Talk Your Book: Diversifying the AI Trade

Brian Griggs · Nuveen

Investors can get AI build-out exposure via regulated utilities, infrastructure and cooling, with less risk.

Griggs argues investors can diversify away from concentrated AI exposure while still participating in the AI capex story. He points to lower-risk, lower-return areas such as regulated utilities and infrastructure names. He also says private markets offer exposure beyond owning data centers directly, such as energy infrastructure and the cooling infrastructure around data centers, and other beneficiaries of the spending.

“You might wanna own areas of the AI CapEx story that are a little bit lower on the risk return spectrum, such as regulated utilities, infrastructure names.”at 7:25

Brian Griggs · Nuveen

AI capex may slow at some point, which could hit index earnings expectations.

Griggs says it is not outrageous to expect a slowdown in AI capex spending at some point. He reasons that a capex slowdown could have trickle-down effects on the earnings expectations currently priced in at the index level. He frames this as a plausible but not imminent risk, since he says he doesn't think the market is quite there yet.

“at some point, I don't think it's outrageous to expect a slowdown in CapEx spending, and that might have trickle effects on all these earnings expectations that we're seeing right now at the index level.”at 8:19

Brian Griggs · Nuveen

Corporate credit spreads are razor thin while yields look attractive; lean into bonds where paid.

Griggs's dashboards show yields look very attractive versus history, while corporate credit spreads have been razor thin for most of the last couple of years. He reads the rate cycle as not being driven by default concerns, which makes tight spreads more understandable. He notes some spread widening in AI-adjacent corporate names but says spreads can stay tight for a long time, given high nominal growth and lingering inflation expectations. His advice is to lean into bonds for diversification, especially where investors are paid to take risk.

“yields continue to look very attractive versus history, whereas credit spreads, particularly on the corporate side, have been razor thin.”at 10:00

Brian Griggs · Nuveen

Municipal bonds offer a strong tax-equivalent yield, creating good entry points for high-tax investors.

Griggs says the high-grade muni index yielded 4.5% gross as of the prior Thursday. For an investor in the top tax bracket, that is a tax-equivalent yield above 7.5%, which he compares to the 7–9% long-term return most would expect from equities. He adds that munis have reacted more acutely to recent rate volatility, which has created good entry points for high-tax investors. He presents munis as a way to diversify away from the AI trade.

“the high grade muni index as of this past Thursday was yielding four and a half percent gross. So if you're in a top tax bracket, that tax equivalent yield is over seven and a half percent”at 14:37

Brian Griggs · Nuveen

US index valuations look fair near term; earnings expectations hinge on AI capex, so don't fade them.

Griggs says US equity valuations are around 20 times forward earnings on a four- and twelve-month basis, somewhat below the ten-year median, so the valuation looks neither rich nor cheap. He argues those multiples are being pulled down by record earnings expectations that depend heavily on the AI build-out and continued capex. He says his firm's equity team has a lot of conviction in those earnings growth numbers in the near term, so he does not think now is the time to fade them, though investors can still diversify within the theme.

“record expectations for earnings, which are very much hinging on the AI build out and the CapEx cycle continuing. I don't think now is the time to fade that.”at 7:25

Ben Carlson · Ritholtz Wealth Management

Chip stock swings reflect shifting expectations, not AI capex, which keeps rising smoothly.

Carlson argues that AI capex numbers are smooth and steadily rising, while semiconductor stocks swing wildly between big gains and crashes. He concludes the moves are an expectations game: the fundamentals can still look good while the market's interpretation and reaction matter more than the numbers themselves. He sees this gap as the hardest part of holding conviction in AI.

“the CapEx numbers are pretty smooth. They're just kinda going up into the right. But you see these massive swings in the expectations of investors where these semiconductor stocks, for instance, are just going crazy.”at 8:34

Brian Griggs · Nuveen

Ten-year yield rise reflects the Fed path, not inflation fears; long breakevens steady.

Griggs says the ten-year Treasury yield has risen about 80 to 100 basis points this year. Unlike 2022, long-term breakevens have barely moved, so the sell-off is not being driven by fears that the Fed will lose control of long-run inflation. He attributes much of the move to the expected path of Fed policy and to opportunity cost, since strong nominal economic opportunities draw flows away from fixed income. He cautions against being a duration hero and says investors need to stay nimble, given that inflation is likely to make the road bumpy.

“the ten year treasury yield has increased, call it, 80 to 90 bps depending on the day, maybe a 100 bps. Long term breakevens haven't really moved.”at 16:41

Brian Griggs · Nuveen

The cash-on-the-sidelines narrative is overstated; much money-market cash came from checking accounts.

Griggs says he has long had a problem with the cash-on-the-sidelines narrative. Even when money-market assets are normalized as a share of the economy or equity market cap, he says much of the recent increase reflects cash that was sitting in checking accounts and moved into money market funds once yields became attractive again. He therefore doesn't read the higher cash balances as a large pool of potential equity buying.

“I've long kind of had a problem with the cash on the sideline narrative... I do think a lot of that though is people had a lot of cash in a checking account and perhaps moved it over to money market funds once you could get a yield again.”at 18:43

Brian Griggs · Nuveen

Private credit liquidity worries persist, but PE-backed middle-market deals remain fundamentally sound.

Griggs says liquidity concerns around private credit are still out there, and large evergreen funds are still paying redemptions pro rata. Nonaccruals have normalized somewhat off extremely low levels, and the headlines of Q1 and Q2 have faded. He says investor enthusiasm for private credit has softened, with flow data shifting toward real assets, infrastructure, multi-strategy hedge funds and traditional real estate. He still argues the true middle-market private-equity-backed deals are in strong fundamental shape and offer opportunity.

“the true middle market private equity backed deals are still in pretty strong fundamental shape. I think there's still opportunity there.”at 26:28

Brian Griggs · Nuveen

Industrial, retail and medical office property is neglected as investors chase data centers; new supply is down.

Griggs argues that investor attention has shifted heavily toward data centers, leaving traditional industrial, retail and medical office real estate behind. He says new supply in those segments has fallen sharply at a time when many advisers paused after 2022. He presents this neglect as an interesting opportunity, alongside farmland, for investors seeking real inflation protection.

“investor attention has kind of been moved away from traditional industrial, retail, medical office, areas like that. As a result, I mean, you've seen new supply in these areas come way down”at 27:19