This is not any different than any big capital spending cycle. There will be a massive hangover. There will be malinvestment here. There will be disappointment. So for as bad as it was between 2020 when the internet bubble blew up, every one of those estimates was off by like a factor of 10.
Meaning it was bigger. It was bigger because the marginal cost of that communication went to zero. That's how you think about this cycle is that they're building all this stuff. Elon is the ultimate builder, right? He's going to build all this stuff in space. And maybe you're more skeptical than I am and yeah, he's probably going to lose money on a bunch of different things, but it's going to create this opportunity set for things we can't even imagine. And that's the trajectory.
Welcome to the Risk Reversal Podcast. I am Dan Nathan. That is Guy Adami. And I'm checking out this what do they call swag?
Swag. Yeah, we have swag, too, by the way. Look at this. Like pretty dope. You have some of these, don't you? That's Mike Wilson. He is the chief equity strategist and CIO at Morgan Stanley. This is your 15th appearance on the Risk Reversal podcast.
It makes you the longest standing guest we've had. I mean, it's like Saturday Night Live. If you host five times or something, they put you in like a Hall of Fame.
No, they give you like a jacket or something like that.
We don't have that for you.
Um, so by the when you say longest standing, this is no joke. Mike Wilson is my longest standing friend in this business. You and I met in the late 90s. What? Well, we're friends. Is that what he said? All right. But you and I are gonna go, we're gonna do two segments because Guyami has a show to do. We just were informed
right? But you know who else is on that show?
correct? But you go up there. It takes a little bit longer for him for the makeup. Okay, so you and I on the BB block of this. We're going to take a walk down memory lane.
Yeah, there we go. We're going to talk about the early 2000s really the bubble popping, but really the leadup to that. Mike, you are a prolific strategist. You also as a CIO, you oversee lots of funds. You talked to some of the biggest investors that exist on this planet. Where are you right now? You made a pretty epic turn. I want to say two years ago. You got really bullish. You were, as you would say, you know, you held on a little too long in 23. We did the same thing, by the way. Where are you right now? Let's just kind of take stock a little bit of the market. We've just made new highs in the S&P 500 in like a very very glorious way.
Yes, it was. It was powerful. I would say so the call we've been on lately is so first of all the reason things rallied so much after liberation day is we as we've discussed we think that was the end of what I called a rolling recession. So coming out of a recession you typically get incredible operating leverage, you know, a little bit of revenue goes a long way and so we were probably most out of consensus on the earnings growth for this year that essentially played out. Now what we pivoted to about four, five, six weeks ago was the revision breath started to peek out from a rate of change standpoint. So we made a negative call on the semiconductors. We kind of likened it to the rally we saw in silver and gold earlier. We had this great chart that lined it up perfectly and that has played out. But the thing that's really going on is we're going from what we call early cycle to midcycle in this recovery from the recession that ended in April of 2025. So what does that mean? It means no longer you pay low quality stocks. So you go it's a quality trade. You go up the quality curve. You want to upgrade your portfolio. And that's exactly what the market shows. We can track this data now. We look at factor analysis. You look at the quality factor. The quality factor has been working really well since the middle of May. So that I think is still an out of consensus call. By the way our call of the prior period was out of consensus that it was early cycle. I mean, I still don't know anybody who thinks we actually had a recession other than me, which means it probably has a better chance of being right because it's not consensus, but that but I think it's been proven now by the way the market has performed. So, from a portfolio standpoint, what this means is so like semis are classic early cycle group. That's another reason why they've underperformed and we're seeing a rotation now into not sectors but quality within each sector. So, for example, hyperscalers, we made a call hyperscalers over the semis because the semis were elevated. The revision breath was going to roll over and by the way hyperscalers underperformed and so then and we've seen about a 30% relative move now so now it gets trickier like I think the initial rotation was like a not an easy call but like it was it was fat pitch now it's less of a fat pitch and we're digesting this breakout move that we saw earlier in the week in the S&P.
Were you surprised at how quickly that call came to fruition? I mean it took like two weeks for that what you just talked about to play out. I mean that's not
Well we're great salesmen. I'm you know that I'm within a couple weeks of what you call I mean that's what the returns have been.
It really was remarkable and this is something that's changed though in the last I'd say five years we've talked about this too is that everything is happening faster.
Right. These cycles are shorter, hotter, they don't last as long. These rotations are quicker. I mean just this year think about this year we've had coming into this year what worked what worked in the first month it was gold and silver stocks right because the Fed was printing money again. That moved into the rare earth and the metal stocks. Then it went into energy stocks and then eventually went into semiconductors. So like people are like if you were long semis the whole year, you didn't do well for the first three or four months. It was really the last three months they've been unbelievable. But now there's now there's a chance to rotate to something else. I think it is more of a factor call now as opposed to like some idiosyncratic, you know, sector or group. You've talked I've seen you on all the different shows and a recent appearance on Squawkbox. You talked about the volatility within all the different names and the different sectors, but it wasn't manifesting itself in the broader market. You had I think and I can't speak for you. I think you had some concerns that at some point that sort of plays out. Maybe it did play out over the course of like a three and a half or 4 day period of time and now we're ratcheting back. Was that sort of what you were looking for?
Well, it did play out. We've had a major correction in the multiple this year. And it's been that's been ongoing kind of all year but really the the last correction that from the index level that started I guess June 1st call it into the lows of call it the 20 around when when Korea bottomed okay so that was about a six seven percent correction and it was it was kind of a chop sideways but as you know within that there were groups that were down 30 40 50%. So, we went through another one of these rolling sort of corrections. Now, I don't think we're totally out of the woods. Okay? So, even though the S&P has made a new high, there is still a chance that we have to go down and revisit or retest that low 7,000s number probably one more time. And the question is, well, why would that happen? The reason is rates. Okay, this transition at the Fed, I think, you know, it's not going smoothly. Okay? And then secondarily, I would say the war. You know, the oil prices. I mean yeah they've come down here recently but let's see let's let's I mean August is a choppy month typically anyways I mean oil and rates I think are still kind of unresolved.
Let's put the war on the shelf for a second and you as you point out correctly they two go hand in hand. I've said and I don't know if I'm right I think rates were headed this in this direction anyway so maybe the speed would have been different but here we are sitting here, you know, 10-year yields 4.65 65. We saw a move in the 30-year last week that was like a three four standard deviation move. You don't typically see that in developed economies. So, is this a is this will this continue? Will this bond weakness continue? And why are rates going higher?
Yeah. So, rates made a new high before the S&P made a new high. So, if you if we had had this call, I don't know, three or four or five days ago before the S&P broke out, I would have told you I think we are going to go down to the low 7,000s. But because the market made a new high to respect that, right? So maybe it's figured it out or maybe rates aren't going to keep going. But I think rates are headed to 5%. That's what it looks like to me. Technically, 5% is kind of a magic number. That's worth five to seven 8% on the S&P. It's probably worse for other groups than some. So why are rates going up? That's the other reason why or other consideration. And I would say it's because there's distrust potentially in the bond market that the Fed is gonna actually fight inflation. I mean, Kevin Worsh has been very adamant. Hey, we're here to fight inflation. Job one, you know, we're not even talking about growth or growth mandate. We're going to get the we're going to get this thing down to 2% by hook or by crook. Okay. But, you know, actions speak louder than words. They didn't raise rates. He hasn't done anything. The balance sheet is, you know, doing the same thing. They're providing the same amount of liquidity in the R&P. So the market is just doing what they always do. They're saying, 'Okay, let's see. Let's challenge this new Fed chair and new Fed grouping, by the way, because this is a new group working together.' And this is what markets do. Yeah, you're seeing it in the bond market, but you're not seeing any discount obviously in in the stock market, right? And and the way in which we have literally broken out since the meeting last week is pretty astounding. I mean, you talk about 67, you know, it went up six, seven percent in a straight line off of the lows just kind of earlier in this week. And so, you know, I'm of the camp, by the way. You know, this morning in the Wall Street Journal, there was an article. It was A1. You know, talking about how the president has called Wars on many occasions getting, you know, some color on the economy relative to what's going on in the war. That to me is about as clear a signal as they are not raising rates in September. And and again, I know that seems just look at what's going on in the administration right now. Nobody wants to piss the guy off. And there are a few people in his cabinet who are pissing him off. And so I I'm just curious what you think about that because if we get to September, I think it's 16th or 17th and you know the odds in the CME, you know, Fed watch tool is down to 25% or so. I mean the stock market could be above 8,000.
Yeah. Well, I think the stock market is going to 8,000 no matter what. It's just a path. Okay. I think because the earnings story is still strong enough through the end of the year and the multiples have derated by 15%. So there's there's room for multiples to expand potentially once the markets get comfortable that this Fed is now transitioned and they're working together and they've got their their hands on the on the steering wheel. I'm not as cynical about that. The reason why he hasn't raised rates is because he's worried about the way I think he's just he's a new guy. He's a new he's a new guy in a new job. I've I've I've taken new jobs like five or six different times. Even though I've worked at the same place forever, I've taken new jobs. Usually you get the first 90 days, right? You sit back, you observe a bit, you meet all the people you're working with, you you know, you make some changes, but you don't do anything drastic day one. So, I think that I think that's what's going on more than anything else. The task forces are out there. You don't really know how he's going to change the inflation metrics and and you know, if you want to be cynical about that, you can be. If you want to just be saying he doesn't know and he wants to move slow. I think it's it's combination a lot of those things. Some people have one view, some people have the other. Doesn't matter though. The rates are going higher and and that's and that's and that's the thing we have that's the last hurdle we have to get through now maybe the market already figured all that out and it's it's already looking past like I think it's 50/50 or maybe 60/40 that we've already made the low and now we're heading towards 8,000.
I agree with you. I think regardless of what next move by the Fed rates are going higher. I mean if they cut rates tonight I think rates going higher and if they raise rates in in a perverse way I actually think the bond market might actually like that but I still think rates are going higher for all the reasons that we've talked out a lot of this has been built on capex. I mean, we've talked about this with you a number of times. Is there any concern that we're at a point now where people are now more closely looking at the return on invested capital and saying, 'Hey, wait a second. Maybe the what does that call it? The squeeze is not juice isn't worth the squeeze type of thing. Are we there yet?'
Yeah. Well, it's starting to happen because the credit spreads have started to widen company by company. By the way, you know, just like I said, there's a quality rotation in the equity market. There's also a quality rotation in the bond market, right? I mean, we've seen Meta trade poorly. You know, Microsoft traded well because, you know, Microsoft's a little less aggressive on capex and Meta was not. So, that that factor, by the way, capex to sales bottomed the day the recession around liberation day. That's a low quality factor. So, the market was rewarding higher capital spending also because of the big beautiful bill. You get you get a tax rebate for that. So, that changed six weeks ago. Now, if you announce you're spending more money, the the market punishes you. So, I don't see why these companies, these are smart guys. They're they're not going to start toning down their capex, which is then then that feeds into the the capex beneficiaries, the semiconductors, why they've rolled over so hard. So, when people tell me, you know, oh, this is just a deleveraging, you know, there's all these retail investors in Korea and they got carried out. That's why semis went down. The story hasn't changed at all. I'm like, it has changed. Okay. The rate of change on the capex revisions is coming down. That's not ne it's not negative growth. It's a deceleration.
But they were raising 50 100% for
That matters. You guys know this. Everybody knows that. So, and it's like and and I remember people saying, 'Well, everybody knows this, Mike.' I'm like, 'Well, then you should make the call.' I'm going to make the call. So, we made the call and it worked. Now, now we've gone down 40%. So, I think that's taken care of itself. So in other words, once again, even though the S&P has done this kind of crazy sideways move, we have the market has been very judicious and very skeptical about some of this capex. That's why the hyperscalers have rerated by 30%. 30% since last fall, their multiples have come down. Maybe they should come down more, but it's not like the market is ignoring this risk. And and and my view has been continues to be that this is a another correction within a structural bull market for capital spending on data centers. So we can have these 30 40% draw downs. We've had three of these now in semiconductors since chat chat was announced. This is the same thing. I don't think this is the big one where it's like 1999 2000 where oh it's just going to slide into to the abyss and the economy is going to roll over. That's not where where I am right now.
How important are the non publicly traded companies specifically OpenAI and now more and more people are really have them under the microscope in terms of valuations in terms of leverage in terms of debt all those different things.
Well once again I think you know some spenders are going to be easily funded and some spenders are not going to be funded anymore. Okay, not to name names because you know it's the you can look at the market you can see like who is raising capital more easily than others which means what the PI itself is probably going to be a little smaller. It doesn't mean you're still not going to have four, five, six LLMs that complete the task and build these things out. You got NeoClouds, you have Bitcoin miners. So there's there are these builders and we even talked about the the open source providers in China and the open source providers that are going to be developed here in the United States. So there's a lot going on and a lot of similarities to what we saw in the 90s. A lot of similarities to what we saw with cloud or what we saw with mobile networks. There's there's a you know there's a spread between high end producers, low end producers, guys who can charge a larger toll than others and there's a commodity players and and that's what the market is is figuring out. Now
Let's go back to and I think you were writing about it this week. So this kind of move into quality, right? And you just mentioned that you like the you know the rerating in the hyperscalers you think has pre you know presented an opportunity there right and we know that you know the balance sheets and the moes and the monopolies and the managements all that sort of stuff I mean that they're going to always get the benefit of the doubt there right and if you're going to pick winners as it relates to AI they're probably the easy ones and you know they almost seem a bit defensive at times especially if you look at how Microsoft was being penalized because they also have this software element of it right this this thing that looks like SAS and but all of a sudden now you know investors took another look at what they you know see as from a spending standpoint that sort of thing like is there a point in which you'll find value in semis is there something that exists in in the kind of SAS space that you think is being overlooked where do you find in tech that that you know that value but it's also quality
Well absolutely even within semis there's a spread between the best companies and the worst companies I mean in the last three months I mean some of literally the worst semi names were at the which and then that reversed. So I think it's the same story with within sectors like we made a negative semicol who's the higher quality names. Let's take let's talk about Nvidia. Nvidia, okay, is gushing cash, okay, and the stock has gone nowhere for two years. Why is that? Because it's been a low quality rally. So I would argue something like Nvidia probably starts to outperform now, even if it's a relative outperformance within the group. And that that's the name of the game for me is to find the relative outperformers within each sector even within hyperscalers right so Microsoft had massive outperformance to meta because it was viewed as a quality play now that may have already played out there that was such a massive spread play at this point so I what I want to talk about now is what I think is really going on it just like the early cycle to midcycle what we got going on in the capex cycle just like with telecom is we're going from the picks and shovels the enablers to the adopters right so semis were enablers just like telecom equipment was they always go up the most and they go up initially then the companies who adopt the technology they have a big run now you could argue that the hyperscalers are a hybrid they're an enabler and an adopter right these are some of the best users of their own
Well Meta was one of them for a bit
Yeah no no longer giving you know giving credit
But they might again we'll see I mean I I would say Meta is quite interesting again because it has really underperformed now even within its hyperscaler group And all it will take is for, you know, Mark Zuckerberg to say, 'Hey, you know what? We're going to ease back on the spending,'
Which is what they did in 22. The stock was down 70%. And then it rallied. Yeah.
Hey, Mark, give me a call. I'll tell you what to do. Okay. You if you want your stock up, man.
Why do you think he's been so stubborn, though? I mean, like, there's a lot of folks I heard this today, earlier today, a really good friend of mine who's an investor, and he was playing golf over the weekend with a legendary VC investor. He's made some of the most brilliant calls in the last couple cycles. And he actually said what have they done to innovate over the last you know whatever 10 years now obviously they run a great business you just use the term gushing cash you know for so but as far as innovation's concerned sooner or later you know that's going to get squeezed a little bit and if you can't innovate then it's going to be one of those things they got a lot of competition and then I say to myself okay he's still got his pedal to the metal yet they are turning their compute into a neocloud and if Anthropic and OpenAI are starved for compute. What's going on at Meta that they can actually turn into a Neocloud?
Well, it's interesting when they made that announcement, which people now are saying, they didn't really say anything different, but I mean, they threw it out there. Stock went up because they were saying, 'Okay, well, maybe there's at least a return on this capital you've already spent money on because we don't see you as an organization being the one that's going to be able to monetize this, right? We don't see the application.' And it could be that simple though, Dan. I mean, we there's an application that's going to be developed and we don't know what it is yet, but you know, maybe maybe Meta does it.
They just have to turn things on. I mean, a third of the planet is on their platform. And if you think about Google, one of the biggest I think, you know, pillars of the bull case is that it's got YouTube, it's got Android, it's got Gmail, it's got Chrome. They have all these different ways to kind of disseminate you know, Gemini and a lot of the tools that will go into their workspace and that sort of thing. Well, Meta has very similar, you know, if you think about WhatsApp, if you think about Reels and you think about Instagram, and I'm probably missing one, you know, I mean, that seemed like a layup. That was a part of the bull case over the last few years until it topped out. So, it's just interesting how discerning investors have become,
But think about how fickle the market has been on all of these companies. You know, they love one I mean, they hated Google like not that long ago, right? And it became the favorite and you know, Microsoft was they were throwing in a trash can like a month ago. So, so like I just I just think there's so much uncertainty, right? I mean all these competitors are formidable, right? They they they are somewhat monopolistic in their core businesses. So like, you know, you kind of have to be willing to trade them a bit.
You can make the argument that the few times Facebook has tried to be innovative is the most punished the stock has been over the last five or six years. I mean, they're the metaverse.
Yeah. The Yeah. So, they're a utility in a lot of different ways. But let me go back to Nvidia real quick.
I'm trying to figure out why it trades at such a discount to some of its peers and a discount to the broader market when the numbers are staggering. Is it because the market's sniffing out margin contraction or or is it just just too cheap right now? And is it going to have the inflection?
I'll give you three reasons and this is classic semiconductor analysis 101 which is incremental margins have peaked. That's number one. I mean that's
And they've been Yeah. But 75%. Yeah.
But that generally once the incremental margins peak it's kind of over for the stock for a period of time. Number two, it's a cyclical business. Everybody knows that. So you, you know, when when the multiple starts coming down, it like they've been over earning, right? We know they've been over earning. Agreed. And, and so the market is saying you now you need to prove it to me that you can keep over earning because historically you haven't. Historically, you know, whether it was GPUs for graphics cards for gaming or whether it was data centers or one crypto. Yeah. So it's just And oh, by the way, it's still what a $4 trillion market. Absolutely. So it's not like it's, you know,
So my next question is peak margins, which I agree with you. I mean, we're we've stopped. I mean, we flatlined, but we're flatlining at 75%. What's the inflection point and how how punished will they be if they come out with a margin surprise to the downside?
Well, I don't think that's priced in. I think what's priced in is some deceleration. I think if they were to come out and say, 'Oh my god, you know, we have all this there's been channel stuffing.' You know, they would say it that way, but like there we have to take a big write off. I mean that's that's not in the stock. But that's not what I expect in the near term. That's coming at some point for sure and that's why the multiple is down because people are afraid of that. This has happened before by the way in this in this cycle where they've had a clear monopoly. They've had a couple of those rundowns already. The last one being April of 2025 where they took a big write off because there was a slowdown in capex spending into that one. And China by the way. I mean like and China is a really important part of this if you think about the book end and for our economy in general but if you think about what the trade war you know looked like as it related to China and now if you think about just kind of supply chains that have been disrupted again by the war and then if you think about this you know Trump was in Beijing in April of this year and he's supposed to I I think she's supposed to come in the fall or something like that and it seems like you know at least from an AI standpoint we have never been further apart from China for a whole host of reasons And you know I I just think that is something that at this point has been underappreciated because you know Nvidia they have export bans but if you pay a vig you know what I mean you can sell your chips to China but the Chinese are like no we're good you know you know that sort of thing. So and then we're just going to keep distilling your models on clusters of CPUs or you know lower end GPUs. And I just think that the China thing is is fairly underappreciated right now.
Well I don't know if it's underappreciated. I mean people are well aware of I mean, China's doing their typical playbook. They're going to be the low cost producer, right? And and if that requires being open source or using second tier models because they're just cheaper to begin with. And oh, by the way, they get huge government subsidies. You could argue that our industry is getting subsidies too
Through tax breaks and they're, you know, that this administration definitely wants to see us be the leader. So, they have they have a little bit of a tailwind there, too. But look, competition in my view is good. It's because ultimately we know where what's going to happen, right? The marginal cost and the marginal pricing for this compute is going to zero. If it doesn't go to zero, then it doesn't work. It will never diffuse into the broader economy. The trick in this in this in these investment cycles is to kind of ride the upwave when the marginal prices is stable or going up and then just not get caught in that downdraft. And then ultimately, this is when the adopters work, right? When the marginal cost goes to zero, the users of that technology platform are the big winners. The big winners of the tech telecom boom are the four companies we just talked about. They didn't spend the money. They were the ones who used the internet for free.
Let me ask this before I leave and you guys go down memory lane. The world is very predatory. So when I hear the Treasury, United States Treasury teams up with the Bank of Japan to protect or to stabilize the yen, we're not doing that out of the kindness of our heart. So that concerns me because obviously Scott Besson sees some of the things that I see and and you probably see as well.
Am I making too much out of that?
Well, I would I it would concern me if they weren't paying attention.
Well, which which has happened before,
right? But they're not but they are paying attention. So the one thing about Scott Basson and Kevin Walsh is they're you know they're markets people and they have long history of working in the markets more closely than maybe some of the academics folks who are very very smart have worked in those seats in the in the past. So there's comfort in the fact that they're doing this.
At the same time, yeah, something probably is a miss. Meaning, okay, so let's talk about let's talk about Japan specifically. They have really hard choice. Okay, they can either raise rates to defend the currency and cause a recession or at least an earnings recession. It'd be pretty brutal because, you know, the yen would rally and that's not good for translation and it would be bad bad for growth. Or they can continue to to drag their feet, have the most negative interest rates in the developed world, like negative -2 right now. Negative two and and just keep playing this, you know, inflate game and hoping it doesn't get out of control. The problem with that strategy is at 160 165 every other player in the world who's an exporter is like this is what the FDI I mean and and and you better believe it like once that's not that's not what this administration wants. That's not what Europe wants because they're way too competitive now with that with that currency. So, it's a we're back to the currency game of beggar thy neighbor trade policies. And so, I think they're saying we want you to we want you to we want you to stop the weakening. However, we have another problem over here which is called the treasury market.
And so, don't please don't sell your you know your treasuries your treasuries to defend the yen. So, we're going to open up these swap lines. But that's the I mean, but he's you know, Treasury Secretary Besson is way well aware of that. Yeah. And so he's going to exhaust all those tools to make sure that this is sort of a
Well, yeah. That that that it's manageable,
Like we don't want the yen at 140, but we also want at 170.
So, let's just eat let's let's do these things as much as we can to to do it in a way which is also not that we also have a 5% 10-year.
So, you're managing you're walking the Yeah. They're walking the tight rope here.
But once again, they're they're doing it.
They're doing it. No, I take comfort. You're right. And the fact that they acknowledge it and doing something about it on the flip side of the coin is the fact that they have to do something about it speaks to I think I don't want to say the gravity of the situation but the importance of the situation.
What I what I would say is it's just it's another example. There are so many imbalances in the global economy that have built up over 30 years. One the most important one being the trade deficit with China, right? We've outsourced all of our manufacturing. They've exported all their stuff to us. We've over consumed. We've underinvested because of that. We've underst bonds to all these foreigners. The these imbalances are, you know, unstable at some point. And so, and this is quite frankly, this is what the administration's been trying to do under the leadership of the Treasury Secretary primarily saying we we've got to rebalance these things. Okay? These are unsustainable imbalances just like the inequality imbalances.
You talked about that two podcasts ago with us. Yeah.
So, it's happening and and so like it's not I don't think it's a surprise to them at all. I think I think they expected there to be you know this is not an easy path to go down to rebalance the global economy. I mean it's it's tricky and once again I would say I feel I take comfort in the fact that you know Treasury Secretary Besson is a very markets experienced guy. The new Fed chair is also a very markets experienced guy. I, by the way, just as a side note, I love the fact that I mean, the best line that he had in his first press conference was,
You know, I I don't want to tell the markets what to think because then I lose information.
And it's it's such an investor way of thinking. Think about that. I I want the market to tell
Not tell me what to do, but like tell me what they're thinking,
But that's at odds with what investors want. I mean, what they've become accustomed to, right? And so, and that's what transition. But you think that, you know, in the last two months, you think it's been a bit rocky because it's that's a pretty short period of time. I mean,
Let's put let's put it this way, Dan. Okay. I mean, given that type of medicine that he gave to people, which is basically, figure it out, guys. I'm not going to spoon feed anymore. That would be like companies saying, I'm not giving guidance anymore. How would that go down, right?
That stock will get killed.
So, the fact that bonds are up 25 basis points, I that's kind of a win.
You're pulling away guidance and the and the bond market or yields went up 25 basis points. If one of these companies we just mentioned said, you know what, you're on your own, man. We're not giving you guidance anymore. It's stock be down like 40% the next day. Probably people like own it. Yeah. But it's not too different when when you can drive a truck through some of the guidance that the companies give, right? Like they get absolutely punished for that. And we're probably not too far away from that sort of period because when you don't have if you're like these big tech spenders and you don't have the sort of visibility, right? Like then you start, you know, if these companies can't forecast and and this is something we'll end this guy's got to do the show that we're both going up to do, right? But but whatever. When you think about this, okay, let's just and guy and I have talked about this a lot, but we'd love to get your take on it. So Micron, okay, has a, you know, near monopoly as it relates to manufacturers here in the US on high bandwidth memory, right? And Nvidia's chips that they've been selling handover fist that are basically on allocation, right? You need high bandwidth memory, right, to do the heavy lifting of the training of the models. Why is it that Micron did not have the visibility to really start ratcheting up capacity like 14 months ago? You know what I mean? Like that's something that's just so odd to me when I think about some of the companies that are the component suppliers, right? I I just I don't understand that. Should those companies be rewarded with a sort of, you know, stock price performance that they've seen? Now, that's not on the companies, that's on investors who are willing to give them the benefit of the doubt. But you use this expression before as far as like what what was it about revisions with some of these companies that had, you know, these these huge ramps. Micron's a great example. They had negative gross margins three years ago. You know what I mean? And here's a company now that's seeing gross margins they will never see again.
That's right. But that's why the multiples five times because the market fully understands that when it gets that crazy, you can't pay a full market multiple. So I don't I don't think Micron is overvalued or undervalued. I think it's probably appropriately valued
Trading the way it should trade
And and it's like that but that gives me also gives me comfort. The market is not stupid. You know, I always get these questions from people and they're like, 'Ah, the market's stupid. Doesn't know what it's doing.' It's like, dude, you know what? Like,
I mean, I'm not going to call you stupid, but I'm stupid when I yell at the market. Yeah, okay. I I mean, and by the way, we make that a lot. We we have a we have a daily podcast and TV show many times. And you know, the by the way, the market can be wrong, okay? And it can get over it skis and and by the way, it can get over underpriced, too.
And it's our job like when it's extreme, you have to make a call. But like once again, this year, multiples have derated 30% for the hyperscalers. They've derated 15% for the S&P 500. Semiconductor stocks have derated by 50%. So, so that that gives me comfort that the market is is well on to this
It it took the stocks up probably a little further than they should have. Got a little crazy at the end. They've now corrected probably to kind of where they should be. 200 day moving average. That was a that was a very healthy correction and but a correction that is
Probably going to hold, you know. Well, when we come back, Dan and Michael are going to walk down memory lane. I'm walking down, but we're also going to hit some of the sectors. We just went heavy on tech. I want to hear, I want to see where else you're thinking other than just hyperscalers and the component suppliers. So, all right, Guy.
See you in a little bit.
All right. Now, I'm back with Mike Wilson. It seems a little formal. We just bullshitting for the last half an hour or so. Um, one thing I want to hit you about, um, a really good friend of yours, uh, at Morgan Stanley, who I've gotten to know over the years, just a great, great, uh, analyst and he's become a strategist, Adam Jonas. Like, explain, um, his role there. He was an auto analyst, and he was covering, um, uh, Tesla for a long time and longtime bull, that sort of thing. And he was, he and I were both at a conference last summer, and he gave this 10-minute presentation on like just future tech, like that sort of thing, and it was really epic. So you guys created a new position at Morgan Stanley for him.
Yeah. So he's basically head of like space and robots and like a lot of thematic stuff that we've been working on, physical AI.
Steven Bird is really head of thematics more broad, but Adam is really focused more in the tech part, tech-centric. And so, um, he does cover SpaceX as an example. Um, as he likes to kid, he's a futurist who covers one stock. Yeah. Um, but there's like four companies within that. So he, I mean, he, as you know, Adam is a, is a big thinker, like he, he, you know, and, and like he's trying to make longer-term predictions. And I think a lot of people get bent out of shape because, you know, you're making 10-year predictions and stocks don't trade off of that necessarily. But what Adam is really good at is he makes you think about what's possible, you know, kind of like Elon does, right? And yeah, maybe some of it doesn't come to fruition, but like as an equity investor, you do need to think open-ended. And he's had some crazy good calls over, over time. He's very prescient on, you know, just sort of being willing to kind of open the kimono a bit and say, 'Hey, why couldn't this happen or why couldn't that happen?' And, and I, I think he's, I think he's a very good...
I think it's a brilliant move on your guys' part because he has the ability to diverge from your sector analysts, if you will, right? And so I, I suspect as you guys are out there competing for all these, you know, futuristic IPOs that are coming, right? And there takes a bit of belief. I'm sure a lot of these companies, um, that are choosing banks like to see that sort of thought process that goes into, um...
Well, by the way, to be clear, any investor who's, you know, investing in these types has to be thinking that way because, you know, it's, they're attacking these crazy big markets. And if you don't think that, by the way, it's not for everybody. Like a lot of investors don't think these are good ways to, you know, allocate capital. That's their prerogative. But in a world where it's changing the way it's changing right now, I mean, I think you got to be fairly open-minded about what the world's going to look like in 10 years. Okay. And, and, and so these platforms we were talking earlier have been, being, are being built right now. I'm not that excited by these platforms. You know what I'm excited about is the stuff that, that people are going to create on these platforms. Like the drug discovery, okay, the educational systems, you know, the democratization of education, make raising the bar for people who don't have access to go to these elite universities. Well, great. So, we can do it online with a private tutor. I mean, kind of crazy when you think about health, other types of healthcare administration. So when you just said, you know, you have to think about 10 years out. Um, right now if you're just kind of like that first level thinking, you're just not seeing a lot of that yet. You're seeing kids being able to use, you know, Claude and GPT to get like A's when they were getting B's, you know, that sort of thing. And, and so again...
We're seeing more of that now though, Dave. I mean, to be fair, you know, we have this adopter basket now of stocks and like it's not like it's still a minority of companies.
What, what sectors are, um, largely, um, you know, in that adopter basket? Like are you saying...
Financials, insurance, like anything with big back office, um, healthcare for sure, biotech.
So you're talking about highly regulated industries also.
Potentially, but the, a lot of them are cost benefits now, efficiency benefits. You know, those aren't as exciting like from a human, humanistic standpoint. Okay, what's exciting from a humanistic standpoint is what, what are people going to be able to create? Here's a great, here's a crazy story. So my wife, I, I like, uh, I like blues. I like, you know, I'm a big jazz guy. And so my wife comes home. She goes, 'I, I found a new artist for you, Sky, and it's incredible.' I said, 'Okay.' Put it out on Spotify. I listened to it for like a week or I was listening to this two albums. This isn't, this is the best new artist I've ever heard in my life. This is the best artist I've heard in like two years. So, I look at the picture of the guy and I go, 'Wait a minute. This guy's like, he's like 70 years old. How I definitely would know. I've heard of this guy.' Okay. I punch in so and so. Is it AI? AI. And apparently like people knew about, I didn't, I didn't know at the time but I was like, but I still listen to it. It's incredible like the music...
Really, it doesn't bother you one way or another.
Well, it's not, that's not my point. My point is does it bother me a little bit? Yeah. As, as somebody who likes music, I think it's, you know, it's sad. But look, somebody did have to sit in a studio and probably create that who is a musician, is my guess, because you like the range of vocals, understanding how to put the music together, the, you have to have an ear for this stuff.
But that's, that's music. Okay. But think about the other creative things that people could do. Forget about things that entertain us. Like if you can do that, like I mean, once again, drug compound discovery, okay? Um, delivery systems, you know, drones, you know, delivering, uh, uh, drone medicines to people or food to people who can't get it remotely, rescue operations, um, uh, military warfare, you know, as bad as war is, maybe these drones aren't going to kill people. Maybe they're going to be there that they can put up a barrier so that you can't actually have a, a war.
