Power Lunch: Tech Sell-Off, AI Repricing and Washington Shakeup

Alphabet

Across the shows: 64 speakers in other episodes, 57 bullish and 41 bearish calls, past 30 days

• Dan Flax · Neuberger BermanBullish

  Alphabet is reinventing search and its accelerating cloud business is driving strong growth.

  Flax cites Google reinventing search with AI and a cloud business that is accelerating and driving very strong growth for the overall company. He uses this as evidence of the innovation and execution he believes is needed to create value through the current volatility.

  “Look at Google, they're reinventing search. They have a cloud business that's accelerating and driving very strong growth for the overall company.”at 6:51

NVIDIA

Across the shows: 78 speakers in other episodes, 72 bullish and 28 bearish calls, past 30 days

• Dan Flax · Neuberger BermanBullish

  Nvidia's multiple is undemanding and its Rubin ramp and developer ecosystem support healthy growth.

  Flax says Nvidia is executing on its product cycles, with the Rubin platform ramping and healthy growth expected over the next several quarters. He calls its forward P/E undemanding, so even if growth slows the market already anticipates some of it. He points to the broader platform, with millions of developers building on it, and a track record of investing and executing through challenging periods, which he sees as critical over the next few years.

  “I like NVIDIA at current levels because it's not just the silicon and the systems, it's their broader ecosystem.”at 10:06

Anthropic

Across the shows: 108 speakers in other episodes, 134 bullish and 89 bearish calls, past 30 days

• Kate Rooney · CNBCBearish

  Anthropic's IPO valuation likely falls to around $1.25 trillion or less, below prior $1.5-2 trillion expectations.

  Rooney reports that investors she has spoken with find even a $1.5 trillion valuation a stretch because of the tech repricing and the unravelling AI trade. They are floating $1.25 trillion, while others are preparing for about $1 trillion, which would be below SpaceX's June listing. Two months ago investors wanted $2 trillion. The immediate goal is to price above the last private valuation of just under $1 trillion. A few more days like the recent sell-off could lead the CFO to rethink or price below that private mark, a down round. The company has enough cash to last until early next year, and the IPO is still on track with a roadshow possibly starting Tuesday, pending an October numbers update.

  “I have been talking to investors who say even a $1,500,000,000,000 valuation, which is really what many had come to expect, is now a stretch given just the rerating of tech and this unraveling that we've seen of the AI trade.”at 23:33

Marvell Technology

Across the shows: 6 speakers in other episodes, 5 bullish and 3 bearish calls, past 30 days

• Michael Hurlston · Lumentum HoldingsBullish

  Marvell has a lot of upside, impressive design wins, and an excellent long-term outlook when combined.

  Hurlston says Lumentum likes Marvell and sees a lot of upside from current levels. Diligence included reviewing Marvell's books, where he found the design wins impressive, and the all-stock structure was chosen because Lumentum is confident in Marvell's numbers and outlook. He calls the long-term outlook for the combined companies excellent and expects Marvell to report good numbers in about a month.

  “we really like Marvell. We think they've got a lot of upside from where they are. ... we got to look at their books and understood their design wins. It's impressive.”at 31:22

Tesla

Across the shows: 30 speakers in other episodes, 36 bullish and 23 bearish calls, past 30 days

• Jason Ware · Albion Financial GroupBearish

  Tesla is too expensive, so it should be removed from the mega-cap growth trade.

  Ware removes Tesla from the mega-cap growth group he likes, citing valuation first. His framework favours quality, so he sees Tesla as too expensive for that quality-focused exposure. He is not buying it within the group he otherwise favours.

  “I would remove Tesla from that. Tesla's too expensive. And the reason we remove Tesla beyond valuation is we're looking for quality.”at 38:52

Micron Technology

Across the shows: 25 speakers in other episodes, 27 bullish and 13 bearish calls, past 30 days

• Jason Ware · Albion Financial GroupBearish

  Micron's low valuation is a mirage; memory is highly cyclical and earnings will fall as pricing turns.

  Micron and other cheap-looking chip names trade at low multiples, but Ware calls those valuations mirages. He says these are highly cyclical businesses and rejects the idea that the cyclicality has gone away. He expects pricing and inventory to turn within the next couple of years, which will make the P/E ratios less cheap than they look today. His firm avoids these areas and holds diversified semis through the SOX ETF instead.

  “...going specifically to Micron and some of these other areas that look cheap. I think those are valuation mirages, quite frankly. These are highly cyclical businesses.”at 40:05

Quanta Services

Across the shows: 4 speakers in other episodes, 4 bullish and 0 bearish calls, past 30 days

• Jason Ware · Albion Financial GroupBullish

  Quanta Services is oversold and well placed to supply power and build out the grid.

  Ware calls several bottleneck areas in tech oversold, but his selection is driven by quality and a valuation margin of safety. He likes Quanta Services because it helps supply power and build out the grid, which is the infrastructure needed for data centers.

  “We like Quanta Services and helping supply the power and build out the grid.”at 40:44

Cisco Systems

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Jason Ware · Albion Financial GroupBullish

  Cisco is oversold and undergoing an incredible refresh supplying data center components.

  Ware counts Cisco among the oversold bottleneck names that offer entry points. He argues it is doing an incredible refresh of the components needed to build data centers. He picks it on the same quality and valuation-margin-of-safety basis as the rest of his list.

  “...old Cisco is doing an incredible refresh in terms of providing the components necessary to build data centers.”at 40:44

Amphenol

• Jason Ware · Albion Financial GroupBullish

  Amphenol is oversold and a good buy as it supplies data center interconnects.

  Ware says the bottleneck areas he likes are oversold but still perform better than junkier parts of the market. He favours Amphenol because it makes interconnects and supplies critical fiber and copper to data centers. He applies the same quality and valuation-margin-of-safety screen to the pick.

  “We like Amphenol as far as interconnects and helping provide critical fiber and copper to data centers.”at 40:44

US stock market outlook

• Jim Caron · Morgan Stanley Investment Management

  Tech selloff is a reset from economic strength, not a retreat; cheaper multiples favour buying durable cash flows.

  Caron argues the selloff is a reset from a position of strength. Jobs data, jobless claims, JOLTS, decent consumer and retail data, and very strong Q3 growth show the fundamentals are intact. He sees the AI capex pullback as a correction in the slope of the trajectory rather than a reversal. Many multiples have reset lower, which makes future cash flows cheaper to own. He is looking for companies with contracts that secure revenue for the next couple of years, and expects a more dispersed market where winners and losers separate.

  “this is much more of a reset than a retreat.”at 3:41

• Jason Ware · Albion Financial Group

  Mega-cap growth leadership remains attractive, with high-quality leaders set to reassume leadership.

  Ware's firm keeps liking the mega-cap growth trade and is buying most of the Magnificent Seven. He wants investors to focus on companies with the best balance sheets, management teams, market positions, profits and diversified revenue streams, and lower valuations. He expects these quality leaders to reassume leadership after the sell-off.

  “Yeah. We're we're keeping it simple. Thanks for having me, Kelly. You know, we continue to like the mega cap growth trade.”at 38:41

AI infrastructure & data centers

• Jim Caron · Morgan Stanley Investment Management

  AI capex build-out is correcting, but the trend is not reversing; the trajectory is just flatter.

  Caron describes the recent sell-off as a correction on the amount of spend on the AI capex build-out. He does not think the trend is reversing or that the cycle has ended. He compares it to a slope that is less steep and flatter, while still moving in the right direction, with the speed potentially more durable going forward.

  “it's a correction on the amount of spend in AI [capex]... But it doesn't tell me that the trend is reversing.”at 4:17

US rates & the Fed

• Mary C. Daly · Federal Reserve Bank of San Francisco

  Underlying inflation is too stubborn, so the Fed will have to tighten policy further; timing and size undecided.

  Daly welcomed the strong jobs report and does not see the labour market as an inflationary source. She remains concerned that underlying inflation is more stubborn than she would like and that the Fed is not yet hitting its 2% target. From that, she expects the Fed will need to tighten policy further, though when and by how much depends on incoming data.

  “We also have underlying inflation that just is more stubborn than I would like it to be, and we need to get that down. So my expectation is we're gonna have to tighten policy further.”at 12:16

Middle East & Iran

• Amos Hochstein · TWG Global

  Renewed US-Iran military conflict has a better-than-even chance and could come within a week.

  Hochstein says the headlines about breakthroughs should not distract from the fact that war plans remain very much alive and are probably the lead policy. He says a decision to go back to war was made before the midterms and was only postponed by days to a week. He thinks the midterm result may not change the president's calculus, and that the president has only three bad options: go back to war, accept an unwanted deal, or keep economic pressure on Iran, which he finds too slow. He was in the Middle East recently and still puts the odds above 50-50.

  “I'm not saying that they will, but I think that there is a very good chance that we go back to conflict.”at 16:52

Oil & fuels

• Amos Hochstein · TWG Global

  If US-Iran conflict resumes, oil, gasoline, diesel and jet fuel prices will resurge.

  Hochstein argues that the risk of war is still very much alive and he puts the odds above 50-50. He says that if conflict returns, the effect on energy markets is clear: energy costs will surge in both crude oil and refined products such as gasoline, diesel and jet fuel. He sees the market as needing to price this risk in.

  “And if what that will do to energy markets is clear. We're gonna see a resurge in energy costs in both the oil as well as in products, gasoline, diesel, jet fuel, etcetera.”at 18:38

Renewables & clean energy

• Amos Hochstein · TWG Global

  Congress will press to reverse curbs on renewable permitting; permitting reform is achievable with a few Republicans.

  Hochstein says the administration severely restricted renewable energy, especially offshore wind, and to a lesser extent onshore wind and some solar projects. He expects strong pressure from a Democratic Congress to restore and accelerate permitting and licensing for renewables. He argues that with big majorities in both chambers, Democrats only need a few Senate Republicans to pass a safe permitting reform, which would address the affordability message that won them the midterms.

  “this administration decided to severely restrict renewable energy. Specifically, most draconianly is the offshore wind, but either in onshore wind and some solar projects. I think there's going to be a lot of pressure from Congress now to say, Hey, if you want to work with us, that's got to be turned back on.”at 20:36

Power demand & the grid

• Amos Hochstein · TWG Global

  Hyperscalers should pay far more for energy build-out so consumers do not face higher electricity bills.

  Hochstein expects a conversation, through legislation or the threat of it, forcing hyperscalers to contribute more to the energy demand build-out. The aim is to ensure the AI boom is not cost-negative for ordinary American consumers through much higher electricity costs. He notes some of the companies that had refused to engage are now starting to accept that such a conversation is needed.

  “forcing some kind of conversation with hyperscalers on how do we approach the entire build out of the energy demand side so that they're paying not just their fair share, but paying a lot more into it so that it doesn't come with a bill to consumers paying much higher electricity costs.”at 21:27

AI bubble & tech valuations

• Jason Ware · Albion Financial Group

  The AI trade is over; lower-quality AI enablers like neoclouds will give way to stronger balance sheets.

  The AI trade of the last couple of years lifted anyone AI-centric or an AI enabler, including lower-quality names such as neoclouds. Ware thinks that trade is done. He expects leadership to shift to companies with the best balance sheets, management, market position, profits, diversified revenue and lower valuations.

  “AI trade up to this point for the last couple of years has really kinda captured anyone who is very AI centric, who is an AI enabler, including lower quality stuff like NeoClouds. I think that trade is done.”at 38:59