Episode summary
Baird's Tech Strategist Says This Isn't 2000. So Why Is He Warning Against Buying the Dip?
Excess Returns
· · 1 hr 5 min · Hosts: Jack Forehand, Justin Carbonneau · Guests: Ted Mortonson
Summary
Ted Mortonson argues that the AI boom is real and far more powerful than the dot-com cycle, but that does not mean investors should buy every dip in tech. He says his institutional clients sold into the semiconductor rally, are watching the market turn from complacency to fear, and are waiting for selling to settle before adding back risk. In his view, the next few weeks are dominated by macro shocks: midterm politics, the Iran conflict, Europe’s energy exposure, and a tightening backdrop for portfolio managers.
He frames AI as a long-duration infrastructure and adoption cycle that should run through 2030, with the first phase focused on data centers, networking, servers, memory, and power, and the second phase on enterprise adoption. Mortonson says the biggest winners will be large-cap companies with free cash flow, engineering depth, and manufacturing scale, while smaller software and security names may become M&A targets.
He is especially focused on financing: equity windows for new IPOs, debt funding for capex, and the risks of circular financing and off-balance-sheet structures. He also argues that politics and regulation could slow the cycle, but thinks the strategic importance of AI makes broad adoption unavoidable.
Key takeaways
- Mortonson says institutional investors sold semis into strength and are not rushing back because the semiconductor index is already down sharply from overextended levels.
- He expects the AI buildout to be a multi-year infrastructure cycle, with enterprise adoption and returns arriving later, not immediately.
- He says the best AI beneficiaries are large-cap, free-cash-flow-rich platforms like Microsoft, Nvidia, Amazon, Meta, and Google, not small caps.
- He warns that large IPOs could force portfolio managers to sell existing holdings because most run with very little cash.
- He sees circular financing and off-balance-sheet structures as a real risk that needs better disclosure and capital-market discipline.
Notable quotes
“my institutional clients were selling at 80 up 87% on riskreward and they've avoided 35% downside”
“you buy from the fearful and you sell to the needy. Um that's a term that has always stuck with me”
“this cycle is the power the most powerful I've seen as not only an engineer but, um, dealing with the institutional community”
“we're in this hyperphase of infrastructure pull in because that's the first phase of this”
“the real beneficiaries are the companies with free cash flow”
How the episode opens
Ted, welcome to Excess Returns. Uh it's great to be uh with you today. Yeah, we appreciate you joining us.
You have spent nearly three decades covering the technology sector and you've seen just about every major technology cycle along the way. And I think it's going to be really good to get your perspective on where we are today in the tech sector and in the tech cycle with this massive AI buildout and this new technology that is you know creating a lot of opportunity but also creating a lot of questions in investors minds and you know you have a a unique approach in which you kind of have this multi-check I guess um way that you look at technology in looking and you know taking part in earnings calls and doing the things that looking at the data looking at investor sentiment and just trying to figure out where we are in the technology cycles like to start out how do you look at sort of what's happening like just recently we'll talk about the longer term stuff too but like in the current environment right now like what are you seeing with tech
So I think the investors are worried about a couple things one is obviously the uh the midterm elections and that's linked to data center timing and um where it's rolled out and how it's rolled out. So the assumptions right now uh is about $800 billion of spend this year and about 1.1 trillion next year. And if the politicians get involved away from the cloud titans or the hyperscalers um um it's it's not going to be a good thing especially from the regulatory standpoint.
So the midterms are front and center. The other big macro that is just now entering the market is the geopolitical.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai investment cycle vs dot-com
- buying the dip in semiconductors
- free cash flow and data center financing
- risk of large ai ipo supply
- capital preservation and waiting for selling to settle
Companies and tickers mentioned
- AAPL
- META
- NVDA
- TSLA
- Baird
- Apple
- Meta
- Nvidia
- Tesla
- SpaceX
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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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