Episode summary
‘Funds Will Get Wiped Out’: Massive Rotation Happening Now | David Cervantes
The David Lin Report
· · 33 min · Hosts: David Lin · Guests: David Cervantes
Summary
David Cervantes argued that the recent tech selloff was not just a routine pullback, but the result of a “perfect storm” where higher Treasury yields, strong growth, and rising funding costs collided with heavy AI capital spending. He said the hyperscalers’ pullback in spending and capital markets access has forced investors to reprice the entire AI complex, especially where off-balance-sheet and private-credit financing had been treated as safer than it is.
He said long-term investors should focus less on next quarter’s EPS and more on whether the companies funding these projects can earn an acceptable return on invested capital. In his view, the market is now looking through 2027 capex plans and focusing on 2028, while the real bullish case for tech still depends on nominal GDP growth, lower inflation, and continued spending leadership from Nvidia and the hyperscalers.
On positioning, Cervantes said the clearest rotation has been into healthcare, with financials also benefiting, and he described the equal-weight S&P 500 as a straightforward trade. He remained cautious on Treasuries because inflation is still elevated, especially from rents and cars, and he expects the Fed to stay hawkish, with a December hike still in play. He also said any funding blowups would likely hit private credit and leveraged lenders rather than create a systemwide crisis.
Key takeaways
- Cervantes said the tech selloff was driven by higher rates, strong growth, and AI funding stress, not just valuation compression.
- He expects investors to focus on 2028 hyperscaler capex plans, while 2026 is “history” and 2027 is already locked in.
- He sees healthcare as the main rotation trade, with financials and the equal-weight S&P 500 also benefiting.
- He said inflation is still sticky, especially from rents and cars, and does not view Treasuries as attractive right now.
- He thinks any defaults in AI funding would mostly hurt private credit and weak lenders, not become a macro crisis.
Notable quotes
“This is this is this is just probably been the worst tech sell-off since COVID”
“the whole house of cards just came kind of crashing down”
“the minute they start questioning the long-term viability of these monster projects that have, you know, large life cycles, um then that's when you kind of get into trouble”
“2027 is spoken for, it's done. That those capital budgets are locked in. The market is really trying to understand 2028 at this point”
“Private credit funds, people will may lose their shirt. People you know funds will get wiped out”
How the episode opens
There is this really this perfect storm in this past week, the whole house of cards just came kind of crashing down. — Yeah, with hyperscalers pulling back the competition for capital will be a lot less. That that should be helpful for the for the long end.
Trump was leaning very hard on Walsh. Now with Trump politically wounded the Fed is going to be a lot more uh politically independent. — Private credit funds, people will may lose their shirt. People you know funds will get wiped out. People get you know zeroed out. But that's people went to the casino gambled and lost. Too bad. It happens. That's capitalism.
All right, it's been a pretty bad week for pretty much all investors.
This is this is this is just probably been the worst tech sell-off since COVID. Um going back to the tech to the dot-com boom um it's a bit of a stretch, but people are making parallels to the tech bubble bursting uh which happened about 25 years ago. So is it fully bursting or is this just a correction?
Our next guest is going to give us his view where to rotate to next if needed and what's going to happen next now that we've had this epic sell-off in the tech sector. David Cervantes returns to the show. Uh he's at uh Pinebrook Capital.
Welcome back to the show. David, good to see you.
Hey. Good to see you. Thanks for having me back. It's been great. — You run Pinebrook Capital Management. We're going to get into your asset allocation and investors can learn something from what you do. You were on the show earlier this year telling us that uh the correction that happened earlier this year is far from over.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tech stock selloff
- ai financing risks
- inflation and fed policy
- fund rotation
- private credit defaults
Companies and tickers mentioned
- Pinebrook Capital Management
Watch the episode
Watch “‘Funds Will Get Wiped Out’: Massive Rotation Happening Now | David Cervantes” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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