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Dow 50k, The Upside-Down AI Trade, and When Will Bitcoin Bottom 2/6/26
00:51:54
The Dow soars more than 1,000 points, getting within striking distance of 50,000. With Amazon, Meta, and Microsoft lower on capex concerns, but the rest of the Mag 7, chips, and even software rallying after a rough week, we make sense of what's next in the AI trade. Plus, bitcoin climbs back above $70k, but Jefferies sees few bullish indicators when it comes to finding a crypto bottom.
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Kelly Evans
Savings versus Comparable Verizon plans plus the cost of optional benefits, plan features and taxes and fees vary. Savings with three plus lines include third line free via monthly bill credits. Credit credit stop if you cancel any lines. Qualifying credit required. You're listening to the Exchange. Here's today's show. That was so good that we should just replay the Nvidia interview start to finish with Brad. It was wonderful. Scott, thank you so much. And take a look at the market. Wow. So big questions today. Should you thank the Mag7 for this market bounce? Should you blame Kevin Warsh for the crash in crypto and other momentum parts of the market? And should you buy any software right now? Welcome to the Exchange. I'm Kelly Evans. As mentioned, the dow is up 1,000 points and it's not just a recovery from a so we are hitting a new all time high today and we're getting a lot closer to 50,000. We are 30 points away from that level. That's a sneeze at this point. The small caps are up 3.3%. The tech trade is recovering. Nasdaq's up 2% S&P slightly less than that. Semis and software outperforming. Take a look at the smh. That's where we've seen more of the damage lately. It's trying to repair that today. Jumping 5%. It's back at 400 and that's within video leading the charge. Take a look at these shares of more than than 7% for its best day since last April. Again a stock that has been moving sideways pretty much since last summer. Now the momentum trades are catching a bit again. Palantir and Oracle are rising in the session as well. About 3, 4 or 5% and Bitcoin recovering after. Who else is watching it last night? Is it going to break 60? It got very close. It's rebounded all the way back up to 70 at the moment. But one of our guests warns that's likely not the floor and it's down 15% on the week. But let's begin with this Capex bonanza we have seen in the past two weeks. Amazon, the cherry on top, telling us last night they now expect to spend $200 billion in 2026. That comes after Google already raised eyebrows with its plan to spend 175, 185 billion, 135 billion for Metta, for Oracle, still more than 50 billion. Nothing to sneeze at. And if you think all of this is a lot, B of A predicts it's going to go even higher with capex spending by just4.5 companies hitting the 2 trillion mark by 2027.5 companies. The key question now is ROI. Let's bring in Gil Luria. He's head of technology research at DA Davidson. Gil, I think you put it really well when you said that. This is kind of like a. You put it better than me about a fight to the death or an existence. They are throwing money at this to survive. It's possible they're all going to end up thriving as a result. So I'd just like to know how you see this playing out. One at the expense of another. Or they can all eventually profit together, which is more what Jensen Huang was just telling Scott.
- [03:27]
Gil Luria
Well, clearly they're all pushing the chips in the middle of the table. So Microsoft, Amazon, Google and Matt are spending all of their cash now and some cash they don't even have yet on building data centers, which, by the way, is great for Nvidia and for Jensen Huang because he's getting at least 30 or 40 cents on the dollar for every dollar they spend. And that's what you're seeing in the market today. Now, are they getting a good return on investment? They all have accelerating businesses right now, and that's partially because of this AI investment. Let's not forget, between Microsoft, Amazon and Google, you have all the business customers. All these business customers are reserving data center capacity three years in advance. And then between Microsoft, Google and Meta, you have all the consumers who are using these AI tools for new things. They're using them more every day. We're starting to use them more in the workplace and we're not even paying for it yet. We'll start paying for it more and more soon through Higher subscription levels and advertising. But the point is that these companies are investing because they see the return. Now, what investors are telling you right now is maybe you're seeing the return, but we're seeing your cash flow go to zero. So that's why Microsoft and Amazon have underperformed. And Meadow has been up and down recently because the investment is so great. But all these companies are telling us we're getting the returns. We see these commitments from our customers and therefore this is a worthwhile investment.
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Kelly Evans
I sort of side with those who say, in some ways, who are we to tell? Jensen Huang, Jeff Bezos or Andy Jassy, whomever. You know, these leaders who have steered these companies and are, they could just sit back to your point and collect the cash. They could check out. They could just say, you know what? We, we built profitable business, we're going to be fine. They're not doing any of that. They are leaning in, they are throwing money at this. And the only concern on the mind of people is how do you know if it's too much and what kind of shakeout might be coming. We had an analyst from Wells Fargo yesterday who said, can't really invest in these companies during an investment cycle. So some people might want to move to the sidelines for, I don't know if it's a period of one to three years and say, I'll go to the cyclical parts of the market, wait this out.
- [05:48]
Gil Luria
We actually think that we're already starting to see who the biggest winners are. And those companies are getting very good returns. Clearly, Google is getting very good returns. Their cloud business just accelerated to 48% as Gemini's is getting such great popularity right now. We think Microsoft is also getting good returns. They're growing earnings 20%. Their Azure business grew 39%. It would have grown faster if they didn't allocate so much of it internally. I worry more about Amazon right now where they're just not getting the same results. They're investing just as much, but their growth is half of that of Google Cloud. Their backlog is less than half of Microsoft. They're twice as big as Google Cloud and they only have the same backlog. So some will win and some will not. Meta is running out of cash. Can it stay in the game long enough with Microsoft, Amazon and Google? And so you have to worry about that because if this continues to escalate to your point earlier, maybe they all win, but maybe there's only one or two winners. Maybe this is a winner take all or winner take Most market and clearly they're all in. They're not going to blink. So you have to think about who has the cash flow and the capital. Again, that's primarily Google Micro to some extent Amazon and then less so Metta and Elon. If this continues for several more years, Meta and Elon are going to run out of cash and it's just the three bigger ones that are going to stay there. Then you have the added dynamic of now everybody's worried that Google's running away with it. So Microsoft and Amazon and Nvidia have to invest in open air. We're talking about $100 billion raise to keep this race going. So they all believe this may be a winner take all or winner take most market. And they're all in.
- [07:42]
Kelly Evans
Incredible. I love the way you just captured all of this. And you're saying, in other words, the market's reaction is rational to Amazon's report. They say we want more growth. You know, we want. And I don't know if it's by accident or it was very intentional that Jensen Huang mentioned Amazon by name. He said, look at what they're going to do with this technology. So he seems to believe, I'm sure this is where the company is trying to go, that ultimately the AI experience will, what's it called, a Jerry or their chapter will ultimately improve the shopping experience. They'll recapture that retail growth. Maybe it will then kind of be a flywheel. Better flywheel for us. He multiple times Wong just mentioned the partnership that they have. But I take your point as well that it's almost like they need all of these other players to succeed. So Google with their own TPU's doesn't just come along and eat everybody's lunch.
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Gil Luria
Yeah, Nvidia wants everybody to succeed. In fact, Nvidia wants to go beyond this and they want Oracle to succeed. And Corey Vanebius, they want everybody to succeed. So they have a lot of customers that demand the chips, that compete with each other for his chips. So that's his interest. But if you think about Amazon a little bit more, part of the challenge here is that Google has this frontier model in house, Gemini. That's a big advantage. Google has TPU's that are years ahead of the Trainium, so much so that they're going to start selling them externally and Microsoft has the primacy with OpenAI and those are the two horses. Amazon had a lead at Anthropic, but then Google came in with an investment and Microsoft came in with an investment. So they're not as exposed to anthropic. So they're falling behind that way. And then we also worry a little bit about the retail business. Yes, the robotics are making them so much more efficient, but because they're trying to get us to use Rufus, they're stalling on linking to Chad, GPT and Gemini, which are now the two biggest emerging funnels for consumer. Yes, if Amazon stalls much longer, consumers will end up getting funneled to other merchants. And that's a risk to the retail business, that's a risk to their advertising business. So Amazon is had a huge lead, they're losing the lead in cloud and now maybe they're putting their lead in retail at risk as well.
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Kelly Evans
What did you make of Jensen's remark? Because I caught your cautiousness about Meta and whether they'll have the cash flows to sustain what's investment that they've promised here. But he pointed to them and said they're the best example of using AI profitably right now.
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Gil Luria
Again, he wants everybody to succeed, so he's propping up all, all of his customers with Metta. There was some relief on the quarter because their advertising business is growing so fast. And you do have to credit AI for that. Right. The AI is making for better experiences, better ads. They can charge more for ads, that's why their growth is accelerating. But their investment, their 135 billion of capex is actually not going to that very small part of that is going to making their ads better. Most of it is to develop a frontier model to catch up in this race with OpenAI, Anthropic and Gemini. And we're not hearing that they're doing particularly well. And let's not forget again, they're using it internally. Google, Amazon and Microsoft turn around and sell the data center capacity to their customers. They have all the customers met is using it internally. And again, they're using more than all their cash. They're already at the point where they're borrowing money to stay in this race. If their models aren't very good soon they're going to have to stop this level of investment because they don't have anybody else to pay for it to do well. Instagram is over investing.
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Kelly Evans
I just wonder if they could turn on that ad lever in the same way that Google was the platform for ad spend for the past 15 years. If everyone's on Instagram and Meta just charges more and does better ad load because of its AI tools, can't they ultimately just monetize it that way?
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Gil Luria
And they are. And again, that's why the results are so good they just accelerated to the mid to high 20s in AD growth. By the way, that's twice as fast as Google. So they're gaining share in a very significant way because they're very good at using AI, but a lot. But again, most of the investment isn't for doing that. Most of the investment is to develop a new model so they can stay ahead there. But we fully expect them to continue to be very successful in that ad business. They've clearly figured out how to, how to monetize better than anybody else and there's no reason why that's going to stop anytime soon.
- [12:21]
Kelly Evans
Gil, again, if I have this right, you did downgrade Amazon to 175 to neutral a price target to 175 from 300 after the report. So those concerns you cited, you want to see better growth even though it was a 13 quarter high. I believe on Amazon web services you want to see that accelerate. You want to see that the biggest one biggest engine kind of being as profitable if not more so than some of these smaller ones that are gaining on it. Is that right?
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Gil Luria
Yeah. So on the side they have to accelerate a lot more. Right now they're losing share to Google and Azure more than they've lost in a while. So they have to continue these and they have to continue to invest to this level. They have to invest in open air in order to get that growth to catch up to those two big competitors. Again on the retail side, they have to stop thinking that they could win the chat war. Rufus is not going to win the chat war. They have to swallow a little bit of ego and allow Amazon, the retail Amazon to connect to ChatGPT and Gemini so that top of funnel continues. Until they do that, they may underperform. And the rest of these bigger companies.
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Kelly Evans
I wonder how much is. We got to go Gil. But you know our house, we're already paying 20 each a month for chat GPT. Haven't canceled it yet. Paying implicitly 20 or so a month for. For Gemini. Haven't done client. That would be another, I don't know, 20 plus. And at some point you think if this. They're already charging us that much. How much are these models going to cost to use in the future? Kind of like the Netflix analogy a former colleague was just making or Uber. Right. It's all, it's really cheap at the start. Then once that's the only option they can kind of charge whatever they want.
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Gil Luria
That's exactly right. This is like 10 years ago Ubers were $10 for any ride. And now they're, they're a lot more than that because these, because Uber is capturing the value it's creating. The model companies are not even close to capturing the value they're creating. There'll be people that will pay a lot more than $20 a month. But for those that don't want to pay it that much, we'll just have to watch ads in our chat stream, which isn't going to be great. But for those people that don't want to pay for a subscription, just like with Netflix, that's going to start becoming an option.
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Kelly Evans
All right. We can think about that when we see those super bowl ads on Sunday. Gil, thanks so much. Appreciate it today.
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Commercial Break Voice
Thank you.
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Kelly Evans
Gil Luria with DA Davidson. So there was your deep dive into what's going on with the Mag 7 here amid all of this capex. But the markets again are in a better mood today after the recent volatility that we've seen. And that's been attributed to a long list of problems, everything from anthropic coming out and killing software, the liquidations in bitcoin, some economic concerns with the layoff data. But our next guest says a large part of this volatility has also been the nomination of Kevin Warshaw's Fed chair. And he says the market is getting this story wrong. Let's bring in Larry Lindsey with the Lindsey Group, former director of the National Economic Council, former Fed governor as well. Larry, it's great to see you. And certainly the dollar is still out. I mean, there's this, this hawkish bent, for lack of a better word. I see every day, I see research about what he might do to with shrinking the balance sheet and when that might happen. What would you say about that narrative?
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Larry Lindsey
Well, we start off with Kevin being labeled the most hawkish of all the possible nominees may be fair, but when it comes to things like shrinking the balance sheet, that's just contrary to what he said. It's contrary to everything I know about him. And so I think there's where the market's getting it wrong. Look, Kevin left the Fed as a result of QEs 2 and 3. He was very supportive of QE 1. He was very supportive of COVID QE. And so his view is if you're going to do something extraordinary, you should save it for extraordinary times. The crash in 08 was an extraordinary moment, and pulling something off the shelf was a good thing to do. Same thing was true of COVID That was not the case for QE2 and QE3. So I think Kevin will be, you know, much more cautious about when he pulls out extraordinary measures. But I don't think he's going to do away with QE or shrink the balance sheet.
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Kelly Evans
And I have to say it's not as if we've gotten, you know, your comments. Now. I could understand if, if it turned the market around. The market was starting to turn around before you were saying this. You know, for the past several days now we see the Dow kind of breaking up back to the upside, a little bit of relief on the ten year. Do you think they're starting to understand that story or is this just a coincidence?
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Larry Lindsey
Kelly, one thing I can't do is say why the market's doing what it's doing. But I do think fear got way, way, way overdone and began to feed on itself. But I think people realized, you know, you don't, if you follow a market trend that is nothing more than one that's feeding on itself and fear of missing out, what have you, you're probably going to be a loser. So why don't we just credit it with market common sense. But the fact.
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Victoria Green
Sorry, no.
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Kelly Evans
Well, I was just going to say the other kind of counter to all of this that I've seen since war was nominated was people in the crypto space specifically saying don't buy it. Like don't buy the hype that he's going to be a hawk and you're going to be fooled again. He's going to be a dove. That's why the president put him in. He's going to expand the balance sheet. He's going to do whatever. In other words, the liquidity will still be plentiful. That's the case that a lot of them are still making. And it almost sounds like it's a case that you might agree with.
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Larry Lindsey
No, I don't think we're going back to the old party. I think Kevin is going to play things down the middle. I think he's going to use extraordinary measures when extraordinary measures are needed and not when they're not needed. That's prudence. And we got into a little bit of a habit of liking, you know, Huey felt good, let's face it, so feels good. Let's do it right. That was sort of the mentality for a lot of the last 15 years. I, I don't think that's Kevin. I think he's going to look at the numbers, look hard at where things are going and base policy accordingly.
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Kelly Evans
Could you give a sense what you think his first moves might be so that the market can become familiar with the way that he might run monetary policy. If I'm sure what's going to happen is if they start hearing about the balance sheet in anything but a dovish way, we're going to get some big reactions.
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Larry Lindsey
So the problem we have now or more precisely the problem Kevin has now but we all have it is, is under custom he is not allowed to speak and that's can't speak until his hearings and those could be months from now. So what you have is, you know, rumors have ability to run wild in presence of a vacuum. So that's where we are right now. We'll have. I have not spoken to him about this issue and he is not going to be speaking publicly about this issue. But I'm just relating from where I know, I know him for 25 years, I think I know pretty well what he's thinking.
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Kelly Evans
So Larry, when he, when, when he looks at the Capex spend here, you know, couple trillion dollars, we're talking by 2027 from mega cap tech and of course you were there, you know, dot com boom and all the rest of it. What is a war led Fed to do about this if anything?
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Larry Lindsey
So let's start with what happened back then which was the Greenspan era. And Greenspan argued let's encourage it because the faster you get technology changing capital in place, the faster the economy will grow long term growth. That was probably right. The problem was it doesn't happen smoothly. We ended up having a bubble which burst. I don't think that Kevin will be quite as generous as Greenspan because you know, we had a bubble burst at the end of the century. We had a bubble burst in 2008 and I think we've learned the lesson that overdoing it with regard to monetary ease is counterproductive in the long run.
- [20:36]
Kelly Evans
All right, well we'll see to what extent this echoes the Internet build out as we hear Jensen Huang saying if anything it should be much bigger and arguably maybe more profitable. But Larry, thank you. Really appreciate your time today.
- [20:50]
Larry Lindsey
It's my pleasure to be here. Thanks Kelly.
- [20:51]
Kelly Evans
Larry Lindsey with the Lindsey Group. Now if you want exposure to the pipeline, investors are scrambling for that right now. Witness Lumentum Holdings Ticker Lite, a component maker who counts Google among its customers. Their shares are jumping 8% today after blowout earnings back on Tuesday. The stock is up 39% this week and up more than 400% in a year. For more, let's bring in Michael Hurrelson. He's the president and CEO of Lumentum. Michael, it's great to have you here.
- [21:18]
Michael Hurrelson
Welcome, Kelly, thanks for having me on.
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Kelly Evans
Can you illustrate what is going on under the hood and a company like, like yours making, is it photonics? Am I right?
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Michael Hurrelson
It's photonics. I mean, everything you've been talking about this morning relative to these data center spending budgets is great for us. We supply hardware to almost every data center customer that there is. So as these capex bills start going up, as you've been talking about, it's absolutely fantastic for us. So we've been benefiting for that for a while and we expect to continue to benefit from that.
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Kelly Evans
As I understand it, your connectivity competes almost with copper. Please say this better than I can, but it so that it doesn't get too hot or overheat or what have you because these are really high powered data centers. How much product are you putting out there now versus say, before ChatGPT came on the market? How is that expected to look in another two or three years?
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Michael Hurrelson
The fact of the matter is that nothing moves faster than light. And so you correctly refer to it as photonics. Photonics is essentially light. And when you're trying to move these huge AI models across a data center, you can move it fast with light. And so the conventional wisdom has been use copper. Copper is just wiring that is connecting different parts of equipment in the data center. But as these AI models have gotten heavier, they've gotten more expensive, they've gotten bigger. The conventional wisdom now has more and more of this stuff being trafficked across optical components. And we happen to make the best optical components in the world.
- [23:05]
Kelly Evans
Your revenue is up 68% year on year, as I understand it. How quickly can you grow and expand to meet demand and what would, if anything, slow down momentum here? I mean, as excited as people might be about what you're describing, they're probably equally nervous about a Stock that's up 400% over the past year.
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Michael Hurrelson
Yeah, look, this is only the beginning for us. I mean, I think what we've been trying to explain to people is it's the very, very early innings of a transition from copper to photonics. And so, yes, our stock has performed unbelievably well through the last year, but we think we have plenty of gas in the tank from here. All of this is just beginning to happen. It's just beginning to show up in our numbers. And we think as we fast forward the next two to three years, there is going to be a lot more that we can do to inflect our, our revenue, inflect our margins and inflect our earnings.
- [24:03]
Kelly Evans
Can you comment? You know investors love to create these baskets and you have been put in the Google basket. Congratulations because that's been ascendant lately. I just want to know if there's anything there you would clarify. Do you have exposure to kind of the Google TPU stack? Do you also have exposure to an open air in video kind of stack as well? Can you just kind of talk a little bit about that?
- [24:24]
Michael Hurrelson
Look, we're, we're lucky. We're kind of an ARM supplier and we go into almost every data center. So almost all the people you just mentioned, Google in video, Amazon, Microsoft, these are all great customers of ours. And so what we benefit from these big capex bills that you've been describing all day. We think that these data centers are going to continue to change, transform from these electrical backplanes, from these copper backplanes as you describe going more and more to photonics which is going to benefit us. And we, we have exposure to almost all of the hyperscalers that are out there.
- [25:09]
Kelly Evans
Wow. You also have a 30 year career and I wonder if you could just put what you're steering the company through now in that perspective.
- [25:16]
Michael Hurrelson
You know, I've had the pleasure of being through two major technical revolutions about 20 years ago we had WI fi. Of course WI fi was nothing 20 years ago and I was involved in bringing WI fi to market and the numbers were just astronomical. This is even bigger. I mean what we are seeing as a company, as an industry is even bigger than the WI Fi revolution that hit us about 20 years ago. It's just been a fantastic ride. And I think it's as I say, it's only just the beginning, only the early innings of this transformation from copper to optics.
- [25:58]
Kelly Evans
You know, for, for a non specialist like myself it is not only fascinating, it is incredible to watch in real time to see the rise of this as the buildout picks up steam. Michael, thanks so much for making the time.
- [26:10]
Michael Hurrelson
Thank you Kelly.
- [26:11]
Kelly Evans
Michael Carson joining us from Lumentum holdings today. Joining me now on set is Victoria Green, G Squared private wealth cio, a CNBC contributor who's also jaw been kind of on the tape. We're, you know, we were watching it this morning. Victoria backstage going, you know why today? How can you have it if the catalyst is Amazon and Amazon shares are down? Is it because to Gilbert's point, if the company needs to catch up, according to him, that's even more investment. 200 billion that helps in Nvidia, that helps the rest of the market. Is that kind of what's going on here?
- [26:42]
Victoria Green
I feel like this is a little bit that we had a risk on movement. It's not just this. It's bitcoin is everything. Everybody felt like yesterday after close. I think after Amazon you felt this doom and gloom. Oh my goodness, software is dead. Everything's dead. We're never going to rally again. Here's the deep seat moment, right? This is deep seek for software. And all of a sudden then today we come around and we say, oh, there's dip buyers. Oh, bitcoin caught a bounce. Oh, this risk on thing. Oh, tech isn't dead. Look at all this infrastructure spend. And you play this out and say, okay, yeah, Amazon 200 billion, Google 180 billion, like 600 and something capex. And then you listen to Nvidia's CEO that was on earlier today and you say, look at how much opportunity there is. And everybody's saying this is early innings.
- [27:23]
Larry Lindsey
Right?
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Victoria Green
Hold on though, buckle up, there's going to be disruptions. I know last year was a very long year and we forgot, but Deep Seek was a huge moment and people sat around me like, is this the death of the chip trade? And see how that turned out. You know, kind of bailing on the chip trade because you're reacting to, to this disruption and this was the natural progression.
- [27:40]
Kelly Evans
So you have three ways of thinking about this. You think there's one area that actually kind of of software in particular that that should do better and better here, which is cybersecurity. Is that right? It is. Because I can imagine companies say, look, even if we're vibe coding or vibe creating products, you know, our cybersecurity security is the most vital component of what we do. I'm sure they're hesitant to insource that too much.
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Victoria Green
You're hesitant to insource and you've got to invest in it. Of all the areas you want to invest and you want to make sure you're doing it right and you want checks and balances and multiple layers of security. It's cybersecurity and asa guy gets smarter. And God forbid we get quantum up and running, that's just going to make attacks harder and harder to fend off. So you have to continue to invest in that. And while there are some great ways to build it, I think that's one area people are still going to want to outsource by and make sure we have the absolute, absolute best cutting edge running our cybersecurity.
- [28:29]
Kelly Evans
You like crowdstrike there, if I'm not mistaken. Who else I like Rubrik.
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Victoria Green
They're a little bit smaller, they're only about 10 billion in market cap. But I really like them because they're like, hey, you're going to get hacked. That's basically their pitch is it's going to happen, you're going to have something, we're going to help you recover, we're going to make sure they talk a lot about resilience. And so they're just about if you do get hacked, this is how you recover, this is how, how you respond to it, this is how you hopefully protect yourself from it. But you have to build resilience because at some point something is going to get it.
- [28:57]
Kelly Evans
There's also a few software names that have been a part of this recent sell off that you think that's not Microsoft, for instance, Intuit, if I'm not mistaken. I mean when you look around, where do you see the opportunities where the market has been thinking about this perhaps incorrectly or just overdoing it.
- [29:11]
Victoria Green
Yeah. So first off, there are some high quality companies and Microsoft's one of them. Right. They are software as a service, but they've got all the. Also what's going on with Azure, they're not just a pure play. And what happens with Office 365? It's just such a secure moat. So I look at this and I look at software stocks and say who has a moat? Who is defending well against this? Who has something that people still want to pay for versus building it because it's so critical. Either it's payroll processing, you mess with people's paychecks, that's a really, really fast way to really annoy all of your employees. So payroll, things that are sensitive data that need to be protected, things in the healthcare sector that you have to. That's where we like Roper a little bit. If you're dealing with a sensitive sector where you have people's health insurance, their, their social securities or database, things like that, we look at that and say that's a sector you want to be. So protected sectors, strong moats, strong software that, that isn't easily replaceable or on what I consider critical functions. Yeah, you know, if hotel ever goes down, I might just die.
- [30:06]
Kelly Evans
There is some software though that you think, look, this, this risk, even as we're watching the market levitate here, the concern that software investors have you think is legitimate and where do you think it could actually eat into companies that previously had those moats you describe platform.
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Victoria Green
And workflows and there's plenty there that you know. And ServiceNow obviously is one of those where it was great, but is it most easily replicatable, most easily replaceable? I think so. Because as organizing your apps and workflows gets better and efficiency and things like that, that to me is the least protective area. Software.
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Kelly Evans
Okay. Where else?
- [30:39]
Victoria Green
And if you look around that sector, you know you've got some, the app development, you've got cadence on the design side. You've got things that are like here are things that basically we help make your life easier. That to me is one of those, that anthropic and chat, TTP and all of that. They're going to figure out how do we optimize workflow, how do we, how do we do this efficiency thing better?
- [30:56]
Kelly Evans
And finally when you see going back to Nvidia picking up some steam again, it's up 7%. Was that a name that you've been in? I forgot if you, you've stayed long there and then the rest of the hardware space, whether it's the chips or some of the tools, the memory, you know, is that, do investors just stick with that play per what we just heard from Lumentum?
- [31:12]
Dom Chu
Yes.
- [31:13]
Victoria Green
I think you need to keep your core tech. We've been talking about it. Keep your core tech and chips. We have trim back, we had trim back to Microsoft. We had trimmed a little bit of Nvidia and Broadcom only because they also got to be a bit of a whale on the portfolio because of the run up. So some of this was prudent risk management. I know being a portfolio manager you cut and have to be a little dull at times and, and trim back those winners so you don't get burned when it flips around. We also want more on the infrastructure and more on the value. So some of it's not that I don't like the video, some of it's this year I think you're going to get a little bit better from value Industrials Financials. You know, we want some more health.
- [31:44]
Kelly Evans
Care staples that's been rising out of the gate. Value Industrials Financials like you said. Victoria, appreciate it for now. Thanks. Victoria Green G Squared. The Dow hitting a new high today. Those industrials she was just talking about getting much closer to 50k as well. About 50 points shy of that mark. The Russell Small caps are up 3.3%. The staples are also hitting another high. That said, momentum is bouncing back as well. So what do you do with a dashboard like this? Let's bring in Richard Bernstein. He's the CEO and Chief Investment Officer at Richard Bernstein Advisors. Rich, I can't wait to hear. Where are you value hunting? What are you steering clear of? I have to imagine you're, you're loving the cyclical story here. Why do you think the market's doing so well today? What did you make of the Amazon quarters? So many questions.
- [32:26]
Rich Bernstein
So, so I don't know where to start, Kel. I mean, I think, look, I think the broadening of the market, we've argued for some time that it would be extraordinarily healthy if the market broadened. And that's really been going on since the end of October, more or less. I mean, fits and starts, but it really started in October. And I think that this is very healthy. You know, I think people don't realize how strong the overall economy is. Nominal GDP last quarter was over 8%. Wow. Excluding the post pandemic, the United States hasn't had a nominal GDP quarter over 8% since 2006. Wow. It's been 20 years. So why you would have a narrow market when you've got GDP, nominal GDP over 8% is mind boggling. And so what you're seeing is actually the market begin to broaden in acceptance of the economy and the corporate profits are turning out to be much stronger and much broader than people thought.
- [33:23]
Kelly Evans
Is there any of the mag seven you like here, you know, in video is up 7% today.
- [33:28]
Rich Bernstein
Well, Kelly, I'm going to beg off on the question because we are very much a macro firm and one of our stories has always been that we don't know anything about Coke versus Pepsi. And so I will say I don't know anything about Microsoft versus Nvidia as well. I can tell you that the key thing, and I've said this many times with you before, that the key thing for the Mag 7 is that they are fine companies. They are not unique. There are many companies in the United States and around the world that are growing as fast, if not faster than the Max 7 and are a lot cheaper. So my question would be if you can get 20, I'm going to make up these numbers for a second. If you can get 20% growth for 40 times earnings and 20% growth for 20 times earnings, why in the world would you not take the 20% growth for 20 times earnings?
- [34:18]
Kelly Evans
And where are you seeing that kind of profile now? For instance, Eli Lilly earlier this week reminded US They've got 40 and 40. They've got, you know, 40% revenue growth. They've got 40% operating margins. That's a trillion dollar company. Where are you seeing places that are as fast growing, you know, 20 plus percent as you mentioned, but trading, I mean Microsoft's trading at like 20. I'm like the company you're describing sounds to me like Microsoft.
- [34:43]
Rich Bernstein
So Kelly, I'm going to sound extraordinarily boring here for a second and I'm just going to say if people are willing to look outside the United States, you will find earnings growth is accelerating in many parts of the world. It's not that US Earnings growth is imploding. It's not, it's actually kind of leveling off and maybe coming down a little bit. But outside the United States you have profit cycles that are actually coming up. So you're getting, I don't even think you have to be very sexy about this. You just have to have non US Investments. Most US Investors have zero in non US So I think this is a pretty easy thing to figure out that when the, when the non US markets are 35 to 40% of the global equity market and US investors have less than 10%, I don't think we should worry about a specific stock or the optimal weight of non U s. It's just do you have any non U S? And I think that will solve the problem.
- [35:40]
Kelly Evans
I always worry a little bit about the dollar. Do you think that's just the moves you're describing are so powerful it doesn't matter if the dollar appreciates a couple of points?
- [35:48]
Rich Bernstein
Well, that's a, that's a good one. I mean, you know, usually people ask me the other way. They say, well, you know, the only reason non U s outperformed was because of the dollar. And, and my answer is, well, so what? I mean like, well, I don't want the, I don't want the return coming from currency. Now yours, your question is the exact opposite. What happens if the dollar appreciates a little bit? Yeah, I mean that would be a little bit of a, of a prevailing force against them, but I don't think it's enough to make that much of a difference. And if the Fed is cutting rates into the strong nominal GDP environment, the odds are the dollar gets weaker, not stronger. And I think most people would argue that the Fed is still on a rate cutting course.
- [36:28]
Kelly Evans
Do you worry it's kind of go back to the concern in January and after Warsh was not. We just talked Larry Lindsey about that. I mean, do you share these concerns one way or the other either about dollar debasement? You got to own gold, you got to own silver, or the flip side, which is now, hey, we might be in a hawkish stance and so, you know, the momentum trades are pulling in their reins and then you can argue about whether or not we're actually going to be in that stance. Are there any macro narratives that you find believable here or does it go back to the 8%?
- [36:55]
Rich Bernstein
I think there's, I think there's actually several that are, that are going on that are quite believable. I think, number one, although it's great to talk about dollar debasement, I think that's a level hyperbolic. Will the dollar weaken? I think there's a chance the dollar weakens, but there's many ways to play that. Yes, you can play it in commodities, but again, just to repeat what I said before, you can play this in non US Stocks. Remember, when your currency is falling, it's always good to have assets in appreciating currencies. So you know, why not invest outside the United States if you think the dollar is going to weaken. The other side though, is that what's really been driving crypto, the Mag 7 has been a lot of speculation and liquidity is the lifeblood of speculation. And so if, if the Fed nominee wash turns out to be more of a hawk than people expect, then your liquidity is going to, on the margin, dry up. People used to call this the Fed taking the punchbowl away from the party.
- [37:51]
Kelly Evans
Right, right.
- [37:52]
Rich Bernstein
And that was the old saying. So maybe that happens. But that's an argument that you want to look at fundamentals and not at speculation, momentum fundamentals. As I tried to say, you've got a broad range of companies that are doing quite well.
- [38:05]
Kelly Evans
So if he, if we have 8% NGDP, that's real, and if he ends up cutting rates, being somewhat more accommodating with the balance sheet or so have you, are we going to end up with an inflation problem?
- [38:17]
Rich Bernstein
Well, I just want to correct one thing. You said 8% nominal GDP. Yeah, right. But if, but if we, if that is accurate, which the data seems to suggest.
- [38:26]
Kelly Evans
I mean, it's like there are some who explain it here. Right. I said it's real. But what I meant is it's true. It's not just a trade story, but we actually have that much strength and you know, five plus three or whatever in the economy.
- [38:39]
Rich Bernstein
Right. Well, I think, I think we could parse the economy, but the reality is still 8% nominal GDP. And, and if that's true, and if the Fed is cutting rates into that, especially with a weak dollar. By the way, the Fed has never cut rates ever. Never cut rates with nominal GDP above 8 and the dollar down 10% or more, which is kind of where we are right now. So could the bond vigilantes come out? Absolutely. And that's one reason why in our fixed income portfolios at rba, we are not extending duration. Because you may be sitting there and all of a sudden the bond vigilantes come out with the pitchforks, right? And you're caught. What do you do? So I think one has to be a little bit judicious about extending duration here in fixed income.
- [39:23]
Kelly Evans
So what is going through your mind when you watch the movements of bitcoin? Have you always been in the camp that it's, you know, it's kind of funny money?
- [39:31]
Rich Bernstein
Well, I will now alienate myself to about probably three quarters of the audience. But, yeah, I think there's nothing there. I think it's fun. I think it's fun to watch, but I don't think it has any true investment merit because it's not. It doesn't really play a role in the economy. It's not like other investments where you have real cash flow and, and real sales and real earnings. And this is all speculation about what might happen in the future. And so I don't really consider a viable investment. If you want to. And by the way, Bitcoin correlates very highly with liquidity. It is not digital gold that is a complete fallacy. Gold correlates to uncertainty. Bitcoin correlates to liquidity. Gold is a more conservative investment, a hedge against uncertainty. Bitcoin is an aggressive investment that correlates with liquidity. So if you want to be aggressive, it's a great. It's a great thing. My firm won't do that, but. But if one wants to. Fantastic. But let's stop calling it digital gold. That's. That's completely wrong.
- [40:27]
Kelly Evans
Well, maybe only half the audience at this point, depending on Richard.
- [40:33]
Rich Bernstein
Joe Kernan. Joe Kernan doesn't like me right now.
- [40:35]
Kelly Evans
He's good, you know. Watch out. You know, that's how he's going. Back to 200. No. Rich, thank you very, very much for making the time today. Really appreciate it.
- [40:43]
Rich Bernstein
See you later.
- [40:44]
Kelly Evans
Rich Bernstein with Richard Bernstein Advisors. Dow still hanging on to that thousand point gain. Tech is still the best performing sector today, and the chips are back to leading the way. So should we put all that carnage behind us or is there more volatility and selling pressure to come we're going to look at next week's earnings for answers next. And don't miss our interview with Energy Secretary Chris Wright. Next hour on Power Lunch. We'll talk Venezuela, Iran, energy policy here in the US it's all coming up in about 20 minutes. Martha listens to her favorite band all.
- [41:16]
Gil Luria
The time, in the car, gym, even sleeping.
- [41:22]
Kelly Evans
So when they finally went on tour, Martha bundled her flight and hotel on Expedia to see them live. She saved so much she got her seat close enough to actually see and hear them sort of. You were made to scream from the front row. We were made to quietly save you more Expedia made to travel. Savings vary and subject to availability. Flight inclusive packages are atoll protected. Introducing FidelityTrader plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web and mobile. For faster trades anywhere you go, try the all new Fidelity Trader Plus. Learn more about our most powerful trading platform yet@fidelity.com TraderPlus investing involves risk, including risk of loss. Fidelity Brokerage Services LLC member NYSE, SIPC ABC's David Muir, the most trusted anchor in America, the most watched anchor in America. Thank you for making World News Tonight with David Muir, the number one newscast in America. Most trusted, most watched.
- [42:27]
Michael Hurrelson
David Muir on abc.
- [42:36]
Kelly Evans
Welcome back. As we look at this monster rally playing out in the markets today with the Dow not just recovering from its recent weakness, but soaring a thousand points to a new all time high. We're 12 points away. 13 points, guys. Get ready. The Dow 50,000 graphics in the back because we are very, very, very close right now. Up 2.2% as we hit pretty much session highs this afternoon. And the Russell 2000s are now up 3.4%. Now despite this rally, the Nasdaq of course still has seen some selling pressure and week to date, it is still down about 2% since Monday. That would actually be its week, worst week since November. The S and P is having its third losing week in four. So a lot of differentiation here in the sectors. The staples industrials and energy are hitting record highs today. Financials flying high too. The KBE Bank ETF record high there, the regional one, the KRE, highest level in four years. Citi and JP Morgan are having their best day since last April. JP Morgan, Citi's up nearly 6%. Of course, it's not all green. We do have Stellantis plunging 24% after announcing a 22 billion euros charge tied to the scaling back of its electric vehicle plan. Same story we've been hearing with Ford and others. That is the worst day for Stellantis since 2009 and the shares are back at around $7, their lowest level in only almost six years. David leading the S and P since Monday soaring 30%. Best week since 2000 after strong earnings, better than expected guidance on the flip side as we look back at the week. Molina now at its lowest level since the start of the pandemic. Big earnings miss weaker than expected guide. Those shares are down about that much just today. PayPal is near nine year lows after this week's C suite shuffle. And finally check out shares of Once Upon a Farm 2020% pop in their public debut. It's the nicest IPO opening we've seen in a while. It only takes Jennifer Garner friends in order to get results like this. This is her organic kid food company. It priced at 18 right in the middle of the range. Opened at 21 and now it is up nicely 21 and a half. 20% pop tech is the best performing sector today but the half of the Mag 7 is lower. Amazon down big Meta and Microsoft under more pressure as these capex concerns build after the four largest hyperscalers said they expect to spend more than $600 billion this year alone. But Nvidia CEO Jensen Huang just told CNBC last hour he's not worried about that. He thinks it's appropriate and that demand is sky high.
- [44:57]
Chase Sapphire Reserve Advertiser
Demand is sky high and there's a.
- [44:59]
Kelly Evans
Fundamental reason for that.
- [45:00]
Chase Sapphire Reserve Advertiser
We're in the once in a generation infrastructure buildup.
- [45:04]
Gil Luria
This is the largest infrastructure build out.
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Chase Sapphire Reserve Advertiser
In human history and there's a fundamental reason for that. Artificial intelligence is going to fundamentally change.
- [45:11]
Gil Luria
How we compute everything.
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Chase Sapphire Reserve Advertiser
Everything from database processing, the way we do search, the way we do recommender systems that you shot, the way you.
- [45:19]
Kelly Evans
Watch movies as demand is sky high. As he says. If big tech keeps saying it's working, why are the trades not working? Let's bring in Deirdre Bosa for more in today's tech Jack Heidi Hey Kelly.
- [45:32]
Deirdre Bosa
So you know Jensen's comments makes what we're seeing in the AI trade even more confusing. You've got software stocks that are just getting absolutely crushed because AI is too good and it's going to replace them. But then you have the mega caps building AI to be more powerful. They're getting punished for spending too much money on all of this now matters. A good example of the contradiction. 50 cents of every dollar is going into AI infrastructure that is double Amazon's ratio. Yet Amazon is the one selling off More met as margins are falling. Free cash flow could get halved or even worse this year. Meanwhile, we spoke to Vercel CEO Guillermo Roche. He builds on top of OpenAI and Anthropic. He said something similar to what we heard from Jensen Huang. He says the pace of AI progress is only speeding up and new winners are coming.
- [46:21]
Kelly Evans
Every single thing that we've said I.
- [46:23]
Michael Hurrelson
Cannot do gets proven wrong two weeks later.
- [46:27]
Kelly Evans
One person, billion dollar company well within sight. Autonomous companies well within sight.
- [46:35]
Deirdre Bosa
So, Kelly, maybe the market is clearing out the old guard and it's making room for something new. And we might be about to see it sooner than we think. OpenAI and Anthropic both moving towards IPOs. When they file the market, we'll get the hard numbers on those pure plays and we'll see sort of which side wins out. But right now there's a lot of confusion and the trade just feels broken.
- [46:57]
Kelly Evans
You know, Jensen was, was gleeful practically at the end of that interview with Scott. He said, imagine being able to invest in Google when it iPodOS. And that's again, Gil or he says there's a little bit of boosterism going on here. He needs the whole ecosystem to thrive. But to him it's like this is an opportunity we haven't had in 20 years.
- [47:14]
Deirdre Bosa
At the same time we talked about this yesterday. The Google, the matters, the Microsoft, the Amazons going forward are going to be looking a lot different than they have for the last decade or 20 years. Right? They're turning into something different. They're going from asset light to asset heavy and that changes the investment framework. They're looking more like utilities. And investors are going to be starting to ask about return on invested capital, not just top line revenue growth.
- [47:39]
Kelly Evans
All right, dear, thanks very much, Deirdre Bosa. Coming up, Bitcoin down 10% today, down 16% on the week. Strategy, though, is higher. Despite reporting a much wider than expected loss due to the crypto rout, the shares are bouncing 23% today. They did beat on revenues, but they lost $12 billion in the fourth quarter. And that was before the price of bitcoin collapsed recently. That was way up from losses of just 671 million a year earlier. We'll dig more into when we could see a bottom here for crypto. We'll see if Rich Bernstein's right. We'll talk more about that when we come right back.
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Kelly Evans
Learn more@chase.com Sapphire Reserve cards issued by.
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Commercial Break Voice
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Kelly Evans
FDIC subject to credit approval. Hey Fidelity, what's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on U.S. stocks and ETFs.
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Commercial Break Voice
Hmm.
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Kelly Evans
That's music to my ears. I can only talk investing involved risk including risk of loss. Zero Account fees apply to retail brokerage accounts only. Sell order assessment fee not included. A limited number of ETFs are subject to a transaction based service fee of $100. See full list@fidelity.com commissions Fidelity Brokerage Services LLC member NYSE SIPC ABC's David Muir, the Most Trusted anchor in America. The most watched anchor in America. Thank you for making World News Tonight with David Muir the number one newscast in America.
- [49:32]
Michael Hurrelson
Most trusted, most watched David Muir on abc.
- [49:48]
Kelly Evans
17 points away from Dow. 50,000 it could be today. All right. Meantime, bitcoin trying to come back at some round levels itself 70,000 today. After nearly breaking below 60,000 last night, Bitcoin is on pace for its worst week since November of 2022. My next guest doesn't see much relief in sight. He says there are a few bullish indicators that crypto may be approaching a bottom. Let's bring in Andrew Moss. He's head of digital assets research at Jefferies. Andrew is a different story. Taking the bounce today into account now or no.
- [50:18]
Commercial Break Voice
So it's great to be here, Kelly. Thanks for having me on. So not really so I mean, bitcoin tokens more broadly have rebounded since yesterday evening, really in line with risk assets more broadly. You know, at noon, bitcoin and ETH were both up about 10% or so from yesterday's lows. But when we look at the data, we see very few bullish indicators that we can really point to that would suggest that the bottom's in. We look at the distribution of bitcoin ownership. Retail is isn't exactly selling, but they're also not buying the dip. You could say they're they're hodling or holding on for dear life, to use some crypto jargon. And then you look at large bitcoin holders, they're selling into weakness whales or investors that hold over a thousand bitcoin. They transition to net sellers over the weekend after buying into weakness for much in January. The spot Bitcoin and ETFs, they've seen some of the largest weekly net outflows since inception over the past several weeks and they continued yesterday and today. You can look at on chain token transfers, not, not much bullish there that you can point to. Treasury company buying has, you know, really slowed, really excluding strategy, but definitely not at the levels we saw through Q3 of last year. And lastly, trading volumes across centralized and decentralized exchanges remain quite depressed. So for all those reasons we see the potential for further volatility in the near term.
- [51:46]
Kelly Evans
But you're the digital assets guy, Andrew, so I feel like you need to be making the case for why it's, you know, you got to get back in or it's a, I've heard theories that people are like they're going to pound strategy and make them sell their bitcoin and then buy them on the cheap and then it's, I don't know, what do you think? What do you see in the longer term?
- [52:02]
Commercial Break Voice
Sure. So I do cover digital assets but I try to provide a balanced perspective. So something that's interesting to look at is that if you look at the current drawdown, it doesn't appear to be driven by anything that's really, you could say crypto specific. So this drawdown really appears to be driven by a broader risk off sentiment, a rotation from the growth parts of tech, specifically software, to value. And that's, and that's really different from the drawdown we saw in 2022 that you referenced in your opening that was really driven by idiosyncratic risk or you could say self inflicted wounds. You had the RTX implosion as well as a number of bankruptcies and collapses. Now what I'm getting at is that your, your, your prior guest was, was talking about bitcoin and I do agree that bitcoin and gold share some similar properties. The problem with that comparison is that bitcoin and tokens more broadly, they don't trade like gold tokens are far more correlated with the nasdaq. They really trade as high growth risk assets exposed to many of the same risk as tech stocks. So why are they up today? Tech's up today and so are tokens. Now over. Sorry, go ahead.
- [53:13]
Kelly Evans
No, you're reiterating the point really that Rich Bernstein was making. So just quickly Andrew, before we go. Oh, okay, we're going to go. Andrew, thank you. We'll bring you back next time. Talk more about it. Again, nice rally for bitcoin but we want to draw your attention to at session highs. We were just a moment ago three points away from Dow 50,000. Dom Chu is standing by it'd be three and a half years. Dom, if we cross this threshold, since the last time we crossed a major one, that's so far that'd be the shortest and quickest period of time.
- [53:42]
Dom Chu
I mean, mathematically it makes sense, right? Because it takes a lot more to double in value from 10 to 20 than it does to go from 30 to 40 or 40 to 50. But it doesn't bring. It doesn't, I guess, make it worth any less. This idea that now 50,000 is in play right now, especially for a market narrative so far that has been a lot more tilted as of late. Maybe call it the last three to five months or so towards the value parts of the market, the blue chip ones, the ones that make up the Dow. So when you look at that versus the NASDAQ 100, the large cap NASDAQ stocks, it maybe makes a little bit of sense. But I would say that it's Goldman and it's Caterpillar. Those are the two stocks over the last six months that have really kind of powered that trade. And financials have been a big gainer for sure, the value trade there. But even Caterpillar, old world industrial, that is now viewed as an AI infrastructure play. So there's a lot of changing narratives right now about what's happening in the market.
- [54:31]
Kelly Evans
Right. And as we get closer, we were, what do we say, three or four, I think.
- [54:34]
Dom Chu
Yeah, we were just, just a handful of points. Yeah. And then we backed off about 30 points since then. So.
- [54:39]
Kelly Evans
Dom, thanks.
- [54:39]
Dom Chu
We're going to get the hats on the 50,000. Hats.
- [54:41]
Kelly Evans
What a right. We think we need more than hats at this.
- [54:43]
Dom Chu
All the guys at the stock exchange are doing it right now.
- [54:45]
Kelly Evans
Don, chill. We're going to have a lot more coverage for you. Coming up on Power Lunch, more on the crypto collaboration with the CEO of strategy. Those shares are up 14% after earnings, but still down 20% this week. That and the watch for Dow 50K. Coming up with Brian Sullivan 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.
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