Episode summary
How to Pick Stocks Like Morgan Stanley | TCAF 258
Ask The Compound
· · Hosts: Josh Brown, Michael Batnick · Guests: Dan Skelly
Summary
Dan Skelly argued that the market’s resilience is being driven by a durable economic backdrop, unusually strong earnings, and a broadening of leadership beyond the original AI winners. He said the economy has shifted away from a more cyclical pattern, while index earnings growth of 28% year over year in the second quarter and 14% for the median company shows strength well beyond the Magnificent 7.
A major theme was whether the AI buildout resembles the dot-com bubble. Skelly said the current cycle is different because today’s spending is led by large, cash-rich hyperscalers buying on behalf of real enterprise demand, not speculative customers like the late-1990s internet boom. He argued that the main risk is not demand disappearing immediately but deployment constraints, double ordering, and a possible handoff from infrastructure spend to AI adopters over the next 12 to 24 months.
The conversation also covered why semiconductors, small caps, healthcare, and financials have all rotated at different points, and why weaker companies are being punished. Skelly said the market is rewarding margin strength and viable business models, while the most speculative parts of the market are more vulnerable to rates and AI disruption.
Key takeaways
- Skelly said second-quarter index earnings grew 28% year over year, while the median company still posted 14% growth, suggesting the rally is broader than just the Mag 7.
- He argued the AI capex cycle is closer to infrastructure deployment than dot-com speculation because the buyers are cash-rich hyperscalers serving real enterprise demand.
- He said small caps face a tougher setup because higher rates, lower profitability, and AI disintermediation could all pressure the group.
- He viewed the rotation into healthcare, financials, and some industrials as healthy because it broadens market leadership beyond semis and AI infrastructure.
- He said the key question for 2027 is whether AI adopters can generate enough productivity gains to offset any slowdown in infrastructure spending.
Notable quotes
“the economy continues to be super resilient. Everyone's been talking about it and it really continues to look through these policy shocks, these inflationary pressures”
“earnings at the index level did 28% year-over-year growth in the second quarter. Um, if I look at the median company, it was 14% growth”
“We're in this, if you zoom out, we're in this no hiring, no firing zone”
“I think AI could be really tricky for small caps in the sense that number one in some of these industries AI is going to dis disintermediate certain industries completely”
“the quality of the spenders today is so much different from back then”
How the episode opens
So, this is gonna be fun. How are you How long have you been at, um at Morgan? — 21 years out of college. Only feels like 20. — Wow. — So, uh I'm — What office do you work in? — Uh at the moment, 757th A, but on my way back to 1585 Broadway.
They move you guys around. — They move us around. They keep the real estate moving. — Okay. — Um but as you probably well know, 1585's gone through like a 5year construction. Yeah. So, some of us were kind of off uh grid, as I call it. Yeah. or this will be my third time going back to 1585 in 21 years.
Wow. — And I always say everyone loves a trilogy. So that's my mantra. — So Morgan Stanley is so big that whenever I meet a financial adviser from there, — I ask them about other financial adviserss that I know. — Sure. — In New York and they never know each other.
That's wild. — But that's the size of the firm. I'm saying — 100%. — Right.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock picking
- ai spending boom
- data center buildout
- semiconductor rotation
- healthcare and financials
Companies and tickers mentioned
- MS
- NVDA
- AVGO
- Morgan Stanley
- Nvidia
- Broadcom
Watch the episode
Watch “How to Pick Stocks Like Morgan Stanley | TCAF 258” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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