Episode summary
Tech is Selling Off. AI Debt Fears Are Rising. So Why Does a $4B Manager See S&P 9,300 Next Year?
Excess Returns
· · 1 hr 3 min · Hosts: Jack Forehand, Justin Carbonneau · Guests: Jay Hatfield
Summary
Jay Hatfield argues that the current market setup is best understood through earnings and discount rates, not broad sentiment. He says his S&P 500 work starts with earnings, then adjusts for valuation multiples tied to the 10-year Treasury: each 25 basis point move in yields roughly changes the market multiple by one point. On that framework, he says 8,000 was a reasonable target earlier in the year, while stronger earnings growth and AI-related capex could support 9,300 next year, with 10,000 possible if rates ease and the Strait reopens.
He pushes back hard on the idea that AI infrastructure is a bubble. Hatfield says CoreWeave, Oracle, and similar businesses should be judged by contracts, financing, and returns on invested capital, not by generalized fears about AI debt. He describes the current setup as a “reverse bubble,” arguing that many stocks are cheap relative to their growth rates while contracted data-center projects can earn high returns even if financing costs rise.
Hatfield is equally critical of the Fed. He says the 2% inflation target is too low, the PCE measure is flawed, and shelter inflation is badly lagged. He argues the Fed’s own communication drives long rates more than markets admit, and that investors should focus on the terminal Fed funds rate. For stock selection, he favors PEGY—price relative to earnings growth plus dividend yield—plus catalysts and individual covered calls.
Key takeaways
- Hatfield says S&P targets should be built from earnings and the 10-year Treasury, with every 25 basis point move in yields worth about one multiple point.
- He thinks CoreWeave is not a zero or a blowup case; its contracted demand and project-financing model can still support meaningful value.
- Hatfield calls AI infrastructure a “reverse bubble,” arguing many growth stocks are cheap relative to their PEGY and contract-backed cash flows.
- He says the Fed is wrong on the inflation target, wrong on PCE, and too reliant on lagged shelter data.
- His equity process combines PEGY, catalysts, and single-name covered calls to harvest income and reduce downside.
- He argues dividend yield alone is less important than total return from growth plus yield after the 2017 corporate tax cut.
Notable quotes
“the numbers were 23 time 27 earnings which is 23 time 350 that's roughly 8,000”
“every 25 base points of the 10ear is one S&P multiple point from a discounted cash flow perspective”
“if you think this is all going to be a bubble tell me what the market price is of compute”
“There's like so many cheap stocks out there trading at huge discounts to their PEG ratio that I think it's actually the polar opposite of that”
“we really do PEG Y ratios”
How the episode opens
Jay, welcome to Excess Returns. Thank you very much for joining us. — Great. Thanks for having me on.
For anyone that doesn't know you, you are founder and CEO of Infrastructure Capital Advisors where you run a family of income focused ETFs and strategies. We're going to talk about some of those um here in a few minutes. and you're really focused on finding the parts of the market, investing in the parts of the market where yield matters and where you can um exploit or or find you know high income paying assets.
Um it's certainly an area I think of of the market and the types of assets that a lot of investors are interested in particularly those where you know yield and income is important. But where we wanted to start with you today is just kind of get some of your more macro views and how you're thinking about the market in general and how you're talking to your clients about what's happening in the market. There's no shortage of things that are on investors minds, the war with Iran, high oil prices as a result of that.
The Fed is in a rate hiking cycle. How far? We don't know yet.
But and the 10 years obviously gotten elevated here above 5%. and but yet the S&P is, you know, pretty much sitting at, you know, near record highs. So when you think about the market backdrop and the things that investors are paying attention to kind of how do you make sense of it, how do you explain what's happening to in the market to your clients?
Mhm.
Well, um, we've had extraordinarily accurate S&P targets over the last five years, but and so this year we started out with an 8,000 target, but to this year is a good example.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai debt fears
- s&p 500 outlook
- treasury yields and valuation
- ai infrastructure financing
- fed inflation framework
Companies and tickers mentioned
- CoreWeave
- Infrastructure Capital Advisors
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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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