Episode summary
Tech Stocks Dip as AI Doubts Linger on Wall Street
Bloomberg Surveillance
· · Guests: Dan Skelly, Chris Larkin
Summary
Risk appetite looked shaky, with the guest saying investors are “risk off” and rotating away from parts of U.S. tech as AI spending and disruption fears collide. He said software is under pressure because the market is both worried about the scale of AI capex and increasingly convinced that AI will disrupt more businesses, even though he argued that not all software is equally exposed and some firms are partnering with AI model makers.
He framed the recent Mag Seven weakness as a pause rather than a structural break, saying the market is “efficiently and probably rightfully” taking a break after a massive spending ramp-up. He added that much of the AI spending is still being funded by cash flow, while several large-cap tech balance sheets remain net cash and can take on more leverage if needed. But he also said momentum has become the dominant factor in equities, which has helped create alternatives outside the U.S.
The guest argued that investors should stick with international equities, citing policy and fiscal tailwinds in Japan, Latin America and parts of Europe. He also said large-cap quality adopters in the U.S. should not be abandoned, and that earnings remain solid, with broadening growth and Russell 3000 median earnings growth around 11% versus low single digits last year.
Key takeaways
- The guest said the market is “risk off” and is punishing software even as some software names are actually partnering with AI model makers.
- He argued that the recent Mag Seven pullback is a pause after a major AI spending ramp-up, not necessarily a long-term collapse.
- The guest said much of current AI spend is still funded from cash flow, and net-cash mega-cap balance sheets could absorb some leverage.
- He recommended sticking with international equities because policy and fiscal tailwinds are helping Japan, Latin America and parts of Europe.
- He said earnings remain strong enough to support the market, with Russell 3000 median earnings growth around 11% from low single digits last year.
Notable quotes
“It does feel like people are risk off at the moment”
“not all software is created equal”
“we're saying is stick with the international trade”
“the biggest dissonance I've observed over the last month”
“the market is efficiently and probably rightfully taking a pause on Mag seven at the moment”
How the episode opens
It does feel like people are risk off at the moment. Obviously, you've got this on the one hand, dissonance in the fact that people want to play global reflation, small caps international. And on the other hand, you're seeing just bond yields lower in terms of, I think, further fears of further concern around the trade within the U.S.
You're linking the air trade dynamics over the price up, yield down. You can't do it with the economic data, whether it be the surprise index at all, at multi-month highs, whether it be the jobs data as of the last week or two. So I can't link it that way.
Dan, I mean, nobody does tech research better than the Morgan Stanley complex. You guys have been leaders on that for decades here. What do you guys make of this fade software just broadly defined?
I mean, software is a story that just works for everybody all the time. Now, it's really under some risk here. Sure.
And thank you, Paul. Appreciate that. That kudos.
So, number one, I think it's one of these many examples of dissonance at the moment. On the one hand, the market is fearful over air spending. On the other hand, the market's saying software is going to be disrupted.
So I can't explain that one in terms of efficacy versus disruption. And look, I would say not all software not to be that completely out of consensus, but not all software is created equal. When I look at the varying types of software, some of these companies are actually partnered with the AI model makers today.
Right. You know, it's funny, we were talking about software and just tech research. And I think Mary Meeker, she was in the news again this weekend.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai capex
- tech selloff
- valuation pressure
- chipmakers
- fed rate cuts
Companies and tickers mentioned
- MS
- NVDA
- AVGO
- Morgan Stanley
- Nvidia
- Broadcom
- E*Trade
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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