Featuring:
Dan Ives, Managing Director and Senior Equity Analyst at Wedbush Securities
Vonnie Quinn, Bloomberg Television Correspondent
Luke Stone, Portfolio Manager at Winthrop Capital Management
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This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the Apec region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.
Joining us now is Dan Ives, Managing Directors, Senior equity analyst at Webbush Securities. Dan. So, apparently AI is now out of favor, especially in that big spending for instance by the hyperscalers. It's gone from a distinct positive to now a negative. Is that right?
Yeah?
I look, I mean if you look at numbers from Alphabet and I think what we're gonna see from Microsoft, Amazon and others. The cap back spending is off the charts, and that's bullish for AI revolution and tech. In terms of the selloff today, we view it as a blip. You know, there was as bad as it feels today, this is not stop in the big tech rally. This continues to be our theme that we've seen last year.
And a half.
You mentioned Alphabet, I mean was during the call with analysts that Sendar Pascai, the CEO, was telling investors, Hey, you're going to have to be patient to see concrete results from the investments the company has been making in artificial intelligence. What's the timeline there? What is he really getting at? How long before investors really see the bang for the buck.
Look, I think when you have names like Nvidia and Microsoft, you see them more immediately because of where they play of course in chips as well as in the cloud for Alphabet obviously, for on the Google unit, we're talking six nine to twelve months to where it's really going to pay off. But when you look at the story like Google is the center right now, a transformation story. I mean they have EACHAI mojo and I think that could had thirty four hours per share to the story. So my whole you know, sort of walking investors through it today. You don't sell on news like this. You kind of use as opportunities form for the winners in this AI revolution, and I think Google is front and center is born.
It's been a good policy over the last eight months to buy Nvidia after it drops about ten percent. It's done that a number of times during that period. Now it's down, by my accounting, nineteen percent if you take it from an intra day high of one forty down to today it closed at one hundred and fourteen. And also, you know in Nvidia is not like the hyperscalers. It's making money on its business right now.
Well, I mean the godfather of AI's Jensen an Vidion, because they're really the only game in town. We think demand is essentially almost sold out through twenty twenty five. So that's one where we're gonna.
See these selloffs and they feel nasty, but the reality is that we think tech stocks are up another fifteen to twenty percent as we go into the rest.
Of the year.
So our whole playbook has been you own the winners in these selloffs. And that's why the Bears they come out of hibernation mood in days like today even though they've missed the tech rally that this is essentially is doubled over the last year.
Can we really highlight the level of concentration risk though that there is in this market. There is are so few names that we're describing here that are part of this theme, and I think that history would say that could at some point present a real problem. We're talking about a three and a half percent pullback in the NaSTA today. Okay, big deal, But longer term, if there is this slightest hint of disappointment beyond what we heard yesterday from Alphabet, could there be further erosion here?
Look I mean to.
Me, when you look to what's happening in tech, I act to think it's about the second, third, fourth derivative. You look at IBM, you look at Dell, you look at a Oracle. Look what happens on Semis, Tartskhnix and others. This AI revolution, we believe it's nine pm the AI party that goes to four am. I'm not gonna say what We're gonna have ebbs and flus and scares. But the reality is that all that CAPAC spending that's bullish for tech.
Dan. We had a guest on the program not too long ago who said, the absolute number one company here to play AI with is Apple. That Apple has shown over the of its history that it's it's the smartest company out there in how to make things friendly to consumers. It turned the smartphone from something that Nokia and Erickson did into you know, something everybody had to have.
Do you see it that way?
And are there other companies like Apple that can do that, like perhaps Samsung.
Yeah, look, I think I agree one hundred percent that Apple is the core AI play, especially when you look at Apple intelligence and what's happened with the iPhone sixteen. We think that's how you get to a four trillion dollar evaluation in Apple with an unparalled in stallbyes. The reality is that consumers when they go through AI, they're going to go through the Coupertino and essentially an Apple device that's a twenty five percent of the world's going to access AI. You talk about other names that benefit here, I think there's names like an Oracle service. Now I look at names like Talenteer that's really a pure play name in terms of use cases. So there's a lot of you talk about narrow. It is narrow now, but over the next one to two years it's going to be a lot broader.
So it's nine pm, the party's going to four in the morning. Do we need to talk about regulatory risk? Is there at some point to move on the part of government officials to get involved in how artificial intelligence is regulated? Is that a concern that you have.
I mean that's at four thirty five am, when you're at the diner after, when you're at when you're at the diner after the party.
So the point is.
That, yeah, regular toy will be there, but for now it's not. I mean it's self regulation. We spent a lot of time in the Belwy. Regulatory is going thirty miles an hour in a minivan.
The right lane.
The technology is in a Bugatti going one hundred miles an hour in the left lane. So I don't think regular toy is going to be an issue. And I think regardless with presidential can wins, I also think we're gonna see less regulatory and which ultimately I think is bullish or big tech.
Well let's get a broader question answered here from you, Dan. Do we need to worry about a slow down in the economy as kind of spoiling the party or no?
I mean I think right now, unless you have a telescroup or binocurate, you don't see a recession, right So I think we're in this Goldilocks soft landing. I'm not saying it's a Rosen Champagne.
There's clearly choppiness, but if you look at.
Overall tech earnings. It's bullish. Who could overall bank broader to I mean, eighty five percent are hit or at being earnings, So I think that will be in the background. But it's not going to stop this AI freight train, especially when I've used kind of a Goldilocks backdrop and the FED they're gonna be cutting, They're not hiking.
So I was laughing at the time, but I just want to know. Was it a Lamborghini in the fast lane or a Ferrari? What was it? I I can picture you in that with your flashy colors too. You wearing flashy colors right at the moment.
I am wearing flashy colors at the moment.
All right, Dan, Thank you. Dan. I was managing director senior equity analyst at Wedbush Securities. Let's get to Vonnie Quinn Bloomberg Television on air correspond We wanted to talk a little bit more about Joe Biden's address. Well, as Ed reported their Vanni, the speech was really dominated by comments about his legacy. He did talk about passing the torch to a new generation, getting some new voices in that he would perform his duties to the best of his abilities, and he would support Kamala Harris. What sort of reaction are we hearing from the marketplace.
Well, it was a speech that was heavy on the defensive democracy as well, Brian, and I think that will become a scene throughout the rest of the election fight. You heard Kamala Harris talking about it there in excerpt from her rally speech. As for reaction, I think it was a little bit anticipated, you know that we would hear from Biden that he would focus a little bit on his legacy. But I think it was a little bit of a surprise that there was no mention of his stepping out being due to health concerns, but rather as ready to pass the baton to United America. When you think about it, that was actually quite clever on the part of the Democrats, right because it took the focus of this complaint that's been levied at Harris that she allowed Biden to stay on as president when perhaps he was ailing or wasn't quite up to it as he had been in previous years. It takes that out of the equation. He didn't say he was stepping out due to health concerns. It also takes away some of the other complaints levied at Harris, and it puts back into the agenda the fact that he's passing the baton to a younger generation. He said, sight of the best way forward is to pass the torch, best way to unite our nation. So he gave some talking points and he gave some reasons for perhaps the term campaign to get a little more vociferous on some of their complaints.
It's interesting because we know the president is still recovering from a COVID infection. But when you look at the performance, or you kind of heard it tonight, you can it kind of underscores the decision to step away from the campaign, and it seemed very low energy. Is that a fair statement, do you think, Vannie?
Well, I don't opine on the president's house because you know, after all, he is only just out of COVID quarantine and it is still a question mark as to what exactly is going on healthwise with the president. But he did really underscore that he intends to serve out the rest of his term, which is another six months, and he put a lot on the agenda. He said that he wanted to stop putting from taking over Ukraine, keep NATO strong. He talked about China, He talked about any of the war in Gaza, bringing all the hostages home. Now, we all know there's not that much that can be done in six months in general, let alone in a lane duck session which also has an election involved. But there was a lot of ambitions still there, and he did mention his achievements, you know, the American Rescue Plan, he passed a clean energy law. Also, he funded some infrastructure and sending the doctor manufacturing, and he made sure to point all of those achievements out.
Doug, does it feel like maybe he steps back a little bit here during this next six month period and maybe Kamala Harris takes a little bit more of the sort of front line positioning.
I didn't get that impression, Brian.
He didn't say that.
In fact, he said the opposite. He also said that he was going to be on the campaign trail with her, and you know we heard from him when she spoke to her campaign staffers that he was going to be quote fully engaged. We also know that he is a full agenda again tomorrow back in the White House today, and he had his Reach to the Nation tonight and then on Thursday, he's going to be a meeting with the Israeli Prime Minister Benjamin Nett and Yahoo. That's going to be a very important meeting, you know, even though he may not be president in twenty twenty five, that's for sure. Netanya who will want to pass on some messages to Kamala Harris, who has been a little bit stronger on the rhetoric when it comes to Israel. And it's a conduct in Gaza in its war on hamas you know. So there is a full agenda, and he does intend to go out there and keep fundraising as well for Harris.
Yeah, and the President did say that he intends to keep working to end the war in Gaza. That meeting that you kind of allude to, do, we know what time that's going to happen tomorrow, Biden's meeting with Benjaminette Yahoo.
I believe it was originally scheduled for about one thirty pm Washington time. So we'll see if that stays on the agenda at that time. We know that as well. Harris is going to meet with Netanya who separately, and he's going to meet with Donald Trump Friday. I mean, it's a precarious situation for Netan Yaho in some ways, right, because if there is a change of leader, he's going to want to make sure that the next leader is on his side. And we also know that both Kamala Harris and Donald Trump have you know, bone to pick with Natanya who Trump very very Hurtnia Who's decision to congratulate Biden when he won the twenty twenty election. And you know he has never Lettnia who forget that. You know it was under Trump that the embassy moved to Jerusalem, for example, which is something that Neia who had looked for for a long time. And Trump is going to want something from Netnia who in order to secure the ally ship.
Again, I'm just curious whether you were surprised, and maybe the Republicans themselves were surprised. The President didn't really talk too much about Donald Trump and the Republicans other than again highlighting the comment that you know, he's making this move because he wants he wants to preserve democracy.
I think it was tacitly there, Brian, if something can be tacitly there in a speech, he did, you know, underscore America's choice in the selection. And I'll give you one quote, and I'm not suggesting that Donald Trump should be in your head when you know, we we listened to this. But he did say the great thing about America is here kings and dictators do not rule the people who the power is in your hands. So I think in the background he was telling people, look, you now have a chance to reset America. He talked about America being an idea, you know, the most powerful idea in the history of the world. And I think he was begging people to perhaps make a choice based on real analysis and this election.
Yeah, excellent, Vonnie, you're on fire this morning. Thanks so much for joining us. We've got to get you back on this program more often. Annie Quinn Bloomberg TV US on air correspondent.
I want to bring in Luke Stone, now portfolio manager at Winthrop Capital Management. Luke, let's talk about the price action today, kind of a meltdown in some of these artificial intelligence names. Was this long overdue?
Yeah?
I think, first off, thank you very much for having me. I think really the word of the day today was rotation. I think you heard that pretty much throughout every financial media outlet across the board. Obviously a lot of market activity focused around the mega megacap tech names focused around the Magnificent seven and kind of put more of a focus on the remaining four ninety three of the S and P five hundred. There So, when you look at specifically the AI manufacturing sleeve of the S and P five hundred, I mean they took a huge hit. And I think it's really the market's way of saying, hey, it's great that you have these earnings projections, but you actually have to hit them. So again, the name of the day was rotation. I think we saw people start to take profits and prices just fall precipitously.
One of the questions I put to guests yesterday was are we entering into a period here where spending on AI might go from a positive to a negative unless you can really show a good return on investment. And it feels to me like the market really rammed home that point today.
Yeah, I think that's completely valid, and I think there's parallels when you look at some of you know, very CAPEX heavy business lines in the past. You know, the first thing that comes to mind is is meta with their soare into the metaverse about a year and a half ago, posting huge capital expenditure numbers, and the market really reacted negatively, So yes, I do think that huge capex into AI could pose a negative threat with some of these big names.
It's kind of interesting because then you get the news from IBM after the bell and the company reported a big jump in bookings for its artificial intelligence business. Do we have to treat this more case by case than kind of broad theme of let's say, artificial intelligence when we're trying to track the trajectory of where this technology may take us.
I think that's a valid point. You know, you look at the largest names in AI, specifically in the chip space, you think you're in the video, is your TSMCS, so on and so forth. I mean, they had the real precipitous gains through the start of the year, while some of the domestic manufacturers, you know, it's some what I would call legacy manufacturers like your IBMS.
Really lagged a little bit.
So I think you're seeing some catch up that's taking place with the names like IBM and starting to not close the gap, but gain some of the benefits of their chip manufacturing.
So better bread than the market would be a great thing, I think, And you know, but we had a lot of factors really contributing today. It was not only that, it's not only what we talked about with the overcrowded, overbought AI megacap tech sector, but also seasonality of valuations. A big part of it. And what I want to ask you about now is the beginnings of a growth scare creeping in. You had those Dudley con Man, so we had some other key economists saying the FED has got to get movie here soon. This has changed pretty quickly. But do you buy the growth scare? Personally? I don't that much.
Yeah, you know, it's really hard to cast a straight and narrow thought process behind it. I think we do start to see a macroeconomic environment that is starting to show some cracks. I think you specifically see it within the labor market. You're seeing unemployment start to tick upward and job growth is occurring in some of the lower skill and part time jobs. That's leading to some potential issues. I don't necessarily think that we're going to fall off of a cliff per se, and I think that's some of the concerns when you see market participants begging for a rate cut. I think market expectations right now PEG the first rate cut to take place in September. So I don't necessarily see us falling off of a cliff, but I think we're starting to see an economic market that's showing cracks.
And one of the reasons perhaps that we saw that big drop and yield at the shorter end of the curve. I think the two year was down six basis points in New York, were down another one plus basis point in the Tokyo session. Here is it still your expectations that the Fed does two twenty five basis point rate cuts and nothing more this year.
So we've seen that the market's really pegging that activity kind of at two cuts by the end of the year and then a coin flip in the December meeting. I think if we had to make a bet, it would be on the under side there. I just don't see unemployment ticking drastically upward for us to justify seventy five basis points. So I think, yes, I think a fifty basis point rise is kind of a fair yeah cut. Rather, I think that's probably more of a fair assessment of the market.
If we do see some cracks in growth, do you think that will manifest pretty heavily in some areas of real estate and even commercial real estate.
Yeah, and I think we've started to see some of the cracks take place within commercial real estate. Yesterday we had the Blackstone Mortgage Trust. They're huge public reate, it's a global public reate, had some significant charge off issues, taking specific reserves on specific properties, and announced a dividend cut, which the dividend cut was nearly a cut of thirty three percent, which led to the read itself falling ten percent. So I do see some potential cracks that can take place within the commercial real estate market. Now that said, there are pockets where there are value. I think every time I've come on here, we've talked data centers. They continue to post strength, but we start to see AI maybe taking a slower track.
Who knows what can happen there.
We just heard from President Biden at the top of the hour. Obviously the elephant in the room is the election. Today former Treasury Secretary Larry Summers was saying Republicans are setting the US up for what he termed a Liz Trust moment, that basically being that policies of the GOP is supporting would widen physical deficits and then weaken the dollar. At the same time, I'm curious about what you're hearing from clients in regard to the election and where some of the divergences in terms of economic policy, tax cuts, potential tariffs. I mean, is this of concern to your clients?
Yeah, I think that, you know, I think that there's a portion of the client base that still essentially idolizes the Republican viewpoint of you know, lower tax rates and that that will bring you know, predomin of growth. But there is starting to be a creeping voice within the client base that that is a little concerned with what can happen come the election November. Now, you know, I think that what we've seen take place in the macro scene right now is limited. There's less to do with you know, who has the keys to the car right now, and more of just a natural progression through you know, COVID policy and the associated inflationary pressures that came from it.
So is there concern come November? Sure, but I think.
That this is more of just the market working its way through, working its way through.
So our show is all about Asia. Let me see if I can skillfully find a segue from the politics of the election into Asia. Goldb and Sachs said yesterday something kind of interesting that China is saving its firepower for the economy, waiting for the possibility of President Trump winning that it will need that extra muscle. I don't know if you've been thinking much about China and what's happening there, But what do you make of those comments?
Yeah, I think that there's been that narrative that that's come through about China. I know China's had a convert concerted effort to start to take a lot of American centric industries and really move them into mainland China and almost make a you know, American imports a thing of the past. So while I can understand why we would, you know, we would expect China to muscle up a little bit given the past trade war and some issues there, I think that's that's probably a bit far, you know. I think any any leaders is going to try to bolster's economy as strong as you can at any time, not just if you know, an opponent from a nother nation.
So with some election, sorry Luke at tough sledding today, I don't know whether you're expecting more in the near term. I'm curious about how much dry powder you're sitting on right now, your cash position right now, and whether the house call it went from capital is that maybe we get a little bit more selling and that there will be opportunities to maybe pick up some of the names that you like, but now is not the time. Is that a fair statement?
Yeah, I think that's completely fair.
We continue to sit on probably anywhere from three to eight percent of cash in some of our course strategies, and that's exactly the point, is just for us to keep a little bit of dry powder and just for us to.
Deploy once we see a significant pullback.
So three percent on Nasdaq A, it's a pretty big pullback, but I think we would wait till we see a larger pullback.
Yeah, And it's kind of interesting is happening all at once. Maybe that's better than if it was this long, gradual slide to the downside. We've got Nvidia on August twenty eighth. Do they knock it out of the park? Give you twenty seconds.
I think that I think they'll probably fall in line.
I think that there's just so many headwinds right now from you know, just from a growth trajectory standpoint, there's it's going to be hard for them to hit the goals that they've currently set.
All right, Luke, thanks very much for joining us. Appreciate it. Luke Stone, portfolio manager at Winthrop Capital Management.
This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app