00:00 Speaker A
So those are some reasons we move higher. It’s always good time to take a a deep breath and think about, okay, as investors, what are the risks I need to think about? On your wall of risks, what would those be, Scott? What would be the the concerns you would flag?
00:14 Scott
Well, look, I mean the they’re the one you always have to flag, uh, with with with the current administration is just like some large scale policy change that we just didn’t see coming. Um, you know, like you know, Trump has obviously been sort of doing some meddling types of things on a micro level, I mean, you know, in terms of like the AMD and and the 15% tax the, you know, like, you know, telling telling the fire their CEO, you know, making making fun of, you know, Solomon at Goldman, like, all you know, these things are sort of like nuisances, like they’re they’re but they’re on the micro level and they don’t kind of rise to the scale of being like important for the entire economy or important sort of on on the macro level. That’s always on the that that cards in the deck though, like like we know that. And so it’s that that would be my chief risk and it’s unfortunately not one that you can sort of forecast, you just sort of got to read and react. But that’s that’s that’s always like the big sort of boogie man out there.
00:56 Speaker A
What about stagflation?
01:00 Scott
You might get some prints that that that look a little bit scary, but it’s but the end of the day, like it’s still like a pretty strong economy within with a consumer, especially in the middle and the top end that are that’s really strong and it’s going to continue to drive stuff and you don’t, you know, get stagflation with EPS growing 12% year every year. Um, and and and I mean with inflation like again, sort of annoyingly sticky around 3%, but not accelerating higher.
01:20 Speaker A
What about I’ll bring in Al. If I was to ask you, I mean listen, I have green everywhere again, right? We continue this melt up, uh, on Al’s Roots wall of worry, you know, your concerns, what would they be?
01:37 Al
Uh, tariffs, right, and tariffs feeding into that stagflation. You know, the tariffs can, you know, we keep talking about it, it’s going to impact. We just keep kicking the can down the road and China is the 800 pound gorilla in terms of trade and tariffs. We got another 90 day extension, so you know, it is an irritation for industries. We’ve talked about cars a lot, irritation for them. irritation for manufacturers buying steel and aluminum, but for the economy on the whole, it hasn’t really showed up yet. So that goes in the unforeseen policy change category. I would completely agree with that. Um, and then you know, we focus so much on tariffs. I would just worry more, I would focus almost solely on AI and productivity gains and you know how Nvidia’s doing. It sounds almost trite, but just just see how Jensen’s feeling. If he’s still looking good, we’re good. And if not, we got to reconsider.
02:42 Speaker A
I will I will say, Scott, it’s interesting. Al brings up this point. I have heard people make this argument along the lines of what Al’s saying here, which is you know what? Follow big tech. And if they seem solid and healthy and resilient, you stay long the market. I mean, is that too simplistic?
03:06 Scott
Not really. I mean it’s not too I think that’s about right because you know, I mean think about what these guys are doing right now. They are they’re doing like stimulus level, like economy stimulus level capex. Right. And not getting punished for it. You know, usually if you do a kind of like stimulus level capex, the market is going to absolutely punish you because of all the things that you you know, that usually come about of that. They’re being rewarded for that right now. This is this is more like when you’re building the internet and and like you had a company in 1997, if you weren’t investing in the internet, you were going to get you’re going to get creamed if you you know, this is that that’s that’s the sort of cycle we’re going through right now where like capex related to AI spending is seen as necessary and important. And that is a massive boost to productivity. It’s a massive boost to the economy. So they so you know, if these guys if the if the big big big tech guys are continue to do capex spending at this kind of scale, it is a huge stimulus boost and it is telling you that like this cycle can continue on. Like these things don’t go forever, but for right now, probably all right.
04:12 Speaker A
What do you make of that, Al? It was interesting. I mean you’ll have Zuckerberg come out and and the numbers he throws out are eye popping, but then you’ll have meta bulls come on this show and they’ll say, listen, I see the ROI, they’ll argue on users and advertisers.
04:31 Al
Yeah, we’ve uh, I mean, we’ve seen this movie before. It’s it’s a cycle of spending, which is fine. And I’m actually relatively I I actually tend to be a bullish, you know, market goes up seven or 10 years. Why are we all worried so much? Uh, I mean we’re talking $300, $400 billion dollars of capex up 30% year-over-year for sort of the big four five AI players. One day we’ll have to monetize that, right? You’re going to have to earn an ROI on that. We’ll worry about that in 27. So I don’t mean to be trite, but uh, it is wild. Like the market, you know, Microsoft, Amazon’s earnings, when they saw the capex numbers big and going up, they’re, we can bid these stocks up again. It’s sort of crazy. Oh, take my free cash flow. I’m not worried about return yet, just spend it. And this is the part of the cycle we’re in. That’s okay, but that’s the part of the cycle.
05:32 Scott
Yeah, you know, like, you know, know the game you’re playing. Like like this this is the game we’re playing right now. It doesn’t go, you know, doesn’t go on forever, but it’s it’s important to understand the game, like sort of the rules of the game right now. And it is like ever more capex is a good thing.
05:46 Speaker A
Let’s talk, Scott. I want to end here. I want to give some viewers some ideas. There are few different ways they could play the market. Let’s talk about them. One is equal weight tech.
05:56 Scott
Yeah, I mean, look, we’re talking a lot about about the big boys and you certainly need need to have that in in the portfolio. The the but what I think is going to be a more interesting play and probably like as we get into fourth quarter and and early next year is we are going to see some sort of broadening out. I mean it’s like people are going to have to start proving it. Like we’re going to have to start using AI to actually drive productivity gains and you’ll see that in margins. Right? They and you know, you see that margin expansion. So if if we actually see some of these companies start to actually employ AI or kind of kind of use use this stuff in order to actually, you know, generate productivity gains, then I think you’re going to see the AI trade sort of broaden out in a way more meaningful than we’ve seen so far. And I don’t I just don’t know right now how to pick some of those early winners and so you know, more of an equal weight tech sort of exposure will just get it probably get it that that sort of broadening out theme a little, you know, a little more efficiently without having to do some of the guesswork involved with like picking individual names for for that sort of broadening out of AI.
06:44 Speaker A
Scott, great to see you. Special on set. Thank you, sir.
06:48 Scott
My pleasure.
