Episode summary
A Tale of Two Markets
The Markets
· · Hosts: Chris Hussey · Guests: Shawn Tuteja
Summary
U.S. equities are being pulled in two directions: a narrow AI-led rally and a softer “rest of the market.” Shawn Tuteja argues that the S&P 500 and Nasdaq gains are being driven by concentrated exposure to AI names, while earnings are still doing the heavy lifting. He notes that S&P 500 EPS growth is tracking at plus 17 percent year over year, with forward EPS estimates at plus 13 percent, leaving the index at about 21 times earnings after a modest multiple compression.
Tuteja rejects the idea that AI stocks are in a bubble, saying the underlying capex cycle is still very strong. He points to $755 billion of planned hyperscaler capex this year, up 38 percent year over year, as support for the semiconductor and infrastructure trades. But he also warns that crowded positioning and leveraged ETF products could create violent two-way moves, because forced rebalancing can magnify drawdowns if sentiment turns.
On where to play the AI theme next, he says the trade has moved from semiconductors to hyperscalers, data centers, memory chips, and now optical networking. The next leg, in his view, is liquid cooling equipment, which can dramatically cut the power spent on cooling data centers. For the near term, he says investors should watch 30-year yields above 5 percent, the remaining stretch of earnings season, and the U.S.-China meeting.
Key takeaways
- Tuteja says the market is a “tale of two markets,” with AI names driving index gains while cyclical stocks lag.
- He says S&P 500 EPS growth is tracking at plus 17 percent year over year and next-12-month EPS growth is rising to plus 13 percent.
- Tuteja argues the AI complex is not a bubble because hyperscalers plan $755 billion of capex this year, up 38 percent year over year.
- He warns leveraged semiconductor ETFs and crowded positioning could turn a 3 percent drop into a much larger selloff through forced de-risking.
- He sees the next AI equipment opportunity in liquid cooling, which he says can cut cooling electricity needs by as much as 10X.
Notable quotes
“The theme is up about 30 percent year to date. And we're seeing that trend catch on with a lot of data centers looking for that type of equipment”
“I think the most important thing is to watch back-end bond yields. So, this morning as we're talking, 30-year yields have eclipsed the 5 percent mark, which is a huge psychological level”
“And I think that that's really important because when you look at China equities, those have been the notable underperformer in terms of the rest of the world”
How the episode opens
This is The Markets. I'm Chris Hussey and today is Wednesday, May 13th. And I'm here on the Goldman Sachs trading floor with Shawn Tuteja who oversees the ETF and custom baskets vol options trading desk within Global Banking & Markets.
Shawn, thanks so much for joining us. It's always fun to be on. All right, Shawn, SPX is up 16 percent.
NASDAQ's up 26 percent. I think semis are up like 70 percent off those March 30th lows. What's going on?
What happened? Yeah, it's amazing because we're still in the middle of a large geopolitical conflict where oil prices are still very elevated. And as you mentioned, you just look at it, and S&P is up 8 percent on the year now.
NASDAQ's up about 15 or 16 percent on the year. Semis, you know, they go up every single day it feels like. And it really feels to me like it's a tale of two markets.
There are the AI stocks within US equities, and anything that's related to the AI trade, whether it's the hyper scalers, the semiconductors, the data centers, the equipment. And then there is the rest of the market. And the indices that you mentioned, the S&P, the NASDAQ, so much of that concentration in those is now these AI names.
And so, we've just gone through another earnings season just about here in the S&P. We're about 90 percent of the way through. And EPS growth is tracking at plus 17 percent year over year which is the sixth consecutive quarter of double-digit earnings growth.
Now, as remarkable as that is, what's even more remarkable is that the expectations for the next 12 months of EPS growth have now been ticking up to plus 13 percent. And if you look at it, in one way you would say, well, the S&P is up eight percent year to date.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai stocks
- sp500 and nasdaq
- market bubble fears
- etf volatility trading
- ai equipment trade
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “A Tale of Two Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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