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AI Disruption, Nvidia's Shrinking Moat, and “AI-Proof” Trades? 2/13/26
00:44:02
It was a wild week on Wall Street as AI fears sparked selloffs in different sectors. We look through the wreckage for opportunities and highlight some names that could be “AI-proof.” Plus, why Nvidia’s moat keep shrinking.
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You're listening to the Exchange. Here's today's show. Thank you very much, Scott. A disruption economic reassurance and is in video losing its moat. Welcome to the Exchange. I'm Kelly Evans. Stocks are bouncing back today. Let's take a quick look across the board here. Gains of about half a percent, a cooler than expected inflation print this morning, certainly helping sentiment. The dow swinging from down 368, up about 212 this hour. Still all three major indices are on track for weekly losses and the biggest mover really might be the 10 year yield. We're down about 4 basis points across the curve today after the CPI and the 10 year is down at 406 this hour. Big tech that's a mixed bag today with Nvidia the biggest MAG7 decliner. It's down 1.5% and Apple lower again after its worst day, a 5% drop yesterday. Worst day since April, I should say. Amazon fractionally higher. Another notable standout is another semi cap name, this time it's Applied Materials and that up 8% after strong earnings and a positive outlook. And that of course has been a strong area of the markets. And that's where we begin today with a look back at this wild moment really in the markets with huge swings on the back of AI disruption as fears move throughout different sectors and industries. In some ways this goes all the way back to September when we first saw front Office software like DocuSign take a hit from OpenAI's rollout of new tools. But it's really picked up steam this past week. First there was the gaming sector, then legal tech as we saw new tools and plug ins from the likes of Claude, then the insurance brokers like Brown and Brown and Willis Towers, Watson Then the wealth managers on those new tools from altruist Schwab posting. It's one of its worst days in years. And then finally to the property managers, media and even freight logistics. Joining us now to talk about this AI disruption moment is Gene Munster, managing partner at Deepwater Asset Management. Gene, welcome to you.
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C
Hello.
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B
You know, I've heard a couple of analysts and Philippe Lafont, I believe himself put it this way this morning, or this has been part of their thesis at code to that what the market is doing is is seeking out capital light businesses and punishing them for possibly not having, you know, the capital equipment like a real world story that you can pin stock market valuation on as opposed to software that might ultimately get disrupted here.
- [03:24]
C
I think there's truth in that. I also think there's truth about like what has changed this week and how does it kind of impact. You rattled off five different industries that have seen meaningful pullbacks. Like what has really changed this week? And I think I want to first put into perspective these pullbacks. Part of the pullbacks are because of risk off there is a certain part is that investors have been just across the board looking for reasons to sell. And I want to just kind of put some evidence behind that. We have an ETF loop that is about 70% invested in AI, less than 10% in software and that's up only 1% in the past week. If this was all about AI being disruptive on these traditional industries, you would see some of these more AI centric funds do much better. We didn't see that this week. But I do want to go. That's not an excuse for what has happened here. I do want to go beyond the headlines and, and look at the substance of what's going on. There were two major data points. One from Spotify CEO saying that their best code coders have not written code since December. That is remarkable. The reason why that's remarkable is because this is a non AI company. Anthropic in December said that their AI is writing AI. They don't do coding anymore. I saw that for an AI first company. But what I think is what is going on is that the market is having a better sense that ultimately that this disruption is on the horizon and trying to figure out where that's going to come from and who's going to be at risk. But it is definitely taking a step forward.
- [04:56]
B
This week I think it was bespoke that had this crazy stat that the IGV has now basically traded the same or worse than the S&P 500 on a five year basis, which is if you go back to 20. This is what's so fascinating about this moment is that we all thought the new economic model was, you know, software. Software as a service. Your capital light, you've got this recurring revenue by some measures, 40% of all recent P E deals were in software as a service. Names like this was the sure thing. So is it over? Is it, is it the time to go value picking? You know, I understand, I myself feel the desire to want to go and grab some of these names. Not big stocks, but like down 40%. Right. In some cases even more. But you don't know what's coming. We have no idea what this is going to look like in maybe due in six months, but certainly not in a three, four, five year timeline, do we?
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C
No, no we don't. And I just want to put that piece, let's zero in. You talk about those five different industries. Let's talk a little bit about software in particular here, is that I think the consensus trade right now is that these have been overdone. That clearly, of course, this AI that we've seen this progress forward on some of these coding tools, it's not going to have an impact on their business in the next one year, two years potentially. So this presumably I think they are correct that this presents a near term opportunity. But I just want to go past this near term, whatever this kind of quick recovery is going to be and think about the long term Piece here is that there's a central question that every software investor should be asking, which is do you believe in the future that there are more agents than humans? If the answer is no, like that you believe that most of the work still will be generally done by humans, then you absolutely need to own software for the long haul. If you're in my camp and believe that agents will vastly outnumber humans, there simply isn't the same need for the number of seats and software. It's going to be hard for me to imagine that Salesforce at a 15 multiple on next year's earning gets rerated to 25 when you have that lingering out there. And I can tell you we use these tools at Deepwater, some of these advanced, these advanced coding tools and these advanced personalized AI and they are building spreadsheets that do not require a Microsoft license and we can open them up in Excel. And so the, I think that's kind of still the fundamental piece. Where is the workforce going? Do you believe more agents? And if that's the case, yes, software is going to get a nice rebound here, but they will be dogged by what will be this. This headwind. Unless the software companies have a Google moment where they basically punch back like Google did with their. Their search number back in the March quarter. Unless until they have that, I think the case will still be open that bots are going to take seats lower.
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B
So we either need to see them put up incredibly strong earnings in their core businesses that show no signs of being disrupted, or they're going to have to come up with new tools or something. But basically, Jean, what I'm hearing you say is you're in the innovation is going to fundamentally rerate these companies. You know, and I take your point. Maybe Salesforce doesn't go back to 25 times p. E, but can it trade at 15 and still grow the E?
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C
No, because. Well, if you believe that there's more agents than humans, maybe there's in some fantasy world where Salesforce can charge bots to use their seats. But if you believe that bots ultimately are going to outnumber humans, it's just hard for me to imagine that E continuing to move higher. It would require what would be just a radical adjustment in terms of just how they do hiring and infrastructure to get that E to continue to move higher.
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B
But their, their growth per seat of the past 10 to 15 years, let's call it was basically just companies. You know, it's not as if we've had an employment boom. We just are experiencing population growth. So they're clearly, they're. They're making inroads, they're growing market share amongst companies as they just continue to add Salesforce as a tool.
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D
Right.
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B
I mean, is that fair to say?
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C
So they have. I don't know the numbers I'm head but there's still. Growth rate has been relatively modest. We look just at Salesforce over the past few years. I think it's mid kind of high single digits. It has not been a particularly impressive growth story as of the past year.
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B
Understood. Is that though a company that can continue to experience growth per seat, you know, are we really saying no one's ever going to add any more seats, you know, to, To. To you. To their Salesforce usage starting now.
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C
So if you take these models again we're. There's people, I think there's many that read the headlines and president company included, you know, Doug Clinton on our team, I mean he really understands and is deep in these models. I think they have kind of have the potential to are today having A profound impact in terms of kind of what is the center of record within organizations. So I think this kind of the idea of them continuing even with headcount reductions, like the value of something in some of these sales, these software platforms increasing, I think that narrative because they have some record or some kind of history around this. When you have humans looking over many bots and then those bots looking over potentially thousands of bots doing your work, just that whole, that center of knowledge within a company is changed. It doesn't need to have some of this software as the point of record. And so my point is again, it comes back to this belief in agents. Did we see today? Have we seen evidence? Was this Spotify comment really something telling? Was this seed dance video that we saw with the Tom Cruise and Brad Pitt fight, did that actually tell us something about how fast these tools are moving and does it really build a case? Because if agents are.
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B
And you think it does. Is my understanding.
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C
Yeah, I think it's just hard for me to.
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B
Again, so who do you Gene. Let me. Because I think there's people listening who are going geez, you know, maybe he's right. And so maybe I don't want to go, you know, bottom picking in the software space right now. So where do you go if you want 10x or you want solid returns, something for the next decade and you already have seen these huge gains on the hardware side. You're like I don't know if this is the right entry point. Where do you feel like it's a sure thing to be positioned right now?
- [11:12]
C
I guess, guess there's no search sure thing of course. But the. I think what's important, I do believe by the way software is going to get a bounce. And so I just want to be on the record. I think that we are going to get some bounce here, but I don't think it's necessarily a fundamental. Where do you go? I think on the software side, usage based models I think are going to be in a better spot. So something like a snowflake or datadog, I think those are in a better spot versus the seat based models. And then separately this infrastructure play I think is just going to continue to be higher for longer. I think that if you look at what inference is going to do. Inference is AI. AI is thinking, that's inference. Think of those two together. Not training. Training is not AI. Inference is AI. This could be tens, hundreds of thousands of times bigger. And then by that case is I think a good place to own is continue to own the infrastructure. It sounds like a boring trade.
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B
Does that include Nvidia? I know we got to go, but.
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C
Yeah, Nvidia is still on there. You know, it's the risk reward question kind of comes up on. I think Nvidia is a good one to own. I think you should have other diversified portfolio beyond Nvidia.
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B
Gene, really appreciate it. We got to get dug on too. We'll do a deep dive on some of these economics. It's all that people want to talk about. Really appreciate it. Appreciate it today. Gene, thanks.
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C
Thank you.
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B
Gene Munser with Deepwater. As he just mentioned, you're about to see the video yourselves, everybody, so stay tuned because we can't show it twice. I can only show it to you once. The media and streaming stocks, which include Disney, Spotify, Roku and Fox, are all getting caught up this week in what our next guest is calling media's deep seek moment. And here's why. This new AI generated video of Brad Pitt and Tom Cruise fighting on a rooftop looks real. Looks like it's pulled out of a movie. Right. It's the latest example of showing off what I can do and it's making investors a little nervous about the future of media. Our next guest warns the sell off here is overbroad though and provides a buying opportunity in three names in particular. Let's bring in Stephen Cahol, he's senior analyst at Wells Fargo Securities. Steven, what do you make of the video? Welcome.
- [13:12]
E
Yeah, I mean, first off, credit where credit is due, that, you know, taking what the last guest said, these things are moving very fast and the accuracy, the sophistication, there's no doubt that that is there. And oftentimes I think the market gets things directionally right but off by orders of magnitude. This is going to create a lot of concerns about the barriers to content creation because you saw how good it looked in that clip you showed.
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B
You know, I'm always a little slow on these narratives until I finally get it six months later. I'm kind of, I look at the video and I go, I'm not connecting the dots. Back to selling off some of these media giants. I mean, there are, you know, Hollywood is up in arms about kind of protections against their own images. So I guess if you wanted to say you can create an AI movie based on characters whose property is not intellectually protected, okay, fine. You know what I mean? Just like break this down for me.
- [14:05]
E
Yeah, I mean, I think first it's good to look back at some of the history of the sector, you know, over the last 10 or 15 years. YouTube is now the largest television platform in the US in terms of Americans time spent. They spend more time watching not just YouTube, but YouTube on a television than they do any other, you know, sort of media platform. And 10 years ago, that was effectively zero. So that has given birth to a new type of creator and a new type of content. And some of that content has resonated. And so whether or not this gives birth to, you know, things that are in intellectual property, copyrighted, etc. That's probably not the point. It's probably more that there's going to be a lot of stuff out there and does it create some engagement risk for big media companies that didn't exist before? The second example I just point out is that, you know, Netflix, Amazon prime, they really changed the way media companies thought about the importance of original content, original series in particular. And we look at media today and every company is a streaming company. There is a lot more capital deployed into content than there was in the sort of decades prior to streaming. So could it could even just be that it becomes a more capital intensive industry to keep up with some of that competition?
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B
Shares are now below 77, although they're on a slight bounce today. So should they not buy Warner Brothers Discovery on this idea? You know, forget whatever you thought about the deal a couple of months ago with these tools now and what you're saying, which is that users are going to be generating the next, you know, wave of video content. Is the stuff, is the, is the legacy stuff really that valuable?
- [15:48]
E
I'm afraid I'm a little limited in what I can say on Netflix and Warner Brothers due to some activities of Wells Fargo's and my suspended coverage. However, what I did write in a note yesterday, that's, that's maybe to the point of the question is as much as I don't have my head in the sand about these emerging technologies, you know, I would also point out that, like, what really makes content hard is stories, story arcs, you know, writers, directors, real life people acting those out that makes them compelling. You look at what Lionsgate just sold Mad Men to, to hbo. You look at a lot of the historical content and how relevant it is today and how much engagement it gets today. And you think about the content that's going to be really powerful and compelling in the zeitgeist, you know, moving forward, the things that we're all talking about, that we're seeing, our friends, parents, kids are seeing, etc. That stuff is really hard to make every Hollywood studio wished that everything they made was great. A lot of it isn't because it is so hard. And I'm not sure that visualization is a replacement for good stories or originality.
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B
Although thank you for kind of teasing this out piece by piece because I would look at user generated content and say it turns out a lot of people are really good storytellers. And it's almost a VC model where if you get enough, you know, user generated content, you're going to come across a decent number of good stories in there. I take your. But let me get to the opportunities because I know that people are eager to hear from you on this. So you say what Disney's doing is the right move for what's going on here to emphasize parks and experiences. So I think, correct me if I'm wrong, that's one of your big opportunities. So with Spotify, maybe that's because they can benefit from AI generated content. And Fox, why those three?
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E
Yeah, you know, just to treat them individually. So a point we made, Disney, is that 70% of their operating profit comes from their experiences division and their sports division, which is espn. People still want to go do things and I think the more we get flooded with content, some of which is good, a lot of which is not going to be good at all. You know, I think that only increases the premium of experiences. And sports is another one where, you know, we're of course not on the field, but the way we feel watching sports is because it is live, it is unpredictable and it's not created by anyone, you know, and that unpredictability is what drives all of that excitement. So for Disney, that is the vast majority of its income comes from those two things. Fox's two assets are essentially the Fox broadcast network, which is sports, and Fox News, which is news. So again, just very little read across the last one, Spotify, which I'd really like to touch on for a moment, is that, you know, we talked earlier about how YouTube has created a sort of new type of video economy. And with AI you have to wonder about the new AI video economy. And that's a real risk in music. User generated music has been available to us as long as the Internet's been around and that just has gone nowhere. You know, all the listening that we're doing, whether it's the company or was.
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B
Wasn't Justin bieber like a YouTube guy before he became big?
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E
But importantly, there is some discovery that may happen on those platforms.
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B
I see.
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E
But Justin Bieber is tied to a major music label and you know, the consumption happens on these big platforms and it is of large music label defined artist content, both new and catalog.
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F
Yeah.
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E
So the user generated ecosystem just hasn't been there in music and I'm not sure it ever will.
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B
You just wait till I have a little more free time and I'm telling you it's going to be I'm going straight to the top of the charts, Stephen, but in the meantime maybe we.
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E
Can do it together. Yeah, I'll be your backup dancer.
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B
That works. I just want to do the vocals. Stephen, thank you very much for your thoughts on the whole disruption we've seen this week and and who might benefit in the long run. Appreciate it. Stephen Cahol with Wells Fargo Coming up, what does the softer than expected CPI number mean for the Fed's path forward? Our next guest says it rules out any further cuts before Wash takes office. We'll debate the implications next. Plus, should you trust the rotation into cyclicals? Our strategist call software Sentiment Sentiment borderline apocalyptic and notes the Mag 7 is underperforming every sector in the S and P. So does that create opportunity? We'll discuss right after this. This is the Exchange on cnbc. Sigh of relief on the inflation front this morning with CPI cooler than expected. But our next guest says don't get too comfortable with this narrative just yet. Adam Posen is president of the Peterson Institute for International Economics. He's here along with our very own senior economics reporter Steve Liesman. Welcome to you both. Steve first of all can we just run through some of the numbers because 2.4 was that the headline headline and the core 2.5the core so the core was still 2.5.
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I love how we're all declining.
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Looking.
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AT&T business Wireless connecting changes everything.
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It's good.
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It's like what does victory look like these days?
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G
It's a good question. There was plenty of tariff stuff in there especially first thing I did was look at core goods, which was zero. Used cars were down 1.8. Phil LeBeau tells me that's probably a timing thing, that used cars are not falling at whatever that would be on a yearly rate, but 1.8% per month. Things like appliances, electronic goods. All of this caused Goldman just out with a report to actually up their forecast for the PCE, which is the Fed's preferred inflation indicated from.03 to.04. I don't want to diminish the good news because the good news in this is not that tariffs are not causing price increases. They are. They're not spreading elsewhere. That's the good news. They're getting help. Shelter was down. That could be an artifact of some of the stuff of losing October. But look, we'll just take it as it comes. But right now, if we keep going this trajectory, you can have these tariff price increases and you can still edge down towards the Fed's target.
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B
All right, Adam, what do you say? What is it going to be like for Kevin Warsh coming in? What is, what is this going to be like? There's no the president must. I just, I don't know what's going to happen here if he can't cut. And that's what you think, right?
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H
Right. I think. Kelly, thanks for having me back. Notwithstanding everything accurate that Steve said, getting wound up about whether you miss on the upside or the downside expectations by a tenth of a point in a given month doesn't give one very much information. So nobody should be taking this too seriously. You want to do is see it against the broad picture and there's a bunch of components in this that don't look as good Core services is still going up at a pretty high rate. But more importantly we had a ppi, a producer price index print. We have a lot of that was pretty high. We have a lot of stuff from the Beige books and from other reporting, including that you've done on cnbc about companies getting ready to pass on more tariff hikes. We've got an issue with the anti migration policies. Either the migrants haven't left yet or if they have, we're going to start seeing that show up in shortages and price hikes in certain sectors like child care. And ultimately Kevin Warsh doesn't control fiscal policy. It depends on whether the president manages to get through issuing a bunch of checks or the Congress passes some relief on Obamacare subsidies that they took out in last year's bill. So there's a lot of stuff going on. The broad picture, still inflationary.
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B
I would listen to that and think yeah, that's a lot of stuff pointing in an inflationary direction. And then I would look at the treasury market today and I would say well wait a minute, these market participants are all very informed as well. They see all of this and they are driving. I was talking to Steve about this earlier. The tenure was at first 422 days ago. It's at 406 today. You know, yields are down 4 or 5 basis points across the curve, which David Einhorn, who's a pretty smart guy and he's usually hawkish and he's positioning for lower near term fed funds rates. So is it possible that we're all missing something that we really are going to see meaningfully lower over and longer term rates.
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H
And it is entirely possible. My call on fiscal for example could be wrong. It could be that there's a few Republicans who will join with the Democrats in the House and block the fiscal expansion and that would push down on inflation. It could be that the migrants, despite the human abuse, are really not leaving and are staying in the workforce, in which case they don't drive up prices by their absence. I mean there are things that could reverse this. But again the 10 year rate is driven by a lot of different things and even some of your smart guests, unlike say me or Steve, get it wrong sometimes.
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B
Well, and also by the way, we are were saying we've got to move this along quickly, Steve, but we the tenure was below 4% back in October. Then it goes back up. And so it's not as if it's a fixed point where we've decided today, you know, that we know everything about the Future. But go ahead.
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G
My, my take on this of what Adam saying is, you know, I care deeply about the economy, but I'll start deeply about getting a good story. And what Adam is positing here is a situation where President Trump's nominee for the Fed cannot come in and cut the way that the President wants them to. And in fact, it looks, it sounds like the way Kevin wants to. If you just look at the Fed probabilities very quickly here we are priced for 50 basis points of rate cuts this year.
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B
Okay.
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G
It's, it's actually gone up a little bit. The probabilities. If you look at what's happened now, because the labor market, for example. Yeah, because of the labor market and more, the inflation numbers. If you look at June, it's a little bit higher. That's been the case. It's the September thing has been brought forward. That was a December cut. So that second cut is built in there. And what I'm thinking about is by the first half of this year, do we start to see the impact of AI that what does that mean for unemployment? So what does that mean for Fed policy? Because everything Adam said, as always, is brilliant. It may not be right, but it's brilliant for understanding the future now. But that's another factor that needs to be layered in, almost.
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B
Fed chair Rick Reeder just came out with his observer and he's, he's saying, like, look, this could be a preview of what's come a little bit on the labor market front. Adam, a quick last word if you want to kind of forecast things quickly.
- [27:55]
H
I still bet on December, not September, because of the midterm elections. And I'd still say AI it's like with tariffs. It's the flip side of what you and Steve were saying a minute ago, Kelly. Just because you get a real income shock doesn't mean it's disinflationary. Right. So we may get the benefits of AI, but you probably don't get the disinflation from it until businesses really implemented and restructure their workforces.
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G
We really have to go. We really have to go, Adam. But, but the question I ask myself is if you're going to add a point or two to the unemployment rate, the Fed is going to respond, and.
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B
That'S maybe what the Fed is going.
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G
To respond, and that's what get. People I'm talking to with a lot of money are trying to game out. Right.
- [28:38]
B
But I appreciate, again being reminded that's a really important point that absolutely are.
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G
It doesn't mean it's disinflationary, but it is politically untenable for the Fed not to cut in the face of a of a meaningful rise in unemployment rate.
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B
Adam, thanks. Appreciate it. We'll check back in soon. Adam Posen with Peterson. Steve, thanks as well as always. Coming up, Applied Materials soaring on a huge earnings beat as the latest example of bifurcation in the semi space will tell you what it means for that whole trade, with Ammet up 8% and doubling in a year after this.
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- [31:26]
I
Christina, pretty good to be the Applied CEO right now. But like you said, shares are up roughly 8% and this wasn't a low expectation set up. Applied Materials makes the machines used in the semiconductor manufacturing process and shares were actually up 38% year to date, outpacing the S&P 500 and NASDAQ. What moved it today even more was a quarter that beat and a guide that just genuinely surprised to the upside. Applied is forecasting a meaningful, meaningful RE acceleration in the back half of this year driven by what else? AI spending surge in the most advanced parts of the chip market. The high bandwidth memory powering AI models. We know so many memory makers have been benefiting the cutting edge chips coming out of foundries like TSMC and the sophisticated advanced packaging that just layers and connects all these chips together. CEO Gary Dickinson put it plainly on the earnings call.
- [32:17]
B
The growth rate this year is going to be one of the fastest across all of Applied Materials. And I have very, very high confidence this growth is going to continue at.
- [32:26]
G
A high rate in 27 and going forward, very confident.
- [32:31]
I
But it's not all red hot. Gross margins are improving, but slowly. And there's a constraint that just doesn't get enough attention. Clean room space. Chip makers can't just drop new tools anywhere. They need highly specialized facilities and those take time to build. Micron even warned about this too. And that could affect the timing of shipments and revenue recognition. Still, analysts are no doubt today leaning in rbc, Stifel B Riley. Those are just three right now that raised all their price targets with RBC arguing fears over China exposure for Applied Materials being overblown and seeing double digit revenue growth persisting through 2027. And that is why we see the stock hitting an all time high today.
- [33:12]
B
Anything else that might, you know, a lot of people are now going to crowd into these spaces and they're worried about being in video. Right. Where the shares are kind of flattish over the past almost nine months now even today are lower. Are they not in AMD is up. Yeah.
- [33:27]
I
So that's a very specific story and primarily because of Arista Networks on their earnings call yesterday. And Arista makes the networking equipment so that chips can talk to each other. Arista CEO said that just last year it used to be 99% in video and now this year the Arista deployments are pretty much 20 to 25% using AMD. So what is that telling you? That AMD is slowly gaining some market share away from Nvidia. And so that is the reason why you're seeing this discrepancy. But for Arista, they too, their guide was extremely strong, which is why shares are up about 6%. It seems like almost every single chip name can't disappoint with the exception of those that are overly exposed to auto. Even analog names like Texas Instruments, et cetera are seeing this, this, this uptick in that in their cycle.
- [34:15]
B
And a nice little boost for amd, which had a tough month there after earnings and everything. Christina, thanks so much for now. Appreciate it. Christina. Parts and Evolis to Pippa Stevens now for the CNBC news update. Hi, Pippa. Hey, Kelly. The Ukrainian and Russian governments today confirmed a third round of US Brokered peace talks. They will take place next week in Switzerland, but the two sides remain far apart on key issues, including territory and control of the largest nuclear power plant plant in Europe. Two top aides to HHS Secretary Robert F. Kennedy, Jr. Are leaving their posts. Politico reports Acting CDC Director Jim O' Neill and General Counsel Mike Stewart will be reassigned elsewhere and that it's part of a larger leadership shakeup at the agency. The department has yet to comment on the moves. And striking teachers in San Francisco have reached a deal over wages and benefits and will return to work. City officials reached a $183 million agreement. The tentative agreement gives teachers a 6% raise over two years and includes fully funded family health care. Teachers will be back to work on Monday. Kelly.
- [35:20]
E
All right.
- [35:21]
B
Thank you, Pippa. Coming up, the market rotation, three years in the making, by the way, is finally here. According to our next guest, it's got industrials, materials, even utilities and staples. Staples at record highs. Real estate, highest level in over a year. So do you trust the move or stay in Tech and the Mag 7? We'll debate that next. Welcome back to the Exchange. Stocks are on pace for a down week even as investors rotate from growth to cyclicals. This will, in fact, be the fifth straight negative week for the Nasdaq. And my next guest says the overall backdrop remains constructive for equities. He'd be a buyer of any meaningful pullback. Matt Orton is chief market strategist at Raymond James. Matt, a buyer of a NASDAQ pullback, or are you more specific?
- [36:07]
D
Hey, Kelly, it's always great to join and I think you want to be more specific at this point with respect to where the market is. You really want to be very particular on what stocks you own, what sectors you want to lean into. And as you look at this rotation that we've had play out this year, it's been pretty extreme. There's almost a 27% difference between the top and bottom performing sectors within the S&P 500 just this year. So that's just about a month and a half. And so you want to look at the intersection of where you have fundamental support for the cyclical rotation, meaning earnings growth and economic growth, along with where there's still some secular tailwinds to make sure that a lot of these themes are going to play out over the longer term. So I still favor industrials, which has been a huge secular winner. I also like energy. I think there's more room to go with respect to the trade and for earnings to finally start to bottom and move higher. But you can complement that with tech. And really the AI CapEx beneficiaries, they've been oversold and I think you want to buy those on dips.
- [37:06]
B
Let me come back to that in a minute. The energy trade I don't fully understand because this is still a crude oil price that has acted pretty bearishly and you don't seem to get a lot of signals that, you know, this administration wants the price to go higher. I guess you could still make an argument for, you know, financial engineering to drive the stocks higher, but why have they been so strong so far this year?
- [37:28]
D
So, you know, Kelly, I think it's a combination of two different factors. Number one has been geopolitical. I think it's been such an under owned and under discussed part of the market that you naturally have investors moving into something that just hasn't done much for a very long time and hasn't been a strong performer. And I think the other piece of the equation is that energy companies haven't really had strong earnings growth and we're at the bottom of, I would say, the cycle for declining earnings growth. And so if you look at where oil prices are, they can support a number of higher quality energy names. And natural gas prices have increased because of the colder winter. So when you look at some of the underlying fundamentals where oil prices are and are unlikely to move too much lower, you can still get behind the story that earnings are going to move higher throughout the course of this year. Whereas in other parts of the market earnings growth might be positive, but that second derivative, the acceleration, is actually turning negative. So I think that's why people are looking at it.
- [38:24]
B
I know you're basically going with kind of all the non mag 7 stuff. You like the small caps, you like the Internationals, India, Japan. I mean, you do like Alphabet of all of them. And Sterling Infrastructure is on here, cboe, the kre, Just talk through that. Why does Alphabet get a spot on a list that has very few other mag7 type of names on it?
- [38:47]
D
Kelly, we've talked about Alphabet in the past, over the past year or so. I think that the company earnings growth is incredibly strong. The balance sheet is very, very clean. But you have incredibly diversified sources of revenue with a cloud computing business that's growing. I would say one of the best, if not the best, AI platform in the business. And on top of that, you have exposure to Waymo and all of these other pieces that can hit a lot of different parts of the overall economy. So I think their business is levered to both AI and the real economy. So it combines that secular cyclical growth. But then on the other side of the equation is you go down market cap. Take a name like Sterling Infrastructure, for example. They're a company that does early site development for a number of data center projects and can also help build out some of the new semiconductor infrastructure that's being moved over to the US so they are a direct beneficiary of the 600 plus billion dollars of capital expenditures that are going to come to this country. And on top of that, they sit further down market cap where there's more dollars finally starting to flow. So I think they're at an intersection of two good longer term tailwinds that I think really are powerful for this market right now.
- [39:57]
B
All right, so if you want small, if you want big, we've heard some of those picks. Matt, thanks very much for your time today.
- [40:03]
D
Thanks.
- [40:03]
B
Matt Orton with Raymond James. Coming up, OpenAI is taking a page from Google which shows Nvidia's moat may be at risk of shrinking, similar to what we just heard from Christina Parsonavilis. We'll talk more about that next. And as we head to break, take a look at shares of Bitcoin, which are up nicely today, almost 6% to over 69,000. We're still down 20% this month, helping shares of Coinbase pivot off the lows after earnings last night as well. Well, we're back in a couple. OpenAI is unveiling its first model to run entirely on chips from the startup Cerebras. It's a sign of companies diversifying beyond Nvidia's GPUs. Deirdre Bosa has more in today's Tech check. Very important story here, Deirdre.
- [40:49]
J
Yeah, so Kelly, this look, this is not OpenAI's flagship model. This is GPT 5.3 Coda Spark. It's a stripped down coding model built for speed, but in AI speed and cost that can beat raw power. And if the high volume everyday workloads, if they're moving off of Nvidia hardware, that is important, it changes the investment thesis. Now for OpenAI, this is an inference play. Training is the one time build. Inference is the meter that runs every time a user hits enter. As these products scale to hundreds of millions of people, that may be where the real spend is. Now this is also part of a larger trend. Google's serving Gemini on its own custom AI chips. TPU's Microsoft just launched its own and Meta is rolling out custom chips across its data centers and then Chinese labs. They're also increasingly using domestic accelerators like Huawei's. Now OpenAI was still careful to not upset Nvidia, like all the builders who are expanding their ecosystems in a statement saying they called Nvidia foundational and core to their business. So it's a diplomatic way of saying we love Jensen but we're dating other people. Now that tension, this tension is playing out across the entire industry right now. Christina was talking about it to every major lab still wants blackwall allocation. It is still without a doubt the gold standard. But behind closed doors, nobody wants to be this dependent on a single supplier. So they're smiling at Nvidia with one hand and they're signing deals with Cerebras and Broadcom and AMD with the other.
- [42:14]
B
I understand that Cerebras kind of does everything on a big chip, so they don't network together quite as much as the GPUs. And that might help with the latency issue like you were saying for developer or for language models though. I mean any company that's been using Nvidia, does this go back to Cuda to some extent to their programming platform, if that's what we call it. Because if you build something using that language, can you switch over to other chips?
- [42:41]
J
Yes, that is such a good point. Part of its strength has been this ecosystem. CUDA software, it all works together super, super well.
- [42:49]
F
But.
- [42:49]
J
But even over the last few years, the more dependent that the whole industry becomes on Nvidia, others are trying to find solutions. So we Talked about Google TPU's for example. It started as a Google only solution, but increasingly Google is trying to figure out how to come up with the software like a Cuda, which goes several layers down I believe. But it's software to Let it work more easily or let it be inserted into other workflows. So complicated way of saying, like, yeah, yes, the whole ecosystem is changing. Nvidia has had it, it's had sort of this near monopoly also thanks to Cuda software. But that is quickly changing and I mean, is there any bigger indication than a model being served on another chip? Right. That's key. Even if it's just inference.
- [43:33]
B
Right. In a weird way, sometimes you think Nvidia goes, okay, it's probably not the worst thing, you know, because it'll, it'll probably keep companies signing up with them and going, all right, well we have other, you know, you know what I mean? Instead of trying too hard to fragment.
- [43:46]
J
Nvidia is not going anywhere.
- [43:48]
F
Them.
- [43:48]
B
Yeah.
- [43:48]
J
And people think when I say those things, I'm being like an Nvidia bear or something. That's not it. Nvidia is always going to be really important. Always going to have the most, well, maybe not always, but we'll have the most advanced chips for a very long time. But the key is that moat and losing that near monopoly, I mean, that changes the investment. Yeah.
- [44:05]
B
The shares are down today and as we've mentioned, it's been a, you know, a kind of sideways move for, for months now. Deirdre, thanks very much. Deirdre Bosa. Coming up, stocks are selling off pretty indiscriminately on fears this week, week. But there are a few names our next guest says are insulated somewhat from these threats. This is one of them, our mystery chart she calls a port in the storm. With catalysts on the horizon. It's up nearly 8% this week. That name and two more are next. And as we head to break, check out shares of Amazon. They're up just a third of a point today and this is significant. If they fall, that would make it a nine day losing streak, its worst since 2007 and just one shy of its record 10 day skid in 1997. The shares are down 17% over this period of time. Again, if they're closing the green, forget all of this, but it's been a rough go regardless. We're back right after this. Welcome back to the Exchange. As we've been discussing, if there's one narrative to tie the week together, it's AI industry disruption with investors selling first and then seeing if that was warranted later. But there are areas of the markets or some individual stocks that could be spared all of this displacement, or so our next guest says. Let's bring in Victoria Green. G Squared Private wealth, cio. Victoria, it's great to see you. And I chuckle a little bit. I mean, you know, when I. Our mystery chart is a name that is a senior living reit. Our audience is probably well familiar. Ron Camden has come on this program and talked about Welltower for years. But it's been a little while since we've heard about it. Talk about this one, which is up 40% over the past year. You're sure this cannot be disrupted by AI?
- [45:41]
F
Well, no, I mean robotics. Who knows what that brings the next 20 years. I feel like this is like a top tier. If they disrupt, well, tower, that's the end of the end all be all. Everything's been disrupted.
- [45:51]
B
Right.
- [45:51]
F
So, well, tower, to me, senior living is where it's at. We have a silver tsunami going on right now with the baby boomers. They're expected to go to 22% of the population by 2040. Massive portfolio of senior living. They're going to be 85% in the senior living. They've been divesting some stuff in the outpatient medical. They're going to grow net operating income 15 to 20% funds from operations. I think they're going to easily be and be at least six and a quarter this year. Just a well run company. They did 11 billion in net acquisitions in 25, set up with a $12 billion war chest and pipeline to keep adding. Plus they've added to occupancy, they've been raising rents. All of these things say. Absolutely. I think the stock can flow up at least another 20% here to about, you know, the 670 range.
- [46:32]
B
I challenge, I challenge public. I find a way to disrupt. No, no, only if it anyway. And we're actually going to talk to run Camden next hour. So we'll pick up this threat. O. Okay, let's move on to tjx. Why do you think this stock can remain immune from any, any kind of pressures or fears or disruption or whatever? I mean, it's outperformed Apple and Microsoft over the past 12 months now.
- [46:53]
F
Absolutely. First off, who doesn't love shopping at TJ Max? But secondly, they're picking up market share. Everything that target is losing. TJ Maxx is hitting. They literally have a strategy they call treasure hunting because they have this off price model. They're buying name brands, they keep their inventory fresh. It's TJ Maxx, it's home goods which has been the major driver of their top line growth. They're growing at like a 9% clip. And then they've got Marshalls they their customers so. Well the value seeking customer we've seen time and time again the customer that wants value is willing to still pay and go. And it's experience. It's a go get your Starbucks, go shop at TJ Maxx, pick up something funny. So I nicknamed this stock the funny cute stock. Right? It's a value stock. It's funny, it's cute and it's really a well run business model because the fashion market is so bifurcated. They've got so many buyers that have been there for 20 plus years. They have these relationships. They can find that brand at a 20% discount and you can find it if you go treasure hunting.
- [47:47]
B
Yeah, I know it's an. It's experiential really. What about idxx? Pet Health?
- [47:54]
F
Yeah, Pet Health Companion.
- [47:57]
G
Pet Health.
- [47:57]
F
That's a huge theme of ours. Over the next five to 10 years the about 65 70% of US households have pets and we have 1.46 pets per household now. And pet spend continues to rise as the pet is seen as a member of the family. IDEX is where we want to be. It's in laboratory diagnostics software and everything. You want to support the continued uptick in spending in the pet market.
- [48:18]
B
Haven't you seen the robot dogs? Wasn't you saw them right with the Elon Musk face. Do you remember that video? You don't think I do? Wave of the future. Yeah.
- [48:27]
F
No, Tamagotchis didn't make it. Elon Musk is it either.
- [48:30]
B
Victoria, thank you very much. Have a great weekend. Great long weekend. Victoria Green. And that's it for the Exchange. I will join Brian Sullivan for power lunch. Jam packed one right after this break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [48:49]
A
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