers. And the amount of CapEx that's going to come, that's probably
01:14a little bit higher. I think a lot of the CapEx that we're seeing right now, it's going to
01:19take significantly higher rates to stop that type of investment. But where that investment
01:25and spending is going to go might start to shift. I think we started to see a lot of
01:29investment on the CapEx side, on the frontier model side. But what people are forgetting,
01:34similar to what we've seen in prior tech cycles like cloud or even the mobile build-out, is that
01:39it's not just the individual model that's probably going to end up winning out. It's a system that
01:44is going to be built around that. So the security, like cybersecurity and trying to ensure that
01:49like data security and proprietary data sets are built around these models, that's probably
01:53where the moat is going to be in the future. So that CapEx spend, where there's a current
01:57higher rates and can continue, at what point does that end? And are you seeing that shift?
02:03You think in the intermediary, we're seeing a slight shift in terms of the CapEx, where we see
02:09yields of 5%. That is leading to slightly different allocations around the CapEx story. That's
02:13happening now. What level of rates, so where is that happening and what level of rates derails
02:18the story completely for CapEx? I think that if we ended up starting this, like right now,
02:23even if you're starting to see financing either in the public market or in the private market side,
02:27there are like some data centers and some financing activity that's happening at 8% rates, 9% rates,
02:3210% rates, and they're still being issued. That debt is still being issued. Spreads we've already
02:37started to see widen out in some of the hyperscaler CapEx and the hyperscaler issuance that we've
02:42seen on the investment grade side. I still think that we have room to go. I think the separate
02:46question that is also interesting is what volatility in the long end of the curve or what volatility in
02:52rates is ultimately going to mean from an investor perspective outside of artificial intelligence and
02:57how you build portfolios for this next cycle. And that, I think, is a fundamental shift because
03:03especially if you're starting to see volatility in the longer end of the curve, the core fixed income
03:09allocations within people's clients' portfolios and our clients' portfolios. Obviously, there's a role
03:14for core fixed income. We all know that in terms of hedging against economic growth risks. But the
03:21biggest risk that we have on the table right now outside of the amount of issuance that's coming from
03:25AI is related to inflation. And core fixed income is not going to protect you against that. That's where
03:31real assets, infrastructure, transport, those types of assets are going to come into play.
03:35And it's been an area, despite the amount of hype around AI build out that investors are still under allocated
03:43to.
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