E (4:41)

Shan, you know I mentioned the Pascarello note, talking about the year ahead could be more tricky, that gains could be more front loaded. Yes, the bull market continues likely as he suggests. With that said, though, quote, given what's in the price and relative to what stock operators enjoyed in recent years, I suspect the yards will be a bit harder and the upside convexity of the market will be more limited. What do you make of that comment? Yes, We've had three great years but you know, to some stocks are richly priced and it's going to be harder to grind it out.

B (5:14)

Well, and I think if you're looking just at The S&P 500, Scott, I can, I can understand that rationale. There's some valuations concerns in parts of the tech sector and we've obviously seen the underperformance of software versus semiconductors and that is probably going to continue at least for the foreseeable future with air pressure. But the reality is is that I think that when investors look at how The S&P 500 this year is going to perform, looking underneath the S&P 500 at different sectors, I think you could actually see continued outperformance. And so if you look at 2025, for instance, there are only three sectors that actually outperform the S&P 500. We would anticipate that those three sectors are not only going to be different but could potentially broaden in 2026. And so if you're looking at a dynamic where you're seeing stronger earnings growth up and down the cap spectrum, small cap, mid cap, large cap, not necessarily anchoring yourself to the market performance, being the S&P 500, looking for earnings growth in those other sectors and probably most importantly being able to leverage a capex in other parts of the economy, that's really what's going to drive additional productivity enhancement and growth and where you can probably look for earnings growth, not just third, fourth quarter of this year, but Scott, into 2027.

E (6:26)

I feel like, Brian, you also think that it could be a little more difficult this year. You say the path is likely to get much bumpier. You're looking for gains obviously out of the S and P, but 7,300 to 7,500 by year end. What's your view? This is your new outlook, which is out.

G (6:44)

Yeah, we just published it today. And we think this, we're aligned with what Josh was saying in financials. We're very aligned with Shannon. I think think about this. If you go back and look at big bull markets, year three of the bull market is usually the worst in the first five years.

E (7:01)

Okay.

G (7:02)

I think we're probably going to have the year three of the bull market and year four. High single digit, low double digit returns for the S&P 500, low double digit returns for Canada. Here's why you've had some of the fundamental issues with respect to tech. We neutralize tech in our holdings. By the way, we're going to be overweight communication services, financials and utilities.

E (7:22)

Why?

G (7:23)

I think because you can afford yourself higher amounts of tracking error with respect to those three sectors. In particular in terms of the longer term secular earnings growth mode. Our theme of scale and financials is still very much in place. As you've joked with me for years. Financials, financials, financials. We believe those assets are still actually under owned by a lot of institutions. And then lastly, we believe that we're going to see a rotation into three equity disciplines this year. Value dividend growth and small mid cap. Small mid cap to us from a fundamental perspective looks amazing with respect to free cash flow. And we think we're going to see a tremendous amount of M and A activity in the small mid cap space.

E (8:03)

Do you? Look, I'm not going to say your, your outlook for the market is. I don't even know if I'd use the word cautious. I mean it's, it's not a bad outlook, but relative to, to what we've done the past correct few years, it looks sanguine. Okay, it's sanguine now if you would say, okay, the, the 24 and 23% gains that we got out of the s and P2 of the last three years you had a lot of multiple expansion and now you finally have earnings growth. Yep. Can I make the leap and say that you don't think that there's going to be enough earnings growth to justify a bigger move in the market? Because it's not going to come from multiple expansion now because the stock market is already at 22 times and how much more can you get a multiple to expand?

G (8:49)

It's a great take. So if you go back and look in and do an historical study of bull markets, when the bull market transitions into more of an earnings driven market, which we're having, we believe in 2026, the returns historically are much less and in fact could be half as much when the market is expanding with respect to momentum in terms of a valuation driven market, that's the kind of market that we think we're going into in 2026, an earnings driven market. And oh, by the way, that's still positive. Positive, still positive. Just because the market isn't going to be up, we believe as much as last year. I hope we're wrong. I hope the market just continues to go up at the same pace. I really do. But for all intents and purposes, we think earnings driven markets, based on our research and based on where we want to be positioned in the US Market, we think will have Those high single digit, low double digit returns when you.

E (9:36)

Have a pretty good backdrop, people say for continued strong earnings growth and that could carry the market to even greater heights. You heard what everybody has to say. I mean how would you assess it?

H (9:51)

I think that's accurate. I think the tailwinds of 2025 remain in place for 2026. I think though, given where valuations are, where sentiment is, it's probably more prudent to think about the market from a tactical standpoint. And there are plenty of tactical opportunities here. Early in the year we've highlighted what we've witnessed in the money center banks and the financials. Some areas of the financials that are performing well that were not discussed or some of the trust banks, some of the exchanges like the NASDAQ Interactive brokers, near a 52 week high. Charles Schwab doing well. What we witnessed over the weekend in Venezuela has a positive impact on Fintech, the digital banking company. New holdings ticker symbol and you that's out of Brazil. So there's tactical opportunities. And today look at what's going on the semis people want to talk about technology and say okay, maybe technology isn't the place to be in 2026. That's not what's being represented right now in the semis. So collectively you have all of this going on within the marketplace. On a day when Apple is down, on a day when Tesla is down, when Microsoft's down, you look at the Max 7, really today is only about Amazon and Nvidia, which is kind of pulling back as well. So I think the way to approach is this is from a tactical opportunity standpoint.

E (11:02)

Okay, but that points to a different kind of market. We haven't really been in a tactical market. If you look at what the show has been for the past, not our show, but the show of the market the last few years, it really hasn't been all that tactical. So we have a different makeup perhaps to this market this year.

B (11:20)

I think the dispersion is actually, it's a good sign because it means that you're actually looking at in this very disruptive, innovative environment, you're looking at the fundamentals of the companies. You're looking at whether it's the industries or sub industries or company specific drivers that are likely to put these companies in a position where they are going to be participating in that earnings growth trend for sure. But they may also be able to deliver that multiple expansion based on a perception that they are in a more in a better competitive position.

E (11:45)

So take a look at Nvidia because, you know, as we, as we talk about the AI trade and Joe mentioned in video, the big story yesterday was of course Jensen Huang keynote CES and what he was going to talk about and how the market would react to it. For a stock, frankly, that hasn't done all that much lately. If you back this out, you can get the picture. Last three months, for example, just take a look at what Nvidia has done. Yes, he talked about faster AI chips. Yes, he talked about robotics, which many obviously think of as the next big wave. And this Vera Rubin chip is now in full production, which people like Stacy Raskon at Bernstein top analyst suggests, in his words looks like a monster. The rest of the keynote was more incremental. But that seems to be the big takeaway from Mr. Raskon, Dan Ives, etc. Let's talk to another big shareholder in Nvidia. It's Brad Gerstner. He is the altimeter founder and CEO and he joins us now, his first appearance of 26 with us. And it's great to see you. Thanks for coming on today.

I (12:46)

Great to be here, guys. Happy New Year.

E (12:48)

You as well. So what was your thought about the Jensen Huang keynote, your big takeaway? Is it a needle mover in any way?

I (12:57)

Well, maybe just to comment first, Scott, I think you just ran around the horn on the desk and I think everybody is spot on. This is going to be a stock pickers market. It's not 2023 or 2024 where we were early in the super cycle and we were recovering from the pullback in 2022. You know, and remember last year wasn't straight up into the right either. The Nasdaq was down 20% on Liberation Day in April of last year and ended the year up 20%. And so I think there's a lot to be excited about as you look at this year. But as Venezuela reminded us over the weekend, as the SCOTUS decision on tariffs will probably remind us, there's certainly a lot of things we have to get through this year. But if we just look at the general operating framework and then I'll get to in video, you know, lower taxes, we're in a rate cutting cycle, inflation under control, you know, earnings growth is, is occurring. We've got this AI supercycle, this massive investment supercycle. We have this re industrialization and bringing on, reinsuring our national supply chains. That's also a huge investment super cycle. So the backdrop looks good. And then we have these companies that are all getting more fit, right? They're Leveraging AI. This is tough for the employment picture but it really does lead to this golden age of margin expansion. And I think what you heard from Nvidia yesterday was a lot more of the same. Right. The consensus estimate this year I think is that they're going to grow earnings about 65%, maybe 30% in 2027. You said it's an earnings driven market so they don't need to expand. Multiple, multiple the multiples 25 times earnings. It peaked in July of 24 at 41 times earnings. It troughed last April at 21 times earnings. Now we're at 25 or 26 times. So it's not a demanding multiple. And as a shareholder, Scott, I'm thrilled and happy just to sit here and let an incredible company generate earnings and let our returns come from earnings. We don't need our returns to come from multiple expansion and Nvidia.

E (14:58)

You sound like somebody, if you paint the picture that you just did of the backdrop which you think exists, who's taken their exposure up? I would say I don't know the answer to this. So I'm going to ask you straight up, that's what it sounds like, that you've increased your long exposure to this market. Is that fair?

I (15:15)

That's fair. You know, so let's just walk through, you know, last year. We started last year medium large in terms of our exposure. By April we were tiny in terms of our overall exposure to the market because of our fears about. I came on this program and talked about, you know, the Navarro nuclear option around tariffs. We were back in the March market, extra large in May. We stayed there for most of the year. We pulled back in October because things started getting really frothy. But as the market came in, right as Nvidia went from $210 a share back to $170 a share, we were buying that and so we're back into a medium large position and as we start the year but, but as the desk said, this is a stock pickers market so our biggest bet is in AI infrastructure. Nvidia, tsmc, Hynix, Samsung, Amazon, Microsoft, Core, Weave, Google. We think that we're still very early in the super cycle, people. It's hard to believe, but we're underestimating, right? Think about the total CapEx here, Scott. In 2023 these companies spent $150 billion on CapEx building out data centers. This year, over 500 billion. That's not speculative, that is purchase orders. Those are buildings.

E (16:32)

That's power.

I (16:33)

That's stuff that we know is coming online, chips that we know are going to get deployed and frankly they would buy a lot more if they could, but we just don't have enough powered shell in order for them to deploy more than the, you know, 6 gigawatts in the case of Amazon, that they're going to deploy this year. And so, you know, we think that will continue to play out. It's where the majority of our bet sits today. And we think, you know, we don't, we don't rely on earnings multiple expansion in order to get paid this year. All of these stocks are trading in mid-20s in terms of their multiples in the case of something like Core Weave, which has fallen out of favor, trading at five times ebitda. So, you know, we think there's an opportunity if they just deliver the numbers that we expect them to deliver this year.

E (17:17)

You think that the Core Weave concerns are overdone? Is that, is that what you're saying? Because the market obviously had punished this name with some of the other Neo clouds and there's questions about debt and you know, you had almost a same sentence conversation with, there's the Oracle, which is under some heavy pressure and you see the CDS blowing out and then you've got the Core Weaves that are in that group too. Is that overdone?

I (17:41)

Yeah, I mean, think about the way the market behaves, Scott. It was all in and then all out, right? The babies get thrown out with the bathwater. All Neo Clouds get treated the same. You know, we were investors in Core Weave when it was a private company. We've been investors, you know, as they entered the public market and as it's pulled back here, we've added to our position. We're not adding to other Neo clouds. We don't think other Neo clouds are created equal. We think Core, we've stands alone in terms of its performance, the software that is built on top of the cloud, its execution capability, its strategic importance to Nvidia in terms of deploying Rubin, etc. And so we think it makes a really interesting opportunity. Now let me be clear, that's further out on the risk spectrum. And the core of our bet this year is on things that we think are, you know, less spicy than that. The Nvidia's the tsmc, the Hynix of the world, where, you know, they're absolutely critical to just making sure that the AI build out continues.

E (18:38)

The other name I want to talk to you about because I find it conspicuously absent from your top holdings, which your team sent US and Metta was not on the list, which jumped out immediately to me. And you just mentioned in your commentary about the whole AI trade and how you're viewing it as you have companies getting more fit. Those are the words you just used, which made me immediately think of Meta because of the now famous letter you wrote to them a few years ago now arguing that they needed to get more fit, which they did, which caused a turnaround in the stock and rebuilt your trust, I think is fair to say in that name because it's not on your list. Do you no longer own Meta?

I (19:22)

We don't own Meta today, but let me just share my thoughts. My thoughts. You know, we invested in matter in the fall of 22. I mean, we've been investors all the way back to 2012. We wrote that letter in the fall of 22. It became our largest position. The stock went from $90 a share to over $700 a share. And you know, as we looked at the transition they need to go through, I think Susan Lee has done an extraordinary job of managing the efficiency side of the business. But they're in, you know, they're in a tough transition to take advantage of AI. We know they've, you know, bought scale AI, they brought in Alexander Wang, they've rebooted the AI lab over there. I think there are some real bright spots and some green shoots in terms of what they're building and how, how that's going. But the fact of the matter is they're not market leaders today in AI. They're huge beneficiaries from AI. We think the company is going to continue to do well. We're looking at it. It certainly would be a name that I would be happy to own. But in terms of the bets that we want to make this year, we think the companies that are trading at lower multiples, where we have obvious catalysts in terms of their growth this year is where we want to have our dollars. I don't think this is a year where you just own everything. I think it's a stock pickers market. I agree with the desk that you have to be discerning. And so this is one that we're not in at the moment. But I would reserve judgment. I'm happy to get back in. And I think it's an incredible team. I think they're doing some good things, but they have some catch up work to do in terms of AI, that's for sure.

E (20:47)

All right, so you may still get the holiday card next year. I mean, you know, even though you know, you don't own the stock now. It just reminds me of how quickly things can change and how sentiment around some of these things can become complicated. Alphabet is another one that I want to discuss with you because it is one of your top holdings. And I do recall the conversation that we had on this program where you, like many others, suggested that ChatGPT was going to have a profound impact on this company's market share. It seems a lot of people, maybe yourself included, overestimated that. Is that fair to say? You look in the mirror and say, you know what, maybe we got this one wrong. Because if you look at the Stock, it's up 65% last year, defying so many of the expectations that many had.

I (21:40)

Yeah, I mean, listen, handed to Sundar and the team over there, Denmark, and how they've navigated this transition over the course of the last year. You know, listen, I think we were appropriately critical that they had moved too slow. They had allowed CHAT CBT to gain the consumer advantage. And CHAT CBT today still has upwards of 900 million weekly average users. Its engagement is super high. They're still the market leader. So that criticism remains. But Gemini is on a tear. The model has improved dramatically. The rate of innovation has improved dramatically at Google. And so, you know, listen, one of my heroes in the business, Stan Druckenmiller, right, he's like his. His greatest strength is he forgets the last shot. You have to have mental flexibility in this business. I always said Google was the greatest business in the history of capitalism, but they needed to get their act together when it came to AI. Well, they got their act together at the end of 2020 for it showed in 2025. We were happy to be shareholders. You know, we continue to be shareholders in Google now. The multiple has expanded a lot, so they have a lot to continue to prove. But one of the things I think that the story was at the end of last year, it was all about TPU's and how the TPU is going to take out, you know, the gpu. I think what people will gain an understanding of this year. First, Google is a massive consumer of Nvidia GPUs, right? Not only for its own workloads, but also the workloads, you know, in Google Cloud. I think people will appreciate the fact that, you know, the tpu, while it has some advantages, is not going to produce the token efficiency that Rubin and the Rubin family of chips is going to produce. The numbers that we heard yesterday in video remains the faraway leader in terms of perf per watt, the amount of performance or tokens you can get for a fixed amount of power into a data center.

E (23:28)

You know, the other name is Amazon, which has done next to nothing, which I think has surprised a lot of people. I have shareholders routinely on my desk who talk glowingly about the company. Josh, you're one of them, aren't you? Do you have something for Brad on Amazon or any of the other names that we're speaking about?

F (23:50)

Yeah, Amazon's actually about to challenge its early November high and I think the stock finally breaks out. It's been a very long consolidation. Part of that is the leadership transition. Part of that is they're selling groceries and it's a little bit of a cloudier story versus a company that's purely operating data centers. Put all, putting all of that aside, the investment in Anthropic seems to look really smart, Brad. Anthropic has a really unique position in enterprise AI companies that are actually using AI, not, not sitting on conference stages talking about it. And us, I think, is the beneficiary of about $5 billion worth of anthropic spend. That number probably goes higher. I'm curious, do you think Amazon makes a play to acquire Anthropic before it can go public? And would that even be possible considering the fact that Alphabet is also on the cap table?

I (24:47)

Yeah, Great, great points, Josh. I would say first hand it to Amazon. The investment in the backing of Anthropic early has proved to be incredibly wise. Hand it to Anthropic. You know, we're also investors there. The leadership, you know, they came from behind and now, you know, they are doing an incredible job in cogeneration in enterprise. They've stayed focused, you know, in terms of the efficiencies that they're driving on both training as well as inference. They're using trainium, they're using TPUs now, remember, they announced a huge deal with Nvidia and Microsoft that I think could be upward worth upwards of $50 billion this year in terms of Nvidia. So this is also now very much an Nvidia house. I don't think that they're going to acquire them principally because I don't think Dario and the founders of Anthropic want to sell the business or are willing to sell the business. I think there are a lot of people who would buy Anthropic if that was the case, even at these very lofty valuations. And you've read all the rumors in terms of the latest fundraising round and valuations which are, which are quite high for these businesses. But the core, when I look at Amazon, super cheap, okay, super cheap us Is absolutely accelerating this year. One of the reason it's going to accelerate is because they're powering up, you know, four or five gigs worth of data centers and they're going to put in video chips in those data centers, along their own chips. They were underinvested in a video for the past few years. It hurt them because their customers were demanding more. I think they right that ship this year. You know, just yesterday there were rumors of more layoffs at hq. I think they're going to continue to drive efficiency in that organization. Remember, when you employ hundreds of thousands of people, AI is going to deliver efficiency, particularly in those management ranks. And then there's a, you know, there's a lot of conversation about a deal in the works with OpenAI. I think this is the year that everybody does deals with everybody. I think that Anthropic is going to be on all the clouds. OpenAI is probably going to be on all the clouds. You're probably going to have a lot of cross investment, you know, in all of these platforms. Over the course of the next 12 to 18 months, both anthropic and OpenAI will come public, would be my guess. That's certainly what I would encourage them both to do. I think retail investors should have a shot at investing in the two most important companies in the world. We're happy to be investors in all of them. I think that Amazon, you know, it frustrated a lot of investors. Last year it didn't perform. I think 26 is a year that they could have a real breakout.

E (27:17)

Joe's got something for you, Brad.

I (27:19)

Hey, Brad.

H (27:20)

You know, we talked about this being a more discerning, tactical market. When you talk specifically about the AI trade, you had the advantage in 24 where it was universal. You could basically go anywhere. As you turn the calendar to 26, where's the sweet spot? Because I wake up this morning, I own Trane Technologies, I own Vertif. We hear from Jensen Huang last night. Well, maybe Data Center Cooling is not going to participate in this story. Utilities down so far, year to date. Software names, not really participating. So do we have to think a little bit differently at 26 about the sweet spot? Investing around the halo?

I (27:59)

You know, I don't know. Our portfolio is heavily tilted toward air infra. And we're up, you know, 3,3x. What? The market's up so far this year. So I mean, we're, we're early days in the year. I think it's doing just fine. It pulled back at the end of last year. That's why we leaned into it more aggressively. Listen, what did Jensen Huang say on the stage? He must have said it 15 times. Demand, demand, demand. We're here in Silicon Valley. I will tell you, the single biggest problem every company has is how do I get my hands on more thinking tokens? How do I get more capacity? The demand is off the charts. It will continue to be off the charts. Let me just step back for a second. We said this before. All software and all compute in the future must think. That means it's no longer pre compiled software, dumb software that's just running on a cpu. The entire compute stack of the world forevermore has to be accelerated because it has to produce tokens that can be intelligent. Otherwise enterprises are not going to buy it. Okay, that is a massive change. That's not training a model one time and. And then we're done with it like everybody thought in the deep seq scare moment at the beginning of last year. Okay, the truth is, when Jensen came on my podcast and said we were going to 1 billion x inference, he said that a year ago, he was understating the amount of inference token generation that we were going to need. The world is going to be supply constrained on inference compute as far as the eye can see. It was part of the inspiration. We were also investors in grok. We're investors in Cerebras. Nvidia bought Grok because Cerebras and Grok have now demonstrated the world will buy all the tokens they can produce because they're producing fast inference thinking tokens. That is something that's not even baked into the cake of what I think Nvidia is going to be able to deliver in terms of increased productivity this year. And so when I look at it, I would just say, Joe, stay the course, right? The world is going to wring their hands just like they did in the early stages of Internet, early stages of social, and they're going to say, oh, we have too much of this, or we have a deep sea. It can do all this with. No, the fact of the matter is every single major enterprise in the world, this is no longer the Mag 5. This is every sovereign on the planet that has to build sovereign capability when it comes to AI. This is every major enterprise on the planet. I will tell you, it's incredible to look at the growth curves of companies like Grok and Cerebras. Every enterprise in the world is buying fast inference tokens off of them. And so the tam, the total addressable market for AI is every business and every consumer. We haven't seen anything like that since the Internet itself. And so I understand why people say, oh, Nvidia is up 12x, it can't go up anymore. Hell, I remember coming here in 2023, the stock had doubled, it had gone up 2x and everybody was saying, sell it, it's gone up 2x, it can't continue to go up. It's gone up 12x since January of 23. But the earnings multiple is lower. The earnings have grown faster than the 12x stock. Performance has grown. And so that's what you have to keep your eye on. I think it will continue to be a market leader. Nobody works harder than that team. But listen, hand it to Lisa Su at AMD. I saw what the the am I for 50? If she can deliver that with the specs to Open Air, you know, she rebooted that company. She's placing a huge bet. I think, you know, there's going to be a lot of stress on that. We don't own it today, but you know they're going to make a run at it. I think a lot of these custom Asics are going to make a run at it. But I think the shot that was across all of these bows from Jensen yesterday was if you're coming after the king, right, you better have something a lot better. He just improved his inference performance by 5x, not even including Grok, which I think will give him, you know, another huge boost. He improved Training performance by 3 1/2x on Reuben chips. Now let me just put that in perspective. It means you can get the exact same performance you get out of Blackwell for 1/5 the cost. Right. That's better than Moore's Law. He's doing that every 12 months. The guy doesn't sleep. To keep up with them, not only do you have to come from behind, you have to somehow figure out a way to run faster. I think it's going to be very hard to do. So I think the shot across the bow, it becomes very hard for these custom Asics. If you're open air, you're meta and you're building a custom ASIC to compete with these guys. It just got a lot harder yesterday. Yeah, so we'll see how that plays out. But I think in technology, from my perspective, listen, software is trading at a two decade low multiple, less than five times forward revenue. Why? Because people don't know what the future looks like Internet's trading at low multiples today. And all of this is because we're undergoing this massive transformation. I think there will be a lot of interesting software companies and Internet companies. Snowflake's one that we own that will come through on the other side accelerating Snowflake's accelerating its revenue this year. It's a beneficiary of AI. But that is the skepticism that exists in the world. The place where there is no doubt in my mind we're going to consume everything we produce is around AI infra.

E (33:14)

We'll squeeze a break in. We'll watch shares of Nvidia which are trying to get something going here. I mean it was by the way, we have Josh's best stocks in the market coming up. Joe has a new move that I want to get to as well. And you did Brad make a call with us in June of 2020 at another period of uncertainty with software. See what you think. Now I have a specific question for you which I'll ask you next.

G (33:38)

Before we had AT and T Business.

I (33:40)

Wireless coverage, our delivery GPS wasn't the most reliable.

G (33:44)

Once our driver had to do a.

I (33:45)

14 point turn to get back on route. A 14 point turn.

G (33:50)

An influencer even livestreamed the whole thing.

I (33:52)

Not good for business.

G (33:54)

Now with AT&T business Wireless routes are.

I (33:57)

Updating on the fly and deliveries are on time.

G (34:00)

And the influencer did get us 53 new followers though.

E (34:03)

AT&T business Wireless connecting changes everything.

C (34:09)

Shipping, billing, admin, payroll, marketing. You're managing all the things, so why waste time sending important documents the old fashioned way. Mail and ship when you want, how you want with stamps.com print postage on demand 247 and schedule pickups from your office or home. Save up to 90% with automated rate shopping. That's why over 1 million small businesses trust stamps.com go to stamps.com and use code podcast to try stamps.com risk free for 60 days.

D (34:38)

Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo.

E (35:24)

You just saw we are poised to get that first close ever over 49k on the Dow. So it's a pretty good start to the year. Let me ask you about software more specifically. I know you and Joe were just talking about it, but I referenced a call that you made to me when we were sitting out together in San Francisco in June of 24. And at that period of time, software had had a pretty interesting period of underperformance like it is now. Last year, the IGV is up five and a half percent, SMH, up 49 chips over software. Right. That's where things seem to be at that point. You told me that the smart money was buying software that you in essence had thought maybe the bottom was in. Is this another one of those moments?

I (36:09)

You know, it's a good point, Scott. I'm sitting here looking at my, my, my software multiple chart. Look at that peak in 2021, right? We're almost 17 times forward revenue today. We're at about 4.2 times. So we're at a generational low in terms of the, the multiple for software. And let's, let's really just peel back why. Right. There's a belief in the world today that I can just go to cloud code or I can go to Codex at OpenAI, I could tell it what I want and I can literally have it build a customer relationship management system for my business in about an hour. Right. And so why do I need to buy a bunch of seats from, you know, a licensed software company? And to be sure, this is forever going to change software. It already has. But not all software is created equal. Right. There are applications which are easily displaced that I think are going to be displaced. And you see those multiples coming down, lots of big names that were down 20, 30% last year. And we saw that coming, so we didn't own those names. But there are other companies that we own and love, like Databricks and Snowflake, that are actually accelerating. Why are they accelerating? They are the data substrate upon which enterprises are building agentic solutions. So when you talk about using Cursor to go build yourself an application, where do you think it sits on top of? It sits on top of that substrate that Snowflake or that substrate that Databricks has built. So we think the world is getting it wrong by treating all this stuff the same and throwing it all out. And so we'll see. These guys have to deliver. And so I expect we're going to see meaningfully accelerating revenues out of those companies, continued accelerating revenues, durable revenues, beneficiaries. And I think the beneficiaries will be rewarded. But I think for the other companies, you know, they have to prove that they are AI durable. Remember this. Why do we talk about 10 or 15 times forward revenue for software? Whatever made that valuation metric makes makes sense. The reason we, we treated it like that is we said these are subscriptions, they are guaranteed. It's almost like Netflix. So therefore they deserve a very high terminal valuation in your discounted free cash flow. Now what happens when that future gets thrown up in the air and you say, I don't know if these things are going to be that durable and if companies are going to need those subscriptions? The multiple, right, the discount rate goes up and the multiple compresses dramatically. That's what you've seen happen. Now, here's what I would say. Now is the time to go sniffing in software. 90% of the consensus is correct. 90% of the companies that are down deserve to be down. Find the 10% that got thrown out with the bathwater. Find the 10% right that are going to benefit from AI. Maybe it's a Samsara, maybe it's a Snowflake. And I think those will be very good returning stocks this year. So you can't treat all software equal, but there's a lot that deserves the pullback, you know, happened and I think that's forever changed.

E (39:04)

While 90% deserve to, deserve to be down, I mean, that's a profound statement. We will leave it there. I really appreciate getting your views in this very early part of this year. And honestly, to see what's happened with Invest America has been amazing too. And I think I'm going to see out in San Francisco back on TV next month and we'll talk about that. But congratulations on your efforts there as we watch that and the gifts that have been given by Michael Dell, his wife, et cetera, and I'm sure many others to follow. Brad, thank you.

I (39:36)

Lots more to come. Scott, 60 million accounts created this year by June Invest America Trump accounts are going to change the game. It's going to be a massive change for this country. But equally important, my Indiana Hoosiers and my guy Fernando are Friday against Oregon and hope to see him in Miami in the national championship game. Go Hoosiers. Take it easy, guys.

E (39:55)

The bandwagon is big. Let's just say that. No, I'm not saying you're not saying you, I'm not saying you, I'm saying all the, a lot of others. The bandwagon is big and getting bigger and maybe deservedly so. Brad, thanks.

I (40:09)

Welcome aboard. Hoosiers.

E (40:11)

Love Brad Gerstner. Yep, let's get the Headlines now with Christina Parts. And with us, Christina.

C (40:16)

Hi, Scott. House Democrats are marking the fifth anniversary of the deadly insurrection at the US Capitol with an unofficial hearing today. It is being led by lawmakers who are part of the special committee that investigated the riot. The Democrats say the focus will be on President Trump's pardons of more than 1500 who were criminally charged with participating in the violence. Wyoming's state Supreme Court struck down two near total abortion bans in the state, saying the laws violate Wyoming's constitution. One of the measures would have been the country's first explicit ban on pill abortions. The court's ruling upholds an earlier decision from a district court judge who said the laws violate people's rights to make their own health care decisions in Wyoming. And lawyers for the Ohio man accused of vandalizing Vice President J.D. vance's Ohio home say the attack was not intended to be a political statement. They claim the 26 year old has mental health health issues. William DeFore made his first appearance in court today. The judge set his bond at $11,000. Scott, back over to you.

G (41:17)

All right, Christina.

E (41:18)

Thanks, Christina. Partzonemoulos Coming up, a World cup winner, a food stock just scored a major upgrade and Joe has a new buy. As I said, we do all of it.

D (41:26)

Next, thy ticket lady Jennifer of Coolidge.

C (41:32)

Well, many thanks, good sir.

I (41:34)

Here is my Discover card. They accept Discover at Renaissance Fairs?

D (41:39)

Yeah, they do here.

C (41:41)

Discover is accepted at the places I love to shop.

D (41:44)

Get it with the times. With the Times. You're playing the loot. Yeah. And it sounds pretty good, right?

E (41:52)

Discover is accepted at 99% of places that take credit cards nationwide. Based on the February 2025 Nielsen report.

A (41:59)

@ Capella University, we believe accessible education can make a.

D (42:02)

Difference. That's why we offer scholarship opportunities to eligible.

A (42:06)

Students. Un futuro diferente estam mass serca de lo que cres con Capella.

D (42:11)

University. Learn more at.

I (42:12)

Capella. Edu what made you confident that.

C (42:16)

You could do something that hadn't been done before? I have no fear of.

A (42:20)

Failure. Trailblazing women, changing the.

C (42:22)

Game. One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just, just trusting.

A (42:32)

Yourself. Life is short and you just gotta think big to accomplish big things. Julia Borsten hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your.

E (42:43)

Podcasts. All right, well, welcome back. We're going to do our Calls of the day now. Communication executive producer right There somehow how it happens. Live television is what it is. Chevron reiterated outperformant. Mizuho Road to Caracas may be longer than expected. Brian Belsky owns Chevron. What do you.

G (43:20)

Think? Oh, we really like the stock especially given the fact that we do believe that we're heading into more of a value type market next year. I mean 2026 and stock continues to throw off great cash flow, great dividend. We like.

E (43:31)

It. Okay.

G (43:34)

Thanks. We're trying to keep it tight, man. We're trying to keep it.

E (43:37)

Tight. Well, if I need you to keep it tight, I'll tell you to keep it tight. I'm looking for like a good answer. Deutsche bank today upgrades aerospace and defense. Boeing 232 from 229 you have that. Palmetto to 248 from 247. Joe, you have that. RTX got its target raised. And GE Aerospace got its target raised as well.

H (43:57)

Joe. Yeah, so how met has been a very strong holding for us over the last several years. Boeing's the one that's interesting to me because it does look like from a technical perspective it's breaking out. It also benefits if you get the resurgence in China that is being anticipated and the appearance is that in fact is what you're having having. We don't own an ETF right now. It qualifies when we rebalance at the end of the month. I'm sure it'll be a.

E (44:20)

Candidate. Okay. Shake Shack got upgraded today at Deutsche bank we thought the reasoning was interesting. They suggest it should be one of the biggest beneficiaries of tourism for the World cup, noting that 30% of locations about are in or near host cities. They did take the price target to 105. It was 115. Interesting. They say they sense investors are concerned over the miss in Q4 though they think it's now priced in. Josh, what do you.

F (44:48)

Think? Yeah, I mean that's a creative reason to buy it. I think that's why we like it, to buy it Once the, once the World cup comes and goes. The long term story here they have an aggressive store expansion underway. The stores are profitable. They, they're going to quadruple the amount of units they have in the United States over time. That's the current plan. That's a ratcheting higher since the new CEO came in and tons of new openings in 26. So I think the real story here is every time they open a new, a new location, whether it's to an existing city or a new city, it's obviously a big moment. But over time, as these stores maintain consistent growth and profitability, I think it becomes an undeniable investment in the.

E (45:40)

Space. All right, so let's get to that move that we talked about. That was up seven and a half percent. So it's that's an interesting move on that call. You bought.

F (45:46)

Merck. I.

E (45:47)

Did. Back into own.

H (45:49)

It. I did. I mean I've traded in and out of Merck over the last ten years quite frequently. Brian, I know you own it as well. I think the story surrounding the decline in the stock from June of 24 through 25 was about the concerns relating to the patent cliff and keytruda. They gets priced in at this point now. And I think the company's done an excellent job in terms of a diversification strategy being in other places. Pulmonary oncology sales look good, up about 10% and free cash flow remains really strong consistent on their dividend. Think the stock is breaking out. Here it is right now about 18% below that garage. June of 24 high. Not expecting that it's going to get back there very quickly, but I think the trajectory for this stock is up. The worst has been priced.

E (46:32)

In. All right, good stuff. We will take a break. We will come back and we'll do Josh Brown's best stocks in the market next. Best stocks in the market. Time, Josh Brown, the spotlight today is on the banks which we talked about at the top of the show. We're not talking about, however, some of the largest banks. We're looking at some of the regional ones.

F (47:07)

Why? That's right, Scott. And I apologize. I didn't realize I would look like the great wizard of what it was, the guy behind the curtain with the all green today on this giant screens. I won't do that again. I want to quickly do PNC and Fifth Third Bank. These are both breaking out. Both look incredible, both intermediate term and short term. And the stories here, judge, is exactly what you said. They're not the giant Wall street money center banks, but they are very large thanks to some pretty big acquisitions. In the case of fifth third, they announced a massive, almost $11 billion acquisition last year. We think that one closes at the end of the first quarter and analysts are looking for like $800 million plus in synergies from that deal. That's why the stock is acting so well even though it is currently an arbitrage situation. They bought Comerica. They're doing the same thing that PNC is doing, which is they are expanding their presence in the fastest growing markets in the country. They're expanding in Florida. They're explaining expanding California, Texas, and they're getting credit for it on the Street. These stocks look amazing right now. In the case of PNC, Bill Dem Jack is the longtime chairman and CEO. They call him Jamie Dimon Jr. They have a great story. Both are going into wealth management more heavily as well. So we think of them as regionals, but they're really super regionals and they're on their way to becoming much bigger. And I think that they're getting this kind of rerating where they're being treated less like regionals and more like the larger banks. And that's a good thing in this.

E (48:46)

Environment. Brian Belsky, you own both PNC and 5th.

G (48:49)

3Rd. We do. We think that we're going to have massive deregulation in the financials. 5th 3rd just went through a great common business combination. We also think that that where they are in the Midwest makes a lot of sense. But PNC has a great multi, multi divisional lay of business and on their wealth management, business looks very, very good as.

E (49:08)

Well. All right, good stuff. Finals. We'll do those next. All right, we'll see a three o' clock closing bell. Rick Heitzman, Chris Verona, Alicia Levine, Brent talking to Mohamed El Erian. We'll see if we do get that first ever close on the Dow above 49,000. Certainly looks like we will, but you never know. So I hope you'll join me then.

F (49:28)

Josh. Final trade added to Amazon. This is going to be our.

G (49:33)

Year. All right, Belsky, let's stick with financials and the asset management business Associated Managers.

E (49:40)

Group. Thank you.

B (49:41)

Shann. Tariffs are in the rear view and consumers are engaged consumer.

E (49:45)

Discretionary. Okay, why is Uber up.

H (49:47)

5%? So yesterday I highlighted the overwhelming bullish sentiment. Today you get the first sell call in two years. Stocks up.

E (49:55)

5%. That's how the game. I'll see you three on the closing bell. You've been listening to CNBC's Halftime Report, the podcast you can always catch us live weekdays at 12 Eastern only on.

A (50:09)

CNBC. All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the Halftime Report participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit cnbc.com halftimereportdisclaimer Is it.

D (50:47)

Time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication, and you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella.